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Finding a Financial Balance: Unlocking the Power of the One-Third Rule

Finding a Financial Balance: Unlocking the Power of the One-Third Rule

April 08, 2024

Contrary to what you might have heard, financial advisors are not just here to take your money and put it where you can’t reach it. We’re here to help you find that balance between living a life you enjoy now and planning for the future.

Whenever one of our clients gets a bonus, a windfall of cash, or a pay increase, we recommend following the one-third rule.

  • One-third of the funds go to taxes: Your employer takes care of this for you.
  • One-third of the funds go to your future: This means increasing your automated savings, either into your 401(k) or other work retirement plan or into your personal savings.
  • One-third goes into your checking account and is used to increase your lifestyle.

An example of this would be a three percent raise.:

  • One percent goes to taxes.
  • You increase your 401(k) savings by one percent.
  • The balance goes to your checking account.

Through the years, I have found that investing in your future has a lot of psychological complexity. If you feel squeezed in your checking account, you are less likely to keep up with an investment plan. If you weren’t spending that money on a regular basis anyway, you never miss it.  No pain, but you get gains for your financial future. It also increases your savings, which allows you to keep up with the increased standard of living that you are becoming accustomed to. 

Remember that you don’t have to do this on your own. Your financial advisor can help you get started and keep you accountable. And when it comes to the one-third that you’re setting aside for the future, make sure to talk to your advisor about the best way to save (think tax strategies).

Ready to get started? CLICK HERE to make an appointment.