The Path to Financial Abundance: The 60% Rule for Passive Real Estate Investors
Passive real estate investing offers an attractive opportunity for individuals seeking to build wealth and secure their financial future without the need for active involvement in property management. While this avenue can be lucrative, it’s crucial for investors to adopt prudent financial habits to maximize their returns and create an abundance of savings. One such essential principle is the 60% rule, which emphasizes spending no more than 60% of your income. Although reaching this target might seem daunting at first, the journey towards financial freedom begins with setting this goal and working towards it, even if it means starting with small steps.
The Significance of the 60% Rule
In the pursuit of financial independence, the 60% rule serves as a guiding light for passive real estate investors. By adhering to this principle, investors can establish a sustainable budget that allows for substantial savings and investment opportunities. The concept is simple yet powerful: if you can live on 60% of your income, you allocate the remaining 40% towards building a financial safety net, generating more investment capital, and ultimately achieving financial independence where your money works for you. The holy grail is when the passive income generated from your 40%, begins to buy more assets that then generate more passive income!
Why Setting the Goal Matters-Where To Start
Although attaining the 60% threshold might not be feasible immediately, setting this goal is paramount. The act of defining a target triggers a shift in mindset, encouraging you to prioritize savings, identify where your money might be going, and focus on how to generate more income. When we establish goals, we create a roadmap for our financial journey, which in turn fosters discipline and determination. When we plan a vacation, we’ll spend hours figuring out where to go that is aligned with what we want. We need to take the same exact strategy with the 60% rule.
Starting Small and Progressing Steadily
The path to financial abundance often requires starting small and progressively advancing towards the ultimate goal. Instead of being disheartened by the initial gap between what your current spending habits are and the 60% target, you should celebrate every step taken towards it. Begin by tracking expenses diligently and identifying areas where spending can be reduced without compromising on the essentials.
Developing a Budgeting Strategy
Creating a well-structured budget is a fundamental aspect of achieving the 60% goal. Start by categorizing expenses into “needs” and “wants.” Focus on optimizing the allocation for necessities like housing, utilities, and groceries while identifying discretionary expenses that can be trimmed. By distinguishing between essential and non-essential spending, investors can make informed decisions about their financial priorities.
The Power of 1% Improvements of Reducing Expenses
Financial transformations do not happen overnight. It’s essential to embrace the concept of incremental improvements and small wins. Initially, cutting down expenses by even 1% or 2% can make a significant difference over time. As you get comfortable with the adjustments, continue raising the bar until you reach the 60% milestone. Celebrate each milestone achieved, as these achievements provide the motivation to persist in your journey towards financial abundance.
The Power of 1% Improvements of Increasing Income
Take the same exact approach with finding ways to scale your income by 1% as it’s equally essential for passive real estate investors to explore opportunities for scaling their income. While reducing expenses is a powerful way to increase savings, it has its limitations. On the other hand, scaling your income allows for exponential growth and a faster path towards achieving your financial goals. Scaling your income not only accelerates your journey towards the 60% goal but also provides you with more resources to invest further in real estate or other wealth-building ventures. By striking a balance between prudent spending and income growth, you can optimize your financial trajectory and build a robust foundation for lasting financial abundance. If you had to find a way to increase your income by 1% over the next 12 weeks, HOW WOULD YOU DO IT?
Avoiding Lifestyle Inflation
As your income grows, it’s natural to want to improve your standard of living. However, beware of lifestyle inflation – the tendency to increase spending in proportion to income growth. By resisting the temptation to upgrade your lifestyle excessively, you can maintain a healthy balance between enjoying the fruits of your labor and securing a financially abundant future. By having an actual number to adhere to(60%), you can still enjoy more, while saving more!
Wrapping It Up
While it may seem daunting to get to the 60% rule, I encourage you to take the first step and that is to find out what your current spending habits are and you can do this in 30 minutes by doing the following:
- Go to your bank statements and total the last 4 months of all of your deposited income and divide that number by 4 so that we have an average baseline of your income
- Take the number from above and multiply it times 60%
- This is YOUR NUMBER!!
While you can get even more exact if you’d like to, I wanted to keep this actionable. Now that you have your number, set a goal over the next 12 weeks on how you’re going to improve and get closer to your 60% by at least 3%(1% per month).
Being aware and getting started are the key!
