10 Money Rules To Build Life-Changing Wealth, According to Ramit Sethi
You probably have a few money rules that you internally made for yourself, like setting a budget when you go clothes shopping, never looking at the menu prices when you eat out or setting aside a certain percentage of your income for savings.
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Podcaster, author and financial guru Ramit Sethi isn’t shy about voicing his thoughts on money, particularly when it comes to “money rules.” In a recent video, Sethi dives into his top 10 money rules for building life-changing wealth. As Sethi notes in the video, these are his rules. The ones that make him feel happy, secure and allow him to continue building wealth.
They won’t all work for us — ahem, most Americans can’t afford to buy a house in cash — but you should be able to find places ideas you can borrow philosophies to help develop and formulate your own unique money rules.
1. Set aside a one-year emergency fund.
Sethi acknowledges that he’s one of the few personal finance experts to suggest something like extreme — or should we say conservative? Most money experts recommend a three-to-six-month emergency fund. But more than half of Americans don’t have any emergency fund.
The U.S. Bureau of Labor Statistics found that Americans spent about $73,000 in 2022, up about nine percent over the previous year. If piling up $73,000 for a one-year emergency fund sounds daunting, start small. “If something really bad happens I have extra cash available to tide things over,” says Sethi, who keeps this money accessible in a bank account.
2. Apply the rules of 10 and 20.
Sethi says he saves 10% and invests 20% of his gross income minimum. In his book, ‘I Will Teach You to Be Rich,’ Sethi suggests saving 5-10% and investing 5-10% as part of a Conscious Spending Plan (aka budget). So why are his money rules different?
You need to increase the amounts you save and invest as you earn more money, he suggests. If you are following the popular 50/30/20 rule, 50% of your money would go to necessities, 30% to discretionary items and 20% to savings. How you want to split that up between emergency funds, general savings and investing is personal.
3. Pay in full for large expenses.
This money rule suggests you have enough money set aside that you’re able to pay in full for large expenses such as a wedding and/or a house. As part of this, Sethi has adopted a no debt policy in his household. And yes, he says he started saving for his wedding before he ever met his now-wife. Why so strict on this money rule? “I don’t want cost to be the first reason to make a decision, the second or even the fifth,” Sethi says.
4. Never question spending on books, appetizers, or charity.
The premise behind this rule is that there are certain things Sethi values and doesn’t want to waste brain space on. If he sees a book and thinks he might want to read it, he buys it. He never looks at the prices or second-guesses whether he should order apps at a restaurant. And if he wants to donate to charity, he doesn’t nickel and dime how much he’s spending.
His philosophy is, “Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.'” Find that area of your life where you give yourself permission to spend. Maybe it’s a hobby, or buying gifts for others or donating to your church.
5. Fly business class on flights longer than four hours.
We get it, you’re thinking, ‘Well that must be nice, Ramit.’ But again, this is a money rule that simply makes Sethi’s life easier in some ways. The assistant booking his flights knows where he wants to sit depending on where he’s traveling to. He knows he’ll have room and comforts on the flight. It helps him cut through the mental costs of all the financial decisions he has to make each day.
6. Buy the best and keep it for as long as possible.
Clothes, shoes, and well-made cars. These are some of the things Sethi doesn’t mind paying up on to get the highest quality possible that will give him enjoyment and last a long time. He also says he’d rather repair good shoes than buy new ones.
If you’re going to spend a lot of money on your clothes, but anticipate you’ll get bored of them eventually, check out the clothing brands with the best resale value to earn some of your money back.
7. No limit on spending on health or education.
The personal finance guru prioritizes working out with a personal trainer and doesn’t spend much time thinking about how much it costs him each year. He also permits himself to spend freely on education. That could be a course, mentor, class, or seminar. This money rule might also be because he sells courses. “I want to improve myself…and I want to learn how other people are doing it,” he says. If you like the idea of investing in your health, overall self-improvement, or courses to improve your career, this money rule might appeal to you.
8. Earn enough to work only with people he respects and likes.
This is a money rule we all can get behind. Don’t you want to look forward to the people you work with each day? Since Sethi runs his own company, he’s going to hire people he clicks with. Luckily, 67% of people say they are highly satisfied with their relationship with their co-workers and 62% of the people surveyed said the same about their boss or manager. But if you’re itching to go out on your own, check out these six signs that you’re meant to be an entrepreneur.
9. Prioritize time outside the spreadsheet.
Once you’ve got your Conscious Spending Plan in place and your finances are running like a well-oiled machine, leave it alone. Sethi says he needed to put a rule in place to encourage him to go live his rich life outside of the spreadsheet. Get specific about your rich life goals and what your rich life will look like to help define the purpose of your life.
10. Marry the right person.
“The person you marry is one of the biggest financial decisions you will ever make,” says Sethi. That individual will impact where you live, your savings, your career, retirement, what you eat, and your family structure. Choose someone whose values are aligned with yours, he suggests.
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Before you come “@” him for this list of 10 money rules, Sethi acknowledges “These are my money rules, not yours or anyone else’s,” and yes, “at a certain point, [your money rules] should seem weird or even ridiculous to others.”
This article originally appeared on GOBankingRates.com: 10 Money Rules To Build Life-Changing Wealth, According to Ramit Sethi
