How To Manage Your Money Like The 1%

So, CNBC just posted an article saying that 44% of Americans would go into debt if a thousand-dollar emergency came up, and 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.

Let's talk about how you can manage your money like the 1%.

So 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? 

Well, they all understand the flow of money and how to allocate their funds, and it all starts with this.

Step #1

Step one is having a budget by tracking your expenses and reducing unnecessary spending, and this is a big one. 

If you just do this one thing and you skip the rest of the article, but you do this, trust me when I say this, you're gonna be ahead of 99% of other people out there because almost no one does this. 

And if you're at a point right now where you're reading 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, and then when that account gets low, they start cutting back up until the next paycheck, and then when their account goes up, they start spending again. 

Doing that is not how wealthy people manage their money. 

So I recommend first starting off by tracking all of your income and expenses over the next 60 days. 

I personally use Spendee, but 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. 

And 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. 

And when it comes to doing this, you can likely save about 10 percent 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.

Step #2

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. 

That does not become your 

"Oh, Apple is having a sale on the new iPhone, I need that," 

or your 

"Oh, Sony has the new 8K Smart TV for 40% off, I need that." 

This fund really needs to be your "break in case of emergency" fire extinguisher where if you have no other place to turn and you have something that comes up unexpectedly, this is where you can turn to. 

And 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, and 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. 

And 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 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. 

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%. 

And when it comes to me personally, I always have a 6-months emergency fund saved up in cash assuming something catastrophic happens and I stop making all money tomorrow. 

I have at least 6-months’ worth of expenses saved up in cash at all times.

Step #3

So next, after you've built 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 401k matching, always take it. 

I repeat, always take it. 

And if you ignore this entire article 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. 

And here's what I mean when I say this: 

Many employers offer what's called a 401k match, where they will match dollar for dollar up to a certain point of how much money you contribute to your 401k account. 

So for instance, if you contribute $1,000 into a 401k, your employer may match you an additional $1,000. 

This is what I like to call "free guaranteed money." 

There is no other investment in the history of the planet that will give you a 100% risk-free guaranteed return like a 401k employer match. 

Well, and 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, bro." 

Man, I don't get it. 

It's just... I think it's a lack of education, unfortunately, that they just don't know what they're passing up. 

But we're gonna change that with this article, so just promise me here, always take this money. 

Just do it for me. 

Take the money. 

Don't wait. 

Ask your employer tomorrow, or even today if you're reading this at work, if they offer an employer match on a 401k. 

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. 

And by the way, just want to mention, if you're self-employed, you can do what's called a SEP 401k, where you can do the employer match yourself. 

And this is a great way to reduce your taxable income. 

So if you're confused about that, just Google "SEP 401k," and all the information is going to come up. 

It's going to be too long to explain in this article.

Step #4

So now, the next step after collecting your free money 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. 

And when it comes to paying off debt, there are two strategies to go about this.

The Avalanche Method

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 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, and 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.

The Snowball Method

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 because 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. 

Now, 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 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.

What I Do Myself

And my personal philosophy when it comes to this is that if you have any debt over a five percent interest rate, pay it off, and any debt that's under a five percent interest rate, especially if it's good debt like a mortgage or a business loan that is 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.

I do also have a dedicated video on this called something like Debt Snowball vs Debt Avalanche, so I will link it here in case you want to learn more!

Step #5

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, or 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. 

And 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 about what you're doing right now; it's just that you 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, starting a side hustle, or doing something else to increase your income. 

And thankfully, now that you have your emergency fund, 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.

Step #6

But 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 that money makes 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, and you will not have to pay any taxes on it. 

When it comes to growing your wealth, having this available to use is absolutely priceless. 

And because I just made a video about this recently, I'm just going to link to that video right here. 

It goes over everything you need to know about a Roth IRA, so don't spend too much time on that here.

Step #7

Then, and only after you've completed every single step in this article, should you start investing in taxable accounts or making any other investments with your money. 

This is after you've tracked your expenses, after you've created the emergency fund, after you've contributed to the 401k matched by your employer, after you've paid off all high-interest rate debt, after you've invested in yourself, and after you've put 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. 

So, 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. 

And 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, increase their net worth, and continue making more money.

The Hardest Part

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 a safety net in case they fail. 

By taking advantage of retirement accounts, they can get a 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 reinvest. 

And then, by investing more money back into themselves and their business, they end up making more money, which completely repeats this entire cycle. 

Once you begin to get in that upward spiral, 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, thank you so much for reading. 

I really appreciate it and if you enjoy this, then make sure to share this with your family and friends. Cheers!

- Ivan