How to Build Wealth with the 70/30 Rule

_{This post is about building wealth}

Why not work full-time on your job and part-time on your fortune? Imagine the thrill of being able to say, “I’m working to become wealthy. I’m not just working to pay my bills.” When you have a wealth plan, you’ll be so motivated that you’ll have a hard time going to bed at night.

So, if you’ll indulge me, I’d like to share a simple formula for creating wealth.

The 70/30 Rule

After paying your fair share of taxes, learn to live on 70 percent of your after-tax income. These are the necessities and luxuries you spend money on. Then, it’s important to look at how you allocate your remaining 30 percent. Here’s how to break it down:

1. Charity

Of the 30 percent not spent, one-third should go to charity. Charity is the act of giving back to the community and helping those in need. Contributing 10 percent of your after-tax income is a good amount to strive for.

The act of giving should be taught early when the amounts are small. It’s easy to take a dime out of a dollar, but it’s considerably harder to give away $100,000 out of $1 million. You might think, “Oh, if I had $1 million, I’d have no trouble giving $100,000.” But I’m not so sure. $100,000 is a lot of money. Start early so you’ll develop the habit before the big money comes your way.

2. Capital Investment

With the next 10 percent of your after-tax income, you’re going to create wealth. This is the money you’ll use to buy, fix, manufacture, or sell. The key is to engage in commerce, even if only on a part-time basis.

So, how do you go about creating wealth? There are lots of ways. Let your imagination roam. Take a close look at the skills you’ve developed at work or through your hobbies; you might be able to convert these into a profitable enterprise.

In addition, you can also learn to buy a product at wholesale and sell it for retail. Or you can purchase a piece of property and improve it. Use this 10 percent to purchase your equipment, products, or equity—and get started. There is no telling what genius is inside you waiting to be awakened by the spark of opportunity.

3. Savings

The last 10 percent should be put in savings. I consider this to be one of the most exciting parts of your wealth plan because it can offer you peace of mind by preparing you for the “winters” of life. Let me give you the definition of “rich” and “poor”: Poor people spend their money and save what’s left. Rich people save their money and spend what’s left.

Twenty years ago, two people each earned $1,000 a month and they each earned the same increases over the years. One had the philosophy of spending money and saving what’s left; the other had the philosophy of saving first and spending what’s left. Today, if you knew both, you’d call one poor and the other wealthy.

So, remember that giving, investing, and saving, like any form of discipline, has a subtle effect. At the end of the day, the week, the month, the results are hardly noticeable. But let five years pass, and the differences become pronounced. At the end of ten years, the differences are dramatic.

And it all starts with the same amount of money—just a different philosophy. So, ladies, let’s get started on this journey to wealth and happiness, one smart step at a time!

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