You won't regret teaching your kids the 75% principle!
Ever hear of Parkinson’s law? It is the adage that work expands to fill the time available for its completion. Meaning, if you have a task and are given two days to complete it, you will complete it in two days. Given a week to complete the same task, it will take you a week to do what you could do in two days. One of the things I wish I had learned and wish I would have taught my kids better is this same adage with money. We tend to spend the amount we have to spend. It is human nature to spend all that we have. If you have five dollars, you will spend five dollars. Credit cards and other tools sometimes allow us to spend more than we have. Ever get an overdraft fee? Yep, that’s the bank allowing us to spend more than we have.
If you apply this principle to your life, chances are you have received a few pay increases or a new salary, and almost immediately your lifestyle keeps you feeling the same. You quickly expand your lifestyle to the new limit of what you are bringing home.
So, knowing how this law works in our financial lives, how do you create the "limit" you want to live within?
Sadly, we already do this, but our cap is normally determined by the government. Today, most of us live off of what the government allows us to have. Most likely, you are having taxes withdrawn automatically from your company when they give you your paycheck. The government has factored Parkinson’s law into their policies, meaning let’s get our money before the person gets their hands on it. Imagine how you would feel about paying higher taxes if the government and your business gave you all your money and you had to pay the government your tax. You will feel the tax changes when they happen. We might revert to how they felt in biblical times about tax collectors. See, the government has taken it from the top and you just live with what you are "allowed" to take home. Catch that? Take-home pay.
Now you won’t get me to agree with the government’s way of doing things very often, but if we were to do this same thing in our own lives, we would be better off. I call it the 75% principle.
What is this principle? Well, from the moment you start taking your first paycheck, you pay your 10% tithe and then pay yourself 15%, right from the top. This leaves your lifestyle to fit into the remaining 75%.
As you receive pay increases or bonuses, you continue to pay yourself 15%, give gratitude to the Lord for another 10%, and allow your lifestyle to stay within 75% of your income.
Imagine if you learned this as a kid. From that first paycheck, you tithed, saved (invested), and spent as you grew financially. By doing this, you have instantly created your own take-home for your lifestyle and have protected your future needs (savings).
If you aren’t living this way, use this principle as a target to get your life back in order and cap your ever-expanding lifestyle. More importantly, teach your kids the 75% principle. I promise you, if you can live by, teach, and instill this, it will be one of the greatest gifts you can give your kids financially.
In case you are wondering, this is my best tangible definition of the adage "live within your means": live on 75 percent of your income, by first giving tithes to our Lord and by paying yourself for future rainy days and future life events.