For the two thirds rule an investor must take they’re cash flow and split it in 3, whether it’s money from a job or cash flow from there property all money that you can afford to spend gets split in three. Two thirds are for investing the other third is to be lived off of. You can do this in two ways.
1- for me I make $900 bi weekly, this means as soon as I get paid I put 600 in a savings account to invest and live off of 300.
2- keep your full pay and for every dollar you spend times it by 3 and put the rest in a savings account. For big spenders this night make you think twice when buying wants. A $30 meal turns into $90. $30 for the meal $60 for investing.
My theory behind this- a person will be forced to live below there means. Spending money on needs instead of wants. They will get creative on living costs finding a dueplex to house hack and live for free, taking public transportation to work and save money by being cheap.
Secondly they'll be forced to figure out how to make more money. Using the money they save to creatively make more money. For example I might want more then 300 bucks a week to live off of so I'll buy a SFR cash flowing $200 a month. This means I'll have an extra $66.66 to spend on myself but also saving $133.33 extra a month to invest.
In result my means of living will increase until it is back to the point where it was. At the same time I will also have much more money going towards my investment portfolio.
In the long term I will create more cash then what I will need to live off of. At this point 80% will then go into investing. Once I hit this point I will be able to buy greater liabilities while still growing my portfolio tremendously. Eventually living greatly above my means while still investing a large amount of cash.
So what do you think, I am about to start living my life this way and in a few years you’ll see how it works. Just thought I’d share it with the bp community and get some feedback. Keep in mind I’m 19 have few liabilities and can afford to live this way, those who have a family and kids may only be able to do 1/2 income to start. Good luck to anyone else who tries this let me know how it works out for you!
@Cole Black how are you living on $600/mo?
If you can make it work, that's awesome, and will be a huge advantes for your investing goals. It's not realistic for 99% of the population though
I still live at my parents so I can live fairly cheep. I will have to sacrifice at the start but will be back to spending what I can spend now in the future. Some people might not be able to and that’s fine in a different situation they can change it to fit there needs. It also depends on there goals and they can adjust to make it fit there goals.
I guess it could work, except just like a property spreadsheet analysis...the world doesn't give a crap about your spreadsheet.
Life happens. Some days you need to pay for something unexpected. Some days your tenant breaks something and it needs to be fixed.
It's a noble thought and approach to save money to invest, especially if you're struggling to do so. Give it a go and update us in 6 months.
While I'm not that ambitious, I set aside 25% of my income for real estate investing. Though I could bump it higher I'm still dropping 16% into my 401k and I also like a good vacation 1-2 times a year.
I second what @Joe P. said. Give it 6 months and report back with your findings
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