The second step to building wealth and financial security is to spend less than you make - substantially less.  To that end, I give you a very brief, high level outline of what it takes to accomplish this important, albeit elusive, goal.  This is a lock-step outline meaning it is designed to be followed one step at a time in the order presented - putting the cart before the horse is a bad idea.

After reading this, take a few minutes and think critically about how you manage your spending. Are you satisfied with the results?  If not, what could you change in light of the outline provided?

The majority of investors fit into this first personality type - the new and/or disinterested investor. This group needs a portfolio that is managed on their behalf, and the best suited mutual funds for them are target date retirement funds.  These funds of funds are professionally managed and widely diversified with declining risk levels over time - precisely what this group needs.  In addition, since this group couldn't care less if they outpace the market, the target date retirement funds selected should be comprised of all or mostly index funds in order to keep costs down and ensure market-like returns.

Investors who have taken some time to research the world of investing will quickly become interested in managing their asset allocation using three basic buckets - stocks, bonds, and cash. In addition to believing asset allocation is the most important investing decision, the second most important will be total investment costs.  Combining these two overriding ideas, these investors will determine their asset allocation and use index funds in their portfolios.  In this way, they receive the benefits of a self-directed asset allocation model at the lowest possible cost.  To meet their needs, index funds should be made available for every major investment category - ignoring style (more on this later).

The active asset allocation investor will create a suitable mix of stocks, bonds, and cash, but instead of using index funds, he or she will use actively managed funds.  The decision to use active fund managers rather than an index is driven by the belief that good fund managers can outperform their respective benchmark indices.  While it is true that most funds fail to meet this criteria, thousands of other funds have beaten their indices over time.  To suit the needs of this investor personality, actively managed mutual funds in major investment categories should be offered.

Beyond asset allocation and management type is something known as style.  Specifically, style relates to stock investing, and value investors find stocks that have price-to-earnings ratios lower than the overall market more appealing.  The general belief is that a lower price-to-earnings ratio indicates that a stock is 'undervalued' relative to the market.  In addition, value investors typically experience less volatility than their growth style counterparts.  For this reason, value style stock funds must be included for all capitalizations (large, mid, small) and geographies (domestic, international).

Rather than looking for value, growth investors seek stocks that are trading at higher price-to-earnings ratios than the overall market.  The feeling is that stocks with higher price-to-earnings ratios are more likely to grow at a faster rate than the rest of the market.  Investors who are chasing innovative industries and companies need actively managed funds that focus on companies with better than average growth prospects as expressed in a higher price-to-earnings multiple.  Again, actively managed growth stock funds of all capitalizations and geographies must be available to these investors.

The super investor will not be happy with any 401k that doesn't offer a self-directed option with thousands of investment options.  This personality type will spend inordinate amounts of time researching investments and will attempt to take advantage of perceived market opportunities wherever found.  To please this investor personality, a self-directed option must be made available.

In the technology business, disruptive innovation is what everyone seems to be chasing, and anything that has disruptive potential is a magnet for news stories and investor capital.  Unfortunately, this is a rare thing.  The fact is that most innovation is of the incremental variety - a small step forward.  While it's not as sexy, it can be far more effective.

As applied to personal finance, disruptive innovation would be a massive and immediate overhaul of your entire financial landscape.  Anything that isn't exactly right would be changed overnight and the next day, everything would be better.  If you're not making enough money, snap your fingers and start making more tomorrow.  If you're spending more than you make, click your heels and suddenly you're saving thousands more dollars annually.  If you aren't making smart investments, you'll be the king of Wall Street with the wave of a wand.

This isn't real.  It is a fantasy.

When it comes to improving your financial situation, it's a matter of taking small steps by innovating incrementally.  If you're having trouble with your spending, you might start with a budget or move to cash instead of plastic or trim a bill or two out of your life.  You won't fix spending problems in one fell swoop.  It takes time and a little patience.