One of the biggest mistakes that anyone can make for their financial future is not being universally wealthy.
Let me explain.
Most people (including myself at a previous time) look at the desire to acquire riches and begin to accumulate their earned income in one spot, attempting to watch how big it can grow and pulling from it whenever expenses come their way. HOWEVER,
The most important thing to understand when it comes to the accumulation of riches is that there are parts of your life that need to be fed in order to maintain TRUE financial wealth.
By designating specific percentages across multiple areas of your life, you truly become wealthy!
We have finally covered the “why” behind the reason you should be investing, but now I want to dive into the foundations of beginning your investing career. Today you will make one of the most important financial decisions of your future and will allow you to take your first step towards investment allocation!
Why you should allocate a percentage of your check to different parts of your life.
It’s easy to put money in the stock market once and then never invest again. The problem arises when we need to stay consistent. Consistent fuel for your investments allows you as an investor to utilize the power of compound interest, a tool that manifests interest stacked upon interest to generate massive earnings! Especially if you are a younger person, compound interest is one of the most important concepts to understand and take advantage of.
To learn more click the link HERE to fully understand the impact of compound interest on your life.
My Income Percentages to be Allocated
I have broken down my designated locations into four essential parts of leading a sustainable and flourishing financial life. All with a specific reason which correlates with one another. Each decision made to designate specific percentages are carefully considered to really generate UNIVERSAL wealth.
These designations allow you to become a well-rounded financial participant in life. Each distribution across the percentages occurs every two weeks or whenever you receive a pay check. Whatever is easiest to organize. So without further adieu,
Here are my designations…
1. 20% Invested
2. 10% Tithed/Donated
3. 25% Play Money
4. 45% Saved
There it is, the formula that allows me to constantly feed my investments while still establishing a well rounded financial life.
Now of course, these percentages are subject to change but I do recommend keeping some of these percentages at a relatively close number.
The Investing Portion
This portion is the bread and butter of my entire reasoning behind creating designated percentage locations for my income. 20% is a lot to set aside from your income but let me give you some examples to give you an image of why I picked such a high percentage.
Say you’re average income per month is $3000 after taxes and you are now looking to distribute that across your finances. 20% of 3000 comes out to an addition contribution of $600 per month. Here comes the cool part. With an initial investment of $1000 and an additional contribution of $600 per month, your $1000 will turn into $243,243.63 after 15 years at a return rate of 10%!
Now you can see why it’s so important to set aside a large portion of your income, especially if you’re young. Of the $243,243.63 over half of the end amount can be accommodated by earned interest, evaluating at $134,243.63. That’s a lot more money than what you would be earning if that money was sitting in a bank!
As you can see, a contribution of 20% really does add up as time accumulates. But what if 20% is too much for you to allocate towards investing?
While I do recommend that you keep the investing portion of your allocation relatively high, it’s totally ok for you to adjust the 20% designation for a lower percentage. I just recommend keeping at least 10% designated for your investments. As far as where the rest of that percentage goes its up to you! Just feel happy knowing that you’re taking the first step towards investing in your financial future!
The Tithing/Giving Portion
This might be one of my most favorite parts to designate money towards when I am distributing my money for the month. At first, it was hard to wrap my brain around why I should be selflessly giving my hard earned fruits of labor. I wanted to keep it all for myself and accumulate as much as possible. But this is a trap that many of us accidentally fall into.
I have a detailed blog about why your tithing and contribution is the BIGGEST investment on yourself you can possibly make. You can find that link HERE if you are ready to be entirely wealthy, not just financially but spiritually.
For now, let me summarize.
By changing your mentality from “having” to donate your money, try changing it to “getting” to donate your money. This simple word change allows for a transformation of perspective in favor of giving. While I do believe that life gives to what supports life, the reasoning behind this 10% does not contain a receiving nature. Instead, it is a constant reminder that I am not a slave to money. That I will never allow anything but God to be the master of my life. Not to mention, giving to any organization or cause that you believe in is EXTREMELY fulfilling.
Yes I know, giving can be a weird mental block to get around but trust me, it is so worth it in the end. Try giving it a try and change your mentality from being a “go-getter” to a “go-giver”. I promise you’ll feel 10x more fulfilled in the end.
The “Play Money” Portion
This portion is fairly simple. 25% of my formula goes to whatever needs to be spent on a daily basis. These include things like…
Now 25% might be too low for some people as I understand everyone leads a different lifestyle. When thinking about your percentage for this designation, feel free to swap between savings percentage and investing percentage. It would probably be best to adjust between savings and play money only, as your investing percentage is CRUCIAL to your financial success.
The Savings Portion
This portion may be one of the most important to keep track of while you are pumping money into the other sectors of your life. I have dedicated the biggest portion of my income to this category, and for good reason!
The savings portion is the LIFELINE of your finances. It provides a cushion for you as an investor which comes with many perks. These include…
- Eliminating emotional investing because you won’t be making decisions based off of a lack of money
- Providing a back up plan when emergencies arise
- Allows you to pay necessary expenses every month
If this percentage needs to rise in order to accommodate for your monthly expenses, I highly recommend attempting to pull from your play money portion before dipping into the investment portion. And whatever you do, DO NOT dip into your donation category! As I said earlier, that is an essential part of your finances that is vital to your financial future.
So there you have it, my finances exactly how I distribute them every pay check. Again, I realize that every person’s financial situation is different, so feel free to adjust the percentages following the guidelines I have communicated above.
Also, feel free to reach out through the contact or email form if you have any questions about dedicating percentages! I will be more than happy to help!
Thank you as always and I look forward to talking with you all next week as I begin to dive deeper into stock analysis!
Andrew Martinez, owner and writer of Minerva Money