The rule of thirds

[BritGHOWParticipant 2566]

I’ve read a number of threads since I started on this forum by men looking for ways to improve their financial situations, which along with this video by Raging Golden Eagle:

Has me wanting to share something which may or may not prove useful to anyone in this situation, as Eagle puts it, seizing the day need not be mutually exclusive with preparing for the future. But how to go about it?

The rule of thirds is a personal finance management system my grandfather taught me at an early age, one which has served me well up to now and which I have no doubt will continue to do so in the future.

It can be summed up in three simple words: Live, Save, Play.

To expand on that, the theory is: assess your take-home pay (ie. after deductions) at the end of each month, and divide it into three (roughly – more on this later) equal amounts.

The first third you live on, this is to cover the essential costs of living:
– Rent/mortgage if applicable
– Utilities: Gas, water, electric, internet.
– Council tax or your regional equivalent
– Food
– Cost of getting to work
– Mobile phone

Now a couple of those will be contentious, but the thinking on those items is this, in the modern world, unless you’re lucky enough to live within walking distance of your workplace and a decent supermarket you must have a means of commuting to work, be that a car, a motorbike, public transport, whatever the method, there is a cost involved, and that cost is not avoidable if you wish to retain your job. That said, you need a car, not a Bugatti Veyron.

With the amount of government and corporate services moving to online only you need to be able to access the internet, but again, access does not mean 100Mb/s fibre to the home.

You need to be contactable on the move, but this does not require the latest iPhone or Galaxy with unlimited 4G data and more texts and minutes that you could ever use, a simple brick capable of making and receiving calls with a PAYG sim can be had for the cost of a couple of Starbucks.

The second third you save, where and how is entirely up to you, investments, cash, bonds are all valid options. Personally I keep the traditional 6 months’ salary in ready cash, with the rest split between tax free savings, an offset mortgage account and a small amount invested.

This money is your rainy day/holiday/big ticket purchase/additional retirement slush fund.

The final third is your play money, to spend on whatever the hell you want, a dog, a cat, books, computers, travel, hobbies, hookers, booze, steak dinners, fast cars, smartphones, fibre broadband, Sky TV it’s all good because it’s your money, you earned it and you don’t have to answer to anyone for your (legal) choices.

Again personal preference but anything out of this that I don’t spend in a month goes into the savings pot.

Now I said theory at the start because it’s actually pretty hard to fix your living costs at any level and most likely even with ruthless economising with current property and asset prices in many places they will often be in excess one third of your salary, most of the time in my circle I see figures in the range of 25-45%.

How you go about allocating the remainder is down to the individual. Personally I’ve been on both sides and turned “society’s” own rules against it.

Early in my career when my cost of living was some 40% of take-home, I socialised that loss by continuing to save my third and cutting my play spending. Now I spend closer to 30% of take-home on living, and I’ve privatised that gain by capping my play money at one third (which is still a decent jump from its previous level) and putting the extra into my savings. Feels good to play heads I win tails society loses for once.

Personally I find this an incredibly rewarding way to live, and it’s such an easy habit to get into if you can afford it, simply setting up a standing order to transfer the one third savings out of your account the same day you get paid means you never see it in your main account so you don’t worry about it, but it’s there if you ever need it.

[Binary LogicParticipant 2351]

This is actually a piece of pretty sound advice. I’ve recently discovered the benefit of something as simple as a 401k. I’m investing not exactly a 1/3 or my take home, but 25%. This is at the start. As time goes on, eventually for every year an additional 1% of my before-tax take home will be placed aside as well. I am extremely lucky in that my salary is tax exempt for working overseas.  I am really trying to capitalize on that while I can.

The saddest part about all this is I am already 33. I’ve worked for the better part of 15 years and I’m just now figuring this out. Once I had tallied all of my numbers and seen the possible eye-bulging outcome, I found myself kicking-my own ass for not jumping on that train earlier. And it’s not that someone hadn’t told me about it beforehand, I was simply to ignorant to pay attention. Good post brother, I hope I am not the only one that comes to understand the awesomeness of this post.

Funny, isn't it? How women thrive on a mans time, attention and resources, while simultaneously telling him he isn't enough...

[ClintParticipant 331]

I learned this recently as well. I learned it from Tai Lopez’s 67 steps, though.

"To be yourself in a world that is constantly trying to make you into something else is the greatest accomplishment." -Ralph Waldo Emerson

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