5 Money Rules of the Rich: Secrets to Financial Success

Understanding the Wealth Mindset

Many people tend to put wealthy individuals on a pedestal, viewing them as somehow fundamentally different or possessing some secret knowledge. The reality is that while rich people may have certain advantages or habits that contribute to their financial success, they are not infallible or superhuman. Instead of idolizing the wealthy, it's far more productive to examine and learn from their actual behaviors and strategies when it comes to money management.

As a multi-millionaire who has dedicated his career to helping everyday people build wealth, I've gained valuable insights into the mindset and practices that separate financially successful individuals from the rest. In this article, we'll explore five key rules that rich people tend to live by when it comes to managing their finances. By understanding and implementing these principles, you can take significant steps toward improving your own financial situation.

Rule #1: Do an X-Ray on Your Finances

One of the fundamental differences between those who successfully build wealth and those who struggle financially is a deep understanding of their own financial situation. You simply cannot effectively manage something you don't fully comprehend. Many of our money mistakes stem from a lack of understanding about the basic principles of personal finance.

Too often, people find themselves in a cycle of spending money, feeling guilty about not saving enough, and then being surprised by their bills at the end of the month. In contrast, wealthy individuals who are savvy with money have a crystal-clear understanding of their finances. They know exactly where their money is coming from and where it's going.

It's important to note that this doesn't mean obsessing over small, inconsequential expenses. We're not talking about tracking the price of broccoli or other minor purchases. Instead, focus on what I call the "$30,000 questions" - the big-picture financial issues that truly impact your wealth-building potential.

Here are seven critical questions you should be able to answer about your finances right now:

1. How much do I make? Surprisingly, about 50% of the people I talk to don't even know their own household income.
2. How much do I owe and when will it be paid off? You should know the exact month and year.
3. What percentage of my income am I saving every month?
4. What percentage of my income am I investing every month?
5. What percentage of my income am I paying for total housing costs?
6. What are the things I want to spend more on and less on?
7. What are my invisible scripts or deeply held beliefs about money? This is crucial for understanding your financial behavior.

Wealthy individuals who are financially savvy can typically tell you how much money they'll have next month, next year, and even five years from now. They know where their money is going and are often putting it to work so they can enjoy a rich life today while building an even richer life for tomorrow.

Rule #2: Make Systems for Everything

One of the key differences between those who successfully build wealth and those who struggle is the use of systems. Many people try to manage their finances on an ad-hoc basis, making decisions day by day without any overarching structure. This approach is inefficient and often leads to poor financial outcomes.

Instead, adopt the mindset of creating a Standard Operating Procedure (SOP) for every aspect of your financial life. Just as McDonald's has SOPs for new employees to follow when making fries, or airline pilots have SOPs for dealing with various situations, you should have SOPs for your personal finances.

This systematic approach is crucial because willpower is a finite resource. It comes and goes, much like customers at a fast-food restaurant. Systems, on the other hand, help you avoid relying on willpower. They ensure that your money is automatically flowing where it needs to go, regardless of whether you're feeling motivated, tired, happy, or stressed.

Think of managing your finances like building a personal productivity system. You set goals, break them down into achievable tasks, and then track your progress. It's not about obsessing over every minute detail, but rather focusing on the important aspects and ensuring you're devoting time and resources to them.

Systems are the backbone of effective financial management. Without a system for your money, you're likely to find yourself at the end of the month wondering where all your money went and vaguely promising yourself that you'll "try" to save more next month.

Rich people set up automatic systems for savings, investments, and bill payments. There's no need to manually pay bills or transfer money to savings accounts. These tasks can and should be automated.

This approach isn't just about saving a few dollars here and there. It's about ensuring that your money is consistently going where it needs to go to build long-term wealth. Logging into an app to check on your finances or make manual transfers is a low-value activity that should be handled by automation.

By setting up these systems, you free up mental space to focus on more important financial decisions. For example, I have automatic transfers set up to move a percentage of my earnings into different accounts each month - retirement, emergency fund, vacation savings, etc. I don't have to think about it; it just happens. Moreover, I know the exact date I'll hit each financial goal, which gives me something to look forward to.

This principle of creating systems extends beyond just money management. Many successful people automate as many decisions as possible in various areas of their lives. Some wear the same clothes every day to avoid decision fatigue. Others have a set meal plan to eliminate the daily question of what to cook. The point is to make a decision once and then simply follow it, freeing up mental energy for more important matters.

Rule #3: Plan Before You Need to Plan

One of the key characteristics that sets wealthy individuals apart is their ability to plan ahead. They don't wait for a crisis or a pressing need to start thinking about their financial future. Instead, they proactively create plans and strategies well in advance.

Many people spend an inordinate amount of time and energy on small financial decisions - cutting coupons, debating over generic vs. brand-name products at the grocery store, or feeling guilty about buying a coffee. While these small savings can add up, they pale in comparison to the impact of larger financial decisions and long-term planning.

For instance, saving $5 at the grocery store is insignificant if you lose your job and don't have an emergency fund. Skipping your daily coffee to save $50 a month is pointless if you're not actually investing that saved money. Feeling guilty about buying a slice of cheesecake doesn't matter if you don't have a clear understanding of how much money you need to live your ideal life.

Rich people plan for the future and look forward to it. They understand that they can exert control over their financial destiny by creating and following through on well-thought-out plans. Here are some questions you should be asking yourself to start planning like the wealthy:

1. What does your rich life look like? Define what financial success means to you personally.
2. Is financial security important to you? If so, you should probably have a 3-6 month emergency fund.
3. What specific financial goals do you want to achieve? Do you want to buy a house? How much will it cost? How long will it take you to save for it?
4. Do you want to increase your income? By how much? What will you do with the extra money?
5. What about vacations or retirement? How much do you need to save and invest to make these goals a reality?

Create a timeline for your goals. Where do you want to be financially by the end of this year? In five years? In ten years? Having a clear plan allows you to build systems that ensure you're always moving towards your goals, even when life gets hectic or unexpected challenges arise.

Planning ahead might seem daunting if you've never approached your finances this way before. But this level of forethought and strategy is exactly what separates those who achieve financial success from those who don't. By planning ahead and building robust systems, you ensure that you're never caught off guard financially.

Rule #4: Follow the 80/20 Principle

Wealthy individuals who are savvy with money understand and apply the 80/20 principle, also known as the Pareto Principle. This principle states that roughly 80% of effects come from 20% of causes. In the context of personal finance, this means that a small number of actions or decisions can have a disproportionately large impact on your financial health.

Unlike some financial gurus who obsess over minor details or advocate extreme frugality, truly wealthy people focus on the big picture. They understand that they can achieve significant results with less effort, time, and resources by concentrating on the 20% that really counts.

This is why I often advise people to focus on the "$30,000 questions" rather than the "$3 questions." The big financial decisions are the ones that can truly transform your financial situation. These include:

1. Learning the basics of personal finance
2. Investing early and consistently
3. Developing skills to increase your earning potential
4. Making smart decisions about major expenses like housing
5. Cultivating positive relationships that support your financial goals

While it's true that small savings can add up over time, it's crucial to put these savings to work effectively. For instance, if you decide to skip your daily $5 coffee, that's a potential saving of about $1,825 per year. However, if you're not actually investing that saved money or using it to pay off high-interest debt, you're just depriving yourself without any real financial benefit.

Moreover, the time and energy you spend agonizing over small expenses could often be better invested in activities that have a much larger impact on your financial health. For example, spending an hour researching ways to increase your income or learning about investment strategies is likely to yield much better results than spending that same hour comparing prices on groceries to save a few dollars.

That's not to say that being mindful of your spending is unimportant. Rather, it's about prioritizing your focus and energy on the areas that will give you the biggest return on investment. By identifying and concentrating on the 20% of actions that will yield 80% of your desired results, you can make significant progress towards your financial goals without getting bogged down in minutiae.

Rule #5: Consider Value Over Cost

One of the defining characteristics of financially savvy wealthy individuals is their ability to look beyond the price tag and consider the overall value of a purchase or investment. This doesn't mean they frivolously spend money or ignore costs altogether. Rather, they understand that the cheapest option isn't always the best one, and sometimes spending more can actually save money or provide greater benefits in the long run.

For example, when it comes to food, a wealthy person might choose to pay $4 for a high-quality slice of pizza rather than opting for a 99-cent slice. The more expensive option might provide better nutrition, a more enjoyable experience, or both. The key is that they're making this decision based on the value they're receiving, not just the price.

This principle extends to larger financial decisions as well. Here's a personal example: When I decided to focus on my health, I could have chosen the cheapest route - watching free YouTube videos and figuring things out on my own. Instead, I invested money in hiring a personal trainer to teach me proper form and progressive overload techniques. I also hired a nutrition coach to help with meal planning and even a posture coach to improve my overall physical well-being.

While these services weren't cheap, they provided immense value. They helped me achieve my health goals more quickly and effectively than I likely would have on my own. Moreover, by outsourcing these tasks to experts, I freed up time and mental energy that I could then invest in growing my business, working on writing projects, and pursuing other important goals.

This approach to spending isn't about splurging blindly. It's about strategically using money to solve problems and improve your quality of life. If you hate doing laundry and have the financial means to outsource it, paying for a laundry service might be a worthwhile investment. The time and stress you save could be channeled into more productive or enjoyable activities.

When considering a purchase or investment, wealthy individuals ask themselves questions like:

1. What problem does this solve for me?
2. How much time or stress will this save me?
3. Will this investment pay off in the long run?
4. Does this align with my priorities and values?
5. Am I getting the best value for my money, even if it's not the cheapest option?

By focusing on value rather than just cost, you can make financial decisions that truly enhance your life and support your long-term goals. This might mean spending more in some areas and less in others, based on what's most important to you.

Remember, a rich life isn't about pinching pennies in every area. It's about using your money intentionally to create the life you want. Sometimes that means splurging on things that bring you joy or investing in services that save you time. Other times, it might mean choosing the less expensive option because it provides all the value you need.

Conclusion: Implementing the Rules of the Rich

Adopting these five rules can significantly impact your financial health and put you on the path to building lasting wealth:

1. Do an X-Ray on Your Finances: Gain a deep understanding of your financial situation.
2. Make Systems for Everything: Automate your finances to ensure consistency and reduce reliance on willpower.
3. Plan Before You Need to Plan: Think ahead and create strategies for your financial future.
4. Follow the 80/20 Principle: Focus on the few actions that will have the biggest impact on your finances.
5. Consider Value Over Cost: Make financial decisions based on overall value, not just price.

Remember, becoming financially successful isn't about making drastic changes overnight. It's about consistently applying these principles over time. Start by implementing one rule at a time, and gradually build up to incorporating all five into your financial life.

Most importantly, don't fall into the trap of idolizing wealthy individuals or believing that financial success is out of your reach. While factors like privilege and luck can play a role, much of what separates the financially successful from others comes down to habits, mindset, and strategic decision-making - all things that you can learn and apply in your own life.

By following these rules and consistently working towards your financial goals, you can build a rich life - one that's rich not just in monetary terms, but in freedom, security, and the ability to live life on your own terms. Remember, true wealth isn't just about the numbers in your bank account; it's about creating a life that aligns with your values and brings you joy and fulfillment.

So, are you ready to start managing your money like the rich? Begin by doing that financial X-ray, setting up your first automated system, or planning for your long-term financial goals. The path to financial success starts with a single step - and there's no better time to take that step than right now.

Article created from: https://www.youtube.com/watch?v=2sWLBcQvMBQ