Image Source: Macquarie
By Queen Ohamara
A lot of us prefer to work 9 to 5 rather than prepare a wealth plan for ourselves. Some of us are more focused on getting money to pay our bills rather than work towards becoming wealthy. Why not work full time on your job and part time on your fortune? It sure feels good when you know you aren’t only working to pay your bills but to also create a wealth plan. Let me share a simple formula for creating wealth:
The 70/30 Rule
After you pay your fair share of taxes, learn to live on 70% of your after-tax income. These are the necessities and luxuries you spend money on. It is important to look at how you allocate your remaining 30 percent:
Charity
Of the 30% not spent, one-third should go to charity. Charity is the act of giving back to the society and helping those in need. I believe that contributing 10% of your after-tax income is a good amount to strive for.
You should learn the act of giving early in your career, when the amounts are much smaller. It’s pretty easy to take a dime out of a dollar. However, it’s considerably harder to give away a $100,000 out of $1 million. You may say, “Oh, if I had $1 million, I’d have no trouble giving $100,000.” I’m not so sure. $100,000 is a lot of money. Start early to develop the habit of giving back and making an impact to society .
Capital Investments
With the next 10% of your after-tax income, you’re going to create wealth. This is the money you will use to invest into something that will yield income. The key is to start a venture, even if it is only on a part-time basis. Take a close look at the skills you developed at work or through your hobbies; you may be able to convert them into a profitable enterprise. There is no telling how far you can go with the spark of an opportunity.
Savings
The last 10% should be put into 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 rough times. A popular saying goes: “Poor people spend their money and save what’s left. Rich people save their money and spend what’s left.”
By frequently allocating 30% of your income into charity, capital investments and savings, it will have a long term impact in your finances and also in your immediate society as a result of your charitable contributions.
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