There have been an increasing number of self-made millionaires in recent years. This proves that any individual can become wealthy and live the life they want. Think about what you could accomplish if you had more money now. You could travel the world or spend more time with your family. In this post, I will show you the three golden rules that all money masters follow.
Several authors have studied the lives of thousands of money masters for years, and one thing they realize is that these people all have certain things in common. They realize that anyone can get the same results as they did by following their exact steps. Make sure you continue reading as we talk about the three golden rules to being rich that money masters follow.
1. The rule of simplicity
The first rule that all money masters follow is the rule of simplicity. As the name implies, the rule focuses on keeping everything that involves their finances simple.
They understand that when a particular topic is complex, it becomes difficult to follow. For instance, you might find it difficult to understand the conversation between two particle physicists if they’re using scientific terms and you don’t have a background in that field. However, you might be able to make sense of their discussion if they use everyday language and relate their discussion to real-life examples.
While finances have nothing to do with particle physics, you must understand that if you want to become rich, then you have to follow the rule of simplicity.
So how do you apply this rule?
Firstly, you must understand your finances by tracking how you spend your money and how much you make. Therefore, you must track your expenses to know how you’re spending money every month.
You can do that by simply writing out everything you buy for the next month or reviewing your account statement if you use the same credit card to pay all of your bills. It’s also important to categorize your expenses so it’ll be easier for you to get more detailed financial information to play with.
Furthermore, you must determine what your financial goals are for you to be able to create an effective plan for achieving them. For instance, your financial goals may be that you want to retire at a certain age or save money for a vacation or retirement. Whatever your goals are, remember to keep them simple if you want to achieve them.
The next step after this is to automate your finances. That is, you must find a way to make your expenses, savings, and investing work with little or no involvement from you.
First, you need to know your finances, by knowing how much you earn and spend in a year. You could also use the 50/30/20 rule to plan your finances; that is, you should spend 50 percent of your income on your most important needs, 30 percent on your wants, and the remaining twenty percent could go towards your savings, investing, and paying off debts. Note that this rule is only a guide and you can change it to meet your needs.
The next step is to automate the payment of your expenses. I think you’d agree with me that it can be difficult to keep up with coordinating all of your bill payments on a monthly basis. You’re probably so busy that, at times, some bills go unpaid. Luckily, you can avoid this mistake by automating your bills.
List out all of your monthly bills, starting with the fixed ones such as mortgages or rent insurance loans, credit card balances, subscriptions, memberships, transportation, etc.
Thanks to technological advancements, most services have a recurring payment system that allows you to set up a plan once and all your bills are paid automatically after that. This may not be possible with some payments, such as your monthly rent, but you can talk to your landlord to see what options you have.
The best part is that many banks allow you to do all this from the comfort of your home, so you’ll never have to worry about paying your bills again.
Now that you understand how to pay your bills automatically, let’s talk about how you can do the same for your savings. Most people are bad at saving money, but with automation, you can be sure that you’ll have enough money to bank on at the end of the month. The first thing you’ll need to do is to create a savings account in addition to your checking account. You can go to your bank and set up a particular percentage you would like to send from your checking account to your savings account on a monthly basis.
Last but not least, let’s talk about how to invest automatically so you’ll be better prepared for retirement. You can automatically contribute to your employer’s sponsored retirement accounts, such as a 401k, or an individual retirement account. For your employer-sponsored account, you can reach out to your HR department to ask for more information.
Overall, simplifying your financial life will make money management a breeze, reduce stress, and allow you to avoid paying annoying late fees, which you know are a total waste of money.
2. the 80/20 rule
The second rule that all money monsters follow is the 80/20 rule. This rule is also known as the Pareto principle, and it was first formulated in 1895. It has been proven repeatedly to be very effective. The 80/20 rule states that eighty percent of results come from twenty percent of the efforts made.
The purpose of this rule is to help you find the activities that give the greatest return on your time, money, energy, and resources. When you concentrate on low-income activities all day, for example, you will yield fewer results than if you focus on high-income activities for a short while.
For instance, if twenty percent of your customers are responsible for 80 percent of your income, and you focus your energy on selling to the remaining eighty percent, you’d only get twenty percent of the total sales. Furthermore, this applies to your products and services.
That is, if twenty percent of your products contribute to eighty percent of your total sales, your goal is to focus your marketing efforts on this important twenty percent. This may involve spending more money on advertising the products that people want to buy or improving their quality.
Another practical example of this rule is with your employees. Let’s face it, we all know which employees are putting in their best efforts every day and which are simply there for a paycheck. Your job is to ensure that you develop productive employees so that they can bring in more revenue for your business.
Finally, this rule also applies to your daily life and the activities you engage in. Many people waste their time on low-value activities because they think they’re important. For instance, replying to people’s comments on your business’s social media page may seem like a very nice idea, but it is something you can delegate to others while you focus on other important activities. Before you start any activity, always ask yourself how much it will contribute to your success. If the answer is that it will have a minimal impact, then you may want to reconsider.
3. the 10% rule
The third rule that all money masters follow is the ten percent rule. This rule states that you must invest at least ten percent of your monthly income towards your retirement.
Although there is no fixed amount that you need to save for retirement, some financial experts have been able to come up with some estimates that will help you save enough money for retirement. One of them is that you should have at least 25 times your annual living expenses saved up for retirement. Some financial experts also suggest that you should have at least a million dollars saved in your retirement account.
With this, it is assumed that you have finished paying your mortgage and any other debts such as student and auto loans. With a million dollars in your retirement account, you can live comfortably on forty thousand dollars annually for 25 years.
Therefore, I’ll explain how easy it is to save a million dollars for retirement by following the third golden rule that all money masters follow. I’ll be assuming that you plan on retiring at age 65, and I’ll show you how much you would have if you started investing 10% of your monthly salary at ages 25, 30, and 40. Finally, I’ll share with you some of the assets you can invest in to ensure your retirement goals are met.
First, it’s important for you to know that the typical 401(k) portfolio generates an average annual return of five to eight percent, depending on market conditions. Therefore, for the examples in this article, I’ll use five percent as the annual average return.
Starting at age 25, and assuming your annual salary is $100,000 and you invest 10 percent monthly, you’d have a total of $123,859.
If you start investing at age 30 and your salary is a hundred thousand dollars annually, you’d have nine hundred and seven thousand, seven hundred and ninety-six dollars ($907 796) at retirement. You would need to earn at least a hundred fifty thousand dollars to have over a million dollars at retirement, investing 10 percent of your income.
If you start investing at age 40 and your salary is a hundred thousand dollars annually, you’d have just 481,091 dollars at retirement. You need to earn at least $210, 000 to have over a million dollars at retirement, investing ten percent of your income.
From these examples, you’ll notice that the earlier you start investing, the better.
The reason why the total return is higher for the individual who started investing the earliest is that they gave their money more time to compound. That is, the earlier you start investing, the more interest your investment will accumulate. So if you’re reading this article right now and you haven’t started investing for retirement, close this article and start moving money into a retirement account.
The accounts I would recommend opening are 401(k)s and IRAs because these accounts offer tax advantages. A 401(k) account is your employer’s sponsored retirement plan, while an IRA is an individual retirement account. Both offer some tax advantages, such as investing with pre-taxed income in traditional 401(k)s and IRAs.
Also, there is what’s called a Roth account, which allows you to invest with money that you’ve paid taxes on and it is then ultimately tax-free in retirement.
If you’re wondering what you can invest in to ensure you have money on hand when you decide to retire, here are some of the best assets. Some good assets include
- Mutual funds
- Index funds
In addition, you could also invest in real estate by buying rental properties and making passive income when you collect rent.
3 Golden Rules To Be Rich
In summation, you can become a money master by following the three golden rules you’ve read in this article. All you need to do is stay focused, be disciplined, have a plan, and follow and apply these rules strictly.
Thanks for reading.