How I Was Able To Save Nearly All of My After Tax Income

Creating a Money Allocation Filter

One of the most important things you can do for your financial health is to create an automatic allocation system for when your money comes in. A system makes it much easier to form a long term habit instead of relying on will power alone. What has worked best for me is Grant Cardone’s 40/40/20 rule. He has a great video where he teaches his staff about it. You can see it through this link here.

When you make money, the first 40% of it needs to be invested in something that earns you money and has a very low likelihood of ever being lost. The next 40% will be paid towards your taxes. The next 20% is for you to live off of.

Grant gets a lot of criticism for saying that you need to make $400,000 to respect yourself. What people don’t get is that he puts all his money through this formula. 20% of $400,000 is $80,000 to live off of where he’s located in Miami.

For half a decade, I applied this 40/40/20 rule. I live in a smaller town in Oregon and my expenses are much lower than those in Miami.

Here’s How I Applied It

My 2020 gross income before tax was around $136,000. My business expenses were around $10,000. I was self employed as a realtor.

What I did:

Because I'm self employed as a realtor, I don't pay taxes as soon as I make money. If I file a tax extension, I can pay my taxes around a year and a half later.

What I was able to do was save around $68,000 that year from a "technical" $75,600 after tax and after business expense income. This translated to a 90% after tax savings rate. Nearly every year, my income increases, but the ratio that I use stays the same. The profits from my investments are rolled into more deals.

This blog post is an excerpt from my book Passive Wealth. You can check out the book at the link below.

Amazon link