Sir John Templeton’s Secret to Becoming a Billionaire | Paying Yourself First vs. The 50/50 Rule

by RJ

in Investing

If I could go back in time and pick the brain of any investor in history, I would sit down with Sir John Templeton. What the man accomplished in 95 years was amazing.

The purpose of this article is not to talk about how extraordinary of a life Sir John Templeton lived, but talk about one rule that he lived by that made him a billionaire.

The 50/50 Rule

Sir John Templeton decided that for every dollar he spent, he would have to invest an equal amount.

Therefore, if he spent $1,000 a month, he would have to invest $1,000.

Paying Yourself First vs. The 50/50 Rule

At first, I thought this was the same as paying yourself first. However, the more I thought about the 50/50 rule, the more power I saw in it.

For example, say I wanted to buy a $10,000 car.

If I paid myself 10% off of every dollar I earned, I would need to make $100,000 before I could buy a $10,000 car. In order to achieve my goal of reaching $10,000, I would focus on growing my income.

If I use the 50/50 rule, I would need to invest $10,000 before I bought this car. In order to get to my goal faster, I would focus on increasing income and decreasing my expenses. Technically, I could get there long before (or long after) I earn $100,000 in income.

How I’m Planning To Apply the 50/50 Rule

In a perfect world, I could start investing a dollar tomorrow for every dollar I spent. Unfortunately, I’m not even close to being able to do this.

What I plan to do is track the ratio of expenses to investments every month. This ratio will be an addition of to my monthly financial review I do. (I’m actually starting to share this with you starting in June)

Eventually, I want to get to a point where I’m at a 1:1 ratio. In other words, I want to be able to invest $1 for every dollar I spend.

It will be a while before I get to this point.  It could be 1 year, 2 years, or 25 years, but with consistent improvement, I will get there someday.

In the comments, let me know what you think of the 50/50 rule. Do you see this mindset any different from paying yourself first?

Plus, if you want to know a little bit more on Sir John Templeton’s investment philosophy, here is his famous 16 Rules of Investment Success.

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{ 1 comment }

John HunterNo Gravatar May 30, 2010 at 7:09 am

He also was very optimistic. He would list out all the past negative economic news that was overcome to provide investors in the stock market great returns in the past. It is easy to get overwhelmed by problems faced in the marketplace. And they are real. Historically, though, the market has shown that companies can grow profit in the face of seemingly huge roadblocks. You still have to consider risk to the overall market, just remember their are lots of strong factors that we often ignore.
.-= John Hunter´s last blog ..Google’s Own Trading Floor to Manage the Cash of the Company =-.

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