Budgeting Tips from Jim Rohn

For those unfamiliar, the late Jim Rohn was one of leading minds in the business coaching and personal development field. His work covers topics such as business strategy, time management, goal attainment, and personal finance. Rohn’s book “7 Strategies for Wealth and Happiness” contains a plethora of useful, applicable tactics that can dramatically improve your lifestyle through creating paradigm shifts in mindset and actions.

He spends a portion of the book discussing an outline for managing a budget.  Specifically, Rohn calls it his 70/30 Rule. The premise is simple to follow and easy to implement. First, you start with your after-tax net earnings each month and multiply that value by 70%. Expenses for the month should not exceed this number (i.e. 70% of net wages). Second, subtract this expense target from after-tax monthly income and you will have 30% remaining. Lastly, this 30% is to be divided evenly into thirds.

Rohn advises that the first third (10% of after-tax earnings) go to a charity where you are passionate about its efforts. Passion is key because without this element the act of giving will not be joyous and gratitude to give cannot be expressed. In other words, when giving with abundant thankfulness the actual act of giving will become enjoyable and be viewed as a worthwhile endeavor for you thus improving the odds for continued budgeted giving.

The next third should be used to fund some entrepreneurial venture, make an investment, or engage in commerce either directly or indirectly. For most people, participating in a company 401K* plan could fulfill this requirement. After all, investing in the markets is a form of business speculation and should be treated with the same amount of discipline as you would have when running any other business. Additionally, the individual will gain an immense amount of knowledge about the capital markets (e.g. stock markets, interest rates) and different investment products which can only make for a better educated investor.

The last and final third should be put into a savings account where a safety cushion can be built up for unexpected expenses or to fund future vacations, businesses, or anything else you may desire. Rohn makes it a point to note that this portion of savings will allot you with the peace of mind to handle the winters of life as well as take advantage of the power of compounding interest**.

Conceptually, the 70/30 Rule is easy to grasp. However, it can be very difficult to execute the plan and put it into practice. In other words, you must develop the discipline necessary to adhere to the allocations above which will require resisting temptation to overspend. Discipline, like any other skill set, can be developed with practice to reinforce the action and form good habits. In fact, retired Navy SEAL Jocko Willink reiterated this point when he said “Discipline equals freedom.” By instilling the right rituals and habits in budgeting, financial freedom is a real possibility.

Ultimately, I hope it is clear that implementing the 70/30 Rule can radically enhance your lifestyle through executing a straight-forward budget consistently and by eliminating the room for excuses by providing a blueprint for action. 

As always, if you have questions or comments, feel free to send me a message. Thanks for reading.

JD

*See post entitled “The Benefits of Participating in Your Company’s 401K Program” located here for a closer look at 401K’s.

**See the post entitled “Daymond John’s Money Tips” found here for an explanation of compounded interest.