What is the 40 percent rule? Well, for starters, it’s a game changer when it comes to building wealth. I have read over 100 books on investing and personal finance. I don’t remember running into the 40 percent rule. I discovered the rule by reading the millionaire’s playbook, by Grant Cardone.
I was thrilled when I read it. Gives a different perspective on wealth creation. An aggressive game plan to help you become a millionaire. One concept is saving to invest. Not saving to save. That’s where the 40% rule comes in. Save 40% of your gross income and put it on your “Sacred beads” until you are ready to invest it to generate more income. Sacred accounts are accounts in which money is never touched.
40% of your income is a major cheese on your paycheck. That’s a big lifestyle change, especially if you live paycheck to paycheck and have a lot of debt. This will leave you broke most of the time, but this is how the rich build their wealth. This is how the rich stay … RICH.
Rich against rich
There is a difference between rich and rich. You get rich before you get rich and, as Chris Rock said, “The ballplayer is rich, the guy who pays the ballplayer is rich.” Bruckminster Fuller said that wealth is measured in time. How long can you not work while your assets produce income? Wealth produces more wealth and can withstand economic downturns. Look at how many people stayed rich during the last recession.
How to do the 40 percent rule
Decide first that you are going to start building wealth. It is simple not easy. Take small steps. I was unable to save 40% at first and was already dedicating 20% of my income to paying my debts. So I started with 4%. That was manageable and I gradually worked my way up. Now it’s automatic and I don’t even miss it.
If you read The richest man in Babylon, by George S. Clauson, then you are familiar with, “A part of everything you earn is yours to stay”. Save 10% of your income and 20% to pay your debts. Now simply increase your savings by up to 40%. As I mentioned earlier, it is a game changer.
sacred beads
Remember this is wealth creation. You are saving so that you can invest in income-producing assets. This will take time. Use time wisely. Research the investments that will produce the most income streams. I chose the real estate sector because it is not a fad and it depends on technology. People need to buy, eat and live. Real estate takes care of that.
Emergency fund
I suggest you have an emergency fund. It starts with $ 1000. It is for emergencies only. Life always brings a crisis several times a year. But since I have an emergency fund, I have not had any financial emergencies. I have had this for several years. I’ve never had to dive into it. This is not an investment. It is effective to take care of the unforeseen.
Your Income Increases
Save all your bonuses, raises, and income spikes. Put that in your holy accounts. You don’t want expenses to increase to cover income. Continue to drive a gap between expenses and income. Put all your increases in the holy accounts.
The Trigger Sweater
After a while, you will have enough to start investing. I don’t know how long it will take. I know my mentor saved for 8 years before pulling the trigger. He turned that investment into a $ 5 million profit a couple of years later. He pulled the trigger after feeling confident and making sure he could get his money back. This is not gambling.
He got a great offer because he had access to cash. Money loves speed and when you have liquidity you can take advantage of opportunities. There are incredible deals every day that people miss out because they don’t have access to capital. That is why saving to invest is so important.
Just start
This is what you should do now:
1. Open your sacred accounts. (I have one for real estate and investment businesses). Choose accounts where you will not have immediate access to money. Online savings accounts are great and pay higher interest rates.
2. Decide how much you are going to save. Start with your first paycheck, commission, or any other income. Even if it’s 1%, that’s better than nothing. It’s easier if you have automatic deductions. So you will not miss it.
3. This is an activity for a lifetime. Keep it up until you die.