You allocate your money in this way using the 60/40 principle:
- 60% you live on. This goes into your main checking account
- 10% goes into a long-term saving vehicle (IRA, 401k, Keogh account, solo401k) for retirement. If you don’t currently have a retirement account of any kind, open two savings accounts at your bank (one for long-term savings and one for short-term savings)
- 10% goes into a short-term savings account for use in those occasional large-scale expenses (such as new tires) or emergencies (the hot water heater leaks all over your newly laid carpet!)
- 10% is tithed to a church or secular charity that is in line with your purpose and passion. this is your “rent” for occupying space on the planet.
- 10% is pure philanthropy. That’s right, you just give it away for the benefit of the community at large. This primes the pump so that the Universe starts sending more money your way.
Once you’ve retired your debts, you start applying the 60/40 principle to all of your income.