I've made millions of people rich and I want to make you rich too. I'm going to walk you through my step-by-step playbook on exactly how to set up your finances. By the end of this video, you'll know exactly how much you can spend guilt-free on a house, a car, even eating out, and you'll be earning money every single day from investing automatically. It all starts with step number one, a better way to spend. Wouldn't it be great to save hundreds per month and still buy what you love?
Wait. Before you run away thinking this is about creating a budget, just hang on a second. This is not about creating a fancy budget that you'll have to maintain every single day for the rest of your life. I don't want to sit there and track the price of broccoli or cans of soup or even coffee.
Forget it. I hate budgeting. But how much are you supposed to be spending in certain areas?
What if you really love travel? How can you take amazing trips and still save money? Well, with a conscious spending plan, you'll know exactly how to save and how to invest every single month.
and then use the rest of your money guilt-free for whatever you want. Conscious spending is not about cutting your spending on everything. That approach would not last two days.
Instead, conscious spending is about choosing the things you love enough to spend extravagantly on and then cutting costs mercilessly on the things you don't. For example, my friend John spends $21,000 a year going out to restaurants and bars. I know Lisa who spends $5,000 a year on shoes.
And my friend Julie makes $40,000 a year working at a nonprofit, but she saves more than $6,000 a year, far more than most Americans. What are they all doing right? They have a plan.
Instead of getting caught up on the spending treadmill of new phones, new cars, new vacations, new everything, they plan to spend on what's important to them and they save on the rest. So let's get onto the specifics of how you can make your own conscious spending. Here's the idea. A conscious spending plan involves four major buckets of where your money will go.
As we go along, I'm going to show you a sample person's conscious spending plan. You can download your own free template by clicking the link in the description, but for now, just follow along. Bucket number one, monthly fixed costs. Fixed costs are the amounts you must pay. In other words, basic expenses that any ordinary person would need to live.
And a good guideline is that your fixed cost should be 50 to 60% of your take home or your total. after-tax pay. So for example, let's say Sarah makes $5,000 a month after taxes. Her monthly fixed costs are $2,500, which is 50% of her take-home pay.
And I think that's good because that falls within the 50 to 60% that I recommend. So before you do anything, you've got to figure out how much your fixed costs add up to. Here's a list of things to include in your fixed costs. Rent or mortgage, utilities, cell phone bill, car payment, public transportation or other transportation, gas, groceries. debt payments including student loans.
Now once you've gotten all of your expenses filled in, here's one thing I want you to do. Add 15% for expenditures you haven't counted or you forgot about. Yes, really. For example, you probably didn't capture car repair, which can cost $400 each time.
That's $33 a month. Or dry cleaning, or emergency medical care, or charitable donations. Flat 15% will likely cover you for things you haven't figured in, and over time you can get more accurate with your projections.
For Sarah, she'll need to add $375 a month for these things, which brings her to a total of $2,875 per month of fixed costs or 57.5% of her take-home pay. That's still within the recommended range, so she's good. Once you've got a fairly accurate number here, subtract it from your take-home pay. Now you know how much you have left over to spend in other categories, investing, saving, and guilt-free spending. You'll also have an idea of a few targeted expense areas that you can...
cut down on to give yourself more money to save and invest. Moving on now to bucket number two, long-term investments. This bucket includes the amount you'll send to your 401k and or Roth IRA every month.
Any kind of investment you've got, retirement, non-retirement, any of it, that counts. A good guideline here is to invest at least 10% of your take-home pay. Of course, the more the better because this is where real wealth is created.
For example, Every month, Sarah invests $500 into her Roth IRA, which is 10% of her monthly paycheck. Again, as I said, real wealth is created under this category of investing. If Sarah keeps investing 10% of her income, she'll be a millionaire in 39 years. But keep in mind, most of the time when we plan out these calculations, we never factor in increases in salary.
As our salary goes up, we get to invest even more. And over time, that turns out to be a lot. of money we also don't factor in things like tax refunds or unexpected income which we can also put into our investments which will grow huge over the long term after a few months years, she'll make more from her investments than from her salary. Your 401k contributions also count towards the 10%. So if you already participate in a 401k, add that amount to your take-home pay to get a total monthly salary.
Remember, don't get too fixated on pre-tax or post-tax. That's not really the point. Let's just try to go for 10% total at a minimum. That's going to be a good start.
You can fiddle with the numbers later. The third bucket is savings goals. Now, this bucket includes short-term...
to midterm savings goals, for example, holiday gifts, vacations, a wedding in a few years, a down payment on a house, et cetera. Basically any money that you're going to need between one to five years. Any shorter than that, you should just have it sitting around and spend it when you need to.
Any longer than that, you're likely going to want to invest that money. My suggestion is to target at least five to 10% of your take-home pay. For example, Sarah decides on a monthly savings goal of 8%. or $400. She splits this $400 evenly between vacation savings and emergency savings.
And I love this because I want you to name the accounts that you are using for your savings. Not just vacation, trip to Europe, watching the stars in Greece, that kind of thing. After figuring out your fixed costs, your investments, and your savings, you'll now know exactly how much you have left to spend on. Bucket number four, guilt-free spending money.
This bucket is my favorite. It is the fun money, the stuff you can use for anything you want guilt-free. That could be restaurants and bars, taxis, movies, shopping, travel, anything. Depending on how you've structured your other buckets, a good guideline is to use 20 to 35% of your take-home income for guilt-free spending. That's a lot of money.
Most people are surprised when I share that number because they go 20 to 35. That sounds like a lot. Yes. And you can do that as long as you have hit your other numbers.
For example, Sarah has spent 57.5% on fixed costs, 10% on investments and 8% on savings, which leaves her with 24.5% or $1,225 each month to spend on anything she wants guilt free. Now that you've worked out the basics of your conscious spending plan, you can make some targeted improvements to tweak your spending and make your money go where you want it to go. Here's how I would start. I would pick two discretionary expenses, the biggest two discretionary expenses, and I would aim to cut them down by 50% over six months. To tell you the truth, for most people, this is eating out.
They spend way more than they think on eating out. They don't even want to spend that much. So if you were to target one expense like that and another expense, discretionary, Aim to cut that down by 50% over six months. Here's an example of what that might look like. If you're starting at $500 a month, just for example, your first month might go down to $475, then $450, then $400, then $350, $300, and $250 on eating out.
You can see that it's a gradual change. You are not doing anything big overnight. You're giving yourself time to lock in the behavioral change. Now, there's a key here, and the key is to redirect that new money to the things you want in your rich life.
That could be paying off your debt faster. 250 bucks a month could shave off years of your mortgage. Or it could be investing more, which could make you hundreds of thousands of dollars.
Or even taking an amazing anniversary trip. That's fine too. Now you probably already know where you want to redirect hundreds of extra dollars per month.
This is your opportunity to do that. Now for most of you watching this right now, you probably have at least one credit card in your wallet. And that brings us to the second step of my playbook, which is beat the credit card companies at their own game. Now listen up, because if you understand this step, you will be ahead of 90% of other people. Instead of playing defense by avoiding credit cards or paying the credit card companies thousands of dollars in interest, I want you to go on offense.
Start using credit cards responsibly and squeeze as many rewards and perks and benefits out of your cards as possible. You can actually get fantastic benefits. on your credit card when you are a responsible customer.
In fact, here's some of the ways I've used my credit card benefits. I recently used points to cover $40,000 of flights to India and Italy with my wife. When I once spilled coffee on my new laptop, my credit card wrote me a check for about $1,000 to reimburse me.
And I don't need to buy extended warranties because my credit card automatically doubles them. So does yours. Now let's get into the five commandments of credit cards so you can beat the credit card companies at their own game. Number one, pay off your credit card in full with automatic payments. When I talk to people who are in debt, 90% of them do not even know how much they owe.
If you have debt, this is the first step. You got to figure out how much. and start paying it off.
Not tomorrow, not next week, today. If you have multiple sources of debt, you have two approaches you can take to pay that off. You can use the snowball method, or you can tackle the highest APR first.
It doesn't really matter which one you choose. What's critical is to set up automatic payments to get your credit card consistently being paid off every single month. You should not be wasting time and energy logging in manually every month to pay off your credit cards.
I don't, you shouldn't, nobody should. That's a solved problem. You automatically set it up and then it's done. In fact, you will know exactly the month and year that you will be debt free.
Here's a bonus tip. Go online, search for a credit card debt payoff calculator and plug in your numbers. You will discover, especially if you have a large balance, that if you pay an extra $50 a month or $100 a month, you can often shave off the amount you are paying down by months or even years. Step number two, negotiate a lower APR. Now, especially if you are currently paying off debt, I want you to try to negotiate down the APR on your credit cards.
Call your credit card company up, tell them you're getting serious about paying off your debt, and ask them if they can lower the interest rate. Sometimes, they'll drop it for a period of time, which can often save you thousands of dollars. And sometimes they'll tell you, no, we can't do that. That's okay as well, but you'll never know without asking.
Step number three, get your annual credit card fees waived. You have to remember that credit card companies compete ferociously with each other, and that benefits you. Call them a month before your new annual fee kicks in, if you are paying an annual fee, and ask them to waive it.
Sometimes it works, sometimes not. Sometimes they'll give you a points bonus instead of waiving your fee. But if you decide that your credit card fee is not worth it, then ask your credit card company what they will do for you.
If they waive your fees, great. If not, you have the option to switch to a no-fee card. Number four.
Keep your main cards for a long time. Keep them active, but also keep them simple. Lenders like to see a long credit history, which means that the longer you hold your account, the more valuable it is for your credit score.
My suggestion is to avoid getting suckered in by introductory offers and low APRs. Honestly, if you're happy with your card, keep it. That's what I do. And number five, use your credit card's secret perks. Call your credit cards and lenders once a year and ask them to send you a full list of all the perks and benefits you get.
That list of benefits may include waived fees, private promotions that others don't have access to, purchase protection, automatic warranty doubling, car rental insurance, trip cancellation insurance, concierge service, although their concierges are horrible, and on and on and on. That's it. If you follow these five commandments, you've mastered improving your credit by using your credit card instead of hiding from it. Now that you've learned how to create your conscious spending plan and beat the credit card companies at their own game, That brings me to step number three, setting up your automatic money flow. Automating your money will be the single most profitable system you ever build.
This truly will change your life. It will help you pay off debt faster. It will help you automatically save and invest. It will help you make hundreds of thousands of dollars in your sleep.
And all you have to do is set this up. In fact, if you set this up now, you can spend less than one hour per month on your finances. I know because that's what I do. And that's what hundreds and hundreds of thousands of my readers do as well. First, assess the checking account you've got and decide if you need a new one.
The checking account is important because you think of it like your email inbox. All of your money should come in there first. And then it's filtered out to different accounts like a savings account, retirement account, etc. The checking account I personally use is the Schwab Investor Checking Account.
By the way, I don't have any relationship with Schwab except that I'm a customer and I think they have a great product. In my opinion, Schwab's Investor Checking is the single best checking account available. There are no fees, no minimums. It's got overdraft protection, free bill pay, and best of all, unlimited reimbursement at any ATM. You can go to a 7-Eleven, you can go to any ATM, and they will reimburse you for the fees.
When I saw this account, I wanted to marry it. Now, although you need to open up a Schwab brokerage or investment account to get the fees waived, you don't actually need to use their investment account. And side note, I want to point out a couple of things.
Number one, you can't deposit physical cash through this account. So if you need to do that, you're going to need to get another checking account. Second, I have heard reports that they do a credit pull on your credit report. So if you're thinking of buying a car or a house in the next six to 12 months, I probably would not open up this account.
Again, do your own research before you open up anything that I talk about here. Next, you'll need to open up an online high interest savings account. Think of your savings account as a place to store cash for the short term.
to midterm. That's basically one to five years. Take a look at this chart again. Five to 10% of your take-home pay or after-tax pay should be sent to your savings account every month.
Now, I recommend your checking and savings account be at two separate banks. Why? Because it makes it a little more difficult for you to casually just reach into your savings account and transfer out a 500 bucks for a crazy night out. I don't want that. I want you to have a plan and stick to it.
So personally, when you're looking for a savings account, I do not recommend using a standard big bank savings account. Instead, online savings accounts give you more interest. They're more convenient. They're just better.
I personally use several different accounts. Capital One 360 savings is fantastic. No fees, no minimums, no tricky upsells. And again, I don't really care if it's the absolute highest interest rate. I'm not rate chasing.
I just want to find one that is good and stick with it. You can also look at Ally, Marcus by Goldman Sachs, and American Express Personal Savings. I don't have any relationship with any of these banks.
Go ahead and look into any of them. All of them are great. Whatever bank you choose, just remember one key principle.
Bank of America and Wells Fargo suck. They treat their customers like shit. They are predatory banks that rip you off. They charge near extortionate fees. They use deceptive practices to beat down the average consumer.
And they have been fined, especially Wells Fargo, fined. Billions by the government for extremely shady practices. Go ahead and Google it and look it up yourself. Stay away from them. I'm getting mad right now just thinking about this.
All the people that they targeted, they got people's cars repoed, they target minorities, they target people who don't have money. F**k Wells Fargo and Bank of America. Now that you have chosen the right checking and savings account, I'm gonna show you how to make your system automatic so it runs itself. Okay, here's what you gotta do.
To start, list all your accounts in one place. You're gonna need a list of all your accounts, URLs, your login and passwords. Then it's time to link your accounts together so you can set up automatic transfer from one account to another.
When you log into any of your accounts, you'll usually find an option called something like link accounts or transfer or set up payments. These are all the links you need to make. Pause the video now so you can take some notes. All right, let's take your conscious spending plan now and make it automatic.
To do this, I use a concept called the next $100. And what it means simply is where will the next $100 you make go. For example, is it all going to go to your investment account?
Probably not because you need to make sure you have a roof over your head. Are you going to allocate 10% to your savings account? I hope you will. You know, most people don't think about their money in this way at all.
They don't think in percentages. They don't think in buckets. They just pay what's in front of them and they go 5, 10, 20 years doing this and they wonder, what am I working for? Why do I not ever have any money left over?
The answer is, you haven't made a plan. I don't want you to thoughtlessly spend your money. There is a better way, and it involves using the guidelines you established in the Conscious Spending Plan. So if you followed step one of this video, you already know how much money you have to contribute to your fixed costs and how much is left over for investment saving and guilt-free spending.
So if you made $100 and your plan follows my guideline, you might put $60 towards your fixed costs, $10 into your investment account, $10 into savings, and then you'd spend the remaining $20 on whatever you want. guilt-free. Pretty cool, right?
And what I like about this is that it's based on percentages, so as you start to increase your income, you can scale your system with you. And it even gets better, because once everything is automated, that money is going to be sent from your checking account right into the appropriate accounts without you having to think about it. So here's how you set up your automatic money flow, and I'm going to assume that you get paid on the first of the month.
Pause the video so you can take notes. Quick tip, to achieve this automatic money flow, I recommend that you get all your bills on the same schedule. Gather them all up, call the companies, ask them to switch your billing dates. This won't take long at all.
And that right there is the basic automatic money flow schedule. If you follow this system, your money management is now on autopilot. Congratulations.
All right, we've got one step left, but before we jump into that, I noticed that only 38% of you are subscribed while watching my videos. So if you're not subscribed... Do me a favor, click subscribe so I can keep sending you new videos on how to use your money to live your rich life. All right, now on to step four, a simple investment strategy that will make you rich. Sometimes I hear people saying investing is for rich people, and I really want to gently take their shoulders, shake them, turn them around and say, no, investing is not just for rich people.
Investing is how you get rich. Let me show you what I mean. Take a look at how much your investments would be worth if you contributed a hundred dollars a month.
or $500 a month or $1,000 a month for the next 25 years, assuming an 8% return. Now, let me explain what's going on in this chart. First off, please don't write a comment that says, what about inflation? In 20 years, $10 million will only buy you a cup of coffee.
This includes inflation, okay? This is not a nominal number. It's real. This already factors inflation in.
And if you want to be even more conservative, just calculate it with a 7% return, still a lot of money. Next, remember that as your income increases, you will Invest more. So this is actually conservative.
Very few people keep investing the exact same amount for 25 years. They actually invest. More! And finally these numbers start to get really big towards the end. The first year, okay whatever.
This fifth year, it's getting a little better but it starts to compound like a snowball. That is where the real money is made. That's why you got to start early.
Now by opening an investment account you give yourself access to the biggest money-making vehicle in the history of the world, the stock market. And investing might seem intimidating but when you learn how it works it's actually quite simple. See, when people talk about their investment portfolio, they're referring to the money in their 401k, Roth IRA, and perhaps other investment accounts they have. My goal here is to help you pick the simplest investment to get started and to make it easy for you to maintain. I have a philosophy, low cost, long-term investments, really simple.
And by doing just these two things, you'll be on your way to getting rich. Now let's look at the investment accounts you can open and when. This is what I call the ladder of personal finance.
and there are six steps. Each step builds on the previous one, so when you finish the first, just go on to the second. If you can't get to number six, don't worry.
Do your best for now. Step number one, if your employer offers a 401k match, invest to take full advantage of it and contribute just enough to get 100% of the match. A 401k match means that for every dollar you contribute to your 401k, your company will match your contribution up to a certain amount. For example, let's assume you make 100k and that employer will match 100% of your contributions up to 5% of your salary.
What does it mean in real math? It means if you contribute $5,000, your company will match it with $5,000. That is free money. And there is quite simply no better deal.
Step two, pay off your credit card and any other debt, especially high interest debt. The average credit card APR is currently over 22%. There's APRs that are even higher.
Whatever your credit card company charges you, paying off your debt will give you a significant instant return. Step three, open up a Roth IRA and contribute as much as possible to it. As long as your income is $146,000 or less as of recording this video, you are allowed to contribute up to $7,000 in 2024. For current contribution limits, just search for Roth IRA contribution limits.
Step four, if you have money left over, go back to your 401k and contribute as much as possible to it, this time above and beyond your employer match. In 2024, the contribution limit is $23,000. But the government often changes this annually to keep up with inflation.
For current contribution limits, search 401k contribution limits. Step number five, a little unusual. If you have access to a health savings account, an HSA, that can be an investment account with incredible tax features that few people know about.
If you've completed step four and you still have money left over, take advantage of this account. And step six, if you still have money left over to invest, open up a regular non-retirement taxable account and put as much money as possible in there. I mean, you can invest $50,000 a month, $500,000, $5 million a month if you want. There is no limit to how much you can invest in a taxable account. I share that because some people have very high incomes.
They don't know where to put it. There's your option. Also, feel free to pay any extra on mortgage debt you have, particularly if it's high interest, and then consider investing in yourself.
Whether it's starting a company or getting an additional degree using some of our self-development programs, there's often no better investment. than investing in yourself. Remember, the ladder of personal finance only shows you what accounts to open.
Now I'll show you where you can invest. To keep things simple, I'll tell you my number one pick for investments, target date funds. This is the option that I recommend to my family.
You have lots of places you can invest, including your own index funds, but target date funds are the simplest place to start investing. And they're fantastic for people who want their money to grow with the least possible efforts. Target date funds.
You choose them based on the year that you're going to retire, and they automatically become more conservative over time. And as you get older, that's exactly what you want from your investments. All you have to focus on is putting as much money as possible into the target date fund, and it automatically diversifies for you.
Now, when choosing the target date fund to invest in, look for the year that you plan to retire. For example, if you plan to retire at 65, and you'll be 65 in 2050, you would find a 2050. target date fund. You can look at Vanguard.
They've got a Vanguard 2050 fund, Fidelity, Schwab 2050 fund. I personally have used all of these services. They're great.
I think they are low cost, long-term investment funds. They're fantastic. And then start automatically investing every single month. That target date fund might sit within your 401k, your Roth IRA, or any number of accounts.
All you've got to do is make sure that the money is automatically being sent and invested every single month. Now, whatever option you choose, remember, investing is not a race. We are not trying to get rich quick. We're trying to be slow, calm, methodical.
The key, make a decision and start investing. And now, congratulations, you are an investor. Okay, if you follow the four steps I outlined in this video, you're able to spend more on the things you love guilt-free. You're using your credit card responsibly. You're squeezing those credit card companies for as many rewards and benefits as possible.
And even better, you've tied your system together so it works automatically with hardly any effort. That means that you can now spend one hour per month on your finances. Just one hour.
Your savings are growing. Your investments are growing automatically. This is how you live your rich life and this is the way true wealth is created. Check out this video on screen popping up right now to watch more.