By Melissa Tosetti
Over the past seven years, I’ve worked with clients who make $60,000 a year and regularly contribute to their 401k as well as build healthy savings accounts. They’re able to go on vacation and purchase what they want and need.
I’ve also worked with clients making $600,000 a year who live paycheck to paycheck.
What’s the difference? Goldfish Syndrome
A goldfish will grow to its environment. We do the same thing with our paychecks – increasing our cost of living with every pay raise.
When we get a raise, we buy a nicer car. The next raise, we get a bigger house. The next raise, purchase the timeshare. We never give ourselves a chance to let our income increase over our expenses.
So, what’s the anecdote for Goldfish Syndrome? It’s the 50/50 Rule.
I first heard about the 50/50 Rule from a financial advisor I did an event for back in 2012. He personally began implementing it after getting out of the military and starting his career in finance. It paid off for him at a very young age, which further motivated him to keep it in play.
The 50/50 Rule breaks down like this… for every pay raise, bonus, tax refund and/or financial windfall:
- Take 50% and put it toward your retirement accounts.
- The other 50% is yours to spend on whatever you please… with one MASSIVE exception. You cannot spend it on anything that will create a bill – anything that will increase your cost of living.
When you’re first starting out in your career, you’ll use the 50/50 Rule with some discretion. There’s a point where you’re going to buy your first house and trade in your junker car for something far more reliable, so of course your cost of living will go up.
However, you’ll hit a point where you’ll have the house and you’ll have a decent car. At that point you can diligently put the 50/50 Rule into play.
Of all the financial habits I’ve learned over the years, the 50/50 Rule is by far my favorite as it’s the epitome of Savvy Living, which is to build a strong financial foundation while enjoying the journey.
Just keep in mind that the road to true wealth lies in increasing your income and decreasing your cost of living.
To learn how Melissa works with individuals and families to plug their financial leaks and streamline their spending – while enjoying the journey, then visit: The Savvy Life Programs