Here's what you need to know millionaires live by different money
principles and the majority of people and by leveraging these principles they
are able to amass more wealth than you could ever imagine
you see they possess information that most people don't and this financial
education is what allows them to have a leg up over the competition when it
comes to being financially well-off luckily boss in this video I'll share
with you the ten money principles all millionaires follow and if you're new to
the channel then hit the subscribe button below for more life-changing
content in order to fully grasp the importance of these money principles we
will follow our friend Steve as he progresses through his financial life
considering how we will use these money principles one by one
money principle number one the first year rule
Steve's financial journey starts in college one of Steve's main goals in
college is to avoid graduating with an insurmountable amount of debt and in his
readings he comes across the concept to the first year salary rule this rule
states that you shouldn't take out more in student loans than you expect to make
in your first year on the job as an accountant Steve expects turned $40,000
a year after graduation which is the max he can
take out as a student alone unfortunately Steve really wanted to go
to Harvard for his MBA but with the cost of 72 thousand dollars a year this would
definitely break the first to your rule so instead Steve decided to pursue an
in-state program that cost him only ten thousand dollars a year by making this
choice Steve gains the ability to avoid massive
student debt payments upon graduation so that he can have more money to set aside
for saving up for a house or investment now while things worked out for Steve he
realizes that being able to follow the first year rule isn't always feasible
rising tuition rates have made following this rule a challenge and the
uncertainty of the job market makes it hard to gauge just how much you will
make upon graduation money principle number two budgeting now that Steve has
started his career he figures that as an accountant he should be setting up a
robust budget to help amanda's his money he remembers his accounting professor
talking about the fifty thirty twenty rule and decides to give it a try
his budgeting technique works by dividing your income in the following
ways fifty percent is designated to living expenses like rent utilities and
groceries the next thirty percent goes towards end
payment costs like going up to eat or seeing a movie the final 20% is meant to
go right into your savings account Steve would always get flustered when
trying to set up budgets in the past but by breaking up the budget in two basic
categories he found this method to be quite simple to follow when thinking
further about his new habit of budgeting he had the thought that this budgeting
met who would probably not work for his friend Kyle you see Kyle lives in New
York City where housing is very expensive even living in less expensive
parts of town means that he would have to spend upwards of 60% of his monthly
income for living expenses moreover call doesn't go out much so we
probably wouldn't need to allocate 30% of his income towards entertainment
which if reduced to 20% would allow him to still hit the 20%
savings target that is standard in this budgeting technique in essence Steve
realized that budgeting is great but only if it is adopted for your own
personal financial situation money principle number three the emergency
fund rule now that Steve has a budget in place and is paying down a student debt
he figures he should take another step in improving his financial situation
while Steve has a relatively secure job he's been hearing others talk about how
certain industries have been laying people off and wonders how we would
survive if he himself was terminated sure he was saving money every month but
he really didn't have much of a financial nest egg to fall back on Steve
took it upon himself to research how much a typical person has set aside for
emergencies and some best practices when he learned shocked in a Federal Reserve
study conducted in 2019 found that almost 40% of American adults wouldn't
be able to cover a $400 emergency with cash savings or a credit card charge
that they could quickly pay off about 27% of those surveyed would need to
borrow the money or sell something to come up with the $400 and an additional
12% would not be able to cover it at all - Steve $400 seems like a rather low
amount of money to have in reserve for instance if you had to visit his family
across the country just a plane ticket alone would cost at least $1000 not to
mention the loss of income from being away from work Steve came to learn that
having at least 6 months worth of living expenses was a practice most financial
guru suggested however Steve being the cautious accountant that he is figured
that just to be safe he would save up a year's worth Akash and
leave it in his high interest savings account money principle number four the
age rule being interested in finance Steve always looked up to the great
investors like Warren Buffett and Charlie Munger and after a few years
into his career he decided that now was a perfect time to start investing in a
second year finance course Steve was taught the Aged rule which seemed
appropriate to apply to his new investing endeavor the Aged rule is
where you subtract your age from 120 and whatever is left is the percentage of
your investments that should be put into stocks as a 28 year old this meant that
Steve would be allocating 92 percent of his money toward stocks and other eight
percent towards bonds Steve remembered his teacher explaining that when you're
young you have more of a time horizon for investing meaning that you can
afford to invest in more risky securities whereas when you're older you
want to focus your investments are more secure assets like bonds Steve thought
to himself that his parents must invest a lot more heavily in bonds as after age
of 64 means that they would have 56% of their money in stocks any other 44% in
bonds upon investing in these stocks Steve figured that it was only a matter
of time before his wealth grew to the size of his idols Buffett and Munger
money principle number five the ten-year rule after five years of working
downtown Steve decided to change jobs and with this job change meant that he
would now be able to drive to work Steve was excited for this change in his
routine but began to contemplate whether he should buy a new or a used car
he heard that the value of a new car dropped significantly right after you
buy it but still felt tempted to get one that was new anyways after talking with
his dad Steve was made aware of the ten year rule this rule says that if you
want to maximize your car's value you should either buy used or buy new and
drive the car for ten years in essence the rule minimizes your
depreciation hit if you buy a car that's a few years old the depreciation will
already have been sucked out of the vehicle if you buy a new car and keep it
for a decade you'll have optimized its value and the depreciation won't matter
as much well Steve did initially want to buy a new car he figured that buying
used was a way to go this buying decision made him think of his friend
Mike who always bought his cars new not only did he buy expensive cars but he
would sell them after just a few years which made Steve cringe at the thought
of how much money his friend was wasting
year after year Steve also figured that even if the used car II were to buy
didn't last ten years he would still have bought it after a lot of the
depreciation had already been incurred which for a savvy accountant made him
very happy money principle number six the
twenty-four ten rule now that Steve knew he wanted to buy a used car he needed to
decide how to pay for it should he finance a full cost part of the cost or
wait until he could buy the car outright what Steve came to learn was that when
buying a car you should follow the 44:10 rule this rule states that you should
put at least 20% down also you should finance a car for no more than four
years and spend no more than 10% of your monthly gross income on transportation
costs Steve really liked this rule because it keeps you from buying more
vehicle than you can afford it also takes your ongoing budget into
consideration by calculating total transportation costs these types of
costs not only include your car payment but I'll see your gas and insurance
which can vary by vehicle Steve really felt like this rule is practical for him
but wondering how it would work for his friend Justin who drove for work
obviously his transportation costs will be much higher than the normal person
every month but he still felt like the 20% down and for a year financing parts
of this rule could easily apply to everyone moreover because Justin was a
key and saver he knew that he could probably afford to buy his car in cash
which meant saving interest charges associated when you finance even if it
is only for a period of four years with all this information in mind Steve was
confident that he would end up with a good car at an affordable price money
principle number seven the income rule after about five years of renting his
current apartment Steve became fed up with paying someone else's mortgage and
wanted to look into buying a home with a few raises and promotions at work Steve
was now earning $80,000 a year and figured it would be enough on a monthly
basis to support the costs associated with home ownership as long as he bought
a home he could reasonably afford his friends who had bought houses in the
past mention that the rule of thumb is the income rule which states that you
should not buy a house that's prices more than three times your gross annual
income for Steve this meant that he could afford to buy a house worth two
hundred and forty thousand dollars Steve was happy with this price range as he
definitely did wanna be house poor but again thought of
his friend Kyle who lives in New York City the income rule didn't seem
practical for Kyle as houses in Manhattan were millions of dollars and
Kyle well very successful wasn't making enough to follow this rule steve
rationalized to himself that this is just a rule of thumb and not an absolute
rule which means it won't apply to everyone's unique situation in some
cities using this rule makes sense and in other cities where house costs are
inflated people will have to spend four or five times their gross salary to get
into a home with this in mind see was just happy that there were many homes in
his city that met this criteria money principle number eight the 20% rule
after spending a couple months looking for a house to buy Steve finally found
the perfect home at two hundred and thirty thousand dollars it followed the
income rule and now Steve had to decide how much to put down in order to buy the
home Steve had been saving up for this purchase for years and had always been
told that you must put down 20% on your home
Steve liked the idea of putting down a large sum of money because he could then
reduce his monthly expenses allowing him to still have cash available if he
wanted to go on vacation or buy a new wardrobe
moreover putting 20% down allow Steve to avoid paying private mortgage insurance
which was a non recoverable cost he was happy to avoid money principle number 9
the 10% rule a few years after buying his home Steve's house gained two new
roommates his wife Angela and baby daughter Sarah with these new additions
in his life Steve found himself thinking more and more about retirement with his
parents having just retired Steve decided to ask his mom for retirement
planning advice she explained that since she was Steve's age she put away 10% of
her monthly after-tax income into a retirement savings account via her
employers 401k however she recommended that Steve
really considered what kind of a lifestyle he would want to live in his
later years for instance if he wanted to travel the
world to retire early then he would have to increase his monthly contributions in
order to support this lifestyle money principle number 10 the 25 times rule
after talking with his mom Steve felt unsure whether saving 10% of his monthly
after-tax income was enough to cover southern costs so he decided to project
just how much you would need to save in order to live off the returns from his
see figured that expecting a 4% return annually on his investments was
reasonable this meant that Steve would have to save
up 25 times his annual living expenses before he could retire Steve knew that
his mortgage will be paid off well before retirement and then he was going
to continue living frugally into his old age as such he estimated an annual of
any expense of $70,000 as the cost of living will continue to climb as the
ages meaning that he would need 25 times that
amount or 1.75 million dollars to retire with all these money principles set in
action it was only a matter of time until Steve amassed significant wealth
proving that these financial tenants are key to living your best money life
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