Kris Krohn here with Limitless TV and today we're talking about why living
within your means has got to be a part of your investment strategy.
So today's video is about living within your means
but it's more than that. Living within your means means that you should be able
to get ahead and the way that I was able to do this in my life, my wife and I we
started out and we created a new methodology that we called the
4 bucket method and the reason why we created this is because when we first
got married, we didn't understand exactly how to live within our means because we
would budget and then we were doing okay and then all of a sudden, tuition came
and I was like, "Oh man, if I don't save 4 months ahead of time, then this
infrequent bill that isn't fixed, it's variable is gonna pop up and
surprise me." And the reason why people get stuck behind the 8-ball is because
they know how to plan for what they need for the month but they don't know how to
plan for the unexpected. Here's the reality, someone's going to the ER,
someone's gonna break us something, the reality is that, you're gonna buy
something that you weren't expecting or anticipating.The reality is that
there's going to be a bill that comes up once a year and if it's as little as a
$100, are you saving $8 every single month? No, you're not
thinking about and all of a sudden that month comes, February comes up and
there's this random $100 bill and you'll find yourself saying these
words, just, I'm putting in this effort and just when I thought I was getting
ahead, we're getting behind. Would you like for that to stop? Let me share with
you what my wife and I invented. We call it the 4 bucket methodology.
The 4 bucket methodology are these 4 buckets and I want invite you to write
them down. Bills, savings, investments, and charity. What that means is that, whatever
money we have, that we get during the month, we've got to put it into one of
these 4 buckets. So for example, let's say right now, you're like, "Kris I'm so
strapped, I put all of my money towards bills." Then guess what, you're living to
pay bills and then die.That sucks! Instead, you've got to figure out how to
take your money and you've got to start dividing it up into different buckets.
So for example, you need to have money every month going into savings bucket, you need to
have money go into your investments bucket, you need to have money going to
your charity bucket. If you read The Richest Man In Babylon, it's a simple old
old old school parable book and it's all about a man
who sets aside 10% of his income for investments and over a short lifespan,
was able to create financial freedom because he set aside a little bit.
What am I suggesting? I'm suggesting that your budget should not be based on bills.
It should be based on what you want. Which means, don't you want savings? Good, then
you should budget for that. Do you want investments? I hope so.
Making your money work for you is the only way you're gonna get where you want
to go. And why do I set money aside for charity? Because I believe in paying it
forward, I believe that there's a give-and-take in the stream of life and
that if all I am doing is being a taker and selflessly focusing on me, then I'm
not going to participate in the reciprocity that is available to all of us, that when
we're giving of what's left over, we're actually setting and creating an
intention right now. For example, have you ever thought to yourself, someday if I'm
rich, I would give lots of money to people, I would give money to charity and
I would give to this cause. If you're really that person then when would now
be the time to start giving? It's not when you have ludicrous amounts of
leftover, it's now. So we're gonna start with this 4 bucket methodology.
If you use this 4 bucket methodology, you start to have more disposable income and
think about why that's important. My wife and I were in debt starting behind but
you know what ended up happening is, once we started putting money towards
investments, a day came when there was enough, where we could invest. Like, check
out my video that says how to invest with as little as $1,000. That's what it
took me to make my first million dollars. You don't need a lot of money but you do
need to be putting money in savings and investments if you want to get ahead.
I'm going to tell you right now, that when you start getting money in your investment
bucket and in your savings bucket, it can be pretty easy to feel like you should
start to spend more on your lifestyle and that exactly is the number one
problem that people make. For example, coming out of college, we're used to
crummy pre-college jobs and college jobs and all the sudden we have a degree and
our income doubles but do you know what also doubles? Our lifestyle and you've
got to make a choice right now whether you want what you want today or whether
you want to delay gratification for a hundred times more in a very short
future using this 4 bucket methodology? The bottom line is, there are resources
that are going to be important to you down the road and you can't foresee what
they are. So if you're like, every average joe out there, you're going to set aside a
$1,000, $5,000 and then you know what? There's gonna be
that temptation, a car comes along, the new big-screen TV came out, I need to
take this trip and believe me, I'm an advocate for having everything but
there's a period of time in your life to delay gratification to make sure that
you first have money in your savings bucket, your investment bucket and your
charity bucket, that is not about money to spend for lifestyle, that's about
money investing into your future. So let's hone in on one of the most
important buckets which is investing. Why most important? I'm assuming that you can
budget to pay your bills, I'm assuming that you can put savings aside, I'm
assuming that you know how to put10% aside for charity. Let's talk
about probably one of the biggest most difficult buckets for most people to
understand, which is, "Kris, how do I invest?" And what I want to do is, I want to talk
about something Warren Buffett teaches. At the end of his book Snowball, he gives
some advice which says, imagine that you had a punch card for only 20 investments
you could make in your lifetime, you would pick those investments very
carefully, you'd save appropriately for them and and when you made them, you
would do them deliberately and very consciously. Why? Because there's only 20,
there's that scarcity of only 20, not 50, not 100 and the reality is that if
you burn the barn down a couple of times, you might not be able to invest as much
as your life requires to create the freedom and the balance that you're
looking for. Now let's go back to Warren Buffett on his advice because Warren
Buffett always talked about buying things with a high intrinsic value that
didn't match its current valuation. That means that if I buy a house for example,
for a 100,000 worth $140,000, its real value isn't
represented by the purchase price, buy low, sell high. Okay, that's a really
simple way of looking at it.A lot of people don't do investing the way
Buffett suggests, a lot of them will buy at market and it doesn't have intrinsic
value, these turn out to be short-term buys but they don't continue to make
money because they can't, they're bad investments. Remember, you only got
20 punch cards, that's why I decided to follow the advice that Warren Buffett
gave of: buy low, sell high. I mean, it sounds like it makes sense but remember,
every investment decision that you do make needs to fall within the living
within your means and so I would save, I would put money like $5,000,
it took me 14 months for my first house and that first house meant
that I could live for free, that house bought my next one with great equity at
but cash flow and what I knew was, how to live within that cash flow that it was
giving me. That second house was producing a $500 month cash flow,
well, that $500 couldn't increase my standard living, it was just 500 more
dollars every month that I had to work with, which meant that I could snowball
more money into savings, more money into future investments and whereas it took
14 months to save up money for the first house,
it was now taking a matter of months to now save that money for my next house
and a couple years later, I was buying multiple homes every single month. So the
4 buckets strategy, it's important that every month you're contributing to
all four of them. Even right now. Little bonus here, if you're not living within
your means, I'm gonna tell you right now, find a way with the money that is coming
in to every month no matter what, contribute money to each of those
4 different buckets because you need money for your bills, you have to have money
for savings, you have to have money for investing, that's your future and you
have to have money for charity so that you can do your work of good, pay up
forward, give back so that you can work in harmony with the universe on the flow
of money. Just like my friend from India once said, "In my language, wealth means
that which rotates." Help rotate it, be a good steward of it by using the
4 bucket methodology. It's not about how much money you got, it's about how much
you're living on and now we've talked about how you can create
that spread, it's time for you to start putting money in that investment bucket
so we can start getting somewhere. Be sure to subscribe, I got a lot more
powerful information coming your way and if you want to learn how to take a
little bit and turn it into a lot, know that you've got links below this video
that can show you what those next steps look exactly like.