Posted on 01/09/2014 1:34:33 PM PST by RKBA Democrat
Here's a new twist on an old New Year's Resolution: If you want to give yourself the security of financial independence, try budgeting the way many wealth accumulators do. The secret? They don't budget.
Your first reaction might be, "Of course these people don't budget! They have so much money that they don't need to."
That may be true for some of those who have money today, but I'm referring to people who want to remain wealthy or those who are "wealth accumulators." These are people who don't start out with money, but who build up significant wealth over time.
Many successful wealth accumulators don't follow a detailed budget in the traditional sense. Instead, they develop the habit of living on less than they make. They do this by setting clear priorities. Here is how it works:
Out of every dollar earned, take taxes out first. If you receive a paycheck from an employer, this is done for you. On any earnings where taxes aren't withheld, estimate the amount of tax you'll owe and stick it into savings.
Take out 15% to 30% to invest for your future. When you're just starting out, you may have to begin with a much lower percentage, but begin and be consistent. Research tells us if you have 30 years until retirement and you plan to live for 30 years after retirement, you need to save 17% of your salary to maintain the same standard of living upon retirement. When you get a raise, contribute two-thirds of it to your investments and use one-third for increasing your lifestyle. If you want to become financially independent, this step is essential.
Save another 10% to 20% for emergencies and short-term needs like vacations, Christmas, and replacing vehicles. Again, you may have to start with a lower percentage, but begin with whatever you can, and be consistent.
Take out 5% to 10% for giving.
Live on the rest. Pay the bills as they come in, and use what's left over for discretionary lifestyle spending.
Sounds simple, right? Of course, "simple" isn't necessarily the same as "easy." By now, if you've done the math, you can see that following this plan means living on as little as one-half to even one-third of your gross earnings.
If you're living from paycheck to paycheck, just barely managing to pay the bills, the idea of living on half of what you make goes beyond absurd. It probably seems impossible. It may, in the short term, be impossible.
Yet there are ways to live on less than you earn, even if to begin with it's only a little less. Share a cheap apartment with a roommate. Drive an old car that you don't have to make payments on. Eat at home. Buy used furniture and second-hand clothes. Get a temporary second job solely for the purpose of building up some savings.
What is most important is developing the pattern of living on less than you make. Fostering a frugal mindset is absolutely essential if you want to achieve financial independence. When you commit to saving first, even if you can only save a small amount, you have made one of the wisest financial decisions you can ever make.
This non-budgeting spending style takes away much of the pressure of trying to follow a rigid budget. There's no need to keep track of envelopes or categories. You've made the hard decisions first, and you get to spend everything in the checkbook.
Budgeting without a budget can turn you into a wealth accumulator. It works because you take your future off the top.
Hit tip to TBW2 for the link.
Is there a way to borrow money and never have to pay it back like the government does?
All this is great if you assume that your retirement savings don’t become a big, fat target for the government to take when they run out of money. It will happen. We are getting to the point where saving will be worthless because the non-savers will get subsidies from Uncle Sam and the savers will be penalized.
“Is there a way to borrow money and never have to pay it back like the government does?”
Yup. Bankruptcy. Not recommended.
if you’ve done the math, you can see that following this plan means living on as little as one-half to even one-third of your gross earnings.
And then once the government takes at least their 25% of what’s left you are gonna live on 25% or less of your gross?
No point in working.
“All this is great if you assume that your retirement savings don’t become a big, fat target for the government to take when they run out of money.”
Agree with your underlying concern, but I would hasten to note that the article did NOT suggest that you put your money into an easily-seized account earning 1/8% interest at a TBTF bank.
“And then once the government takes at least their 25% of what’s left you are gonna live on 25% or less of your gross?
No point in working.”
Which is an argument made by the Gone Galters. The key is I think a mix of value-added tax free activities and savings.
E.g. You can change your own oil (and save $25) or work two hours and earn $50 less $20 dollars in taxes, netting $30. I’d argue that if it takes 20 minutes to change you oil and you don’t mind doing it, you’re money ahead by staying home. Unfortunately some income is a necessity.
I actually understand why welfare is a way of life for some. Don’t condone it but understand it. Of course the whole situation was created by government....at all levels.
First of all, thank you for these posts. I LOVE The Dollar Stretcher - was published one month in the beginning of the site when I e-mailed Gary about how far I could stretch one roasted chicken, LOL!
Secondly, budgeting is something I could ALWAYS be better at, so thanks for the reminder. I mean, I live pretty close to the bone, but I only have 8-10 years to stash more cash and pay off my little farm before I live my dream of farming for myself and teaching others how to do so on a small, self-sufficient scale.
Barring any dismemberment in a heinous farm machinery accident, I’m pretty sure I can pull it off. :)
(Oh, and...FUBO! FU Congress! I loathe you ALL with the white-hot intensity of a thousand suns!)
The old depression era saying comes to mind: Use it up, wear it out, make do, or do without. It’s a way of life.
Well, if you want to screw something up royally, getting the government involved is usually a pretty good way to do it.
Thanks for the kind words. I enjoy doing it and get a lot of good ideas as a result. As I continue to try to control my voting addiction it helps to be passionate about something else. One Election At A Time.
Small farm? Cool.. you might want to let us all know when you decide to start your college of post apocalyptic skills.
Oh, BTW you forgot the judiciary.
The logic is situational.
I remember buying new tires during the Carter years (that I wouldn't have normally bought) because inflation was 25% and I reckoned that I was better off with the tires than the money.
You bet the logic is situational. To expand the analogy further, if you’re completely inept at changing oil or really hate it, its probably smarter to earn the money, pay the taxes, and pay someone to change it for you.
Or you might instead trade a friend 3 jars of honey and have no cash change hands. And you’ve added value. Not all value involves the use of money.
Amen brother!
And we are painfully observing that the transfer of money does not always add value. (Unless the transfer is 1. voluntary, and 2. transparent.)
It's a pity how few understand this.
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