Rule of 5
Wealth is not about how much you make. It’s about how much you keep.
Learn how to spend money the right way.
Many people live paycheck to paycheck, especially these days when things are getting more and more expensive at an accelerated rate. I have always been an impulse shopper. I will leave with a list, but that tends to go out the window when I’m shopping. Knowing this about myself, I am always looking for more tips and tricks to help me save.
Learn how to spend money the right way.
It doesn’t matter how much you make, if you don’t know how to spend your money wisely then you will still end up living paycheck to paycheck as so many do. The key to becoming wealthy is not just by earning more money, because if you spend everything you earn, then you are still broke. The key to becoming wealthy is by keeping your expenses as low as possible to give you the margin you need to invest for your future. For most, this is where they struggle. Most people have a spending problem rather than an income problem, and no matter how much they make, they will fall prey to lifestyle creep (meaning as your income increases, so does your standard of living causing you to spend that extra money now as well). This is why it feels like no matter how much money you make; you can never make ends meet.
Rule of 5 - If you cannot afford to buy something 5 times, then you cannot afford to buy it one time.
This rule by Jaspreet from Minority Mindset could be a great tool to use to ensure you can afford the items you want. A couple of exceptions he said would be when purchasing a house and maybe a car. The idea is to not spend every penny you have come in as that will always leave you broke, no matter how much money you make. So, if you only have $1,000, that doesn’t mean you can afford to buy something for $1,000 as that will again leave you broke.
Using the Rule of 5, if you would like to purchase something that costs $1,000, then you should have $5,000 that is not allocated to anything else, or if you only have $1,000 that is unallocated, then you can only purchase something that is $200 (as $200 x 5 = $1,000). I feel this concept could be done with any number you feel would work best for you, so depending on your circumstances you could use the Rule of 2, 3, or 10. Doing this can help keep you out of the net zero lifestyle of living paycheck to paycheck, so you can better afford the ability to build your wealth and give you the freedom to live the life you want.
Another take on this that others do is that for every dollar they spend, they invest a percentage of the purchase price. Some do this as a 1-for-1, meaning that for every $1 they spend, they will also invest $1. So, if you bought something for $100, then you should also invest $100. If you are not at a point where you can do a 1-for-1, try cutting that down until you can get to that higher investing rate. Maybe try for every $1 you spend; you invest ¼ or ½ of that amount.
The point of this is to ensure you are not spending every dollar you bring in, so you will have money left over to invest. Whatever method or amount you choose; this can be a great tool to help ensure you have money to help grow for your tomorrow.
Let me know what you think, and/or if you have any other tips to help save money or spend more wisely. Also, check out my Budgeting/Spending Plan page for more ideas on budgeting and spending more wisely.
For more tips and tricks to help save money, check out this article: Tips to Help Make No-Spend Challenges Work
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