N+1 redundancy

N+1 redundancy is a system design in which one additional component is available to support a failure or required maintenance on a component. A simple example is the spare tire on your car, which comes in handy in case you get a puncture in one of the tires.

This design concept is common in most engineering systems. For example, most commercial buildings have an alternative power supply, such as a generator or solar power, in case the main grid supply goes off.

The N + 1 idea is closely linked to the margin of safety in structural design. For example, a bridge is deliberately designed to carry much more weight than the anticipated load. The additional weight represents a margin of safety.

N + 1 design ensures that the system continues functioning in case one of the components fails.

We can easily apply this N + 1 concept to our money. We generally need to build redundancy and resilience in our finances to weather some financial storms. First, we need to spend below our incomes. This gap between our incomes and expenses represents an N + 1 redundancy. We should also build an emergency fund that can last us from three to six months. This emergency fund serves as a spare tire in case our incomes are disrupted.

Then, we need to reduce debt exposure. More debt increases our risk exposure and lowers resilience in case of an unforeseen event like a job loss or medical issue. When we invest, we should try to buy things at a price below their intrinsic value. The difference between what you pay and what you get is your margin of safety. Finally, we need to build multiple income streams that provide redundancy in case one income source dries up.

This idea of N + 1 redundancy or always having a Plan B is quite powerful. It frees you from enslavement to a job or career you don’t like. It enables you to pursue and achieve early financial independence. It also fortifies you against common misfortune.

Having a Plan B in your life is always a good idea!