The next step is to decide what to do with that money.
Keeping all of your cash in a savings account isn't a smart decision, Dalio points out, because of the value depleting effects of inflation. Right now, the national average interest rate for a savings account is only 0.10 percent, according to data from Bankrate, meaning you're only earning a few cents for every dollar you save. Meanwhile, the consumer price index — which measures inflation (the rising costs of goods and services) — rose 2.7 percent in the past year.
"That's the worst thing you could do because it is the surest tax on your money," Dalio says. "You will bleed slowly to death because the after-tax returns are lower than inflation by a little per year."
In order to prevent your savings from losing their value, the best choice is to invest your money into a diversified portfolio of assets that increase in value faster than inflation. "Know how to diversify into non-cash assets like stocks, bonds and real estate," Dalio says.
A typical portfolio might be split between 50 percent bonds and 50 percent stocks, but Dalio argues that isn't really diversified in "Money: Master the Game" by Tony Robbins.
"When you look at most portfolios, they have a very strong bias to do well in good times and bad in bad times," Dalio says in the book. To avoid your portfolio simply rising and falling with the market, his advice is to spread out and balance the risks of each investment.
Here's his breakdown for what a well-diversified portfolio might look like, according to the book: 30 percent allocated to stocks, 40 percent to long-term U.S. bonds, 15 percent to intermediate U.S. bonds, 7.5 percent to gold and 7.5 percent to other commodities. (The portfolio does need to be rebalanced annually, he adds.)
That mix is intended to do well under any condition, whether the economy is growing or shrinking, or whether inflation is rising or falling, he explains.