Don't you wish things could be simpler? In a world where we have to make a seemingly endless array of decisions on a daily basis, simplicity is like a breath of fresh air. And when simplicity comes to the complicated world of finances, simpler decisions can make us even more successful without all the headaches.
The inspiration for this article came from a book I read back in 2018 called I Will Teach to Be Rich by Ramit Sethi. While it wasn't my favorite finance book, Sethi did a stellar job by introducing simplicity to the world of finance. My goal is to show you how this concept and percentages can simplify your financial decisions.
If you haven't read the book Simple Path to Wealth by JL Collins, I recommend you pick it up. He promotes the concept of living off of 50% of your income, which is essentially living beneath your means. When you only live off of 50% of your income, all you have to do is worry about what you do with that first 50%. We will start with allocating the first 50% of our budget.
Here's the breakdown:
10% - Donations, giving or tithing
10% - savings account
30% - Investing (10% medium term investing + 20% long term investing or Retirement Accounts)
50% - Expenses and Discretionary Spending
Nearly every Finance journalist recommends saving at least 10% of your income anytime you receive it. While I do agree with the practice of paying yourself first I want to offer an alternative for those who practice Christianity as I do. As a man of faith, I believe the first 10% should be used as an expression of gratitude. In my opinion, this sets the tone for the rest of your financial practice. It's a way of showing your appreciation for being fortunate enough to steward the money. It's a way of saying thank you for your when many others may not possess that opportunities.
I offer 10% to my local church with my giving or tithing, but also I offer myself the flexibility of giving that first 10% to a charity, organization, an individual that I want to help. Whenever I don't do that, something in me feels intrinsically immoral as if the money is all mine. I rather want to incorporate the disciplines in my heart postures no matter how much money I have.
If you are not religious or spiritual, you can still incorporate this practice by giving away some form of money as a way of saying thank you for receiving the money. It may not be 10% but I do exhort to help others in some capacity with your blessings as a form of personal philanthropy.
After you have made the choice of giving, then you would save the next 10% into your savings account. If you'd like, you can transfer your money and call it my precious like you were a scraggly voiced fictitious character in the Lord of the Rings.
(Actual video of me when I save 10% into my savings account)
Just do it.
Now, all you have to do is worry about the next 30%!
With the next 30%, you will invest your income. I believe in investing in long-term objectives as well as investing in medium-range objectives. If you'd like, you can choose to invest for long-term objectives.
My breakdown is 10% into medium-range objectives like a personal brokerage account and 20% into long-range objectives like a Roth IRA or another retirement account. I want to know that grandpa Ikechi will be okay as well as midlife crisis Ikechi. Those men are going to be awesome!
(Ikechi Ukazu at 68. Look at his swag!)
If you want to know exactly what to invest in, again I recommend reading the Simple Path of Wealth for his fund recommendations. In essence, just index it.
Here's the thing. The brilliance of operating in 10% intervals is that all you have to do is find out what your 10% threshold is and multiply that by whatever allocation you have set apart in your budget. Simply find your magic number!
For instance, say you were to have a $65,000 a year income, your take-home pay per month after taxes will be $4,400. Your magic number then is $440. That means that whatever you allocate as far as your budget would need to be a multiple of 440 (440 for 10%, 880 for 20%, 1320 for 30%, etc.)
Let's say you had an income of $100,000 a year. Same principle. After-tax monthly pay would be $6,445 or approximately $6,450 a month. Your magic allocation number would be $645 which you would then allocate through multiples of $645 in order to distribute your money through the cycles of giving, saving, investing, and spending.
When you can get this process down to a simple science, it could take you as little as 15 minutes per pay cycle and 30 minutes a month to allocate your income once you know where everything is going. Imagine how liberating that could be and how simple your budgeting would be.
The idea for this automation process is to allow yourself to build wealth without thinking about it. Many wise men and women have laid down the financial foundations for us to build upon in our own lives. All we have to do is follow their lead and create the lives we want.
As we wrap up, I want to check in with my readers. What is your current budget allocation? How much do you budget for savings versus spending versus investing in percentage terms?
Or, do you have another way of budgeting your income?
Thank you all for reading and doing this journey with me. I look forward to speaking with you once again. If you have any questions, feel free to ask below or contact me. Peace and blessings!
Here's a stoic picture of me looking into the distance with a serious quote.
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