How To Manage Your Money Like The Top 1% (The 60/30/10 Rule)

if you're trying to manage your money like the top 1% do I'm going to explain today the 60310 system that you can follow along in this video that way even if you aren't in the 1% yet if you're able to follow this Rule and stay consistent you'll have a framework to build your wealth with and hopefully achieve incredible things now if that happens please invite me on your mega yacht which you will eventually have with a private Chef so that we can eat a bunch of sushi prepared for us and you can pick up the

tab don't worry though I will pick up the tip that's the least I could do now to understand the 60 3010 rule first you got to understand the rule that preceded it which is the longstanding 503020 rule in personal finance and I personally think it's dead for a long time the 503020 rule is just the most commonly accepted money management rule out there and it says that you should dedicate 50% of your budget to needs and that's the 50 in that rule we'll get to the other two numbers the 30 and the 20 later on

in this video but for now I just want to share with you guys that I think it's actually pretty outdated as of 2024 the problem is the ramp inflation that we've been facing in the past four years it's basically made this rule generally very hard to stick to I'm sure the cost of living wherever you are has gone up and these days the prices of even fast casual food is out of this world even to the point where quote nearly 80% of Americans now view fast food as a luxury and offenders like McDonald's have increased

the prices of their menu items by a significant amount since 2014 like since when should the quarter pounder with cheese meal cost $111.99 it should mostly cost around $5 in my opinion so if you aren't making that much of an income let's say you're making 15 or 20 bucks an hour it's likely the amount of money that you are spending on your needs is easily going to exceed 50% of your total income it's even harder on the coasts of America let's pretend you live in San Francisco like I do where the median rent of a

studio apartment is 2183 a month according to apartments.com and after you adding utilities groceries Transportation Etc your monthly needs bill could easily cost you at least $3,000 a month if your needs are supposed to stay within 50% of your income based on that 503020 rule then that means we need to be taking home at least 2x that or $6,000 a month that's $72,000 a year in after tax income but pre-tax that means you need to be making around $100,000 per year so right then in there if you're living in a studio in a high cost

of living area it's going to be really hard or even impossible to keep your needs under 50% unless you're making a higher income honestly I've pulled a lot of my viewers and for most people the amount that they spend on needs we usually up between 55 60 or even 65% of their income now if you are one of those people that are able to keep their needs bill under 50% that's amazing and I will have some tips for you on how to optimize your extra money towards the end of this video so make sure to

stick around for that but for now that's really why I think the 503020 rule is outdated and instead should be updated to the 60310 rule so let's explain first the 60 and the 60301 60% of your money will be allocated towards needs is exactly what this system calls for now your first step is to figure out your post tax income and what we really want to avoid is basically using our gross income with this rule so our income before tax because that's not the most accurate representation of our money and the after tax income is

actually really what matters your budget is going to be about 60% of your after tax income to your needs or AKA everything you need to survive so first housing a roof over your head is exactly what you should be shooting for we're not talking about like a luxury high-rise apartment with a doorman just something within your means is what you should consider consider utilities are also going to be part of this housing expense because you can't have your water shut off or have no electricity so make sure you add this in there too another component

of your needs are just straight up groceries we need food to keep our life going and hopefully you have a good habit of making food at home and cooking for yourself in an economical way now when it comes to going out to eat in my opinion eating out is more of a want rather than a need and that's going to be covered in the next section so for food I think the spending that falls under needs is just the minimum that you need to survive so I'm just talking about plain old groceries and that's the

only thing that you should be counting here then we have our Healthcare so hopefully you have some sort of Health Care covered by your employer or by your government depending on what country you're watching from but this is something we don't want to cheap out on if we need to pay out of pocket for as some people say health is wealth and this is definitely true because if you don't have good health then you can't live a normal life so make sure to prioritize that and this definitely goes into the needs category now transportation is

something we need in America and that will likely come in the form of a car but if you are just spending on a car just make sure it's within reason and follows affordability rules I do have a bunch of videos on those rules I can leave down below in the description for you guys if you'd like to check those out after this video and another thing that you can check out right now is that subscribe button down below it looks a little bit lonely doesn't it so I hope that you can fix its loneliness problem

and just give it a little bit of a click and thank you very much lastly in the needs section I think that should also include minimum payments on debt because if you can't make those payments your credit score could tank and in America at least a lot of your financial life will revolve around your credit score so I definitely really want to add this into the needs category all right so we have the 60% of the 60310 rule covered now I do want to emphasize that this entire rule is merely a guideline that you should

try for and if you're able to consistently lower your needs percentages throughout your life that will give you the extra cushion you need to use that money elsewhere such as investing for your future ideally if your needs are less than 60% you aren't allocating that extra cushion of extra dollars that you might have towards your wants because your wants should only be accounting for 30% of your total budget and that's the 30 in the 60310 rule okay so when it comes to your wants here's a list of things that I would classify as a want

for example clothing restaurants vacations entertainment gym memberships coffee at Starbucks or any other coffee house you might like and also subscriptions could be an example of a want or a discretionary expense this is not an exhaustive list by any means but hopefully it gives you an idea of what you're working with so any anything that isn't absolutely required for you to live daytoday should be called a want and it's definitely okay to have 30% of your budget allocated towards wants because otherwise what's the point of living we want to make sure that we are spending

money though in a purposeful Manner and living life to the fullest that is at least within reason now of course within this list of items there's definitely going to be some of you out there that are watching and you're going to argue with me you're going to be like Humphrey you definitely need cloth to live you can't go out and walk around without a shirt on So to that I would say it depends on who you are first first of all seriously it's like you're photoshopped but yes you are right some clothing is a need

underwear socks shirts Etc but for the most part when you buy clothes I would typically classify those costs as mostly a want because most of us have clothes already moving forward you don't need to buy new clothes all the time again this is just a guideline don't get too smart with me here guys you guys generally know what type of spending is necessary versus what type of spending is just for fun now let's actually dive into the 10 of the 63010 rule which is the savings and investing portion so if you recall in the 503020

rule the last number the 20 was for your savings and Investments as you can see with this new rule the 60310 10% of those savings and Investments have been shifted towards the needs section which yeah it kind of sucks however what I do want to illustrate with you in this video today is that even if you invest and save just 10% of your after tax income on a regular basis that you can still become wealthy and possibly in the top 1% let's take someone who's the age of 25 making $50,000 a year so $40,000 a

year after tax now assuming their salary stays fixed over their entire career so they never get a new job they never get a promotion they just do the same thing until they're 67 years old and ready for retirement but they invest 10% of their income consistently they're going to be able to have a balance of 1314 Million by the time that they're age 67 assuming an 8% return on their money this 8% return can be achieved through investing and we'll talk about what to invest in in the next section of this video now while this

total balance of 1314 million is not top 1% net worth by any means it's still going to be a comfortable retirement for this individual and here's why if this person makes $40,000 a year after tax and let's say they spend 90% of it on the rest of their expenses so needs and wants combined that's $36,000 a year that they're going to spend if we assume they spend $36,000 a year and multiply that by2 5 we'll get our financial Independence number of $900,000 that means assuming a 4% withdrawal rate in retirement so that means they can

withdraw 4% of their total retirement balance every single year all they would need is $900,000 to live comfortably for a 30-year retirement based on that spending now in our example our person had $1. 314 million just investing 10% of their income on a regular basis so the 10% in the 60310 rule is definitely doable in terms of of hitting your retirement goals and if you consider that the average American only saves 3.7% of their income if we can hit 10% that should be rather Stellar now the true method to actually get yourself into the top

1% is to actually understand that the 60310 rule is a guideline I've said this throughout the video but the idea here is that if you are someone who is progressing through their career and actually earning more money over time you can actually allocate the extra dollars to saving and investing and try to lower the proportions of your needs and wants in your budget so to give you an example perhaps you start to get a raise and then maybe 1 month the 10% of your 60301 rule becomes 12% because now all of a sudden you're making

more money and so therefore if you keep your needs and wants exactly the same the percentages of those specific numbers will go down the idea here is that if you just keep your lifestyle the exact same whenever you start to make more money and you put that extra money towards savings and investing that's going to really compound your wealth as quickly as possible make sure though that any of the money that you have saved is actually earning a return on your money hopefully that should go without saying but even if it's just in a high

yield savings account for the time being at least it's earning something for sitting there now besides using a personal finance rule like the 60310 rule the high net worth individuals and self-made millionaires out there also have really good habits when it comes to just in general personal finance and the first one is that they don't overspend according to a cfp that manages money for wealthy individuals he says that quote while these clients do enjoy some of life's Finer Things dogs the cfp says that they typically do not overspend for example they'll purchase a certified pre-owned

car versus buying a brand new one they'll search for good deals on vacations and they may upgrade themselves to economy Plus on an airline but you really won't catch them paying for first class they'll keep their existing cell phones as long as they are working and don't feel the need to upgrade every time new technology comes out another great lesson of the wealthy is that high income does not equal high wealth so how much you earn doesn't actually mean you're going to be automatically in the top 1% so if you earned a million bucks a

year but you spent $990,000 of it you're only going to have a difference of $10,000 per year to save an invest compare that to somebody who makes 100K per year spends $80,000 of it but then has $20,000 to save and invest instead being able to control your spending and then allocating the extra income to investing will get you where you want to go and you just kind of have to trust that process now a lot of you guys are going to ask yes but what do I actually invest in so I have two important things

to share when it comes to investing number one make sure you are investing in tax advantaged accounts first and foremost and the first account that I would like to talk about is the Roth IRA individual retirement account other countries have very similar equivalents to the Roth IRA so I will put up a list of them on the screen right now but essentially the Roth IRA allows you to contribute after tax dollars into this account but the main advantage is that all of your earnings and profits in this account grow taxfree that means when you retire

and you withdraw all the earnings on this account so all the profits you won't be paying any taxes on it now if you're under the age of 50 you can only contribute $7,000 a year into it and if you're over the age of 50 you can contribute $88,000 per year as a sort of catchup mechanism another note is that if you somehow make too much money for example you guys out there that are making more than $161,000 per year you can't contribute to a Roth IRA however what you can do which I think is pretty

funny at least in the United States is that you can open up a traditional IRA account you contribute to that traditional IRA account and then you just simply roll those funds over into a Roth IRA and that's called the backdoor Roth IRA it sounds like some crazy secret out there cuz it's called the back door but if you Google it literally all of these companies will incentivize you and encourage you to do it as well it's pretty much the world's worst kept secret now the one thing to watch out for is that if you are

ever pursuing a backd door Roth is something called the pro rule which states that if you have both pre-tax and after tax funds in your traditional IRA you can't convert only the after tax portion so if you are someone who has existing pre-tax funds in your traditional IRA there are some ways to get around this and I will leave some links down below with relevant information on the pr rule specifically all right tip number two is to invest in lowcost broadly Diversified funds now in terms of what to invest in in order to get that

8% like I discussed earlier we're going to be mostly investing in lowcost broadly Diversified index funds that track the market so an example would be like the index the S&P 500 an index fund is a type of individual fund that by buying that one fund you own a small piece of everything that that fund owns So an S&P 500 Index Fund for example would track the 500 largest companies in the United States and that way you just buy the S&P 500 Index Fund and then you get a small piece of every little company in the

S&P 500 now for the majority of youngish people out there investing in an S&P 500 Index Fund is a pretty good way to go but there are other index funds out there for example the total stock market index or ticker symbol bti vtsax which covers all of the United States stocks is also pretty good if you're on the older side so getting up to 50 years old and upwards I would probably consider adding more fixed income to your portfolios in order to balance it out but that is definitely going to be a topic for a

future video or something that you can learn about in some of my other videos on the channel so this was the 60310 rule of how to manage your money like the wealthy but you still might need to know some good rules of thumb on affordability especially on the bigger costs like your car or your house so make sure to check out my video on how much of a car you can afford I will leave it right up here for you guys so that you can click on that right away and I will see you guys

in that video or a future video on this channel thank you for being here peace [Music]