‘How To Get Rich’ Host Ramit Sethi: 10 Money Rules I Always Follow
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Cindy Lamothe
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Amber Barkley
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If you’ve ever wished there was a roadmap you could follow to help you build a successful financial future, look no further. In a recent Linkedin post, “How To Get Rich” host Ramit Sethi outlined 10 money rules he always follows.
Below is his version of a financial roadmap to success, along with other expert-backed tips to help you reach each step.
Always Have a Cash Emergency Fund Worth 1 Year of Expenses
Your emergency fund should be your first priority when starting to save. You can then transition to a high-yield savings account once that has been established.
“An emergency fund should essentially be a savings account you do not touch unless it’s an emergency — such as medical or vet bills, emergency car or home repairs, or the like,” said Carter Seuthe, CEO of Credit Summit Debt Consolidation.
He said this should be a separate fund from your regular, more fluid savings that you might use for saving for larger purchases or investments, such as a home or a car.
“I recommend adding contributions to this fund into your monthly budget, but you might also consider some low-risk investments, as well, as a way to grow this emergency fund over time,” he said. “Most people can’t afford to simply put the amount of money totaling one year’s worth of expenses into an emergency fund at once, which is why contributing to the fund over time in smaller amounts is the more feasible route to take.”
Save 10% and Invest 20% of Your Gross Annual Income
To put this into practice, you can use the 50/30/20 budgeting method to reach your 10% savings and 20% investment objective of gross annual income.
According to the 50/30/20 method, you should set aside 50% of your income for necessities, 30% for wants and 20% for investments or savings. If your goal is to save 10% and invest 20% — for a total of 30% — you would simply swap the 30% and 20% categories, and allocate 20% for your discretionary spending.
You can manage your money on a monthly basis by organizing your expenses in this manner. This means that, for instance, if your monthly income is $3,000 after taxes, you should try to invest $600, or 20%.
Pay in Full for Large Expenses
Sethi’s rule is to save up enough to pay the full amount for purchases like a wedding, a dream honeymoon or a house, rather than financing them and paying interest.
Rhett Stubbendeck, CEO and founder of Leverage Planning, agreed that paying in full for large expenses like a dream wedding or vacation is a wise approach. “Instead of relying on credit, save up in advance and enjoy those special moments without the burden of debt.”
Ann Martin, director of operations of CreditDonkey, added, “Eliminate as much debt as possible to increase your ability to save up for large purchases.”
Never Question Spending Money On Specific Categories
Sethi doesn’t question spending money on books, appetizers, health or donating to a friend’s charity fundraiser.
Experts agree that this is one rule you should always budget for, as these things — or the specific things that bring you joy and contribute to your wellbeing — can significantly increase your overall quality of life.
“Avoid spending on frivolous items that don’t contribute joy to your life in favor of spending on the things that truly matter,” said Martin.
Opt for Business Class on Flights Over 4 Hours
“Flying business class on long flights can be a luxury, but it’s always important to evaluate if it fits within your overall financial plan,” said Stubbendeck.
To achieve this, Martin recommended looking for deals and discounts on flights as early in advance as possible to save on tickets.
Buy the Best and Keep It as Long as Possible
“Buying high-quality items and keeping them for as long as possible is a great way to save money in the long run,” Stubbendeck noted. “Invest in durable and timeless pieces that will stand the test of time.”
Martin suggested committing to striking a balance between quality and price, with an emphasis on selecting products that will last over the long term.
Have No Limit On Spending for Health or Education
“Health and education are priceless. Treat yourself — grab a personal trainer or dive into some courses,” said Stubbendeck.
According to Martin, you should control any unnecessary spending to have extra room in your budget for health and education-related purchases.
Earn Enough To Work Only With People You Respect and Like
Stubbendeck believes earning enough to work with people you respect is a fulfilling goal. “I would recommend focusing on building a career that aligns with your values and allows you to surround yourself with like-minded individuals.”
Another approach Martin recommended is to focus on steady career growth in an organization that employs like-minded people.
Prioritize Time Outside the Spreadsheet
Prioritizing time outside the spreadsheet is essential for a balanced life, said Stubbendeck. “While financial planning is important, make sure to allocate time for hobbies, relationships and self-care.”
Martin agreed, “Prioritize work-life balance to ensure you aren’t overextending yourself for no additional pay.”
Marry the Right Person
According to Martin, you should marry someone who has the same financial philosophies and goals as you to ensure long-term financial health.
“Love is grand, especially when it’s on the same financial page,” Stubbendeck added. “Before saying ‘I do,’ make sure your partner’s ready to dance through life’s money twists with you… Teamwork makes the dream work, even in your bank accounts.”
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