Hi Enchanted tribe,
I have emerged from my cave to share some basic money management principles I have learnt since I started working #adulting.
So the first time I heard about the 30/70 rule at a Hillsong Church talk on finances. I took that word and ran with it and I have never regretted it. The 30/70 rule basically means breaking your income into two sergeants. The first segment which is the 30% of your total income is mandatory every month. Let me repeat that…mandatory EVERY month. The 30 is broken down into three parts of 10. The first 10% of your total income goes towards tithing, the second 10% towards your savings account and the last 10% towards long-term investments. The other segment of 70% is used to cover your monthly expenses and to reward yourself.
It is simple but powerful, so basically you pay God first, your present self and future self before anything else happens or is paid.
Tithing is a biblical principle with a promise and you can take your tithe to church or donate it where you feel its needed most. The intention behind this is you are honouring God with your income. Please note that the tithe is based on your total income, so combine all your streams of income and tithe on that.
Honour the Lord with your wealth and with the first fruits of all your produce; then your barns will be filled with plenty, and your vats will be bursting with wine.
Bring the full tithe into the storehouse, that there may be food in my house. And thereby put me to the test, says the Lord of hosts, if I will not open the windows of heaven for you and pour down for you a blessing until there is no more need. I will rebuke the devourer for you, so that it will not destroy the fruits of your soil, and your vine in the field shall not fail to bear, says the Lord of hosts. Then all nations will call you blessed, for you will be a land of delight, says the Lord of hosts.
As the above bible verses state when we tithe the rest of our income is covered by God’s promise. He is faithful and true to his word. I have seen him at work in my life and come through time and time again on this promise.
Furthermore, tithing is more than a religious act, the intention behind it is very important. Take it was an act of worship and thanksgiving. Thanking God for the income and the ability to generate it.
After paying the tithe, the next step is to pay 10% of your income into a savings account. This saving can be part of your emergency fund, holiday fund, car fund or house deposit; depending on your goal and vision. I suggest saving at least 3-6 months in an emergency fund for a rainy day or to cover you if your source of income gets disrupted. After this then you can save towards other goals.
On the same note, I would suggest keeping most of your funds in an investment account as opposed to a saving account especially if you have enough for the emergency fund already as normal saving accounts usually have less return as opposed to an investment account.
In addition, ensure you are getting the right savings account as the average interest rate of savings accounts in South Africa is 4.76% compared to the average inflation rate of 2017 which was 5.19 %, keeping your money in the wrong saving account would mean you are not even keeping up with the change in value of your money. So make sure you shop around for the right savings account the same way you would shop around for the best bargain with anything else.
To clarify, inflation is the increase in the cost of goods and services over time and it’s measured as an annual increase. As inflation rises, the money you have effectively buys you a smaller portion of a product or service. Therefore ensure your account at least matches the inflation rate because if you combine the loss in value and bank charges then you are putting yourself at a disadvantage.
As noted above, investing is essential this is why the last 10% goes towards that. Your investment decisions will be based on your goal and should have a long-term vision. Look at it as paying your future self and it can go into a retirement fund, bonds, stocks, managed funds etc. When investing you have to consider how much risk appetite you have as well. Usually the greater the risk, the higher the potential reward or loss. Always remember that the market is volatile depending on what you invest in and have a clear simple strategy when you get started. I suggest speaking to a financial advisor before you start investing.
After deducting the 30%, you then budget your monthly expenses on the 70% left. At the end of this post is a link to a free budget template that you can use to allocate costs. After paying your fixed monthly costs such as accommodation, car deductions, insurance, medical aid etc you can give yourself a weekly allowance to cover the rest such as eating out and travelling.
Saving and investing requires discipline. It is not easy but in the long-term, it is rewarding. To make it easier, I deposit my monthly savings into a fixed period account because “emergencies” always happen that threaten the survival of my savings and this is a good way to ensure that l don’t touch my savings.
As for investing…more will come on that topic.
Leave a comment with what your thoughts and let me know how you manage your finances 🙂 Until next time….live an enchanted life!