Frameworks & Finance

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Rules for spending in business and life

frameworks Sep 01, 2022

Today we talk about the 50/30/20 Budget Rule & rules of thumb for business and personal spending.

Real quickly, if you're interested in marketing my buddy Abhishek runs a weekly newsletter on the psychology of marketing. Each week he does 1 marketing breakdown & 3 tactics. Subscribe by clicking here.

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9 months ago my wife and I welcomed our first child into the house and boy has it been a lot of fun.

Every week it seems like there is a new milestone.

Rolling over.Rocking back-and-forth.Learning out to crawl.Then standing with support.Then walking along furniture.Then standing without support.

I know that a lot of people have gone through this, but that doesn’t change the wonder and excitement that it brings me and my wife.

But there are also other developments that are not so fun.

Now that he crawls, he’s into everything (and I mean everything… who knew vent covers were so interesting).

He has also started to recognize our corrections.

When he crawls towards the dog, we tell him no.When he crawls towards the dog bowl, we tell him no.When he crawls towards the bath or tub, we tell him no.When he starts opening cabinets and pulling out dishes, we tell him no.

Slowly, we’ve seen him develop a reaction to the meaning behind these words. At first it was confusion and getting teary.

But now, it has turned into acknowledgment and continuing on his course.

While a 9-month old is limited in how he can disobey, older children aren’t.

So, why is that? Why are we driven to the edge of what’s allowable?

There is an innate desire in us to know what our boundaries are.

We’re all looking for those lines.

Some, when they reach the line, stop and don’t approach again. Others continue to test the line.

In the same way that kids test their boundaries to see what’s out there, adults like boundaries as well. Sure, some like them more than others, but it’s important nonetheless to establish them.

This is very often true where people lack confidence in an area, which is true in finances.

That brings us to the 50-30-20 Budget.

The idea is this: spend 50% on needs, 30% on wants, 20% on savings.

This has been adopted in business too: 50% on essentials, 30% on personal development, 20% on goals.

This framework is powerful because it gives you a rule of thumb to follow.

There is no magic to these numbers, so feel free to adjust them as you may.

But there is magic in following a rule of thumb.

So think: what rule of thumb could you establish, in work or life, that would help make decision-making just a little bit easier?

Reply to this email and let me know what you come up with.



Along the same lines of boundaries, or rules of thumbs as mentioned above, I got to thinking: when it comes to spending money, personally and professionally, what are some good rules of thumb to follow when spending?

Business Spending Rules of Thumb

  1. 3-6 months emergency fund

  2. Ask: Is it necessary?

  3. Ask: Am I being cheap?

  4. Ask: Is it in the budget?

  5. Create and follow a process

  6. Consistently apply the rules

  7. Invest in your best employees

  8. Always have an emergency plan

  9. Communicate your expectations

  10. Ask: What are my competitors doing?

  11. Ask: Is it a distraction from my goals?

  12. Value long-term benefits over short-term benefits

  13. Create funding rules (do you want to operate with debt or not)

Personal Spending Rules of Thumb

  1. Keep a 6 month emergency fund

  2. Avoid high-interest debt

  3. Ask: Am I being cheap?

  4. Buy term life insurance

  5. Automate everything

  6. Ask: Is it in the budget?

  7. Buy used cars

  8. Track your net worth

  9. Value time over money

  10. Value experience over things

  11. Value long-term payoff over short-term

  12. Retirement money never goes into the bank account

  13. Always track (budget) your most important categories

  14. Create space between the desire and the actual purchase

  15. Ask: What am I eliminating in the future with this purchase?

  16. Set aside a portion of all raises and bonuses to be saved or invested

Honestly, this list is just a start. Would love to hear... what ideas do you have for either personal or business money rules of thumb?




Thank you for reading--see you again next week.

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