How The 1% Manage Their Money
If you want to manage your money like the 1%, we are revealing the 75/15/10 rule that would allow you to build wealth regardless of how much you earn. It’s a system that adapts to your income level, whether you earn $10,000 or a million dollars a year. Because no matter how much you earn, you’re always going to follow these three steps.
The 75 in the 75/10/15 Rule to Manage Your Money
First, for every dollar that you earn, 75% or 75 cents of it will be the maximum amount you can use to spend to buy things: housing, food, vacations, Mr. Magic lamps. If you can spend less than 75% of your income, that’s fantastic. But the beauty of the 75% limit is it gives you flexibility and encourages you to do two key things.
First, it forces you to look for cheaper alternatives: premium gas or regular, organic free-range guacamole or regular, Whole Foods or Aldi. Most of the wealthy people share this common trait.
The 75% limit
The 75% limit forces you to focus on value and Manage Your Money. You’ve probably heard countless times before to stop buying coffee and instead save and invest that money, but I believe that’s the wrong way to look at it. Instead, before you make any purchase, you should ask yourself how much you value the thing that you’re buying.
If that $5 iced coffee makes you the happiest person in the world, makes you more productive, social, and reduces your stress for the rest of the day. Chances are the value you get from that cup of coffee is way more than the $5 it costs. So go get it.
Focus on Bigger Expenses to Manage your Money
Instead of grasping at the little purchases and attempting to save money, it’s more effective to focus on the bigger expenses: a brand-new car, a 100-inch TV, or a cheese dispenser. The thing with big purchases is they’ll make you happy for a temporary amount of time, but after that initial honeymoon period ends, your happiness level is right back where it started. Then that $70k car just becomes a regular old car with the same functionality as every other car. So if you manage to spend less than 75% of your income, like you only spend 60% of it, then I need you to hold on to that 15% difference.
The 75/15/10 rule to Manage your Money
Next, the 10 in the 75/15/10 rule says that for every dollar you earn, you should save at least 10% or 10 cents of it for this thing called a cushion fund. A 2022 study found that as much as 56% of Americans can’t afford an unexpected $1,000 expense. Think of your cushion fund as a cash reserve that’s specifically set aside for financial emergencies.
Emergencies don’t include a wild night out, vacations. Use this money only when pretty much all hell breaks loose, like when your house gets flooded or when you get stranded in the middle of nowhere and have no other options.
So the cushion fund is your safety net, and it should be able to cover at least three to six months of your living expenses. This is crucial because life is unpredictable, and having a cushion fund can prevent you from going into debt when unexpected expenses arise.