How To Manage Your Money Like The 1%

How To Manage Your Money Like The 1%

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Key Finance-Specific Content

The 75/10/15 Rule for Wealth Building

• 75% Spending Limit: Use a maximum of 75% of your income for living expenses such as housing, food, vacations, etc. This encourages seeking cheaper alternatives and focusing on value rather than cutting small discretionary expenses like coffee.

  • Example: Millionaires splitting bills precisely and seeking value even in social settings.
  • If you spend less than 75%, hold onto the difference for savings or investing.

• 10% Cushion Fund (Emergency Savings): Save at least 10% of your income exclusively for emergencies (e.g., unexpected car repairs, floods).

  • Recommended cushion fund size: 5x your monthly expenses (e.g., $2,000 monthly expenses → $10,000 cushion).
  • Store cushion fund in High Yield Savings Accounts (HYSA) rather than traditional savings accounts.
    • Traditional savings APY: ~0.5% (e.g., $10,000 → $57 interest/year)
    • HYSA APY: ~4% (e.g., $10,000 → $400 interest/year)
  • Stop saving into cushion fund once fully funded; then redirect funds to investing.

• 15% Investing for Future Wealth: Invest at least 15% of your income to build assets and wealth over time. Focus on tax-advantaged accounts:

  • Roth IRA:
    • Contributions are post-tax; earnings grow tax-free.
    • 2024 contribution limits: $7,000/year (<50 years old), $8,000/year (50+ years old).
    • Famous example: Peter Thiel grew Roth IRA to $5 billion tax-free.
    • Steps to open:
      1. Have earned income.
      2. Open Roth IRA at brokerages like Fidelity, Schwab, Vanguard.
      3. Transfer funds from bank account.
      4. Purchase investments within the account (important step often missed).
  • 401(k):
    • Employer-sponsored, contributions pre-tax, taxed upon withdrawal.
    • 2024 contribution limit: $23,000/year.
    • Employer matching common (e.g., 100% match on first 3% contributed, 50% match on next 2%).
    • Example: Salary $65,000, max employer match = $2,600 free money, total $5,850/year in 401(k).
    • Employer match is “free money” and a no-brainer to utilize.

Investment Strategy & Portfolio Construction

• Index Funds and ETFs: Recommended for most investors due to diversification and low cost. Investing in an S&P 500 index fund means owning small parts of 500 companies, reducing risk.

  • Historical average return: ~8-10% annually over 50+ years.
  • Examples of ETFs used by presenter: FXA, VO (passively managed index funds).
  • Suitable for retirement accounts and long-term growth.

• Compounding Example: Investing $100/month for 50 years at 10% return → total contributions $60,000, portfolio value approximately $1.4 million.

Risk Management

• Cushion fund as emergency buffer to avoid high-interest loans.
• Value-based spending to avoid unnecessary large purchases that don’t add lasting happiness.
• Using employer 401(k) match to maximize returns and reduce risk of missing free money.

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Explicit Recommendations & Cautions

• Don’t overspend beyond 75% of income; seek value in purchases.
• Prioritize building a 5-month cushion fund in a HYSA before investing more.
• Max out employer 401(k) match contributions.
• Invest at least 15% of income into tax-advantaged accounts.
• Use diversified index funds or ETFs for investing to reduce risk.
• Don’t just save money indefinitely; put it to work once emergency fund is set.
• Understand that wealth is built through assets, not just labor income.

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Disclosures

The presenter mentions personal use of the Mumu investment app and offers a referral link with free stocks (disclosure of affiliate/referral). The content is implied as educational and not explicitly stated as financial advice.

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Presenters / Sources

• Unnamed presenter sharing personal finance and investing insights.
• References to books: Rich Dad Poor Dad by Robert Kiyosaki, The Psychology of Money, The Intelligent Investor.
• Example of Peter Thiel’s Roth IRA growth used as a case study.

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Summary

The video outlines a simple but effective money management framework called the 75/10/15 rule, emphasizing disciplined spending, emergency savings, and investing in tax-advantaged accounts with diversified index funds or ETFs. It highlights the importance of maximizing employer 401(k) matches, using high yield savings accounts for emergency funds, and focusing on asset-building rather than labor income for long-term wealth creation.