Shaquille O’Neal’s 75/25 Money Rule: Save First, Flex Later

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When you receive a paycheck, it is often tempting to spend a portion of it on non-essential items. While treating yourself occasionally can be enjoyable, excessive discretionary spending can hinder your long-term financial objectives.

To combat this, basketball icon Shaquille O’Neal utilizes a 75/25 money strategy, which allows him to enjoy some of his earnings while prioritizing savings and investments, according to a 2019 interview with The Wall Street Journal. Here is how this method functions and how you might apply the star’s approach to your own finances.

What is Shaq’s 75/25 rule?

Shaq’s 75/25 rule is based on a straightforward concept: save and invest 75% of your income and live on the remaining 25%.

Admittedly, this budget will not be practical for everyone. However, the core purpose of such rules is to designate funds for guilt-free discretionary spending, while ensuring the majority of your paycheck is allocated toward living costs and investments.

Saving money ensures you have a financial cushion in the event of an emergency. Financial experts generally suggest setting aside enough cash to cover three to six months of essential living expenses, keeping those funds in an easily accessible location.

Once you have established an emergency fund and saved for short-term goals, you can begin investing for the mid- and long-term. While an emergency fund is vital for immediate needs, it is typically not recommended to invest those specific funds in assets like stocks.

Eventually, you will reach retirement and no longer receive a steady paycheck. While Social Security provides some support, it is often insufficient for maintaining one’s lifestyle. An investment portfolio can bridge the gap between Social Security benefits and your monthly expenses, while also alle

How to adapt the 75/25 rule for a normal paycheck

Most individuals cannot save 75% of their income. However, you can evaluate your personal financial situation and gradually increase your savings rate over time. If you are unsure how much you currently save from each paycheck, calculating that figure and reviewing your expenses can make it much easier to boost your savings.

You can adjust these percentages based on your proximity to your financial goals, with many people opting for the popular 50/30/20 budgeting framework. That strategy involves allocating 50% of your income to needs, 30% to wants, and 20% to investments and debt repayment.

Every bit of savings makes a difference. If you are currently saving 10% of your paycheck, try to increase that to at least 11% next year. It is much simpler to raise your savings rate if you are starting from a lower baseline. Setting up automated transfers from your checking account to your savings or brokerage accounts ensures the money is moved before you have the chance to spend it.

Placing emergency funds into a high-yield savings account allows you to earn interest on your balance. Some savings accounts currently offer annual percentage yields (APYs) between 3% and 4%, though these rates will fluctuate over time.