10 Money Rules to Build Life-Changing Wealth

One of the keys to building a rich life is to create a few simple guidelines around what to do with your money. Think about it. On any given day, you're faced with a hundred financial decisions. Should I buy this type of chicken or that type? Should I pay off my debt earlier or not? Should we buy a house or rent? What you want to do is build your personal philosophy on money so you can narrow down all your options and have an easy way to make these big decisions. I call them money rules. And I want to share my 10 money rules. These are my actual rules that I use to make big decisions with my money. And I want to remind you before you watch, these are just my rules. Some of them are going to sound weird. Some of them are even going to sound totally ridiculous. And that's fine, because when you create your own money rules, they should fit you like a handmade glove. So Here are my 10 money loops. Number one, always have one year of emergency fund cash. Now, typically, people in the personal finance world recommend 3 to 6 months of an emergency fund, right? For me, I prefer to be more conservative. I want to know that if something really bad happens, I have extra cash available to tide things over. You saw this during COVID when tons of people were laid off or lost their jobs and they were panicking because some people did not have an emergency fund. Now for me, I choose to have a larger than typical emergency fund. And one quick thing is when I say cash, I don't mean there's money sitting around in my closet. Please don't try to rob me. It's in a bank account, it's liquid, it's just sitting there. I don't really care about the interest on it. In case I ever need it, I know it's there. There. One last thing. If a one year emergency fund seems extreme to you, just adjust the numbers. Start with a month, work to three months, maybe six months. It's up to you. But this is just my own rule for myself. Rule number two, I save 10% and I invest 20% of gross income, minimum. Let me explain this. In my conscious spending plan, I talk about saving 5 to 10% and I talk about investing 5 to 10%. A lot of people go, ramit, why are you saying one thing and doing another? Well, let me tell you why. At a minimum, you should be saving and investing 5 to 10%. As you make more money, you should increase those numbers, especially depending on what type of lifestyle you want to live. For me, I know that true wealth is created by investing. So I'M aggressive about taking money and investing it. That means that I've been investing since I was 14 years old. And as I make more, I invest more. The key here is that I want to live a rich life today and a richer life giving tomorrow. Now, a lot of people will not be able to save 10% of gross and invest 20% of gross. That's a lot of money. You typically have to have quite a high income in order to be able to do that. But if you can't do that, adjust it right? Make it work for you. At a minimum, maybe your money rule can be Invest and save 5 to 10% of net income. As I recommend in the CSP. Start where you can, but just do one thing every single year. Add 1% to your savings rate. Add and 1% to your investment rate. That single decision alone will be worth hundreds of thousands of dollars to you. Rule number three, be able to pay in full for large expenses such as a wedding, a honeymoon, and a house. Can I please talk about this? Because the Internet always goes berserk whenever I post it. People go, ramit, are you saying you want to pay in cash for a full house? Who could do that? I go, well, some people can, clearly, because there's a lot of people who pay all cash for a house. But that's not the point. Years ago, I had a mentor. He took me out to lunch one day and he talking about money, and he goes, I have a no debt policy in my household. I thought to myself, hmm, that must be nice. And I realized over time, as my career progressed, that actually is nice. And it actually takes a lot of discipline because as you earn more money and as your net worth grows, it's very tempting to spend money and take on debt. Now, if you want to take on debt thoughtfully, okay, that's one thing. But it's a strong point of view to say we have a no debt policy in our household. When I was in my early 20s, I knew that one day I would get married. I hadn't even met my wife at that point, but I knew that marriage was important and having a beautiful Indian wedding was also important. So I started saving money before I'd even met her. I also knew that we'd want to go on an amazing honeymoon. Started saving money for that, for a ring, all those things. Same thing for a house. We don't own a house by choice today. Someday we'll buy a house. We've been saving for that for years now. Here's the key. When I go to make these Large purchases. I don't want cost to be the first reason to make a decision. The second, or even the fifth. I want to put enough money aside that cost is not the primary determinant. Now, is it realistic for most people to buy a house and pay for it in full? No. That's why it's my rule. Are we going to get a house and pay all cash? I don't know. Maybe, maybe not. Depends on interest rates. But I want to know that we could. That is why this is one of my money rules, and that is why this rule is probably unrealistic for most people. But the principle, looking ahead, saving for something before it happens. That principle will never go out of style. That brings me to rule number four. I never question spending on books, appetizers, or donating to charity. You know, one of the things I love about rules is creating rules that are permissive, not restrictive. You may have heard of Ramit's book buying rule, which says, anytime I see a book that I'm even remotely interested in, I just buy it. If I'm thinking about it, I buy it. I don't waste five seconds debating equivocating. Even one idea makes it worth it. That's the same thing for this rule. You might be wondering how come in the last rule, I'm talking about something as big as buying a house, and now I've shrunk it to talk about appetizers. Well, it's personally meaningful to me. When I was a kid, we rarely ate out, and when we did, we never got appetizers. So now, to be able to sit down at a restaurant and to be able to order appetizers, that alone feels magical. To be able to say, oh, I like both of those. I'm gonna get both. That feels even more magical. And the best thing of all, when I'm eating out with somebody else, I just say, you know what? Here's my rule. Anything you see that looks good on the menu, just order it. That is truly a rich life for me. So when it comes to appetizers, I gave myself unlimited spending. When it comes to donating to a charity, unlimited spending. Because my wife and I ran a charity fundraiser, and it was incredibly meaningful when our friends donated for the cause. So the question I have for you is, what's your thing? What's that one thing in your life where you want to give yourself unlimited spending? Maybe it's gardening. And your rule might say, gardening is so important to me that I'm going to give myself unlimited spending on gardening supplies, flowers, Sunblock, what? Manicures, whatever. Pick the thing that you want to give yourself true abundance for and trust that you will not go absolutely crazy when it comes to spending it. Rule number five, I fly business class on flights over four hours. Now this rule is simply because I want to and I can afford it. And that's what a permissive abundant money rule looks like. I didn't fly business class growing up. I didn't even fly growing up. Hardly ever. But eventually when I started flying in my early 20s, I remember walking down the aisle and I would scoff all these people. Why would they sit in the front and pay four times when we're all getting to the same place? Hahaha. They're wasting their money. What I wish I had done instead of disparaging them was to get curious. I call that the D to C principle. I wish I would have said, why would someone pay four times the price to sit towards the front of the plane? I wonder what they're getting out of this. Is there something that they're getting out of it that I can't see? And over time, of course, I realize, you know, it feels better and you have more security, you know, your bags are going to, you're going to have space for your bags and ultimately just if you can easily afford it and you want to and you're hitting all your savings and investing numbers. What? Why not? That's one of the key principles about money. You don't have to justify your purchases to anybody else. If you're hitting your numbers and you decide this thing is important to me, go for it. I also like having a simple clear rule so I don't have to debate with myself. I don't even have to tell my assistant. Oh well, I think I feel like this should be coach and this should be economy plus. No, it's just a simple rule. If the flight's over four hours, then business class, Boom. I love simple, clear rules. Yours may not be business class, it may not be economically practical, or you may just not care enough. But think about what your clear and simple rules could be. Remember, these are my personal money rules. You can adapt them or you can completely ignore them. It's up to you. Rule number six, I buy the best and I keep it for as long as possible. Now everybody kind of intuitively loves this until we actually talk about what specific things they buy. They're like, ramit, I totally agree. You gotta buy the best to keep it for life. I go open up your closet, it's all Uniqlo that looks horrible. It's all pilling. And they buy new stuff every single month. Oh, but Ramit, it's all about the best. Listen, when I talk about buying the best, I'm talking about the things that are important to me. For me, it's clothes, yes. It's things I use every single day. Those are important. For example, the little scoop that I use to scoop out coffee. I got a nice wooden spoon from Japan. I love it. I'm gonna use that thing for the rest of my life. Another example, my iPhone. Whenever I get an iPhone, I just have a simple rule. Just get the one with the most storage space. My car. I bought a Honda Accord when I graduated from college. I've driven that thing for 19 years. Okay? Now, am I saying a Honda Accord is the best car? Yes, I am. Especially the LX V6 for all my Honda aficionados, the three of you out there, you know what I'm talking about. And clothes, including the vicuna sweater, which I talk about in this video, that actually cost more than the car. So some of these items, if you buy the best and you truly keep them forever, can actually be passed on for generations. Another reason is why I buy shoes and then I get them repaired instead of going and just buying a bunch of brand new shoes. Now, what I would recommend for you, you 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. That brings me to rule number seven. No limit for spending on personal development. Well, listen, I'm in the personal development field. I help people live a rich life. I talk about money, careers, business, and psychology. Of course I want to buy personal. Personal development. I want to improve myself, which I want to consistently do, and I want to learn how other people are doing it. So in my opinion, just for my own money, my own rule is no limit. If I see something that looks interesting, whether it's an online course, whether it's a personal trainer, which has totally transformed my life, whether it's a posture coach like I described, and why I spent money on that, those things help have totally changed my life, as you can imagine. For somebody who's in the personal development field, this is very meaningful for me. Now, the no limit part of this rule might scare you. Fine. It might not be practical for you. Also fine. You can adapt it for your own life. Maybe it's a cap of $100 a month on fitness classes. Maybe it's $1,000 a year on continuing education. Again, whatever makes sense for you. And if this rule just doesn't apply and it doesn't make you feel something, ignore it. Rule number eight, I love this one. I earn enough to work only with people I respect and like. You ever work at a company where you have a meeting coming up with somebody tomorrow and you just look at your calendar and you see their name and you're just like. And you just start sweating? You're like, ugh. You could feel it. You don't want to have that meeting because you don't like them. You don't respect them. Every time you talk to them, you walk out of there feeling worse. A lot of people are like, wait, that's how I feel about some of my friends. That's a sign. And I decided long ago that in my company, I'm going to work with people that I respect and that I like. I don't want to be miserable at work. Work is where I spend a lot of time and it's my company. So what that meant for my life is that I would never stay in a situation purely for money if I didn't like and respect the people I was working with. I want you to notice that as we're getting towards the end of these 10 money rules, they're becoming a little less transactionally focused and much more focused on a rich life. And that's by design. The first rules, very tactical. 10%, 20%. But as we zoom out, we talk about what a rich life really means. All right, I have two more money rules left to share. But before we get to that, if you're not subscribed to my channel, go ahead and do me a favor. Subscribe so that I can keep making these money videos for you. Now on to rule number nine. I. I prioritize my time outside the spreadsheet. There's a lot of spreadsheet nerds, including 22 year old Ramit Sethi, who love to optimize life. Let me optimize my Excel sheets. Let me run the Monte Carlo. Let me calculate this projection. But what happens if there's a 2.6% instead of a 2.8% withdrawal rate? Stop it. At a certain point, you know your numbers. You've won. You've set your money up using chapter five of my book. You've got your conscious spending plan. Everything's flowing. Stop optimizing and turn the page. A rich life is lived outside the spreadsheet. So what does that mean? I knew that for a guy like me, an optimizer, I needed to create a rule to get away from my computer and to go outside and live my rich life. That for me means staying fit. It means traveling. It means seeing friends and family and loved ones. A rich life is lived outside the spreadsheet. And that brings me to rule number 10. Marry the right person. This one seems so obvious if you've been married, but it's important. It's so important. And that is why you see it in the position it is in. At the highest level of the last part of my money rules, the person you marry is one of the biggest financial decisions you will ever make. That person will affect your earnings. That person will affect where you live, what you eat, your family structure. They will affect everything and not just the big things. They will affect the way that you talk about money and feel about money for the rest of your life. So important to have somebody who you are values aligned with. Now, that person might come from a different financial position. They might have a different amount of income or debt. That's not as important as do they think about money the same way. Are they willing to talk about money like you are? If you can find a match there, then you can learn the technicalities and build a rich life vision together. Anyway, when it came to my relationship with my wife, I knew that we wanted to talk about money together. It would have been very easy for me to just be the money guy. No, I wanted us to develop our own rules and our own process for managing money together. Alright, now that I've shared my 10 money rules for a rich life, have you noticed that my rules are more about saying yes than saying no? Here's my suggestion. I would encourage you to take my money rules and tailor them for your life, your values and your priorities. Remember that the more crisp you are about your rich life, the more confusing your money rules are going to be to other people. Your rules are going to start to fit you like a handmade glove. And in fact, at a certain point, they're going to seem weird or even ridiculous to other people. But remember, they should always be important and specific enough to be meaningful to you. Check out this video now to watch more.