The 33-33-33% Money Rule

Every heartbreak comes with it’s own set of lessons to learn. But being single and ready to mingle has helped me create a whole textbook I think. Every guy I dated or was set-up with had some interesting piece of knowledge to share. Whether it was the certified scuba diver who gave me the low down on how and where to get certified… or then the ones with foul tongues who taught me to abuse in Hindi, a skill that comes very handy in Mumbai.

But the one who I am most thankful to taught me the 33-33-33% money rule. It’s the simplest and truly magical formula to help manage finances, be it personal or professional especially if you are a budding entrepreneur with zero skills in money management. So here’s the back story…

Being a failed entrepreneur, the biggest problem in my head was ‘how to manage money when it’s your own business’. How does an entrepreneur decide what his monthly paycheque is going to be and how much goes back into the business? I didn’t go to business school and I see a lot of people have this already figured out. But for me this felt like rocket science… or one of those questions you just assume have an answer and never bother looking for it.  I have also realised I am not alone… for many of us especially today with people starting businesses from their kitchens or the neighbourhood coffee shop, figuring all the money aspects can be confusing.

Money DecisionsSo the trick is to put 33% aside for expansion or growth plans; 33% for operational costs; and take 33% for yourself. I tried this with my second venture, The Basket Case and after the first four months I did not pull a rupee out of my own pocket for any purchases/expenses towards the business. Now I know that this may seem very simplistic for complex business plans. But it works wonders for a start-up that doesn’t need any or large sums of initial investment. If you are starting a company or creating a product/service online for example, then you should consider dividing the revenue into these three parts.

What it does is give you some money to spend on yourself… very important if you are working hard at building something. Simply put if I am working 8 hours a day, 5 days a week (sometimes 7), I want to have money at the end of the month to pay bills and enjoy myself. Without this motivation levels will start to drop unless you have the passion a la Steve Jobs (who by the way splurged by way of his hard work enough).

The 33-33-33% Money RuleYou may have to put in some money in the first few months to cover operation costs depending on your concept and plan, if the 33% you are setting aside is not enough. But eventually between the growth and expense kitties, you will have put aside enough money to start covering costs. Also, once the expense kitty starts to suffice, you can use the growth kitty or part of it to recover your capital amount if you put in any. And in time you will be able to leave the growth one untouched or invest it further. If you don’t have this divide, you may end up putting all the money back into the business and 6-8 months down the line when you need to hire your first employee you are going to be in a hand-to-mouth situation on pay day.

As an Alternate Healing Practitioner, I still use this formula. Given that I work from home, I don’t really have major operation costs and expansion for me involves conducting more workshops and sessions across the world. How do I use this formula now? One-third for me and two-thirds set aside for travel, venue costs, or any other expenses towards my practice.

Keep Calm And SaveIf I was a salaried employee, then I could still use this formula to ensure I don’t end up with zero bank balance by the 25th of every month. One-third of the paycheque towards daily expenses includes all leisure activities; one-third set aside towards a short-term goal which could be anything from an online course, seminar to holiday or or a new gadget; and one-third towards savings and investments.
The only thing this 33-33-33% money rule requires is discipline and if you keep one-third aside for yourself, that’s not a hard habit to cultivate. It changed my life and made me wiser, I hope it does the same for you.

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