Cash Flows For Interest Expense And Changes In Net Debt The 40 Percent Rule

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The 40 Percent Rule

What is the 40 percent rule? Well, for starters, it’s a game changer when it comes to wealth creation. I have read over 100 books on investing and personal finance. I don’t recall coming across the 40 percent rule. I discovered the rule by reading A book about a millionaire, by Grant Cardone.

When I read it, I was impressed. It offers a different perspective on wealth creation. An aggressive game plan to help you become a millionaire. One concept is saving for investment. Not saving for the sake of saving. This is where the 40% rule comes into play. Save 40% of your gross income and invest it in “Sacred Accounts” until you are willing to invest it in generating more income. Sacred accounts are accounts where money is never touched.

40% of your income is some big cheese from your paycheck. It’s a big lifestyle change, especially if you’re living paycheck to paycheck and heavily in debt. This will leave you broke most of the time, but this is how the rich build their wealth. That’s how the rich stay… RICH.

Rich vs. Wealthy

There is a difference between rich and wealthy. You get rich before you get rich, and as Chris Rock said, “A player is rich, he who pays him is rich.” Bruckminster Fuller said that wealth is measured in time. How long can you not work while your assets generate income? Wealth creates more wealth and can withstand economic downturns. Look at how many people stayed rich during the last recession.

How to implement the 40 percent rule

First, decide to start building wealth. It’s just not easy. Take baby steps. I couldn’t save 40% in the beginning, and I was already putting 20% ​​of my income towards paying off my debts. So I started with 4%. It was manageable and I gradually made progress. It’s automatic now and I don’t even miss it.

If you are reading The richest man in Babylonby George S. Clauson, then you know “A portion of everything you earn is yours to keep”. Save 10% of your income and 20% to pay off debts. Now just increase your savings up to 40%. As I mentioned before, it is a game changer.

Sacred accounts

Remember, this is wealth creation. You save so that you can invest in profitable assets. This will take time. Use your time wisely. Investments in research that will generate multiple streams of income. I chose real estate because it is not a fad and depends on technology. People need to shop, eat and live. Real estate takes care of that.

Emergency fund

I suggest you have an emergency fund. Start with $1000. For emergencies only. Life always brings a crisis several times a year. But since I have an emergency fund, I haven’t had any financial emergencies. I have had this for several years. I never had to dive into it. This is not an investment. We take care of the unexpected with money.

Your income increases

Put away all your bonuses, raises and increased income. Write this in your sacred accounts. You don’t want expenses to rise to match revenue. Continue to drive a wedge between expenses and income. Deposit all your increases into sacred accounts.

Press the trigger

After some time you will have enough to start investing. I don’t know how long it will take you. I know my mentor saved for 8 years before pulling the trigger. He turned that investment into a $5 million profit a few years later. He pulled the trigger when he felt confident and convinced he could get his money back. This is not gambling.

He got a lot because he had access to cash. Money loves speed and when you are liquid you can take advantage of opportunities. Every day there are great deals that people miss out on because they don’t have access to capital. This is why saving for investments is so important.

Just start

Here’s what you need to do now:

1. Open your sacred accounts. (I have one for real estate and business investments). Choose accounts where you won’t have immediate access to money. Online savings accounts are great and pay higher interest rates.

2. Decide how much you will save. Start with your first salary, commission or any other income. Even if it’s 1%, that’s better than nothing. It’s easier if you have automatic deductions. That way you won’t miss it.

3. It is a lifelong activity. Keep going until you die.

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