11 Apr Learning to Live on 80%: Foundations of WealthBuilding
When you are on your wealth building journey, there are some steps you will need to do along the way. One of the first ones is to get out of debt, which we talked about here. Another step is to begin investing in assets, which we talked about in the last blog post. Those two steps are common knowledge in the finance arena, but today, I wanted to share something with you that you may not have heard before: learning to live on 80%
What Can 20% of Your Income Do For You?
80% – Expenses
The first thing you need your income to cover is, obviously, your expenses. This is where 80% of your income goes. This includes your debts, rent, food, and fun. The great thing about paying off your debt is that your 80% will start to feel like 100%! The key here is to list out all of your bills and everything you need to pay. Calculate how much of your income that is, say 60%. Then, you are free to use 20% on
10% – Tithing
I used to be a pastor, so I am a huge advocate for tithing. First of all, it’s Biblical.
Then Jacob made a vow, saying, “If God will be with me and will keep me in this way that I go, and will give me bread to eat and clothing to wear, so that I come again to my father’s house in peace, then the Lord shall be my God, and this stone, which I have set up for a pillar, shall be God’s house. And of all that you give me I will give a full tenth to you.”-Genesis 28:20
Secondly, it shows that you are trusting God with your finances. We are told not to worship money and a helpful way you can do this is to let it go. Thirdly, I believe you reap what you sow. God honors a generous heart! There is so much I could say about tithing, but just know that it is important.
10% – Investing
I suggest that you should invest 5% of your income yourself and have a professional invest 5% for you. What should you invest in? I recommend a Roth IRA. In a traditional IRA or 401k, mandatory withdrawals starts at the age of 70 for many Americans. Often, that mandatory withdrawal is taxed at the earned income tax rate. So what happens is people end up paying more in taxes when they retire than when they were actually working! Roth IRA’s have much better terms.
Then, obviously, I suggest having a professional invest some of your money as well. You can take it to Schwab, Fidelity, or any of those companies.
When you learn to live on 80% of your income, you are mastering your money. When you learn these things along with self-control, you will be in a stronger position to start building wealth! I talk about this principle more in my book, Money Mastery. You can pick up a copy here!