You probably have a few money rules that you 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.
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 video from earlier this year, Sethi dove into his top 10 money rules for building life-changing wealth. As Sethi noted in the video, these are his rules. They make him feel happy and secure, and they allow him to continue building wealth.
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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 ideas from which you can borrow philosophies to help develop and formulate your own unique money rules.
Set Aside a One-Year Emergency Fund
Sethi acknowledged that he’s one of the few personal finance experts to suggest something that extreme — or should we say conservative? Most money experts recommend an emergency fund to cover three to six months’ worth of expenses.
The U.S. Bureau of Labor Statistics found that Americans spent about $73,000 in 2022, up about 9% 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,” Sethi said.
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Apply the Rules of 10 and 20
Sethi said he saves 10% and invests 20% of his gross income at a minimum. In his book “I Will Teach You to Be Rich,” Sethi suggested saving 5% to 10% and investing 5% to 10% as part of a conscious spending plan (aka a budget). So why are his money rules different?
You need to increase the amounts you save and invest as you earn more money, he suggested. If you followed the popular 50/30/20 rule, 50% of your money would go to necessities, 30% to discretionary items and 20% to savings. How you’d want to split that up between emergency funds, general savings and investing is personal.
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 or a house. As part of this, Sethi has adopted a no-debt policy in his household. And yes, he said 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 said.
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 appetizers at a restaurant. And if he wants to donate to charity, he doesn’t nickel-and-dime how much he’s spending.
Find that area of your life where you give yourself permission to spend. Maybe it’s picking up a hobby, buying gifts for others or donating to your church.
Fly Business Class on Flights Longer Than Four Hours
You might be thinking, “Well that must be nice, Ramit.” But again, this is a money rule that simply makes Sethi’s life easier in some ways.
He said he knows he’ll have room and comforts on the flight. And making this a rule helps him cut through the mental costs of all the other financial decisions he has to make each day.
Buy the Best and Keep It for as Long as Possible
Clothes, phones and cars. Sethi said he doesn’t mind paying more to get the highest quality possible on items that will give him enjoyment and last a long time. He also said he’d rather repair good shoes than buy new ones.
“[We] can’t afford the best of everything, but we can have a principle that for these two or three areas in our lives, this is important to us, and we’re going to buy the best. And importantly, we’re going to keep those things for a long time,” he said.
Don’t Limit Health or Education Spending
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.
“I want to improve myself … and I want to learn how other people are doing it,” he said. 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.
Earn Enough To Work Only With People You Respect and Like
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 said he’s going to work with people he respects and likes.
“I don’t want to be miserable at work. Work is where I spend a lot of time,” Sethi said. “I would never stay in a situation purely for money if I didn’t like and respect the people I was working with.”
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 said 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 outside of a spreadsheet.
Marry the Right Person
“The person you marry is one of the biggest financial decisions you will ever make,” Sethi said. That individual will impact where you live, your savings, your career, your retirement, what you eat and your family structure. Choose someone whose values are aligned with yours, he suggested.
Before you critique this list of 10 money rules, Sethi acknowledged that these are his money rules, not yours or anyone else’s, and at a certain point, your money rules should seem weird or even ridiculous to other people.
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This article originally appeared on GOBankingRates.com: 10 Money Rules To Build Life-Changing Wealth, According to Ramit Sethi
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