Investment First Personal Finance Method
This is a very similar concept to the “profit first” method in business accounting, explained in the free business course. You should always pay yourself first out of your income by investing a portion before leaving the rest of the money to pay your expenses.
I know this will seem counterintuitive to what most people have been taught, but living the way you have been taught has not produced millions of dollars in passive income, or you wouldn’t be here to learn how to do so..
First you have your main checking account all your income flows into, and connected to that a person might have 4-5 other accounts at the same bank for other things that could include:
- An Emergency Fund account (3-12 months worth of income)
- Pay off Debt
- Future Educational Fund account for your kids
- Real-Estate Investment Account
- Vacation Fund Account
- Personal Expenses Account
Best practice is to take 20% of every check, and invest it into yourself until you are making $500K+ per year at your job or business, or an investment with HUGE potential upside that would have outsized returns compared to the time it would take you to get to a 500k income. The subscription portion of this site will explain all the current HUGE Opportunities that are asymmetrical bets in the current market, if that interests you.
This 10-20% is non-negotiable, and comes out of EVERY check like a bill would. I know this may be difficult, especially with a low income, but if you ever want to get ahead this is how. I’m sure there have been times when you have stretched the money you had before and this will be no different. Sacrificing because you have to and sacrificing to get ahead with a purpose look the same to anyone else but for the person doing it, it’s a world of difference in outlook and discipline. Lowering your expenses to the least amount possible is what is ideal for maximizing your investable income.The lower your income the more I would lean toward investing in yourself to learn what you need to in order to create more value through acquiring skills you can leverage to make more money.
Next you would allocate 10-20% to an emergency fund account. Everyone should have an emergency fund set aside (3-12 months worth of expenses).
The best option for this fund is outside of a bank account, held in another asset currently listed in the subscription portion of the site.However, a traditional savings account will work if you trust the dollar to hold its value, and the banks to remain solvent for the foreseeable future (Wealthy people keep less than 2% of their net worth TOTAL in bank accounts, if that tells you anything…)
After accumulating the Emergency Fund or paying for the insurance to cover loss of wages, look at what kind of returns you’re getting on your investments. Decide whether to allocate more there, or pay off debts with higher interest. If your are earning higher returns that your current interest on your debt (which is possible, even if they are 27% on a credit card, if invested in some of the investments describe on the subscription site) the youd allocate more money to those investments or your business and keep making the minimum payment on the cards. If you are risk averse, 22-27% is definitely the best return you can get by paying off credit cards as fast as possible.Consolidating all your credit card debt to a single card with 0% interest for the next year is the best option for 99% of people who choose to pay off their credit card debts..
Next you would look at personal loans, and student loans. These also may be best served by consolidating the debt onto a 0% credit card and paying them off asap.If the interest rate is below your return on the investments you’ve chosen, then it is better to make the minimum payment and add this 10% to investments.
Last, look at your home and auto loans. It is very likely you can get a much higher rate of return on investments then the interest rates you have on either of these things if you know where to look, but if not then these would be the next to allocate the 10% to. If these loans are high interest, you may also look at refinancing your home or vehicle through a local credit union to get a lower rate and also get 45 days before your next payment.
The best option for people who are the most aggressive would be to buy a cash car and live with someone else who charges little or no rent. This can also be accomplished by buying a duplex or fourplex and renting the other units out to pay for the mortgage, effectively meaning your live rent free. Another option is to get roommates if you are young and split rent. I’ve seen people be successful in reaching financial freedom by doing all of these, the common theme was they lowered their expenses to the minimum, by being creative with what they had.
recap of personal bank accounts
- invest 20% right off the top into yourself or a HUGE potential return you’ve done A LOT of research about.
- Next you take 10-20% out of each check and create an emergency fund.
- After the emergency fund is created inside a bank account, or through the better method (listed in the subscription section) the second 10-20% should be allocated to paying down debts if the interest rate is higher than your return on investment from the first 20%. If not this amount should also be invested minus the minimum payments on your debts.
- Finally you should live off the last 60-70% of the income.
The fastest way to become financially free is living off 10% of your income and investing the rest into yourself, your businesses, and investments. I realize how absurd this sounds for most people, and it requires A LOT of sacrifice in the short term.However, if this is your standard and you keep it in place, even after you’re “technically” financially free, you’ll push yourself to live on $50K even when you’re bring home $500k+ in income.
Doing this for 2-5 years will allow anyone to completely retire, if their money is invested wisely.