Creating Your Optimal Financial Plan

by RJ

in Money Management

If you can learn to master this simple method to managing your money, you will go on to live a very prosperous life.

I like to call this the core and explore method. This method is all about balancing the following three areas of  your money.

  1. Living Expenses
  2. Core
  3. Explore

Living Expenses

At the end of the day, you need money for necessities such as food, shelter, and clothing.

In addition, living expenses can also include other needs such as transportation, communication, maintenance, insurance, etc.. This is what I consider the living expenses portion of your financial plan.

The Core of Your Financial Plan

The next portion I like to call the core of your financial plan. The core isn’t the most exciting aspect of financial planning, but still needs to be addressed.

Here is what I consider to be the core of your financial plan:

  • College Funding (if you have kids)
  • Debt Management
  • Emergency Fund
  • Insurance Planning (coverages over basic home and auto)
  • Retirement Savings (401K, IRA)


The reason why I don’t mind taking time to manage my money and cut costs in some areas is because it allows me to spend more money and time on what brings me joy.

The explore aspect of your financial plan is about learning to spend your money on what gives you the greatest joy.

If nothing makes you happier than when you’re traveling, then save a portion of your income to travel. If you want a large percentage of your income going towards your cel phone, that’s fine too. Just make sure to spend your money on what makes you happy.

Typical Spending Allocations

Now that you can see the three areas of designing your optimal financial plan, lets look at typical spending plans.

Option # 1 – The No Room for Error Plan

  • 100% – Living Expenses
  • 0% – Core
  • 0% – Explore

This is the spending pattern of someone who lives paycheck to paycheck.

Option # 2 – Better, But Not Entirely There Plan

  • 85% – Living Expenses
  • 5% – Core
  • 10% – Explore

This is the spending pattern of someone has to of high of living expenses. Also, the mindset that they can always start saving later when they make more money.

Option # 3 – Balanced Plan

  • 60% – Living Expenses
  • 20% – Core
  • 20% – Explore

This person minimizes living expenses today, to provide protection and freedom in the future. However, they still get to live for today (20% explore) because they learn which expenses bring the greatest reward.

Option # 4 – Unconventional, But Gets The Job Done  Plan

  • 40% – Living Expenses
  • 20% – Core
  • 40% – Explore

There is no rules regarding how low your expenses can go. This person minimizes living expenses, contribute a great amount to the core, and leaves themselves plenty of room to explore.

What Makes Up An Optimal Financial Plan?

The key to an optimal financial plan is to select the plan that is congruent with your goals and personality.

For example, say retirement isn’t that important to you right now. You’re more of the “live for today type.” Therefore you can allocate just 10% to your core and live off 50% of your income. This allows you to spend 40% of your income on things you enjoy.

Ultimately, how you allocate your income is up to you. There are no rules as to what percentage of your income goes towards fixed expenses.

Summary – Creating Your Optimal Financial Plan

Instead of thinking as personal finance or financial planning as budgeting, retirement savings, paying off debt… Think of financial planning as “The art of my using money, in the most efficient and effective way possible.”

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