Most folks think that it is nigh impossible to pay off their credit card debt while saving money. They try to put all their extra cash to debt only to get themselves deeper in debt because they have no money in savings to pay out when an emergency occurs. This is a vicious cycle that most of us are familiar with and don’t see a way out.
Take heart. There is a simple system that will allow you to pay off debt while at the same time increase your savings account balance. It is called the 60/40 Principle. It is the system that I used to get my family out of debt and eventually we moved from being middle class to millionaires over a 7 year period. Here are the basics:
This concept is the main rule that governs the flow of money in our lives. If you implement the 60 / 40 principle on any money you receive, you will immediately see your savings account start growing while your debt load decreases. If your debts are great, start only with money that is not part of your income, such as birthday money, rebates, unexpected cash from part-time employment, your change jar, your bonus from work, a tax refund check, whatever; you get the idea. You allocate money in this way by the 60 / 40 principle:
- 60% you live on. This goes into your main checking account.
- 10% goes into a long-term savings vehicle (IRA, 401k, Keogh account, solo 401k) 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 and one for short term savings)
- 10% goes into a short-term savings account (local bank or a money market account) for use in those occasional large-scale expenses (new tires) and emergencies (the water heater explodes).
- 10% is tithed to a church or secular charity that is in line with your purpose. 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 wealth your way.
Once you have retired your debts, you apply the 60 / 40 principle to all your money, including your income, to keep money flowing in your life. Should you have any questions or comments please post them. I’ll do my best to answer you quickly.