The Four Spending Tracks, Which One Are You On?

I recently received an email asking how much I spend per month on the dot com lifestyle. I figure I would use the email as a post on personal spending and money management. It’s great to make the big bucks, but if you don’t know what to do with it, then you’re no better off than the poor guy on the street.

One thing we all need to keep in mind is none of us can work forever. There will come a time when we will have to retire, either by choice or by law. Your lifestyle after retirement will largely be determined by your spending pattern during your working life. There are basically four spending tracks that people will follow. Which one are you on?

Invest 0%, Spend 100%

This is the spending track of a poor person. He spends every dollar he makes and saves nothing. Here’s a key rule to remember:

It doesn’t matter how much you make.
What matter is how much you keep

You can make $100,000 per month but if you spend $100,000 per month and keep nothing, you’re headed for the poor house. Mind you, you’ll look really good heading there but I don’t think it’s where you want to end up.

Borrow 100%, Spend 200%

This is the spending track of someone heading for financial disaster. You may know of few of these people. They’re the ones with a fist full of credit cards that are all maxed out. They make the minimum payments on it by taking an advance from one of the other cards. It’s a house of card waiting to crash.

A person on this spending mode will require drastic measures to get back on track.

Invest 10%, Spend 90%

This track is commonly known as the 10% rule. If you’ve ever dealt with a financial planner, he’ll try to drill this down your throat. The rule states that you should put 10% of your income into long term investments and live on the remaining 90%. Over time, and with compound interest, that 10% will grow into a huge chunk of cash and allow you to retire rich. That’s what the financial planner will tell you anyway.

The rule sounds good in theory but seldom produces the desired results in real life. This is because the 10% rule needs a lot of time to work and for most people, time is something they don’t have. You graduate university with a huge student loan that you need to pay off. Then you get married and have a wedding to pay off. Then you buy a house and a mortgage to pay off. The list goes on. By the time you finally have everything paid off, you realize you only have a few years until retirement and the 10% rule will no longer work because you’ve ran out of time.

The reason financial planners use the 10% rule is because it sounds doable. Almost everyone can cut back their spending by 10% and not take a big hit in lifestyle. If it was a 20% rule or 30% rule, it would be a much harder sell.

Invest 90%, Spend 10%

This is the spending track of the rich and it’s the reason why the rich get richer. Most people wouldn’t be able to live on 10% of what they make. However, if you’re making $50,000 per month, it’s entirely possible to live on $5,000 per month and invest the remaining $45,000.

Amazing things happen when you’re socking away 90% of your income. You’ll only need to do this for a little over a year before the 90% pool of capital can generate enough income to cover your 10% living expenses. At that point, you can effective retire and lay on a beach. However, why stop there? Keep on the 90% track and you’ll soon join the ranks of the very rich or super rich.

The difference between the rich and the poor is not how much money they make. Like I said, it doesn’t matter how much money you make. If you spend it all, you’re not rich. The different between the rich and poor is how much assets they have working for them. The rich have huge assets that generate so much income that whatever they make personally is just tip money. Bill Gates is paid $650,000 per year for working at Microsoft. That a lot of money for the average Joe but for Bill, it doesn’t even pay the property tax on his house. Whether Bill works or not doesn’t make a difference in his lifestyle.

It’s great to enjoy the dot com lifestyle and make money online. However, there will come a point in time when you may not want to do it anymore. I can’t see this happening for a long long time, but it is nice to know that if I wish kill off this blog and its $30K per month income, I can do so.

74 thoughts on “The Four Spending Tracks, Which One Are You On?”

  1. This is very much in line with a book that I’m almost finished reading, Robert Shemin’s “How come that IDIOT’S rich and I’m not?” I think this is the second book you should read after “Think and Grow Rich”. Shemin writes about why the rich are rich and why the poor are poor. He labels the poor as RUBs (Right side Up and Broke). In short, it take unconventional thinking to become rich, such as investing 90% and spending 10%. A RUB would invest 10% and spend 90%. I’ll be reviewing the book on my blog today or tomorrow.

    1. Im at 60/40 investing 60% and living off 40%

      As I earn more my lifestyle from that 40% will continue to improve, while in 5 years from now, the 60% investing will hopefully really be paying off

      1. Abdul says:

        I never invested money, I just saved money for something Big I wanted to buy, though I did invest it would be hardly 25% of my income!

      2. says:

        Yeah, that’s an excellent habit to have if possible. 60% is quite a feat.

        Here in Japan, I’m managing to live off 30% (yes, it’s possible in Japan – gotta conserve and not eat out so often) and saving the rest for now.

        There’s nothing to invest in here so I’ll hold out and put the money back into the market when I get back to the US.

        The thing is, once you get into the habit of it, it’s really not that hard. Breaking your old spending habit is another story…. 😉

  2. Great post John. I am hard at work try to get to that Invest 90% – Spend 10% formula. Right now I am about 25% – 75%… but in another year or two I should hopefully be there!

    Keep up the great work 🙂

  3. Marti says:

    The rule of 90% saving is all fine and well, except most people don’t live with their parents and can’t afford to live with only 10% of their salary.

    The only “rule” is to live within your means, save as much as you can and don’t take any debt (except for a house).

    1. Abdul says:

      I do live with my parents, but money doesn’t last long in my pocket. Especially when big notes, like hundred dollar bills break down to small ones, it doesn’t take long till they are all gone!

      1. OCGolfCourse says:

        You should stop your spending. Stop going to the ATM machine and put everything in your savings/investments. If you don’t have the money, you will amazingly find that you won’t spend much.

  4. Jeremy says:

    Investing 90% of your income is a great thing to strive for, but for most of us who are just barely hanging on by a thread,even to be able to invest 10% is a big hurdle.

    I think the bulk of your post is applicable no matter what though, and that is cut down on your spending. This is something everyone can do, even us youngsters trying to eek out a living. Thanks for the good post.

  5. Chessmaster says:

    Very nice economic lesson. I have seen a lot of people in the second situation you described, most of then were in financial disaster!
    I like the example you picked for your 4th rule, 50K/month; I don’t know a lot of people doing that money…

    1. Abdul says:

      He’s telling you that because soon he’s going to be earning that much. Right John?

  6. The 10% is easier than most think. I heard of that rule from the “Rich Barber” 15+ year ago. Pay yourself first by making it an automatic withdraw. The money that you don’t see, is money that you don’t spend. 😉

    If you can make an automatic investment in a pension plan, it’s better because the cost of withdrawing that money would be too much.

    Or think of it like this: If a person lost his/her job, that person would not get 100% of what they are making on Employment Insurance. You get what? 70% or less.

    Of course, the more the better. :mrgreen:

    P.S. Now, I’m going back in building passive income. I love pre-owned domains 😉

  7. Erik Prabowo says:

    10% or 100% I don’t care , in my country I only need $500 a month and actually $300 is just enough for me my wife and my only son!

    1. OCGolfCourse says:

      Wow where do you live? I should move there.

  8. PaulB says:

    I’m up to about 50-50 at the moment. I spend half of what I earn each month and the other half goes into a high interest bank account whilst I wait for the next big thing. It’s going to be a while until I can sit back and put my feet up but every month I feel that little bit closer.

  9. These kind of rules are only applied if you make a good amount of money per month. Most of the people would do the best they can with the money they make. I mean, if you don’t get much money each month you will be forced to use the “0% rule” because it will be imposible to keep a 10%. If you are one of those that can think about keeping something at the end of the month, there is where these rules come and you need the balance between your money and the lifestyle you desire to have. I hope to be one of those some day!

  10. Binary Ant says:

    Invest 90% and live on the 10% can be done by people that earns $50K/month ans you said, but the one who earns $60K/year, you know, $5K/month can’t do that. And 60K is a good salary, but not enough to invest more than 50% if you live on your own. Can you pay for your house(loan or rent), gas for your car, food, insurances, etc, for you and your family with $2500/month?. Perhaps, but most people don’t earn that $5K/month.

  11. Dave says:

    Somebody’s been reading rich dad, poor dad

  12. Brian says:

    Investing 90% is totally unrealistic. Perhaps it is a goal to try to reach but most people earn less than 60K a year. That means they have to find housing, food, and entertainment for $500 a month. It can be done, but you’ll never get to wash your clothes or pay taxes. 😆

    Not everyone is a mogul making $600,000 a year (in order to get that 50,000 a month). However, one to get to saving 90% is to start with the 10% rule and then everytime you get a raise, add 50% of that new income to your investment strategy and add the other 50% to your lifestyle. This is totally doable. That is if you want to take advice from someone who was in the borrow 100% spend 200% bucket. 👿

    1. OCGolfCourse says:

      I would say that if you get a raise, you should put more than 50% towards your savings and only add a tiny tiny bit to your lifestyle (if any). Otherwise it will take way too long to save enough to retire.

  13. Thiago Prado says:

    You have a very good point in this blog, however not many people make enough money to live with 10% of the income. I’m a very cheap person when related to unnecessary gadgets but when comes to buy food and other necessary stuff I spend as much as it requires.
    I’ve read so many books from rich people saying the same thing over and over again. I think the 90/10 rule just apply to people who make a lot of money and don’t depend entirely to their salary.

  14. I think the point John’s trying to make is “Why aren’t you making $50k/month?”. He’s trying to challenge our thinking so that we don’t just settle for the 10% thing.

    I really don’t think he’s meaning to say that someone making $5,000/month should live off of $500 and sock away $4,500. And, also for people making $200,000/year to think about living off of $60k or so, and save the other $140k etc.

    In other words, don’t let your lifestyle increase with your income otherwise you’ll just be a really high income earning broke person. Happens all the time.

    1. John Chow says:

      It’s good to see readers who understand the message I’m trying to get across. 😎

  15. Fred says:

    So, John, what are your percentages? Don’t feel comfortable saying, right? How about if I guess right then you say yes or no. My guess is spend 30%, invest 70%?

  16. Tyler Ingram says:

    I need to look at what i spend, but most of it I think goes to me enjoying life. Like kayaking, snowboarding, camping trips, world travel. That sort of thing. I get most of my toys for free so I’m not spending it on that anyway. Guess one day I’ll have to look at where my money is going!

    1. OCGolfCourse says:

      That should be today! Don’t delay cuz you don’t want to be working forever.

  17. Redman says:

    I think i am the 10% spender, invest 90% when it comes to online money, offline, i’m the 0% 100% guy and it’s not good.

  18. Mary says:

    You are so right. This is what we refer to as the ‘Rich Dad, Poor Dad’ syndrome. The rich get richer and the poor get poorer. It is one touch cycle to break, but that doesn’t mean we shouldn’t try. Maybe it would be easier if we were all dot com moguls like you it would be a heck of a lot easier. But, alas, it is not so. 😉

  19. Jonathan says:

    The disappointing trend I see in these comments is how many people automatically place themseleves in “the rest of us” category. Why settle for that? John’s no different from you, except that he’s done it already and you haven’t. People tend to achieve exactly what they believe they can achieve, no more, no less.

  20. By “investing” do you mean throwing it in the bank, buying stocks, what?

    1. if you dont want to invest give your money to this little guy that is ME :mrgreen:

  21. The point is good , spending 10% and investing 90% but that applies when someone earns at least 10.000 $ a month , that will make the spendings around 1000$ , which in most parts of the world is deadly a must. Most of the rich people I know , even used to eat less , to invest more. Getting your a*s in the Carrabeans , driving a luxurious Aston Martin is not impossible , but most people don`t know how hard that can be. (at least the ones that are making honest money 😉 ). In the eastern Europe , there is a trend for people to get rich over night , no one can stop them because of the well known corruption. Getting a bit out of subject , there are some really good points to consider in this article , investing more is the real way to success , being greedy can be the way to financial disasters , ending up with no more than some loans to pay off.

    1. Yeah, it is my feeling that you really have to making around $30,000 a month to do a 90/10 and still live comfortably. 40/60 is a little more attainable for most people.

  22. Deek says:

    I agree with Jonathan and Paul, I think we should be asking ourselves how we can get to the 50K per month. This was the real gist of the “Rich Dad Poor Dad” book. The rich set up a business that runs itself and makes you money so you can rinse and repeat the process. That is why I am learning and setting up my own websites and a blog while I am still at my day job. This way if I make $5, $500, $5K per month in my side business I invest part of it to create the money machine for me to retire on. Plus get your business to do things for you like the trips, your house, car, etc. Then you really do invest the 90% because your business is paying the rest! It takes a good financial/legal team to do it but it is possible!

    My humble advice, start with the 10% plan and then take a % of side earnings and create investments (businesses) and then hire a good team to help you make your business pay for your house and car and less in taxes. Like Jonathan said if you think you are in the bottom then that is where you will end up. The only difference between the rich and the poor is that the rich do not give up and learn frum multiple failures. The poor do not even try.

    1. Great comments Deek and I agree with you 100%. One thing though, I don’t necessarily feel that it is always that case that “the poor do not even try”, but may (in many cases) also be that the poor are some who tried and failed, and then gave up due to those failures. Those who are wealthy keep chugging. But then, wealth isn’t necessarily defined as riches, but can also be defined by life experiences.

      The rich have money. Many of these people are born into it or got lucky.

      The wealthy have the experiences that brought them to that money.

  23. I don’t think there should be a specific amount that you should invest, as long as you’re saving a reasonable amount for the future and not holding back on yourself at the present, that’s all that matters.

  24. Wenbin says:

    This post reminds me of Robert’s teaching in Rich Dad, where you can only get out of the rat race once you have enough money or assets generating revenue for you to cover your expenses.

  25. Great post! Too many people do not save enough for retirement. One of the good things about affiliate marketing is the ability to earn a high income and save some of it. I think older generations are better about saving money because of the depression. My grandparents were alive during the depression and that caused them to save a lot of money. They ended up with a nice retirement and two paid for houses. They didn’t make a lot of money but they saved all they could. I wish they were still alive to ask them a few things about how they saved their money…

  26. Ken says:

    The only one getting rich is the Federal Reserve.

    1. OCGolfCourse says:

      The Federal Reserve has the right to print money whenever they want. The value of money is different for them and it is for us. They only try to make sure the economy is stable and growing.

      1. tyna says:

        The US Mint continues to ration Silver Eagles since they can’t make them fast enough to meet demand.I guess the demand has become higher than the supply.

  27. tyna says:

    I don’t borrow money,neither do i use my credit card unless in an emergency situation,i only spend what i have.Make all my money offline and none online yet which am trying hard to change.I invest most of my money in precious metals like silver.Well i don’t really have to spend money because my hubby gives me my spending money. :grin:btw like designers everything and love travelling. So John which spending track do you think i belong to?

    1. OCGolfCourse says:

      You must be making a killing with precious metals for the past few years!!

  28. OCGolfCourse says:

    I think it’s hard to actually just live off 10% for most people 🙂 I’m save about 70% take home and it’s about the limit 🙂

  29. I earn $10 from my website.. what amount should i spend & how much should i inves 😯 t

  30. David Cheong says:

    I’m somewhere 100% invest and 200% spend, always over spend 😈

  31. We recently started to downsize our lives to be able to spend less and invest more. For many this is a difficult task but, a necessary one. For years I fell into the typical american idea that I needed to have more stuff all of the time. I still like to have stuff but, I am finding that I am on the road to recovery by spending less every day.

    1. Rob L says:

      I agree, less is sometimes more. It seems like the more crap you have the more work and money you have to shell out to keep it up.

  32. avgjoe says:

    OMG. John please tell me Robert Kiyosaki is not your uncle. I think everyone already knows the first three tracks. Please enlighten us with your experiences about the third. To be fair, you do an excellent job sharing your financials and trade secrets on how you earn your money. I even like your post about how you tax shelter your income. Any details on how you invest the rest?

  33. Shawn Knight says:

    I did some calculations after talking with you the other night about this subject and found that I currently need 63% of my income to live off of. That includes rent, food, phone bill, hosting, and some misc. spending for entertainment etc. The remainder of my money goes directly to paying off debt that I racked up while being stupid – nothing serious, mostly just student loan. I should be debt free in 3 years and then I will really be able to put back some serious bank.

  34. Really, really interesting post! I’d have to think about which one I’m on. I definitely don’t spend 100% though!

  35. Ashley says:

    I think you pretty much said it – when you make 50K per month it’s a lot easier to invest 90% then when you make 5K per month, it would be next to impossible to invest 4500 each month when you only make 5K.

    There’s a great saying… “There’s two ways to be rich, have a lot or want little.”

  36. “It takes money to make money” and that is where the investing comes in. Nice post John!

  37. I hope to be at the 90% stage this time next year.

    Since my company is expanding rapidly this summer which will take up some heavy investment in redeveloping some of the sites and expanding and marketing others.

  38. Game Tester says:

    it would be nice to be at a lyin on a beach right now….

  39. Julian says:

    I was reading an article about some young successful bloggers earlier today, ranging in age from 12 to 21. It makes you wish you had discovered the blog phenomenon earlier. I am still fairly young at 20, and live with my parents while not at college. It just so happens that my Dad is good friends with Dick Desich, who is the owner of Equity Trust Company. There is a retirement plan calculator on their site that helps you predict investment growth (Great tool). But when it comes to investments TIME is the biggest factor along with RATE. I am starting my Roth IRA account this year and plan to invest it in my my fathers real-estate development company R3-I3 at a fixed 10%. If any of you have kids I suggest you flood them with the knowledge you wish you had when you where younger. I know i appreciate every word out of my Father’s mouth.

  40. VeRonda says:

    John, this is a true commentary. It sounds cliche-ish, but multiple streams of income is the way. What’s sad is that there are so many “poor” people with great ideas, but either are not instructed properly or just simply get in their own way.

  41. Terry Tay says:

    I think there are a lot of people that are in the borrow category. So many people put things on credit cards, which is ok if you pay it off each month without paying interest. (Some people buy eveything on credit cards to get points or cash back but pay off each month to aviod interest charges).

    Others like something they see and if they can’t afford it they put it on credit cards to have it now and they pay it off over time. With the interest they end up paying way more than they should.

    I think the 10% rule is a lot better than nothing or being in debt. It may not get you there as fast as you want but if you start early enough it’ll grow over time. Sure if you can invest 90% of your income do it.

  42. Noobpreneur says:


    I love to invest 90% and live off on 10% – but right now, I’m just going for the 50-50 milestone. Wish me luck! 🙂

  43. Drunk says:

    Don’t focus on savings only…you need to focus on making more money! Making more passive income!

  44. Investing is very important. It will do wonders for you in your later life.

  45. Andy T says:

    It doesn’t really matter, as long as you don’t carry the debt to your retirement age. Assume you and your wife salary is $40000.00 per year for you whole life after school. At 65, CPP is approx. $800 plus OAS approx $800.
    Both of you [husband and wife] will have $3200-3500 per month before your RRSP and pension of the company you worked for. I don’t see an urgent need for retirement planning.

    1. I would disagree on the urgency.

      1. The sooner you start the better for you. The compound interest will work wonders for you. I saw many examples over the time and those that started much later had to put the a lot of money and still did not have near the same amount that someone that starter earlier.

      The example I partly remember more was this:
      Person 1: 22-32 years a person invested $1000 and stop.
      Person 2: 55-65 years a person invested $1000 and stop.
      At 65, Person 1 had a lot more money than person 2. I don’t have to final number but the difference was a big. It’s the principal that I made more of an impact.

      2. Call me pessimist but I don’t expect much from CPP or OAS later on. With the population getting older, the ratio of workers paying for CPP/OAS is declining. Unless Canada start to accept a lot more workers from immigration and we have more babies for on the longer term(practice does not count 😆 ) , I’m investing more in my RSSP. At least, it’s mine. 😉 CPP/OAS will just be a bonus IF I get any. Don’t depend on the gov too much for that. Play safe. 😉

  46. Mark Black says:

    The only objection/clarification I would make is that you are doing a specific niche of “dotcom mogul/making money online” that is not the Be All End All.

    You are basically in the Personality Blogging Business. You say near the end that you might decide to stop your business and stop making money. In your case that is probably true- to the extent your income depends on your active participation.

    However for MANY of us retirement does NOT mean that income just dies as the effort does. If you build long lasting internet businesses based on in demand information and products, you can take several “retirements” and never have to worry about having your income end.

    John Chow dot com probably depends on John Chow to produce revenue. “Cheap Purple Widgets dotdom” doesn’t depend on any persona to make money.

    Saving and living off investments in retirement is the old school way of doing things. In this age there is almost never a reason to “retire.” Build businesses that pay you for life and beyond- not just retirement plans. I have several websites that earn several hundred dollars each that I havent touched in years. Sure some maintenance may be required but its not like one day Im going to worry about losing money if I go a couple days without blogging.

    The investment is a good strategy, but my point is you can have it BOTH ways. Add investment income while you keep making new money.

  47. stock says:

    Invest 90%, spend 10%
    Ideally, yup that is the ratio..
    Investing wisely by doing research is what seperates the men from the boys. John, you’ve got a great leg up with the monthly income that you can pile away after taxes. It opens up alot more investing opportunities then alot of people can look it…

  48. Craig Grant says:

    I have been working full time online since 1999. From 2000 to 2003 I spent about 80% on the biz and I earned millions. But with so much $$ my life got very interesting and allot gained allot more frinds and responsibilites that had nothing to do with my internet busuniess. As time went I spent less $$ on the biz.. and eventually it all fell apart and I had to start from scratch. Now I spend $5000 a month on Internet ads (about 50%) but after reading this post I wil strive to spend more as my monthly income grows.

  49. At one point while doing the 9 to 5 thing I was able to double my income in about 3 years by switching careers and found it absolutely fascinating that there were people making $50,000 per year (5 years ago) living pay check to pay check. That’s a poor way to spend money.

  50. I’m surprised by how much people spend on there online business going by these comments… I make a fulltime living off online and i only spend about 10% of my earnings back into the business…

  51. The richest Man in Babylon states that you should save 10% of your earnings and pay of fyour debts with 20%. At the moment I am paying off y debts with about 60% and spending the rest. I hope that I can redress this balance as my earnings increase and my debts decrease.

  52. javi says:

    The amount doesn’t matter, what’s important is the habit and the thinking pattern. Don’t think “I don’t make a lot of money so I can’t do this, it’s only for Mogules.” That’s the line of thinking that will keep you forever poor.

    Everyone can cut 10% on spending, it doesn’t matter how little you make. You can start with 5% if 10 is too much, then move the percentage up as your income increases. The more you invest carefully the faster you get richer.

    I started making money online a few years ago while at the time I was in the red barely surviving off web development work. Although I was negative cashflow I started saving a very small amount to save, invest and donate. (about 4%) Now i have a small web company and live off about 15% of income and the other 85% is re-invested.

    By the way, I used to be on track 2 before I brainwashed myself with Rich dad material.

  53. Austin says:

    The thing is very very few can live off of just 10% but investing more than 10% is a good idea.

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