My BluePrint to Building One Year Savings to Quit Your Job

Introduction

Well I just wrapped up my final days at work. As I posted in detail before I gave my 2 weeks notice on January 23rd 2017.

My goal with this blog is for others who want to follow can see the path from the start not just in a year or two when I’m already having great success and by then it does not seem easy to achieve from someones else perspective.

But I wanted to take a quick detour this week from the linear progression of preparing to quit, actually quitting and then building success with an online business.

I will start again with my next post on next steps (like my first month with no job).

I wanted to post today on a question I’ve been getting a lot already since starting this blog. In a previous post I talked about the 2 common methods to quit your job and pursue and Internet Lifestyle.

The Burn the Ships Method – You just quit and go all out to make it work in your business with nothing to fall back on if it does not succeed.

The Safety Net Method – You save up a certain amount of money to cover living expenses before quitting your job and ease out of it.

I talked about how I chose the Safety Net Method and decided to save over a years worth of living expenses before quitting.

A frequent question I got from people after that post is:

How the heck did you save enough money to cover living expenses for a year?

That is the question I am going to answer in this post. I am going to lay out my step by step strategy for saving a years worth of living expenses before leaving your job.

Preparing For Take Off

One of the beautiful things about the Safety Net Method is it allows you to validate your business. You can start your business while you are still working your day job and see if it can eventually make enough to sustain you if you quit.

You should keep all the money you make from your business completely separate from your personal accounts. Use the business funds only to pay off business expense and reinvest in your business.

You should try to save all the profit you make from your business in its own account. For the last few months I was making between $125k – $150k (annual) at my day job + another $6-$8k (monthly) from Internet business so the temptation was to increase my cost of living and spend more with that additional income.

Instead I resisted and pretty much ignored any profit from my side business. I just left it in my business account and only touched it when I had an expense related to business.

So by doing that for awhile I now already have about 1/2 of my savings for the year in my business account. I will start to pay myself a salary from this account to replace the income from my day job. This will put me in the Red each month as my ‘salary + business expense’ is higher that what the business makes right now.

I plan on getting the profit way up in the business that first part of the year now that I’ll be fully dedicated to it and hopefully can get it to cover all my business expense plus my personal income.

But besides this obvious method of starting a side business and waiting until you have a year living expense saved up from just that, I want to go a bit deeper with you on the issue of savings.

You see even if I did not have the money saved up from my business, I could still take a year off from my personal savings.

And that is because I have mastered my own personal finance method, that keeps me out of debt and pretty much worry free and also has money working for me earning interest each month.

My Background In Personal Finance

Before I ever heard of Internet Marketing or decided I wanted to be an entrepreneur I was determined to figure out my personal finances.

I did not grow up with much money and had no one to show me even the basics about it. Like many younger Americans the trap was first set when I turned 18 and started getting all these credit card offers in the mail.

Not quite understanding how that worked I got into credit card debt heavy and from there it was vicious, vicious cycle that lasted for many years.

Every time I paid off a credit card another emergency would come up and Id have to get right back into debt again. I could never save any money and was paying a huge penalty for the “privilege” of borrowing money on a credit card.

I thought the answer was to make more money but although my standard of living raised my debt and money issues just got bigger and bigger.

I started to devour personal finance books but I still couldn’t completely get out of debt and struggled with making and following a budget.

Finally after many years I came up with my own system. Based off the Pareto Principle or the “80/20 Rule” I found a way to automate my wealth building plan stress free, with no budgeting or difficult self discipline to follow.

My 80/20 Rule to Personal Finance

This not directly related to Internet business and quitting your job but I believe this will help you tremendously in your financial life. And if you have your financial life in order its much easier to quit your job.

I believe so strongly in this plan that I will be writing a book on just this subject in the future but here I will give you the nutshell version.

After years of reading financial books and personal experimentation I came up with this system that has worked perfect for me and I truly believe can work for ANYONE struggling with credit card debt and savings, if they stick with it.

The end goal is:

To be out of credit card debt.

Have an emergency fund so you never need to use a credit card again.

Have 3-6 Months Full living expenses saved just in case.

Have interest bearing accounts you continue to build your wealth with for the rest of your life.

The time it takes you to reach this goal will vary depending on what you owe and how much you make, BUT if you use this system and do not quit, I guarantee you will eventually be debt free, have no need to use credit cards ever again and have a comfortable amount of money in savings.

If you use this system you do NOT:

need to track what you spend

need to spend much time thinking about your finances (probably about an hour or two a month)

need amazing financial skills

need crazy self discipline

and you do NOT need to deprive yourself or sacrifice much.

ALL you need to do is consistently follow whats described below (I’m talking forever).

Its all based on the 80/20 Rule (Pareto Principal).

You HAVE to understand this and get this down before you go to the 4 steps.

ALL net income you receive EVER in your life (your business, your job, tax return, lottery, everything) you immediately put 20% of it in a savings account ladder (I call it Freedom Fund).

This is after 401k, taxes etc. just your NET income.

Now I know what your thinking. I am in debt, emergencies come up and I cannot afford to live on 100% of my net income and now your asking me to get by on 80%?

That is a great question and it is something I struggled with at the start.

Here is how you solve it especially when your first starting out.

Put that 20% away immediately after you get any income. Than do your best not to touch it for two weeks while you are waiting for your next paycheck (or income).

BUT if you cant make it the two weeks before you get more income, use (borrow) some of the 20% money in your savings and don’t worry about it. But only use absolutely whats critical no more!

Keep repeating over and over every time you get any income.

You will be amazed psychologically how you will find a way to make it work and stretch until the next time you get income (its only 2 weeks right?) You might need to dip into the 20% a lot at the start, don’t worry about it. It will get easier as time passes.

OK so got this step down?

Commit right now. All net income I get for the rest of my life, I will transfer 20% of it to my savings ladder right away.

This is 99% of the work.

If you can do this the rest will take care of itself.

Remember you are not depriving yourself of this 20%. You can always get to it anytime you want.

You just need to get in the habit of setting aside that 20%, every single time! That is critical. Even if you know you will need to take it back out again in 3 days to cover bills it does not matter. Remove the 20% from your checking anyway at the time the income comes in.

Here is a simple graphic of the process:

Step 1> Use the 20% income to initially get an emergency fund.

Most people will tell you to pay off all your credit cards first. This is WRONG!! You know why?

Because emergencies always come up!! You will be close to paying of your cc and something will always come up.

Since you have no savings you have to put that emergency on a credit card and the vicious cycle starts all over again.

This happened to me many, many times and set me back years until I finally figured it out!

I’m not talking about 3-6 months living expense. I mean just enough to cover most issues that might come up. Will be different for everyone but probably around $2-3 grand (this should cover most surprise car/kid issues or vacations).

I have 10K in mine but this is after many years. This account is connected to my checking so its easy to transfer the 20% every time. After I have reached my 10K Emergency Savings limit I transfer any excess to one of the other accounts.

Step 2> Use the 20% to pay off credit cards and all high interest consumer debt.

Once you have your money for emergencies start taking the 20% from your savings to pay off credit cards. Its important that you do not just use 20% of your income to pay off the cc directly.

ALWAYS get that habit of transferring the money from your checking to savings and THEN using that money for paying off the credit card. Start with one credit card at a time and pay the bulk of it to that one. When its paid off go to the next until your done with all of them.

After always struggling with credit cards I have not had any credit card debt in many years. If I ever need to use a credit card I just borrow from my emergency fund.

There is such a psychological burden that is lifted when you not only pay off your credit cards once and for all but also know that you will not ever need to fall into this abyss again!

Step 3> Build Your Flex Fund

Cool so now you have a small emergency fund (2-3 grand whatever you decide) and you have paid off all of your high interest cc.

Now you are out of the hole and its time to start using that 20% towards freedom and peace of mind! Continue to set aside 20% of everything you make EVER.

Remember you can always pull money out of your fund when you need it (this replaces your reliance on a credit card). Just try not do it.

On step 3 you have flexibility. I would say probably double or triple your initial emergency savings. You want money that is easy to get to but is still getting you a return. This money is typically to cover bigger emergencies or unexpected purchases.

I would recommend putting about 3 months of your full living expenses in this account. That way even if you completely lose your income you will be OK for at least 3 months and have time to recover.

I use a Capital One Savings account. It has a better return than savings but is still a safe place to park money.

So now you have emergency savings in your regular savings account. You have paid off all Credit Card debt. If you ever need money your borrow from yourself. And now you have built a longer term savings (3-6 months living expense) on high interest savings account.

Step 4> Build Your Freedom Fund

OK now that you no longer need credit cards and you can recover from any emergency including not working for 3-6 months you are ready to go to the next level.

Keep steady socking away that 20% to invest in things and start building wealth instead of just saving.

I call this a FREEDOM FUND. I personally put mine in a Betterment Account and a smaller amount in individual stocks. I use Scottrade for individual stocks to play around with but any reputable online broker should do.

That is it!

This is the exact system I developed and use myself that took me from being in debt, always anxiously waiting for my next paycheck to having ZERO real financial worries (barring complete disaster).

And I do not even think about it!! Once my 20% is put away I spend whatever the hell I want with the rest of the money.

I NEVER EVER spend one second worrying about it or track my spending!!

So, here is the rundown once more.

Immediately start saving 20% of everything you make. If you need money before your next income take only whats absolutely needed from your 20% fund.

Build up a small savings for emergencies so you never have to use credit card again.

After that pay off all credit card debt using the 20% savings.

Then use your 20% to start building wealth. Get a bigger emergency savings fund, invest in things, take a vacation, buy something you have always wanted, whatever….

Here are a few other points:

80/20 Principle Wealth Building

Use 20% of after tax income for wealth building accounts.Use 80% to live on.

Every single time you get income subtract 20% and put into the wealth building ladder.
If you have a job match your employer’s pre-tax 401k plan first before other steps.

Put ALL the rest of your pay into a primary checking account.

Take 20% from every paycheck or income that is deposited to the checking account and immediately put it towards Wealth Building Accounts. (non retirement).

That is Emergency Savings, Long Term Savings (3-6 months living expense), Investment accounts.

Pay your living expenses with as much as possible on a rewards Credit Card and pay the entire balance off every week. Only do this if you are extremely self disciplined. I pay off my FULL credit card balance every Friday.

I use a Chase Sapphire Preferred Card. With putting as much living costs as possible on here its given me about 2-3 free trips a year including a free round trip flight to Germany.

20% Wealth Building Accounts in Order

Make sure to fill these in order. Fill the Flex Fund fully then move onto the Emergency Fund etc….If you put 20% towards it every month these will fill quickly and you will eventually get to the fun part which is the investment accounts.

For some people it will take less than a year to get to step 3 and 4 for some much longer.

It does not matter how long it takes you.

Just keep putting away 20% and you will eventually get there!

Here is what my current Freedom Fund Ladder looks like:

Flex Fund $10,000 in a regular Savings Account. This is to ensure that I never go into credit card debt for any minor emergencies or vacations etc…
Emergency Fund $30,000 in Interest Savings Account. This is for longer emergencies lose your job etc. I have about 3 months full living costs here. I use a Capital ONE 360 Savings Account so I can get a bit of interest.
Freedom Fund $20,000 -? High as you can. This is for long term savings. It uses an Index fund so their is rapid growth. Should be used for non retirement long term investing. After you have filled the first 2 keep putting the 20% here every month. I have a Betterment account.
Just for Fun Fund $10,000 – $15,000 I put in a little bit of ‘play’ money for individual stocks. This should not be taken to serious as an investment. I use Scottrade.

Id also like to point out that there are other investments you can make that are potentially more lucrative and could give you faster and bigger returns. Like investing in your own business, another business or real estate.

PSA: Be on the lookout for this scam hibachi company called RockStar Hibachi!

This post is for people who struggle with credit card debt and saving enough money to never use them again.

I hope you like the guide and hit me up if you have any questions on it!

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