16 Money Rules to Grow Rich By
Many of us wish we could get rich–and the faster the better.
However, money doesn’t exactly work that way. For the most part, growing rich is about learning how to put your money to the best use, including getting it to work on your behalf. You probably won’t become unimaginably wealthy in a short period of time, but it is possible to grow rich over time.
Here are 16 rules to grow rich by:
1. Track Your Spending
Get real about where your money is going. Pay attention to your spending and look for patterns. Do you spend on things that don’t matter to you? Is a lot of your disposable income going toward things you don’t need (or maybe even want)? If so, tracking your spending can help you identify–and cut–items that aren’t helping you reach your goals.
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2. Live Within Your Means
Understanding your cash flow is vital if you want to grow rich. You need to spend less than you earn. Track your spending to see where it’s going, and then take steps to live within your means. This can mean cutting some of your expenses, increasing your income, or some combination of both.
3. Set Aside Money for Emergencies
Make sure some of your money is going to an emergency fund. Set aside money so you can pay insurance deductibles, cover unexpected expenses, and replace your income in the event you lose your job. Consider building up your emergency fund, using a high-yield savings account, to include right around six-months’ worth of expenses.
4. Save at Least 10% of Your Salary for Retirement
A general rule of thumb for growing rich is to set aside at least 10% of your salary for retirement. However, this won’t hold for everyone. The earlier you start, the more likely that 10% will be enough. If you start later, though, you’ll probably have to save more than 10% in order to catch up.
5. Choose Insurance Plans with High Deductibles
The higher your deductible, the lower your premium. Choose deductibles that you can cover with what’s in your emergency fund, and you could improve your cash flow. This works well for auto and home insurance, and can also work for health insurance, if you don’t have a chronic condition or a lot of healthcare needs related to your dependents. With health insurance, you have to review your situation before making a choice about how to proceed. If you have a lot of healthcare needs, a high deductible might not be the best choice. Run the numbers to see what makes sense for you.
6. Buy Used Cars
Want to drive like the wealthy? Consider buying Ford, Jeep, and Honda cars, according to USA Today, citing a report from MaritzCX.
Your best bet is to look for a late-model used car. Such cars have already experienced the bulk of their depreciation, but are new enough that you won’t probably be plagued by repairs. You might still even have the remains of a warranty if you get a Certified car. Drive it as long as possible.
7. Stay on Top of Your Credit
Good credit can help you save money on car loans, home loans, and even help you when getting a new cell phone or moving into a new apartment. Pay your bills on time and keep your debt levels low for best results. Some experts suggest keeping your balances to no more than 30% of your available credit, but, really, the lower you keep your credit card balances, the better off you’ll be.
8. Use No-Fee Rewards Credit Cards
You might be surprised at how much you can save when you use a rewards credit card. It’s possible for you to get cash back, earn free travel, and more. However, you need to be careful to pay off the balance each month. Only buy items in your budget. If you don’t, high interest rates will destroy the value of your rewards.
9. Comparison Shop
When possible, buy the lowest price you can. Look for good deals, and only buy what you planned to. Don’t buy things just because they’re “on sale.” Get the best price on good quality items, and you’ll be less likely to spend over time.
10. Max Out Your 401(k) Match
If your company offers a matching contribution on your retirement account, max it out. That’s free money you don’t want to leave on the table. Once you max out the match, if you have additional money to invest, consider an IRA.
11. Invest No More than 10% of Your Portfolio in a Single Stock
Don’t load up on company stock–or any individual stock. In fact, you might be better off using index funds, ETFs, and REITs to create a portfolio designed with diversity in mind. That way, you don’t need to worry about too much of your portfolio being stuck in one stock that could fail horribly and bring you down. If you don’t have the time or experience to properly allocate your portfolio assets, you may consider using a robo advisor. Our list of Best Robo Advisors will help you find one that suits your needs and keep you on the right track.
12. Invest With the End Result in Mind
When creating your investing portfolio, consider your end result. For example, with a retirement portfolio, you might want to use the rule that says you should subtract your age from 120 and keep that money in stocks and the rest in bonds. However, you might have other goals, like saving for college, buying a house, or taking a vacation. You’ll want to use different “buckets” of money for different goals. Generally, the sooner you’ll need the money, the less of it should be in stocks.
13. Use the 28/36 Qualifying Ratio When Buying a Home
Rather than relying on the 30% rule when buying a house, consider using the 28/36 qualifying ratio that many lenders use to decide if you’ll get the best interest rate. This ratio says that your mortgage payment shouldn’t be more than 28% of your monthly income, and your total debt payments (including your assumed mortgage payments) shouldn’t exceed 36% of your income.
This is a little more strict than you get from many lenders, but if you stick with it, you’re less likely to be house poor and more likely to easily afford your home.
14. Refinance Your Mortgage When You Can Get 1% Off
For the most part, if you can save 1% on your mortgage, and you’re planning to stay in the house for a few more years, it can be worth it to refinance your mortgage. You’ll improve your cash flow and pay less in interest over time. Just run the numbers to make sure your interest savings really do offset any costs you incur.
15. Put Your Retirement Ahead of Your Kids’ College
While it’s nice if you can help your kids pay for school, the reality is that you could end up in trouble if you put their college ahead of your own future. One rule of thumb is to limit your efforts to one-third of your income, but even that might be too much. Be realistic about what you need to secure your future and then use what’s left over to help your kids pay for school.
16. Diversify Your Income
The more you rely on one source of income, the greater your overall risk. When possible, do your best to find alternative sources of income. This can be from investments, a second job, a side gig, or some type of business. When you have different sources of income, you are more likely to hold up when one of them disappears.
No rule is full-proof. However, you can significantly increase your chances of financial success when you put most of these into practice. Look at the rules, figure out what works for you and your situation, and adapt the rules so that they work for you and your long-term wealth goals.