How To Manage Your Money Like The 1%

What's the guys? It's Graham here.

So CNBC just posted an article saying that 60% of Americans would go into debt if a thousand-dollar emergency came up. I read that and I thought to myself, this is absolutely unacceptable, and this has to change. Hearing this from CNBC isn't totally surprising either because financial education isn't really emphasized in the school system. So many people grow up not knowing how to properly manage their money. On top of that, many parents don't teach their children about finances because they themselves don't really understand it either.

And if that isn't bad enough, talking about money somehow became a taboo topic, so that has to change today. So let's talk about how you can manage your money like the 1%. Hopefully, you won't be in a position where $1,000 causes you to go into debt because when it comes to this, there's a very easy step-by-step blueprint that wealthy people know about that you can follow as well, even if you're not in the 1% yet.

Because if you do this consistently long-term, hopefully you will be eventually in the 1%. So how do the 1% manage their money well? First of all, they all smash that like button! So if you haven't done that already, let's get that out of the way—hit that like button! But no, seriously, they all understand the flow of money and how to allocate their funds.

It all starts with this: step one is having a budget by tracking your expenses and reducing unnecessary spending. This is a big one. If you just do this one thing and you skip the rest of the video, but you do this, trust me when I say this; you're gonna be ahead of 99% of other people out there. Almost no one does this.

If you're at a point right now where you're watching this and struggling with money and you're not already doing this, you absolutely need to consider this step, almost like your financial check engine light. Tracking your spending is going to tell you what's wrong and then how you're able to fix it. Most people out there just completely ignore this financial check engine light, and they have no idea how much they spend or what they spend it on. All they know is they have X amount of money in their bank account and that's how much they can afford.

Then when that account gets low, they start cutting back up until the next paycheck. When their account goes up, they start spending again. Doing that is not how the wealthy people manage their money. I recommend first starting off by tracking all of your income and expenses over the next 60 days. I personally use mint.com and also personalcapital.com. You could also use your own Excel spreadsheet if you want. It doesn't matter to me.

Whatever you want to use is totally fine, as long as you actually do this step. This is your challenge for the next 60 days: track every single penny that goes in your account and every single penny that leaves your account. Then after the 60 days, you could determine if you're spending money on stuff that doesn't matter, if you're making a lot of stupid impulse decisions buying stuff you don't need, like avocado toast, or if you're otherwise just wasteful of money without even realizing it.

When it comes to doing this, you can likely save about 10% of your income when tracking your expenses and then cutting back on the things that you realize don't really add any value to your life and things that you don't really need.

Now the next step, after doing this with all the money that you're hopefully saving, is to create an emergency fund. Every single wealthy person I know has an emergency fund of at least 3 to 6 months' worth of expenses. This just means that you already know from tracking your expenses exactly how much money you need to spend every single month to live. Now, just save 3 to 6 times that in cash. That becomes your emergency fund. This does not become your "Oh Sony is having a sale on the new flat-screen TV, I need that!"

It is not your "O Mastro’s has the new petite filet 30% off, I need that!" This fund really needs to be your break in case of emergency fire extinguisher. If you have no other place to turn and you have something that comes up unexpectedly, this is where you can turn to. The reason this is important is that when you have an emergency fund in place, if some sort of thousand-dollar emergency comes up, you will never be in a position where you can't pay your rent, you can't eat food, you can't buy essentials that you absolutely need.

You won't have to turn to high-interest credit card loans or payday loans to pay through it because that's gonna end up costing you a lot more money on top of everything else. Trust me, unfortunately, at some point, something will always come up. There's going to be some sort of medical emergency at some point. You might lose a job, you might lose a client, business might decline out of nowhere. There are so many unexpected things that can happen that inevitably at some point happen to all of us.

Yes, I totally understand that this might seem like a very daunting task out there and this could take you a very long time to get to, but when you do this, this is your peace of mind and this is your fortress. If anything ends up going wrong, you're covered, and you don't need to stress about it. The psychological aspects of having this emergency fund are absolutely priceless, and to me, this is a requirement if you want to manage your money like the 1%.

When it comes to me personally, I always have a one-year emergency fund saved up in cash, assuming something catastrophic happens and I stop making any money tomorrow. All my properties go vacant tomorrow, I don't make a single dollar; I have at least one year's worth of expenses saved up in cash at all times.

So next, after you build up that emergency fund, take advantage of any employer-sponsored retirement plan matching. That's a lot to say! This means that if your employer offers 401(k) matching, always take it! I repeat, always take it! If you ignore this entire video but you just listen to this one thing, this one thing can make you tens of thousands of dollars for free, basically, if you just follow it.

Here's what I mean when I say this: many employers offer what's called a 401(k) match where they will match dollar for dollar up to a certain point of how much money you contribute to your 401(k) account. So for instance, if you contribute $1,000 into a 401(k), your employer may match you an additional $1,000. This is what I like to call "three guaranteed money." There is no other investment in the history of the planet, besides Bitconnect of course, that will give you a 100% risk-free guaranteed return like a 401(k) employer match!

The mind-boggling thing about this to me is that many people don't seem to take it. It's like me telling you, "Hey, here's a free thousand dollars," and they're just like, "No, you know, I'm cool. I don't really want a thousand dollars. I'm good, brah." Man, I don't get it! I think it's a lack of education, unfortunately, that they just don't know what they're passing up, but we're going to change that with this video.

So just promise me here, always take this money. Just do it for me. Take the money! Don't want to ask your employer tomorrow or even today if you're watching this at work if they offer an employer match on a 401(k). If they do, find out how much they offer and then just contribute the maximum you need to to get the most employer match possible.

By the way, just want to mention, if you're self-employed, you can do what's called a SEP 401(k) where you can do the employer match yourself. This is a great way to reduce your taxable income, so if you're confused on that, just Google "SEP 401(k)" and all the information is going to come up. It's going to be too long to explain in this video.

Now, the next step after collecting your free money and after hitting the like button is to pay off all high-interest rate debt. This means that if you have any outstanding debt above about a 5% interest rate, that is bad debt that's not making you money. Begin paying it off as soon as you have your emergency fund and got your free employer match.

When it comes to paying off debt, there are two strategies to go about this. The first strategy is called the avalanche method, and this is mathematically the method that is going to leave you with the most money leftover possible back in your pocket. The strategy basically just suggests that you should pay off the highest interest rate debt you have first, that's costing you the most amount of money in interest. Then, when that's paid off, you go to the next one, and then you go to the next one, and then the next one.

So by attacking the highest interest rate debt first that's costing you the most amount of money, financially speaking, it's going to save you the most amount of money in the long run.

Now the second method when paying off debt is the Dave Ramsey approach, and that is called the snowball method. This method is basically paying off the smallest loan balance you have first, just to get that taken care of to free up cash flow, and then you go on to the next largest balance regardless of what the interest rate is.

The reasoning behind this is that as you have small debts, you might get the psychological boost that you're seeing results, and because of that, it might keep you more likely to stay on track. The downside of doing this, of course, is that you might end up paying more in interest, and that ends up costing you more money.

But you don't want if it just means that you pay off your debt, and if that keeps you on track, I don't care, I'm all for it. My personal philosophy when it comes to this is that if you have any debt over a 5% interest rate, pay it off.

Any debt that's under a 5% interest rate, especially if it's good debt like a mortgage or a business loan that's making you more money, don't pay it off early; just make the minimum payments and then invest the difference. But again, that is just me.

Now the next step that I recommend after you've gotten rid of that nasty bad debt is to begin using whatever money you have left over and investing it back in yourself so you can begin making more money. For instance, this could be buying books, investing in a new skill, learning a new business, investing back into your business. I really believe that self-education at this stage is vital, and there’s a reason that I suggest this one now before anything else.

The reality is that if you're at a point right now where you've already done as much as you can, you're already saving as much as you can, you're already doing everything else, and you just don't have enough money left over, there’s no way around it—you've got to start making more money.

I see way too many comments out there from people who say they're already doing everything they can; they've already cut back as much as they can; they're trying to save as much money as they can, but they just can't do it because they're making $3,000 a month. When they ask me for advice on how they can save more, my answer is really, "You're doing an amazing job; it's not so much of what you're doing right now; you just need to start making more money."

You can only save so much money before you hit that wall where you just can't get past it until you increase your income. This means that you might have to look into switching jobs or changing businesses, or starting a side hustle, or doing something else to increase your income.

Thankfully, now that you have your emergency fund and that you paid off that high-interest rate debt, it gives you a little bit more flexibility to take some more risk to begin trying to make some more money, whatever it might be. This is the point where you increase your income so you can get to the point where you can manage that extra money like the 1% do.

Now, assuming that you've done all of that and you have a little bit of extra money to throw around, my next recommendation is to contribute some of that to a Roth IRA. This is an account that allows you to invest after-tax money, and everything money makes you within a Roth IRA is going to be completely tax-free by the time you're 59 and a half.

This means that you can potentially get decades of growth and compound interest that are working in your favor, that you will not have to pay any taxes on. When it comes to growing your wealth, having this available to use is absolutely priceless. Because I just made a video about this recently, I'm just gonna link to that video in the description. It goes over everything you need to know about a Roth IRA, so go and check out that video.

So don't spend too much time on that here then. Only after you've done every single step in this video should you start investing in taxable accounts or making any other investments with your money. This is after you've tracked your expenses, this is after you've created the emergency fund, this is after you've contributed to the 401(k) matched by your employer, this is after you paid off all high-interest rate debt, this is after you've invested in yourself, and this is after you've paid some money into a Roth IRA.

I think I covered all of that. This is so confusing. Anyway, assuming I covered all of that, everything else now goes in this step. This step could be that you open a brokerage account and start trading stocks, or maybe you invest some of the money in real estate, or maybe you spend some of the money creating your own business.

This step now is really about creating passive income and increasing your income even further so that you have more money to save and more money to funnel back here. This all might sound like a very daunting task to do all of this, especially if you're starting right now in debt without much money to begin with. Just focus instead on one step at a time and it’s totally fine if each one of these steps takes you months to work on; that's totally normal!

This is not something that's meant to be done in like a week or a month. This could take someone years to get to the point where they've done all of these steps and are now at the end step of really increasing their income and investing in real estate and taxable accounts and all of that other good stuff to increase their net worth.

But I've got to say, from everything that I've seen, every wealthy person follows these steps and then focuses on this last step here to increase their income and net worth and continue making more money by tracking their expenses. They can cut down on anything they don't need to spend money on by having that emergency fund; they have the safety net in case they fail.

By taking advantage of retirement accounts, they can get the guaranteed risk-free return. By getting rid of all high-interest rate debt, they have more money left over at the end of the day to then reinvest. Then by investing more money back into themselves and their business, they just end up making more money, which completely repeats this entire cycle.

Once you begin to get in that upward spiral, just everything gets easier. The hardest part about doing all of this and managing your money like the 1% is just starting, and it all starts right here at step number one.

So with that said, you guys, thank you so much for watching. I really appreciate it if you made it to the very end. If you enjoy these videos, make sure to subscribe if you're not already. Also, hit that notification bell so YouTube notifies you anytime I post a video. Also, feel free to add me on Instagram. I post pretty much daily, so if you want to follow me there, feel free to follow me there.

Thank you again for watching, and until next time!