Track These 4 Numbers to Become a Millionaire

The millionaires I admire the most track only four numbers. That's it. These are the very same four numbers that I myself track. And I want to show you what they are today. That's right. You don't need to track 50 numbers. You don't need to know the PE ratio of anything. You don't need to track the price of ketchup at the grocery store, ever. You track these four numbers, you can spend less than one hour per month on your finances. Now let's get to it. First up, let's talk about number one, fixed costs. This category should be roughly 50 to 60% of your take home pay. Now this is really important because if your fixed costs are higher than that, you're going to find it very difficult to save money on anything. You're going to find it very difficult to have enough money to invest and you're going to feel stressed out because you're not going to have enough money just to have fun. So here's what. Fixed costs include your rent or your mortgage, your utilities, your transportation, not just the car payment, but also the gas and the annual registration. All of it. Groceries, debt payments, including student loans and your subscriptions. Now here's a little tip. After you've added up all of those big parts of your fixed costs, add 15%. That's because most of us don't capture all of the hidden expenses in our fixed costs. For example, you probably didn't capture car repair, which can cost, let's say $400 each time. That's actually $33 a month. You probably didn't capture emergency medical care or charitable donations. There are just things we forget about. A flat 15% will cover you for things you have not figured in. And over time you can get more accurate. Now that you have your total fixed costs plus the 15%, look at what percentage that is of your take home pay. In other words, add it all up and divide by your take home pay. Is it under 60%? If so, awesome job. If you find that your fixed costs are too high, which is really common, it's usually the result of one or two categories. Housing or your car. Now, I see a lot of people spending and I consistently see people paying too much for their housing and their car. Think about it. How did you decide how much you could afford on, on your rent or your mortgage? How did you decide how much car you can afford? Most people literally just look at the monthly payment and they go, yeah, that sounds good, 400 bucks a month. Wrong. Here's my suggestion for you. Before you buy these big ticket items, you've got to be really thoughtful about how much you can actually afford. It's not enough to say I want a Mazda. No, you've got to go deeper than that. For example, when it comes to housing, you've got to factor in all the phantom costs, taxes, utilities, maintenance. And then you can use some guidelines. For example, housing should ideally be no more than 28% of your gross income. If you can hit that, or if you live in a high cost of living city, you can stretch that to 32, maybe even 33%. Now you're starting to make more intelligent decisions. And I cover these frameworks in my book, I Will Teach youh to Be Rich for your car. You've also got to look beyond the monthly payment. But for example, when I had a car payment, it was a $350 car payment. But when I factored in everything, gas, parking, insurance, parking tickets, all of the above, it cost me over $1000 a month. From $350 a month to over $1000 a month. Is it any surprise that most Americans have no idea how much their house actually costs them? Is it any surprise that so many of us feel stressed out about money? So it's because we have no idea how to even decide on the biggest two purchases of our lives. So again, if you find out that your fixed costs are too high, I would look at your housing and your car payments first. If those are good, you can move on and cut back in other areas, for example, like groceries. The point is, you only have to look at a few things in this bucket to get your numbers where they should be. If you find yourself tracking the price of broccoli at three different grocery stores, you've taken a wrong turn. Reverse pat yourself on the back, say I can do this. I don't need to be a psycho. And then focus on the big numbers. Keep tracking your key numbers and make sure that your fixed costs are between 50 to 60% of your take home pay. Moving on to the second number you need to track long term investments. Now, this category is so important because this is where real wealth is created. My recommendation is that you put at least 10% of your take home pay in investments. Of course, the more the better. Now this bucket includes the amount that you will send to your 401k and Roth IRA. I know some of it's post tax and pre tax. We're just going to simplify it here, okay? Just to say 10% of your money should be going to investments at a Minimum. Let's say you're contributing 5% of your salary to your 401k and another 5% to your Roth IRA. Fine. Close enough. Why do I recommend you invest 10%, minimum? Because that money compounds if you. It grows like you would not believe. There will be a point where you'll be making more from your investments than from your income. Let's take a look at these two examples. Savvy Sally actually invests less, but ends up with $60,000 more. Let me show you. She invests $200 a month from ages 35 to 45, and that's it. She never does anything else. She just puts it in there and it grows. Now, Naive Noah comes along. He's too preoccupied to worry about money. He goes, I'll get to it someday. And then he saw the name of my book, I Will Teach, Be Rich. He goes, that sounds like a scam. So he didn't read it for seven years. And then finally, on some obscure subreddit, someone goes, oh, you actually should really read this book. It's not a scam. It's actually been read by over a million people. It changed my life. Okay, fine. I'll read this stupid book. I will teach you to be. He picks up the book. He reads it. He goes, oh, God, I wish I read it before. Why didn't anybody tell me? I wish this material was out there years ago. Naive Noah. This was out there for a long time. Anyway, his name is Naive Noah. You can't really get too mad. He's naive. So Naive Noah says, you know what? I'm gonna change my life today. I'm ready. Great. Naive Noah starts investing at age 45, and he invests $200 a month. Same amount until he's 65. So he invests for 20 years compared to the 10 years that savvy Sally invests for. Okay, Savvy Sally has $60,000 more, even though she invested for half the time. This is the power of compounding. And this is why the earlier you start investing, the better. Now, if you are watching this and you're 48 years old and you're starting to get depressed and you have tears running down your eyes, take a second. Dab those eyes. You'll be fine. You can still start investing today. Yes. You need to be more aggressive with your investments. Yes, it would have been nice to start at age 14. We all wish. But the second best time is to start today to see what your own investments could look like. I would recommend searching for a compound interest calculator and enter some numbers. You can experiment with. $100 a month, $200 a month, $500 a month, even a thousand dollars a month. Assume a 7% return. Just to be conservative, you'll see dramatic differences over 10, 20, 30, 40 years. Now, if you don't have any money left over to invest, invest. And you know that your fixed costs are already 50 to 60%, then I would take a look at your spending later on in this video. You might be overspending on eating out. Frankly, you probably are. Some of my old degenerate readers used to overspend on alcohol. But you know, nowadays people are not doing that as much. So fine, you're probably overspending on eating out. You know it, I know it, I see your phone. I've looked at people's doordash accounts. Fine. Once you discover what you can cut back on, you can redirect the money from there to your investments. But we will get into that. For now, just remember this. Investing is where real wealth is created. That is why it's so important to start as early as possible and to invest every single month automatically. Aim for 10% if you can up it by 1% every single year. Now that we've covered your fixed costs and your investments, we're going to move on to the third number you need to track, which is your savings goals. Your savings goals should be at least 5 to 10% of your take home pay. What is savings? A lot of people like, oh, I should save money. Mom told me, dad told me. We don't even know what savings is for. Therefore we're not going to save money if we don't even know what the purpose is. Let me tell you, your savings category is for money that you're going to use between one to five years from now. Let me explain. It could be that you're saving up for a nice trip. You're saving up for a beautiful coat. Okay? Those are nice things that you can save up for as opposed to just spending and then figuring it out later. You might be saving up for something bigger. An engagement ring, a down payment on a house, A. And your savings category should always include an emergency fund. I recommend three to six months of enough expenses to keep the lights on. What I mean by that is if you got laid off or something really bad happened, you'd probably cancel your subscriptions. You probably stop eating out. So calculate how much it would cost you just to keep the lights on and then multiply that by three months or six months and that's how you can save up for this. That. Now I recommend three to six months. Personally, I have 12 months because I'm a little bit more conservative with money. It's okay if it's three months or six months for you. Just know this. Know that that goal is going to take you a while to fill it up. It's probably going to take you years to get six months of an emergency fund. That's fine if you're putting 100, 200, 300 bucks a month away for just that, letting it sit there. Fantastic. Just keep contributing to it Every single month. Month. 5 to 10% of your take home every month can be put into savings and then further subcategorized. Some of it can go to an emergency fund, some of it can go to a down payment, some of it go to a beautiful coat. And this is really important. If you don't have money left over to save, you got to take a look at your spending to see where you can cut back to add money to. Speaking of which, that brings me to the fourth number you need to track guilt free spending. And this is actually my favorite one of all the point of money, you frugality freaks is not to simply sit there and hoard it and look at your little calculations every day. B32 minus B42. Oh my gosh, I grew my net worth by $13,000. It's so cool. Let me post on Reddit. All right, if you enjoy that, God bless. But the point of money is not simply to save it. The point of money is to use it to live your rich life. Yes, you should save. Yes, you should invest. What did we just talk about? But also, you've got to spend it on things that are meaningful to you. After you pay all your bills, after you invest, after you save. This is the guilt free money, the stuff you can use on anything you want. And depending how you've structured your other buckets, a good guideline here is 20 to 35% of your take home pay for guilt free spending. That's a lot of money. That's 20 to 35% of your take home pay you can use on restaurants, bars, taxis, vacations, clothes, whatever. And yes, 20 to 35%, when you hear it, you go, oh my God, that's a lot. But you have to remember this, this is an area where if you're not paying attention, a lot of people end up spending 50%. A lot of people are actually spending more than they make every single month and they don't even realize it. So if your fixed cost Number is where it should be, 50 to 60%. If your savings is where it should be, 5 to 10% investments, 5 to 10%. You've got a pretty healthy amount to spend on guilt free spending. And there is one additional dynamic, especially for the people watching this video, which is some people have an artificially low guilt free spending number. All right, I talked about the people who spend way too much. What about the people who come to me? Ramit Sethi I'm so proud. I only have 5% guilt free spending. And then they go like this. That's, that's them waiting for me to applaud them. Oh my God, you're so cool. You only spend 5%. That's a failure. If you're only spending 5% of take home pay on guilt free spending, you suck at the skill of spending money. That's like saying, I've been lifting weights for 30 years and I'm doing a 1oz bicep curl. It's like, have you ever heard of progressive overload? Have you ever heard of working your muscle and working the muscle of spending? You've got to learn how to spend your money meaningfully. Now, I recently spoke to a guy about his finances. He'd saved consistently, he'd invested, he'd increased his income, but he could not bring himself to spend his money. If you have watched any of my podcast episodes with multimillionaires, you're familiar with this. They go, oh, one day I'll spend it. I just need an extra $1 million. And they get the $1 million and they never do anything with. They owe $10 million. So I asked him, are you aware that you are over saving? You should have seen the look on his face. It would have been like me saying, are you aware the sky is green? He had literally never, ever heard this question before. For people whose identity is made up of diligent saving, this question literally makes no sense. How can you over save? Isn't that like over breathing oxygen? But you can over save. Over savers believe that one magical day they'll suddenly be able to enjoy enjoy spending. But most of them cannot. Their spending skills have atrophied. And once your identity becomes focused on saving, it is very hard to change. A lifetime of operating on how little you can spend cannot be shifted overnight. This is why my mission is to show you how to live a rich life today and a richer life tomorrow. Because if you wait, it's almost impossible to change. So follow my guidelines for each of these four numbers so you'll be able to save, invest, and best of all, enjoy your money. Don't forget to subscribe so you won't miss out on any of my new videos on Money Psychology. And check out this video popping up on screen right now to watch more.