Many people often overlook the importance of “how to spend money” compared to focusing on how to earn money. In fact, understanding “how to spend money” is crucial as it can directly impact your future lifestyle.
When it comes to “how to spend money,” many people might think, “Who doesn’t know how to spend money?” However, the key difference between the vast majority of Americans who continuously accumulate wealth and eventually become millionaires and the average person lies in how they manage the money they work hard to earn.
While the average person tends to only think about how to spend the money in hand, ultimately spending it sooner or later at different rates, those who understand wealth accumulation have their own ways of managing their finances. One of these methods is known as the “75/15/10” financial rule. Its core concept revolves around “managing money, saving money, and making money.”
Managing money involves not spending money impulsively without a plan but setting a budget and sticking to it for spending.
Saving money means not depleting all your funds but continuously accumulating wealth regardless of the amount saved.
Making money means not letting money sit idle but making it work for you by investing and ultimately achieving financial freedom.
So, how should one spend the money earned? Courtney Alev, a consumer financial advocate at Credit Karma, shared her views on this financial rule in an article in the New York Post, offering valuable insights.
The 75/15/10 rule provides specific guidance on how to spend money: divide your income into three parts – 75% for daily needs (living expenses, etc.), 15% for long-term investments (stocks, etc.), and 10% for short-term savings (high-interest bank accounts, etc.).
While the 75/15/10 ratio focuses on quality of life and wealth accumulation, it’s not set in stone. One can also plan according to ratios like 50/30/20 or 60/30/10. The crucial point is to steadfastly execute the budget plan once set.
Regarding how to choose the ratio, Alev suggests, “The first step is to set clear financial goals, ask yourself what you want to do with your money in the short and long term.” Do you want to buy a standalone house? Or pay off student loans early? Or plan a vacation to Greece next summer? Your decisions should align with your desires.
Alev says, “Taking the first step to set a budget may be intimidating for some, but once you start, it won’t feel so daunting. The initial attempt may not result in a ‘perfect’ budget plan right away, adjustments can be made later as needed.”
A point to note is that some people claim to see no results shortly after attempting to set a budget. Of course, if you create a great budget, start spending according to the plan, but only stick with it for a month and a half, it’s not surprising that you see no results. This emphasis on “managing money, saving money, making money” is a long-term process that requires consistent determination and action. However, with effort, there will be rewards.