There’s no single path rich people follow to obtain their wealth.
Some are born with generational wealth that gives them a head start, while others work their way up through grit, determination and well-timed career decisions. Luck may also be a factor.
But there are a few common habits among wealthy people, self-made millionaire, author and TV host Ramit Sethi wrote in a recent newsletter.
“It’s time to stop worshipping rich people — and start copying what they actually do,” he wrote.
Here are five rules Sethi said rich people live by and how you can use them to grow your own wealth.
1. Know the ins and outs of your finances
If you know how much money you make in a year, you’re already a step ahead of many of the people Sethi has spoken to over the two decades he’s been helping people with money.
“You have to know your numbers,” Sethi recently told CNBC Make It. “Shockingly, 50% of the couples I speak to do not know their own household income. 90% of people in debt do not know how much debt they owe.”
It’s easy to track and obsess over “$3 questions” like the price of eggs or a gallon of gas, Sethi said. But those factors are probably not making the difference between being able to retire and working full-time well into your golden years. Instead, focus on seven key questions, he wrote:
- How much money do I make?
- How much debt do I have and when will I pay it off?
- What percent of my income goes to savings?
- What percent of my income gets invested?
- How much of my income do I spend on housing?
- What do I want to spend more on and less on?
- What are my money beliefs?
Of course, knowing the answer to these questions and not making any adjustments won’t get you far. But understanding your own financial position is key to figuring out what your next steps are.
“Rich people who are savvy with money can tell you how much they’ll have next month, next year, and even five years from now,” Sethi wrote.
2. Have systems in place for making money decisions
Don’t rely solely on willpower to make smart money decisions. “Willpower is great … until your kid throws a tantrum, you catch the flu, or your entire mood tanks because last night’s ‘Bachelor’ episode sucked,” Sethi wrote.
Instead of setting a budget and committing yourself to sticking to it, try putting systems in place to handle your money automatically, Sethi said. Your savings, investments and bill payments can all be automated, so you don’t even have to think about things like whether you can afford a vacation this year.
You can do this by setting up payroll deductions for your 401(k) or automatic bank transfers to your savings or brokerage accounts. Additionally, you can set money rules for yourself, like deciding that a certain percentage of every cash windfall gets invested and the rest can be used for fun.
“Rich people don’t gamble their financial success on how motivated they feel today,” Sethi wrote. “They build airtight systems that handle their money automatically.”
3. Have a plan before you need one
For better or worse, life is full of unexpected surprises. But what often sets rich people apart is that they have a plan for the future, Sethi said. They not only have a healthy emergency fund, but also have a solid understanding of what they want their lives to look like.
“Most people don’t know how much they should be saving or investing,” Sethi wrote. “They just pluck a random number out of the air and then feel guilty for the next 45 years.”
Figure out what exactly you want to be able to do with your money, whether that’s quitting work entirely by the time you’re 60 or starting your own business when you leave your 9-to-5.
“Once you have that decided, you need to create a timeline and make a plan,” Sethi wrote. “Build a system so your back is never against the wall.”
4. Live by the 80/20 principle
“[Rich people] live by the 80/20 principle: 80% of your results come from 20% of your effort,” Sethi wrote. In a business setting, this may mean that 80% of profits come from 20% of customers.
But on a personal level, it means instead of worrying about $3 questions, like the whether you should buy a latte or make coffee at home, focus on “$30,000 questions,” like whether you can negotiate a raise or significantly lower your housing costs.
“These questions are worth tens of thousands of dollars and yet we remain in the weeds and play small by asking the $3 questions,” Sethi previously told CNBC Make It.
5. Focus on value over cost
Sure, you could save yourself some money by always going for the cheapest option. But saving a few dollars may not be worth an inferior product or experience.
“Rich people who are savvy with money don’t just care about costs — they care about value,” Sethi wrote.
He gave the example of choosing to pay for a personal trainer rather than trying to teach himself through free resources like YouTube videos. “By paying someone, I saved myself endless frustration — and gained something far more precious: TIME,” he wrote.
Sethi emphasized that this rule should be applied to the things that matter the most to you. Choose to invest in a few key areas rather than splurging on things that aren’t as important to you.
“The point of money isn’t to hoard it,” he wrote. “The point of money is to use it to solve problems and enjoy your life.”
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