5 Rules Every Rich Person Uses To Make Money, According To Money Expert Ramit Sethi
Written by
Ellie Diamond
Edited by
Amen Oyiboke
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In a recent YouTube video, Ramit Sethi advised, “Stop idolizing rich people. Start learning from what they actually do.” As the author of the bestselling book “I Will Teach You to Be Rich,” Sethi knows that many people envy the rich.
However, envy doesn’t make you money — action does. Here are five tips Sethi offers for managing money as the rich do so you can get closer to your own “rich life.”
Rule 1: X-Ray Your Finances
“You can’t manage something you don’t deeply understand,” said Sethi. He believes the wealthy have a deep, top-down knowledge of their finances. They know precisely how much they have coming in and where it’s going.
You can develop that knowledge by answering seven questions:
- How much do you make?
- How much do you owe, and when will your debt be gone?
- What percentage of income are you investing?
- What percentage are you saving?
- What percentage goes to housing?
- What types of things do you want to spend less or more on?
- What are your fundamental beliefs about money?
Answer these questions as specifically as possible, and you’ll be ready to start managing your finances like the rich.
Rule 2: Make Systems for Everything
Sethi believes one of the major differences between the rich and others is that rich people don’t move their money manually. Instead, they create systems that automate savings, investments and bill payments, allowing them to focus on more important things.
Automated money systems eliminate the need for willpower, so your money goes where it needs to go, no matter what. They also free up significant mental space for more important money decisions, like increasing your income or choosing the best possible investments.
Rule 3: Plan Before It’s Necessary
“Rich people plan for the future and they look forward to it,” Sethi said. However, he believes it’s not the money that makes the rich optimistic — it’s their confidence in being able to create a plan and fulfill it.
Science is on Sethi’s side. Research has shown that specific goals make investors more effective. They develop more resilient strategies, monitor progress and adjust as necessary.
Those dollar-value goals can come from your financial priorities. If you know what you want, like a nice house or the freedom to travel, you can calculate how much you’ll need to save and when.
Rule 4: Follow the 80/20 Principle
The 80/20 principle is a classic rule of economics. It states that 80% of your results come from 20% of your efforts.
According to Sethi, this means less worrying about nickel-and-dime details, such as finding great sales on vegetables or dress shirts. These decisions are unlikely to have a significant financial impact and can consume too much mental energy.
Instead, Sethi wants you to focus that energy on making big changes. Here are the five things he believes make the most difference when focusing on the big picture of your finances:
- Learn the basics of personal finance.
- Invest early and automatically.
- Find a good job and get paid well.
- Have affordable and stable housing.
- Cultivate positive relationships.
Relationships enrich your life and make your resources more meaningful, he explains. They may not make you rich financially, but good people are one of the most important parts of a rich life.
Rule 5: Consider Value Over Cost
Sethi’s final rule: Don’t focus only on the cost of something, but more so on the value. When you focus on value it will help you consider the value it will add to your lifestyle and whether it’s worth the expense.
Pinching pennies is stressful and rarely helps you reach your goals, Sethi stated. Value comes from knowing when an expense will move you forward and spending that money confidently because you know what it’s worth.
A rich life is about using money to solve problems,” said Sethi. If you can make that happen, you’re living like the rich.
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