Hello best life seekers!
Are you confused by all the financial advice out there? Is it giving you heartburn as you try to right your financial ship?
After graduating with massive student debt, $8000+ in credit card debt, and seeing my net worth only climb by $1000 over a year of 60 hour workweeks following major attempts at financial self-regulating, I finally found the advice that actually worked for me.
It’s called the 70/30 Rule and it’s how I went from buried in debt to financially independent in 10 years. Maybe it will work for you if you implement it.
The 70/30 Rule isn’t sexy. Rather than saying invest all your money in X momentum stock, it says learn how to live within your means and use the remaining money to buy assets – whether for investment or business purposes – so that your money makes money.
This prioritizing your money is the hallmark of being a financially responsible adult. Few people do this and it’s why our nation is so terribly in debt. No matter what products companies try to sell you – from overpriced technology, to pricy experiences, to eating out everyday with friends – you have to know your budget and stick to it. No one can do that for you in the face of the temptations that run thick and fast around us.
The 70/30 Rule
Financial stability and lasting wealth don’t happen overnight. It can be a grind. You’d be shocked though by how much your wealth will change in just 10 years by following it. The Rule is simple but most people lack the knowledge or self-discipline to implement it:
Live on 70% of your net income and use the remaining 30% to buy assets.
Do this and you will be financially independent before very long. Why? You’ve learned how to self-regulate your desires, put long-term goals ahead of short-term pleasures, and live within your means while buying assets that grow your net worth and wealth over time.
Again, not sexy but infinitely powerful.
Most of us intellectually understand that we should live within our means but fumble over what exactly that means. The 70% guideline is an excellent standard because it straddles the line between being too austere or living paycheck to paycheck. Putting 30% of net income into money-generating investments builds your wealth quickly. Without assets, it’s difficult to get ahead or finance your dreams.
Following this rule turned my life around. I paid off my credit card balances and private student loans, massively paid down my government student loans, bought a house, and currently travel as a digital nomad when the mood hits me. It only took 10 years to accomplish.
If you’re living on 120% of your net income, the change to 70% will be painful. It’s a major endeavor to reverse habits. If you’re used to going out every other day or love shopping sprees charged to your credit card, you’ll feel like you’re missing out.
But are you really?
All that big living is on a count down clock. The increasing numbers of destitute boomers and elderly speak to this. That and it’s a rare person who doesn’t get heartburn or worry about their finances when they’re living paycheck to paycheck. Bad financial habits are also a major reason for relationship problems.
Rather than dig financial holes or cause yourself ulcers, why not focus on building wealth? When you buy assets with 30% of your net income, you quickly see your bank account and net worth rise. You start having passive income you can reinvest or use for business investments or just spend. You also start having options for your life in a very short time. It’s what I like to call f*ck you money and that feeling is priceless.
Financial independence is more than financial stability or paying your bills on time. It is having the freedom to switch careers or know that if you lose your job, your income from assets will keep you afloat or that a financial emergency doesn’t mean filing for bankruptcy or losing your house. It’s peace of mind, options and the freedom to live life more and more on your terms. Follow the 70/30 Rule and stop life dictating itself to you.
For more on the 70/30 Rule, read my articles on the Secret Money Formula. If you’re swimming in debt, you might also want to check out The Debt Payoff Option for suggestions on how to utilize the 30% to make paying down your debt more manageable.
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