Tuesday, May 26, 2009

Step 9 to Abundance: Splitting Money to Pay Down Debt and Increase Savings

Okay, folks, we're about done with this "Path to Abundance Program." Step 8 demonstrated the three areas where money is submitted to keep the cycle of cash flowing into your life rather than away from you. How do you utilize this knowledge to bring cash into your world? There is a simple system that will allow you to pay off debt while at the same time increase your savings account balance. It is called the 60/40 Principle. It is the system that I used to get my family out of debt and eventually we moved from being middle class to millionaires over a 7 year period. Here are the basics:

This concept is the main rule that governs the flow of money in our lives. If you implement the 60 / 40 principle on any money you receive, you will immediately see your savings account start growing while your debt load decreases. If your debts are great, start only with money that is not part of your income, such as birthday money, rebates, unexpected cash from part-time employment, your change jar, your bonus from work, a tax refund check, whatever; you get the idea. You allocate money in this way by the 60 / 40 principle:

  1. 60% you live on. This goes into your main checking account.

  2. 10% goes into a long-term savings vehicle (IRA, 401k, Keogh account, solo 401k) for retirement. If you don't currently have a retirement account of any kind open two savings accounts at your bank. (One for long term and one for short term savings)

  3. 10% goes into a short-term savings account (local bank or a money market account) for use in those occasional large-scale expenses (new tires) and emergencies (the water heater explodes).

  4. 10% is tithed to a church or secular charity that is in line with your purpose. This is your ''rent'' for occupying space on the planet.

  5. 10% is pure philanthropy. That's right, you just give it away for the benefit of the community at large. This primes the pump so that the Universe starts sending wealth your way.

Once you have retired your debts, you apply the 60 / 40 principle to all your money, including your income, to keep money flowing in your life. Should you have any questions or comments please post them. I'll do my best to answer you quickly. Next week will be the final step to the Path to Abundance. Then we will move on to Curing Your Cash Crisis....stay tuned.


thestarforum said...

Janine -- I've been doing the 60/40 plan for about 2 years now. I still have a ton of debt. (My house) I pay a bit extra every month, but it doesn't feel at all like I'm making head-way. I want to be completely debt free. I have about 25k in my short-term savings, and about 350k in house debt.

Chaka said...

I am looking forward to applying this. Thanks for the posts.

Janine said...

thestarforum, it can totally feel like you are making no headway when you see a mountain of debt in your life. However, you are making progress every time you make payments to these loans. Remember, the debt didn't happen overnight, neither will the repayment plant. This debt-free living lifestyle is a marathon and not a sprint. The race is won by the person who persists not necessarily by the fastest runner on the field. If you wish a more detailed answer to your situation, please visit www.smartcentsinc.com and email me through the contact form. Good luck!