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A radical financial rule to live by
This rule is very similar to the housing rule. You can usually only afford a mortgage or rental payment two to five times your income.
Example: The Buy Five Rule
If you can’t buy five units of the car, buy a cheaper one. If you can’t buy five Gucci bags, put the bag back. If you can’t buy five trips to Miami, lower your costs or choose a cheaper destination. If you can’t buy five pairs of the Jordans you want to buy, put them back.
Doing this ensures you live within your means and never spend more than necessary.
We Tend To Overspend
When we buy something, we tend to think of the purchase singularly. We think, “Oh, I can afford to buy one of these, so I’ll buy it,” not realizing that we could probably use that money elsewhere if we can only afford one.
Maybe you find this rule over-the-top, but how much money could you have saved or invested if you had followed it for the past several years or decades?
Probably a lot more than you have up to this point.
I’m Going To Try The Rule Out
Not only will implementing the rule save me a buttload of money, but it will also help me lower my expenses big time. It will also challenge me to rethink larger purchases and motivate me to increase my income, so I can afford multiple purchases of the items I want.
Is following this rule necessary for financial success? No. But I guarantee that it will help you reach your financial goals faster, save more money, and reach your first 100k much quicker. The less you spend, the bigger the opportunity you create to save, invest, and build up a storehouse of financial resources.
Though my car is paid off, I should have bought a cheaper one at the time because I wasn’t earning enough to buy five of them. And I probably could have decreased some of my travel costs for previous trips. Am I doing okay financially, though? Yes. But this rule helps me look at purchases differently, and I hope it does the same for you.
If you follow this rule, you’ll never be strapped or stressed out about any purchase again. And if you genuinely want something, you’ll take action to increase your income so that you can obtain it multiple times over.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.