When managing our finances, Level 2 is the lowest level we should all want to be at. A person at this level has no debts, is spending less than they earn has a grip on how to implement The Level 1 Plan and is able to live the most affordable lifestyle they can get with what they earn.
This is the simplest principle we should all be living by if we want to have good money management and financial health. It seems like it should be enough but it’s not.
Even when you are debt free and don’t overspend each month, it’s always great to have a good plan in place for your money. If you don’t have a plan for your money, just be assured that somebody else does and they have dreamed up so many ways of putting it to use: from you using it on goods in their store, watching the films that they’ve made, drinking their Skinny Double Shot Ginger Nut Lattes, or even getting you to take a gamble with it (lottery tickets). They’re using your money for their plan and the thing is you won’t even notice it’s happening until it’s too late.
In order to take control of your finances you need to put a plan in place for your money before anyone else does. You have to create a plan that helps you to get your money working for you and benefitting you first before anybody else. A really great template that I’ve come across for starting a financial plan at this level is the 10:10:80 rule. It is very easy to use, can be implemented immediately and only requires that you be patient and dedicated long term.
The 10:10:80 Rule
The idea of this rule is that you split your money up by percentages:
Live on 80%
1. Save – The first 10% of your income is money to be put away for a rainy day
2. Give – This 10% is money designated for you to use to give – this can be to charity or to help someone out (I also include gifts like birthday gifts in this amount)
3. Live – The remaining 80% is money from which you pay your bills, cover your day-to-day expenses and generally have fun!
The percentages can be calculated on either your gross (pre-tax) income or net (post/after-tax) income. I do it on my gross but you can choose whichever suits you best. This method is a really easy way to get you to start saving, being generous and overall putting your money to good use. We could stop there but seeing as we’ve been talking about making a plan for your money, the 80% that you use to live on should also be planned for also.
A Plan for the 80%
There isn’s a hard and fast rule to this part. You just need plan as you see fit, taking into account all the expenses you are likely to incur in the next month and setting the money aside for them.
I like to set money aside (after taking money out for my bills) for any social or business events I know I will be attending in the next month, for any toiletries or for personal grooming I’ll need (still need to get ma hurr and nails did!), and even any travelling or trips I will take.
It makes things much easier and I go into the month knowing that these items are already covered rather than spending as I go along, then not having enough money to hand by the time the event I’ve been waiting for comes around. Anything left after that is for me to do as I wish, as and when throughout the month. This technique is made easier by using the piggy-banking technique where you have separate accounts for the different portions of money – savings, giving, income & expenditure (I also have a fourth one for bills) – so you make sure it all goes to the right place.
Healthy money habits take time and practice and it can be hard to maintain at times especially when situations that require your money pop up out of the blue. It can be done however and if you do find that it’s all gone haywire, go back to Level 1 :The Most Basic Plan for the next month and start again. When we get our finances in order it helps us to be at peace with and fully enjoy the things we’re doing in our lives.
So what do you think? Would you try the 10:10:80 rule? If you have tried it what do you think of it? Leave a comment below.