The best rule I have for allocating your paycheck is the 70-10-10-10 rule. I came up with this rule years ago after reading the excellent book The Richest Man in Babylon by George S. Clason. This book is a classic fable that gives the timeless rules for money management.
There are several other great resources: Total Money Makeover by Dave Ramsey and Money Master the Game:7 Simple steps to Financial Freedom by Tony Robbins.
The 70-10-10-10 Rule
- The first 10% goes in a charity account. The funds in this account are disbursed at 5% to your church and the other 5% goes to charities that you are passionate about. I have found over the years that if you follow this rule you will get back much more than you give.
- 70% goes for living expenses. Use these funds to pay your monthly living expenses. Pay credit cards off monthly and strive to keep your debt minimal.
- 10% goes to savings and investment. The first step is to have 3 months of living expenses saved in a money market account or savings account. Max out your 401k. Any additional funds should be invested as you and your financial planner see fit based on your risk.
- 10% goes to investing in yourself and/or business. These are funds to invest in your learning and education. These funds are for books, workshops, seminars and business retreats. They can also be used for side businesses.
A good plan is to meet with a financial advisor to help you to meet your financial goals. A good financial advisor can help you with wealth strategies, insurance strategies and tax strategies to help you to maximize your financial future. You should meet with your planner at least annually to discuss strategies and update your plan.