The 40% Rule

As many of you know I am a fan of Grant Cardone with a lot of his stuff and one of the key takeaways I look forward to applying to my life is the 40% rule. The 40% rule was documented in the Great Depression where the wealthy were saving 40% of their income, and its just that simple.  The 40% rule is saving 40% of your income before taxes, so if you make $10,000 a month that would require you to save $4,000 a month. If you start looking at the math you’ll realize after taxes and expenses that it is very difficult to achieve the 40% rule, and it is. Income is a priority for the 40% rule, you can’t save what you don’t make, and you must pay yourself first. I will show you a real example using my actual projected salary for my full-time job starting in June.

For my full-time job I have a $57,600 salary ($4800 monthly), a $5,000 signing bonus paid in first month, and a $500-month stipend for the first 18 months. It is a salary and commission pay plan however I will only account for the salary part since I don’t know how much I will sell yet.

Because I start mid-June, I calculated my gross income as half of my monthly salary ($2,400) + $5,000 bonus + $500 stipend = $7,900

June July August September October November December Total
4800 $7,900 $5,300 $5,300 $5,300 $5,300 $5,300 $5,300 $39,700
save 40% $3,160 $2,120 $2,120 $2,120 $2,120 $2,120 $2,120 $15,880
tax $1,738 $1,166 $1,166 $1,166 $1,166 $1,166 $1,166 $8,734
budget $3,002 $2,014 $2,014 $2,014 $2,014 $2,014 $2,014 $15,086

Looking at the table you can see my budget is around $2,000 and it will be less than that when you consider my 401k will also be pulled out of my income. I did assign a tax rate of 22% which is the bracket you would be in for this income however your marginal tax rate is less than that, either way I prefer to be conservative with my estimates. (I calculated my marginal tax rate to be 11.5% which would add $570 to my budget every month or $570 more to invest every month) For reference, I take data on my spending habits every summer when I am on internship or co-op. This summer I had no living stipend and was completely on my own, my monthly spending came out right at $2,000, though that includes some extraneous cost that most likely will not happen in the first 6-months of my full-time job. I also will be living at home or my girlfriend’s house during the first 6 months of my full-time job as I will be traveling 90% of the time during training.

Realistically looking at the first 6-months I will have extremely low expenses and may be able to save even more aggressively than what I have shown. Any extra income I can save will be put into my other investing accounts (Robinhood, Lending Club, and Stash). Ideally, I would like to save around $20,000 from my full-time job in 2019, which will help me achieve my $75,000 net worth goal. I would also like to try and purchase a 4-plex or duplex at the end of 2019 assuming all goes according to plan.

Looking at 2020, the saving and income numbers look the same as the later half of 2018. Commission will be included assuming I make sales and as my commissions come in, I plan to add those additional funds to my investment accounts as stated above. Looking at 2019 and 2020 I plan to save $40,000 with the 40% rule and invest additional income in my investing accounts. I plan to save in my Discover Savings account which earns 2.10% APY, which will add to my saving goals as well.

2020 will be difficult to keep in budget, I will then be paying rent and will be living full time in St. Louis. The $2,000 I lived on during internship was living like a poor college student for the most part, as I enter the real world, I expect my standard of living from the food I eat to the activities I participate in to be more expensive as well. However, I at least have an idea of what I spend monthly in preparation, I suggest to everyone to start documenting your spending to get an idea of your habits. If you need help or would like to look at how I do it, I cover it in THIS article.

As I mentioned earlier in the article, income is critical to achieving this aggressive saving plan, for your convenience I will run an example with a salary of $40,000, and I will use a marginal tax rate to ensure accuracy. I included above my actual budget above when marginal tax rate is considered ($2570/month).

June July August September October November December Total
$40,000 $3,333 $3,333 $3,333 $3,333 $3,333 $3,333 $3,333 $23,331
save 40% $1,333 $1,333 $1,333 $1,333 $1,333 $1,333 $1,333 $9,332
tax $283.31 $283.31 $283.31 $283.31 $283.31 $283.31 $283.31 $1,983
budget $1,716 $1,716 $1,716 $1,716 $1,716 $1,716 $1,716 $12,015

As you can see with $850 less a month in your budget that makes things considerably more difficult depending on your life style and where you live.

I hope you learned some valuable information about budgeting and saving money, I’d love to hear about how you save and what your targets are!

Thanks, B^2

2019 Goals

Looking into 2019 I have some goals and aspirations and I plan to look at them closer than I did last year. After all, it’s critical to know where you are going and remind yourself what your targets are. I mentioned previously that I graduate in May and begin my full-time job in Mid-June. I’ve calculated potential income with my salary and decided to shoot a little higher than that. I would like to have a net worth of $75,000 up from my current net worth of $26,500. While building up my net worth I plan to put at least $10,000 to my emergency fund in my discover savings account. I make a nice 2.10% APY on that account leading to a $210 yearly passive income generated from that account alone. Overall making money while I sleep is nice and I would like to make $2500 in passive income this year. On average that is $200 a month and from there we’ll keep bumping that number up. With the eventual goal of surpassing my active income. To help get that income up so I can invest more I aim to have a side hustle that will generate $5000 this year. With all of that in mind I plan to buy income generating real estate at the end of 2019 or invest significantly with a syndicator.

Money isn’t everything so on the note of building my personal brand and learning more I have several goals related to this. I would first and foremost like to have 150 blog posts in total by the end of 2019. This comes out to writing about 1.5 posts a week. In addition, I would like to have 1500 visitors and 2500 views on my blog in 2019 organically. My other large platform is Instagram and is probably how you are reading this article. I would like to finish 2019 with 750 Instagram posts and 3000 followers. The blog goals and Instagram goals will go hand in hand as they both stimulate each other. The last of my goals involve learning, I aim to read a book every month of 2019, 12 books in total. I’m aware this isn’t a whole lot however I will be learning and studying for school as well as work for most of the year and you can only cram so much into your brain at once.

I know this is very late to be talking about 2019 goals however it took me awhile to decide what I really wanted to go for this year as well as taking the time to sit down and write this out. Feel free to leave a comment below about your 2019 goals or post your comments on Instagram!

B^2

Internship Finances Overview

I wrote an article titled “Personal Finance Overview 7/17/18” reviewing my expenses and spending through my internship this summer. Today I will wrap up how the summer went in terms of my spending and earning. Below is a master picture of the expenses.

finances2

If you haven’t read the previous post mentioned take 5 minutes to catch up and get familiar, the link is above. In term of the food column we brought the average down from $300 to around $265 ish this comes out to $60 a week or so. This has been very inline with my previous tracking throughout the summers. For those of you who are wondering how in the hell can I eat on $60 a week the answer is eggs, milk, brown rice, oats, chicken, ground beef, protein bars. That is pretty much all I ate all summer. Very simple very cheap. I also rarely eat out, and normally don’t purchase coffee while I’m out.

Gas money remained the same. Slightly under $200 a month, ~$45 a week. I never tracked mileage this summer, but I believe I drove over 5,000 and a decent portion of that was city driving. Not much I could have done about that, but I do plan to write off about half of my mileage for work.

Fun money! I mentioned last post about a party I was throwing and how this column was going to shoot up and it did. Landing at $260 a month or about $60 a week, which is inline with last summer. If you take out the party $115 a month in fun money. I plan to use a number around there as my benchmark for my budget for the school year. I’m sure this past week and all the drinking and partying we did we’ve already passed it but you can try your best.

For the gym I mentioned before that I had a large upfront cost and it would slowly work its way down and it has. It made it down to $65 a month. Not too bad considering the gym membership with tax came out to $35+ and going through tons of mass gainer all summer.

Girlfriend column came down as expected finishing at $200 and change. Not sure if this is an accurate number considering the plane tickets included and being further away from her this summer (aka not seeing her as often). I’m sure Christmas, birthdays and little surprises will keep this averaged somewhere around there.

Bullshit: Managed to bring this one down a bit, from $1150/month, to $1,000/month. Again had 2 rents being paid for a short period, utilities, speeding ticket and other essentials for my job. As of right now I still have not paid August electric nor have I received any money back from my deposit. I do go home Labor Day weekend so I may have a small check waiting for me when I get back.

finances3

I stopped tracking this spreadsheet on August 11th, the day after my last day on the job. I have since still worked a little in terms of answering phone calls, emails. Text messages and finishing up my last deal (got that one done today!). My cost of living came out to be $1993/month. I don’t pay for my insurance (thanks mom and dad) or anything like that so naturally its going to be lower than most other people. I don’t think that’s too terrible considering the average cost of living in the U.S is about $45k. I was at $2135 in the prior article. Now there is some skewed data, I try to finish the internship with little to no food left, usually no gas left, etc. it doesn’t account for the continuity of living and the average cost of living. However around $2,000/month wouldn’t be a bad guess.

finances4

My monthly conversion for what I was paid comes out to $3,700 a month. I do still have more money on the way and I should be able to finish out at a total of $17,000 made. A little bit of math later (13 weeks of work * 4 = 52 weeks, $17k * 4 = $68k year equivalent). My goal was to make over $60k salary equivalent and I should achieve my goal assuming all the deals go through and I get the bonus I was promised.

A little bit more math real quick to look at Grant Cardone’s 40% rule:

$68,000 * 0.78 = $53,040       (22% tax for single person 2018)

$53,040 * 0.6 = $31,824         (40% of your after-tax income goes to “saving to invest”)

Live on $31k a year, put $21k in the sacred accounts, 5 years till $100k the minimum Mr. Cardone advises to invest.

I’ve proven I can live at $24,000 a year or there abouts with my frugal living, and I have the willpower to stick to the goal. Now the average pay coming out of my school with my degree is around $65,000 but I am sure we can do a little bit better than that. Hopefully with a good job or a side hustle or two, perhaps passive income that I’ve been building we can accelerate the 40% rule and build real wealth!

If you’re curious I ran some more numbers with the 40% rule and the current tax brackets for a single person.

40 rule.JPG

As always let me know what you think and what you want to see more of!