Hello best life seekers!
Is your financial health flat-lining and in need of resuscitation? Maybe you’re overwhelmed by all the conflicting money advice out there. Let’s simplify things and put you on the easy path to wealth. It’s what took me from six-figure debt to financial freedom in 10 years and it’s called the 70/30 Rule. Automate this money habit and you’ll be wealthier at the end of every month.
The 70/30 Rule
The way to financial stability isn’t rocket science. Surprisingly. You can do very well by following the 70/30 Rule which states:
Live on 70% of your net income and buy assets with the remaining 30%.
Easy peasy. The problem comes with enforcing the rule and training our behavior to match it. Living on 70% of net income means living on 70% of the actual paycheck deposited into your account and investing the remainder into money-making endeavors like your retirement account, the stock market, real estate, passive income, or some sort of personal enterprise that results in cash flowing in rather than out.
Unless you’re really disciplined, following the 70/30 Rule sounds great in theory but detonates into a mess upon implementation. That’s why I follow the lazy way to success and suggest you do the same:
Automation is Your Personal Bouncer
If you’re not automating your bill payments or asset allocations, you’re pretty much doomed when it comes to wealth. It’s not impossible but it’s like walking into hurricane force winds with your umbrella opened up behind you. It’s definitely worse than spitting into the wind.
When you automate rent and other necessary bills, you’re no longer at the mercy of forgetfulness, busy schedules, late payments, fees and fines, or lost in the mail debacles. This also automatically protects your credit score, providing you better interest rates down the line on car and home loans and even helps with approval on apartment leases.
Automation is the golden kiss for wealth. When you make those 30% asset purchases routine, you can’t help but increase your riches. You can automate 401k and IRA contributions, stock & bond buys, or automatic transfers into a savings account. It’s super easy and once done, you just leave the money to accumulate and go binge on Netflix. That’s the lazy, yet highly effective, way to wealth.
The Lazy but Brilliant Path
Automation is easy and effortless. Start here if you’re flailing around in a financial pit of despair and especially if you have problems paying bills on time. You’ll have fewer headaches doing this. Then turn to automating your wealth accumulation.
The easiest way to start with assets (cash-making ventures) is to sign up for your company’s 401k. You can set a percentage of every paycheck to go here. Personally I like to max out this great money-saving and tax-sheltering vehicle. Only 10% of people max out this asset generator each year which means most are ignoring a lucrative way to enforce good money habits on themselves and get wealthier in the process. If you’re self-employed, work toward maxing out your SEP IRA. At the very least, set your contribution to equal at least 30% of your net income from each paycheck. Thanks to pre-tax income loopholes, you can actually contribute more than this and still live on 70% of your net income but since most people don’t take advantage of their 401k in the first place, start with 30%.
If your work doesn’t offer a 401k or you don’t qualify for a SEP IRA, open up an IRA and dump your 30% here first. Contributions are limited to $5500 a year so you’ll most likely max it out and need to stash your extra money in other vehicles.
Boom. You are now following the 70/30 Rule.
Lazy Investment Strategies
Probably 401k and IRAs are the best routes for automatic investing for those who hate finance and don’t have the time for research and monitoring their assets. If you’re a buy it and leave it person, start with your 401k and IRA contributions. Max them out every year, then turn to these other vehicles.
Assets come in all shapes and sizes. The best known are stocks and bonds, real estate, and CDs or savings accounts. There’s also passive income streams but let’s keep it simple since this article is about the lazy way to wealth.
For stock investing, I’m a big proponent of automatic buys of the S&P 500 (SPY). You’ll get the top companies without the need of research or monitoring. Let’s face it, most people are bad at stock picking and don’t have the time or interest. Sign up for an account with TD Ameritrade, ScottTrade, etc. and automate your contributions. You can also purchase bonds here.
Interested in real estate? Put your money to work for you with rental property or other investments. If you don’t want to be a landlord or deal with a property management company or simply don’t have enough money to buy property, you can buy shares in real estate investments through Realtyshares.com and other groups or even through real estate ETFs with the brokerages mentioned above. You can usually automate your investments so don’t forget to do this.
Far down the cash-generating totem pole are savings accounts. I’m not a big fan of low-interest rate CDs and miniscule interest offered by savings accounts. At most I’ll use money market accounts. If they’re the only way to get you to save and have cash flow, use them. Most banks offer them and Capitol One has a great money market program usually in the top interest offerings for little cash requirement.
Investments should generate cash. We all know stocks and real estate are not sure bets but over the long run they have a better return than simply blowing your money on food, random shopping and other frivolous spending that get you only added debt on your credit card. Besides, you shouldn’t be putting your money here until you’ve mastered the restraint of maxing out your tax-free 401k and IRA contributions. If you can’t handle these easy assets, don’t try to graduate to stocks, bonds, real estate and other investments.
Automate for Wealth
We all need to live within our means, as unsexy as that sounds. If you’re consistently spending more than you earn, then it’s time to take a hard look at your income and either learn how to make more or learn how to live on less. That’s Adulting 101. It may not seem fair but I’ve yet to figure out how to influence the tax code, government largesse, and luck with the lottery. The only thing I’ve learned I can control or influence is my own spending.
When it comes to money, we can all use a helping hand to protect against our worst impulses. Automate your bills and your retirement contributions. This way the things that need to get paid first – bills and your future wealth – are taken care of. Then you can start working on any issues with spending you may have in order to right your financial ship.
The prize for automating your wealth? After three years of investing in assets on the 70/30 Rule, you’ll have a year’s income socked away. After 10 years, you’ll have 3 year’s worth (if not more) and growing. If it’s invested even at 5% interest a year, you’ll be making some nice passive income off it and have a good night’s sleep every night.
So automate today. You’ll save yourself a world of stress while building your monetary wealth and security. We have too many things to remember and juggle as it is. Automate to save your sanity and your financial health.
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