How To Manage Your Money Like The 1%
For the longest time I thought the top 1% had a secret to obtaining their vast amount of wealth, building their empire or even a secret way to manage their money which would help them increase their wealth every single year.
But do you know what?
Turns out it wasn’t really a secret after all…
Let’s look at some statistics
65% of Americans state that they have been living paycheck to paycheck since the Covid-19 pandemic began in early 2020.
60% of millennials bringing in over $100,000 are claiming to be living paycheck to paycheck.
54% of all Americans, approximately 125 million people, are living paycheck to paycheck, regardless of their age and income.
It doesn’t take a financial analyst to realize what’s going on here…
It is becoming utterly clear that your overall wealth has more to do with learning how to manage your money than it does with how much money you make.
The good news is that you don’t have to be in the 1% to learn how to manage your money like the 1%.
Once you have obtained adequate money management skills, the path to financial freedom, and retiring comfortably becomes much clearer.
Be Clear On Your Financial Goals
The top 1% understand that making clear, actionable and ambitious financial goals is a critical part of their financial success. They set clear goals because they understand that you need to know why you are doing what you are doing in order to reach your goals. Knowing your ‘why’ allows you to realistically visualize how you want to be living your life in the future.
This is what will ultimately motivate and drive you to act and accomplish your goals because they become so clear and within your grasp.
Imagine you are playing a 5v5 basketball game and the court you are playing on has no nets, this basically means that there is no way to score points, which also means that there is no way to win. So, what is the point of playing if you have no goal to score on?
You see, having clear financial goals protect you from feeling overwhelmed, they help you snap out of that illusion in which you think you are ‘busy’…an illusion which eventually drains any willpower you may have to continue. You don’t just want to be busy, but you also want to be effective.
Defining financial goals does not need to be difficult or long, make it simple for yourself and go one step at a time. Once you reach your goals, the rewards will be significant.
Make a Budget
Tracking your spending is one of the most essential methods to money management. This might seem difficult to do but once you get in the habit of doing so, it will allow you to see with clarity and full transparency what your current financial situation is like. This is a game changer because it allows you to remove any unnecessary spending that is just draining your wallet.
Being able to identify poor spending habits while creating a budget will also help in a sense where you will have more self-control in moments where you are tempted to spend on those useless things. It will fall on your conscious; your mind will tell you that this is not what you should be spending your money on. Once those thoughts occur, it is your responsibility to listen to them because those thoughts are what will create that psychological shift which will help you stay away from your old and poor spending habits.
Let’s explore one strategy that is known to be very effective, a simple budgeting technique that will help you pay your bills, work towards your financial goals, and even splurge a little.
The 50/30/20 Rule
This is a very simple yet powerful budgeting technique that you could use to ensure that all the money coming into your bank account is being utilised to its fullest potential.
Let’s break it down:
50% of your money should go towards your ‘needs’. These needs are the things you absolutely need in order to continue living your day-to-day life.
Shelter (rent, mortgage etc.)
Food (groceries etc.)
Utilities (electricity, hot water, gas etc.)
Transportation (gasoline, monthly or daily bus/train fare)
30% of your money should go towards your ‘wants’, things that will affect your happiness if you don’t do them but don’t necessarily need in order to survive.
20% of your money should go towards serving your financial goals and in case of emergencies that may come up in your life.
This technique isn’t hard to follow, and you don’t need to adhere to these percentages to the dot. We all know life can be unpredictable at times, and so these percentages should mainly be used as guidelines with some modifications applied to better suit your personal situation.
Remove any unnecessary expenses
If you ask anyone how much their last months expenses were, they probably wouldn’t be able to tell you. The reason as to why it is important to understand your expenses is because it gives you a wide view of your spending habits. The point is to identify if those purchases were even necessary.
If you love coffee, you might not like the next part, but it’s okay because we need to be told these things in order to change.
Buying coffee everyday on your way to work from Starbucks might not seem like a big deal because it’s only $4-$5. However, if you add them up by the end of the year you would have spent around $1,400-$1,500 on coffee alone. I’m not asking you to stop drinking coffee, but at least try to cut back a little. Skip a day or two. Buy a small coffee instead of a large coffee. Make your own blend at home. This isn’t a punishment, rather a goal you’re trying to reach, and you should be prepared to sacrifice the smallest of joys for a larger reward.
This also goes for those multiple subscription services you have (Netflix, Disney+ etc.), you need to think long and hard about these extra services that you’re paying for but can also definitely live without.
Even the smallest amount of savings can make a huge difference in the long run, and they can also add up quickly when you’re not busy spending them!
Think of it as a game, every time you succeed in reducing your spending; assume you defeated a strong boss and leveled up. Try to convince your mind that today was a successful day but tomorrow there is going to be another boss that you must defeat. This will make it more fun saving money.
Invest, Invest & Invest
At first, you needed to set clear financial goals, then you had to set up a budget so that you can better manage your income, and then you removed any unnecessary spending that would allow you to maximize your savings.
So now, what do you do with those savings? You can let them sit in your bank account or you can invest your savings and have your money work for you. I’m assuming the latter sounds more intriguing.
You can throw out the misconceptions about investing being only for wealthy people, as that is not true. You can start investing with as little as $100 a month, and with the power of compounding; your $100 a month can become $100,000 in 10 years.
What’s more important is that you must educate yourself on what to invest in. Whether that is doing your own research or hiring a financial advisor who will be able to advise you on the correct path to take based on your personal financial goals.
You can even learn a new skill that people would pay you for. Or you may already have a skill that would allow you to generate an income; no matter how small it may be at first.
The goal is to just get started!
Building wealth is challenging, but it’s not impossible. The biggest challenge you will face in your journey is yourself. You must defeat your own impulses. Your desires will have to take a backseat if you want to accomplish your goals.
These are the things that I learnt the hard way early on in my life where I thought obtaining wealth is impossible because I didn’t grow up in a rich family and now everyday, I come one step closer to achieving my financial freedom. I hope you take the initiative and apply these techniques in your own life because if there’s one thing I know, it’s that it’s never too late to start saving!
DISCLAIMER: I am not a financial advisor and all of the information in this story are from my personal experience. This is not financial advice.
CONTRIBUTED BY Usman Azam