Table of Contents
Pay yourself first! Some of you might say, “I already know this!”. But if you’re not using it, then you don’t know it! This is the crucial step in achieving financial freedom.
To create sustainable true wealth, you need to balance the respect and value of money with the joy and abundance it can bring us. We need to nurture our wealth by giving it the fertile environment it needs to grow and, at the same time, allow it to breathe. If you squirrel it away, hanging on to it tightly, fearful of losing it, it can never grow nor work for you and bring you the very things you want from it. Likewise, if you squander it, ignore it, or use it inappropriately, it won’t be able to support you in achieving your vision either.
For this conscious spending is the key. All you need to do is have your eyes wide open and be conscious about the choices you make every second, every minute, and every hour of your day, because it’s the decisions that we make each and every moment that shape our destiny. Make sure your decisions are taking you toward the life of your dreams and not away from it.
The structure that money needs is provided by solid money management. Most people don’t want anything to do with management, because they believe it restricts them. Words like “budget” make them suffocate. Now, here’s the secret: good money management actually creates freedom!
You are about to get to know a system, inspired by T. Harv Eker, that is set up to change your life forever. This isn’t a budget–this is your Spending Plan, so please feel the difference already. The Spending Plan is easy, simple, and effective.
Your Income Distribution
When Income comes, you need to immediately carve it up into six portions, putting each portion into a different pot. Each pot or account will have a unique and important purpose. When we’re talking about Income here, we mean net Income after tax.
“Rich people have small TVs and big libraries, and poor people have small libraries and big TVs.” – Zig Ziglar
#1 Investment Pot
Ten percent of every piece of Income you get goes into this pot. This money is only for investment. You never spend this money.
The purpose of this pot is to create a lump sum that will feed you in the future in the form of interest and dividends. You’ll invest this in stocks and shares or bonds and property but you can never, ever spend it! Allow it to grow big and fat. You pay yourself–your freedom–first.
If you are in any kind of debt, then this question can come into your mind, “Shouldn’t I put all this money into clearing my debts first?” The answer is no; what we’re doing here is creating new wealthy habits first and foremost. You must create the habit of investing–and while you’re doing that, you pay off debt too. Energy flows where focus goes, and if you only focus on your debt, then that is all you’ll ever know.
An important part of breaking a habit is replacing it with a new one, and your new habit is going to be investing. The great thing about investing is that you’re still buying stuff–except now, you’ll be buying things that feed you, not starve you! And if you don’t do this, you won’t be able to break your debt habit.
#2 Save to Spend Pot
The next ten percent of all your Income goes into this pot. This is for long-term savings for spendings, such as large expenditures like a new car, a deposit on a house, your children’s education, dream holidays, or weddings.
You’re going to save the money for those things now! Save first, so when you come round to buying these things, you’ll have the actual cash, instead of hoping you’ll have the money and then being forced to use credit.
#3 Growth Pot
This is the most important pot. We call it the learning pot. It’s recommended that 10 percent of your earnings should go into your personal education. You need to expand the container called “you” to allow more to flow in.
Education allows you to learn how to create more money, how to keep it, and how to grow it faster. This pot allows you to have the mentors and teachers you need in this learning process. We live in a world changing at phenomenal speed, where you need to be prepared by constantly learning. As Benjamin Franklin said, “If you think education’s expensive, try ignorance!”
#4 Necessities Pot
This is your day-to-day spending pot. Fifty-five percent of your net income goes into this pot. It’s to pay bills, mortgage/rent, food, utilities, transport, insurance, and so on.
Most people can comfortably live on 55 percent of their income. In fact, the majority of people who are financially free live within the 35 to 45 percent range. So, if you’re not there yet and your day-to-day spending is more than 55 percent of what you earn, you need to discover two things:
-Exactly what you are spending your money on
-How to simplify your lifestyle in some way
You need to make some adjustments. Bring it down to 55 percent. This is your target. If it takes you a year to do so, that’s fine–the point is just to do it!
Perhaps you’re thinking that when you get a salary increase or make a few more sales, you’ll be able to do it. Sadly, you won’t. Please understand this: if you’re spending more than 55 percent of what you earn on your necessities, this is a bad habit and you’ll just keep spending the same proportion, irrespective of what you earn. You must learn to carve now, no matter how small or large the amount is. You can try out all the get-rich-quick schemes (there’s no shortage of them!), and you can double your income (and you’ll learn to do that, too), but if you consume all or more than you bring in, you will crash and burn.
#5 Fun Pot
Yeah–fun! And yes, you’re actually allowed some of this! Seriously, having fun is vital for your financial well-being. Ten percent of every piece of Income you bring in goes to having fun.
Eating out, mini getaways, going to the movies, horseback riding, dancing, being creative, painting lessons, massages with hot stones–this pot is for those things that make you feel good and pampered–wealthy things. While reaching your goal of financial freedom, enjoy the journey with this pot.
But there is a rule with this pot: you have to spend all the money in it, if not monthly then at least every three months. You have to blow it! You must allow your free spirit some form of outlet. If you don’t, it will burst out in some way or another, often causing a big mess.
#6 Contribution Pot
Put at least 5 percent into this pot to donate to a charity or organization that you feel is creating a better world. If you want to turn it into 10 percent, then take the extra 5 percent from your Necessities. But remember, money isn’t the only way to contribute. If you can’t yet donate 5 percent, make time to contribute in other ways.
Way Ahead
“You must gain control over your money or the lack of it will forever control you.” – Dave Ramsey
Don’t get confused with the above distribution of your income. The first and foremost requirement is to pay yourself first! Each pot or account has its own importance to achieve financial freedom. Without an investment pot, it is not possible to achieve this goal. You must reach the level where your money earns money for you. It’s highly desirable to start this activity at an early age in your career so that you can harness the power of compounding. If it’s too late for you, then you must encourage your next generation for this. (Inspired from ‘The Wealth Chef’ by Ann Wilson).
The Wealth Code: Volume 1 is a personal development and financial education book written by Vinod Singh. It is designed to empower readers by teaching them principles of wealth creation, financial freedom, and personal growth. The book offers practical strategies to achieve financial success, with a vision to uplift and transform the lives of millions by promoting financial literacy and entrepreneurial thinking. Singh’s approach is rooted in inspiring individuals to take control of their financial destinies while cultivating a mindset focused on long-term success and abundance.
