The 10-10-10-70 Principle (Part Four)

The 30% (3 x 10%), we have touched on so far, is that portion of our income we otherwise refer to as Seed, or Freedom Fund. It is our license for getting out of the rat-race. It is our secret weapon for gaining ascendancy over money. The remaining 70% is the portion of our income we base all our discretionary expenditure on. This is no license for going to town and blowing it all away, though. I believe you are wiser than that.

Even though we call the 70% discretionary expenditure it is not without boundaries. At least, that is assuming you want to live a fruitful and worthwhile life. Which, I know everyone reading this wants. The way a person spends shows the person’s values and priorities, irrespective of what the person thinks or says. Hence, it is up to each one to ensure alignment between what is perceived and reality.

What are YOUR VALUES and PRIORITIES in life? This is in no way to restrict you. Rather, it is to say, “TO THYSELF BE TRUE.” Don’t follow the proverbial “Joneses” (whatever that might mean in your peculiar circumstance). Our life priorities and values determine the buckets that make their way into our “Spending Plan” (otherwise known as a budget). The same principle of time management applies here. Not every seeming emergency is important.

We need to ensure our money is allocated around our priorities and not the other way around. We budget our priorities, not prioritize our budget. Our priorities might be occasioned by our needs (i.e. existing commitments or obligations) and/or our long and short-term goals. Things that might be occasioned by need include allocations for feeding, bills, transportation, offering, house upkeep, parents' upkeep, pocket money, school fees, rent, etc. These are known as recurrent expenditures.

Things that might be occasioned by our goals include children future school/college fees, vacation plans, etc. There is a need to differentiate between the things that need immediate attention and those that can be deferred. Those needing immediate attention might need to be fully allocated for at each budgeting (spending planning) point/cycle. Those that can be deferred can be spread over a defined time period. That helps reduce the impact on each plan/cycle while ensuring availability when needed.

The important things here include the following: The fact that you are in control of your money, and not the reverse. You are making your money do what you want. You are making your money work for you in achieving your short and long-term goals. You have a plan for your money. And, you are responsible for/in its usage.

Let me close by emphasizing, 10%s (Seed/Freedom Fund) represents minimum allocations. That is to say, one can choose to increase the allocations, depending on one’s goals. On the other hand, 70% (Discretionary Expenditure) represents a maximum allocation. That is, all expenditure needs to be equal to, or less than what it represents.

To quote Harvey Mackay, “When a person with money meets a person with experience, the person with the experience winds up with the money and the person with the money winds up with the experience." May no con take your money. Invest in your financial education. Thomas Tusser puts it this way, “A fool and his money are soon parted.” A corollary of this will be, "A wise man and his money are soon united." May wisdom avail for you, as you achieve your God-ordained goals. I see you on the other side and you look glorious. You are made to reign in life. May you reign over your finances.

© 2017 Akin Akinbodunse

Links to Series:

The 10-10-10-70 Principle (Part Three)

Links to Related Articles:

Real Wealth
Money Makes Me Happy

Stay in Control of Your Money

Links to Other Resources:

Smarter, Faster, Better (Charles Duhigg)

The Master Key to Riches (Napoleon Hill)

SaveSaveSaveSaveSaveSaveSaveSave

The 10-10-10-70 Principle (Part Three)

Let Your Increase Do the Talking

The first 10% (Tithe/Charity) keeps the FLOW OF GOD’S RICHES towards us, and gives our life a meaning; the second 10% (Savings/Passive Capital) BUILDS US RICHES; the third 10% (Investment/Active Capital) gets us on our way to FINANCIAL INDEPENDENCE and finally to Financial Abundance. Never forget wealth is built. And, these are the foundations for doing this. This is a wealth-building plan. There is no magic around it. It will only work if you do.

Remember, "Poverty needs no plan. It needs no one to aid it because it is bold and ruthless. Riches are shy and timid. They have to be ‘attracted.’" (Napoleon Hill) "The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind." (T. T. Munger) "You’ll never change your life until you change something you do daily. The secret of our success is found in your daily routine." (John Maxwell)

There are those who advocate combining the second and third 10% as 20% Savings; while others advocate combining them as 20% Investment. The first is an attempt at playing it safe. It depends wholly on the system working in one's favor. It is, in a sense, the most passive approach to building wealth. Other than it's not being exciting, it leaves one fully exposed to the effect of inflation and taxation.

Yes, your money is relatively guaranteed. Yes, you have the power of compound interest. Yes, you are building riches. However, this alone does not get you to financial independence. It might make you rich (financially secure) though. For this to make any meaning, you HAVE to start early. What gives POWER/MAGIC to COMPOUNDING is “TIME.” TIME, INTEREST plus DISCIPLINE are the secret ingredients in the POWER OF COMPOUNDING. As Albert Einstein so rightly said, "Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it.”

The second school of thought (20% investment) assumes an all-out attack at becoming financially independent. One challenge, though, it might leave one with no fallback position, in a downside scenario. Remedies for this include, a first putting aside at least 6 x monthly expenditure. Another remedy is having a portfolio of investments.

An investment portfolio is a secret tool of the true investor, and way to becoming financially independent. There are at least three ways an investment portfolio can be put together. The popular one is aligning it to one’s risk tolerance. There are various standard postulations of these depending on one’s personality and remaining useful (active) work life.

Putting investment portfolios together is the bread and butter of Financial Managers/advisors. They do not do this for free. If you find a good one, hold on to him/her. There are not many of them in the industry. You can also put one together yourself based on how much financial education you have. There are several tools out there that can help you along this journey.

A second way of putting together an investment portfolio is to ensure coverage in any and every market/economic scenario. A true investor does not want to lose money, at least not in the long run. Hence, they put together a portfolio to meet this objective. Getting to this point takes a true understanding of the market.

An investment in your financial education is an investment worth your money in every sense of the word. And why would you not want to? THERE IS NO ONE WHO CARES MORE ABOUT YOUR FINANCIAL WELL BEING THAN YOUR OWN VERY SELF. WISDOM ONLY DICTATES THAT YOU ARM YOURSELF WITH THE NECESSARY TOOLS FOR THIS ENDEAVOR.

The third way (consideration) in putting together an Investment portfolio is deciding either to diversify or focus on a particular area(s). Both options have their pros and cons. Which one you decide to go with is a function of your personality and how much of yourself you invest in your financial education.

"Your decisions, not your conditions determine your financial destiny." (Anthony Robbins) Education arms you with the right tools for this. It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. (George Soros)

Diversification is ideal for those who are risk-averse, and are unwilling, or not opportune to take an active role in their investing. Focus, on the other hand, is more suited for people who take an active role in their investment. They are risk (opportunity) seekers and want more out of life.

As you can see, there are several possible options with the second and third 10%. The starting point is to ensure you are putting the money aside. Then and only then can you begin to work on the option that might best suit you.

© 2017 Akin Akinbodunse

Links to Series:

The 10-10-10-70 Principle (Part Two)
The 10-10-10-70 Principle (Part Four)

Links to Related Articles:

Real Wealth
Money Makes Me Happy

Stay in Control of Your Money

Links to Other Resources:

Smart Investors Keep It Simple (Giovanni Rigters)

The Intelligent Asset Allocator (William Bernstein)

The Bogleheads' Guide to Investing (Taylor Larimore + 3)

The 10-10-10-70 Principle (Part Two)

Money Generator

The third, of the production lines, is the 10% Investment/Active Capital. It is similar to the second, in that it is another way by which we pay ourselves. The difference between the two is the way they are applied. Unlike the savings, where we look for a relatively secure account, here we are more actively involved in its application.

"Financial winners don't run sprints, they run marathons. They don't rush. They do it step by step over time." (Dave Ramsey)

This is the portion we use to generate streams of income (other sources, other than our primary). There is a whole wide range of opportunities (avenues) we can apply this (Investment bucket). These include stocks, mutual funds, personal loans, business, trade, real estate, etc. The key thing is you are looking for new avenues of money generation. Here, you are allowed to up your game at the risk level.

"It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something." (Franklin D. Roosevelt)

There are no guarantees. You just do not want to lose more than your (inner) “strength” can handle. You don’t want to lose what will take you out of the game. Losing, here (investment bucket), is not altogether bad, for with every loss you gain experience. And, with each experience gained, you become better at the game. The fear of loss is what cripples a lot of people. They are so scared of losing they do nothing. And, as you can imagine, their situation is no better. That which we do not confront only becomes bigger and out of reach.

"The fear of loss is what cripples a lot of people. They are so scared of losing they do nothing." 

"Fail Early And Responsibly"

Life is about confronting issues, not running from them. You lean into life, not pull away. That is the way to live. Victors are not escapist. So, what do you gain by taking the plunge today, as against waiting till next week? You gain one week. You gain time to make the right adjustment for the next plunge.

"Nobody ever wrote down a plan to be broke fat, lazy or stupid. Those things are just what happens to you when you don’t have a plan." (Maerlan Rico Lee)

The more you delay taking the plunge the more time you lose. And guess what, time is a limited, irreplaceable resource. What do you gain by taking the plunge today, as against waiting till next week? You gain one week. You gain time to make the right adjustment for the next plunge. You break the inertia, get into the groove, and begin to build momentum.

Never Lose Your Momentum

Momentum, not mere action, is the secret to success in anything you lay your hands on. It is all about the habits you inculcate and make second nature to your personality. One habit (discipline) leads to another, which leads to another, forming a tightly bound chain in producing the person who attracts the goods. The more you delay taking the plunge the more time you lose. And, guess what? 

"Momentum, not mere action, is the secret to success in anything you lay your hands on"

Time is a limited, irreplaceable resource. The more you delay, the more you become lost in analysis paralysis. There are things you will never learn until you step out. You are not going to be perfect on the first day. No one is ever perfect on the first day. And, that is okay. That begs to repeat. It is okay not to be perfect on the first day.

“The rich invest in time, the poor invest in money.” (Warren Buffett)

It is okay not to be perfect on the second day. It is okay not to be perfect the third day, and so on. It is, however, not okay remaining the same. You have to be better each day than you were the previous day. There is no compromise on that if you want to win. Life is not looking for you to be perfect, nor indeed can you ever be, on this side of eternity. Life just wants you to deliver, learn, and grow.

It is okay to fail your way to success. In fact, that is the only way there. Losing is a part of the process of winning. There is no true success in life without the story of a failure somewhere in between. Those failure points are what we call “defining moments.”

“It is in these moments that we find our true characters. We become heroes or cowards; truth-tellers or liars; we go forward or we go backward.” (Robert T. Kiyosaki)

The only place of safety in life is the place of continually moving forward. This, in a rather paradoxical manner, differentiates the rich from the poor.

While the poor look for safety, the rich are out looking for new opportunities. While the poor are all focused on pension and retirement, the rich are all focused on financial independence, abundance, and leaving a mark for good. While the poor are all focused on the cost and difficulty, the rich are all focused on the reward.

"To obtain financial freedom, one must be either a business owner, an investor, or both generating passive income, particularly on a monthly basis." (Robert Kiyosaki)

Isn’t it sad to see people who after their retirement age still have to work, or depend on others – persons, organizations, or government? The big questions at that point include, “what did you do with your life? What did you do with your seed? What did you do with your youth?” 

May this not be your story. The time to start making adjustments is today. Take the plunge!

© 2017 Akin Akinbodunse

Links to Series:

The 10-10-10-70 Principle (Part One)
The 10-10-10-70 Principle (Part Three)

Links to Related Articles:

Real Wealth
Money Makes Me Happy

Stay in Control of Your Money

Links to Other Resources:

The Intelligent Investor (Benjamin Graham)

The Little Book of Common Sense Investing (John C. Bogle)

Buffett: The Making of an American Capitalist (Roger Lowenstein)

The 10-10-10-70 Principle (Part One)

Blessed

The 10-10-10-70 is a financial life principle for gaining mastery over money. It is a way of processing money through systems put in place to move one from financial dependency through financial independence to financial abundance. It reduces, or practically eliminate risks associated with an emotional disposition to money. The principle processes money through four (4) basic production lines. These are,

Money Cometh

• 10% - Charity (Giving back to God)
• 10% - Savings (Passive Capital)
• 10% - Investment (Active Capital)
• 70% - Discretionary Expenditure (Everyday Expenditure)

Children do what feels good. Adults devise a plan and follow it. (Dave Ramsey) 

Don't tell me where your priorities are. Show me where you spend your money and I'll tell you what they are. (James W. Frick)

The first 10% (Charity/Tithe) is our way of saying THANKS to God, for the grace, life, strength, etc., He has given us. It is He who has given us the health, strength, wisdom, favor, and every other wherewithal that is available to us for making wealth. It is only common that we return to say, THANKS! It is only proper that we recognize where our SOURCE is. It is only wise to recognize He who is our SOURCE.

This production line works the extra benefit of being our declaration, "we are not narrow-minded." It is our way of declaring, "we see the bigger picture of life. It is not just about me. There is more to life than just me." It is our way of giving meaning to our life. If there was only one thing I learned from management school it is this,

"The essence of an organization is not found within the organization, but outside of it." (Peter Drucker)

In the same token, our essence is not found within us, but the blessings we bring about to others. When we give we are saying, "MONEY HAS NO HOLD ON ME." When we give, we declare, "WE ARE IN CONTROL OF MONEY, AND NOT THE OTHER WAY AROUND." It is our way of paying our due/rent for our time here.

A man who cannot give has been hooked. And, guess what, money is not a good master. It is a deadly (draconian) one. You don't want to get under its mastery. When we give here we sow to providence. And, providence does not fail in giving back bounty harvests.

"I've been rich and I've been poor. Rich is better." (Sophie Tucker)

The second 10% (Savings/Passive Capital) is the way by which we appreciate ourselves for the effort, labor, sweat, etc., we have exerted in bringing about the income. And, guess what? You are worth it, every single dime of it. Your savings is the way by which you reward yourself.  It gives you strength as you go to work. It reminds you your labor is not in vain. It puts a bounce in your steps.

"Your savings is the way by which you reward yourself...It puts a bounce in your steps."

It is critical that it is kept in a relatively secure account. It is not money you want to take unnecessary risks with.

There is a DEEP SENSE OF REST that you get when you have MONEY IN THE BANK.

(Trust me, I have seen the two sides. Your steps change, and there is nothing wrong with that. You are not going to attain to your utmost potential and height with your head bent down. You got to stand tall, straighten up, and be sure of yourself. Success breeds confidence, just as much as confidence breeds success. It does not matter which you start with, just do one and you'll get the other.)

"A fool can earn money, but it takes a wise man to save and dispose of it to his own advantage." (Brigham Young)

There are at least two (2) schools of thought on how far you go with this. One puts its focus on saving enough to have at least 6 times monthly expenditure in savings. Another school of thought puts its focus on doing this for your entire active work life. Personally, I subscribe to the second school of thought - a perpetual savings plan.

© 2017 Akin Akinbodunse

Link to Series:

The 10-10-10-70 Principle (Part Two)

Links to Related Articles:

Real Wealth
Money Makes Me Happy

Stay in Control of Your Money

Links to Other Resources:

Think and Grow Rich (Napoleon Hill)
Laws of Prosperity (Rev. Della Reese Lett)

The Richest Man in Babylon (George S. Clason)