Managing Money Like the 1%

Introduction to the 75-10-15 Rule

• 75-10-15 Rule: A system to manage finances and build wealth regardless of income level.
• Applicable whether earning $10,000 or a million dollars annually.

Breakdown of the Rule

1. Spending - 75% of Income

• Maximum Spending: 75% of earnings can be used for expenses (housing, food, etc.).
• Flexibility: Spend less if possible.
• Encourages:
  • Seeking cheaper alternatives.
  • Focusing on value over price.
• Example of Wealthy Individuals:
  • Wealthy people often choose cheaper options (e.g., during dining).
  • Important to evaluate the value of purchases (e.g., price of coffee vs. its value).

2. Saving - 10% of Income

• Cushion Fund: Save at least 10% for emergencies.
• Purpose: Financial emergencies only (not leisure or unnecessary expenses).
• Building the Fund:
  • Calculate 5 months of expenses as the goal.
  • Use high-yield savings accounts (HYSAs) for better interest rates.

3. Investing - 15% of Income

• Investments: At least 15% should be invested for future wealth.
• Key Accounts:
  • Roth IRA: Tax-free growth of earnings.
    • Contribution limits and steps to open an account.
  • 401(k): Employer-sponsored; contributions made with pre-tax dollars.
    • Employer matches contributions, effectively free money.

Investment Strategy

• Long-Term Growth: Invest consistently over time to grow wealth.
• Index Funds/ETFs:
  • Diversification by investing in a wide range of stocks.
  • Example: S&P 500 Index Fund.
  • Passive investment strategy.
• Practical Reason for Investing:
  • Example of compounded returns over 50 years.

Conclusion

• Mindset: Accept that managing money is ongoing; focus on key strategies to enhance financial stability.
• Further Learning: Importance of understanding what not to spend money on.