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12 Rules That Rich People Follow to Save Money

12 Rules That Rich People Follow to Save Money

Wednesday, February 13, 2019 IST

Making healthy financial habits a part of your life is a big step towards success. To achieve our dreams, we need to make good choices with our earnings. While most of us save up to spend it on bills and survival, there are others who save up but at the same time, are also up to date with their credit card bills. So, how do these people manage to spend but also ensure that they never run out of funds? Rules! These self-made millionaires live by a set of rules that help them manage money. Here, we are listing some practical rules that rich people follow in order to save money.

1. Following the 50/30/20 budgeting rule.

Harvard bankruptcy expert Elizabeth Warren—U.S. Senator from Massachusetts and named by Time magazine as one of the 100 Most Influential People in the World—coined the “50/30/20 rule” for spending and saving with her daughter, Amelia Warren Tyagi. So how does the 50/30/20 rule work? Your after-tax income is what remains of your paycheck after taxes are taken out. Then, limit your needs to 50% of your after-tax income which includes things like groceries, housing, utilities, health insurance, car payment, and car insurance. According to Warren and Tyagi, the amount that you spend on these things should total no more than 50% of your after-tax pay. The key is to differentiate things between expenses that are “needs” and “wants”.

The next step is to limit your “wants” to 30%. We spend more on “wants” than we think. So, before going on a spending spree, try to differentiate and check whether it’s something that you really need or not. The last step is the “20” in the 50/30/20 rule. You should spend at least 20% of your after-tax income repaying debts and saving money in retirement accounts. This step is crucial since having an untouchable account ensures that we have a steady savings. (source)

2. The 24-hour rule.

The 24 hour rule is a simple one; you take 24 hours to think over every non-essential purchase, which helps you avoid purchasing on impulse. Unlike us, millionaires live by the 24-hour rule. While they are completely capable of making large purchases without giving it a second thought, they actually wait for an entire day before deciding. Before making a decision, they mull over the thoughts and benefits of the purchase, either online or at the local mall. By utilizing the 24-hour rule, you can convert a “need” to a “want”, allowing you to walk away and save money. Some financial advisors suggest freezing your credit cards, literally, in a bag of water. By doing so, you’ll have time to consider whether you really need to make a purchase while you’re waiting for it to thaw! (source)

3. Carrying a reasonable amount of cash and limiting the use of credit cards.

Since the invention of credit cards, our lives have simplified but at the cost of gaining more debt. While our wallets are thinner and saves us a lot of trouble if we ever lose it, credit cards come with a huge price tag. Most millionaires prefer carrying cash with them rather than these plastic cards since spending cash reminds them of the significance of the purchase. Those who prefer credit cards over cash spend more than they intend. Bankers know this all too well, which is why they keep pushing you to open a new credit account with them with 0% APR. Another important tip is to only use your credit card to buy things if you can pay it off in full at the end of each month. (source)

4. They live a frugal lifestyle and avoid gaining unnecessary debts at all costs.

The wealthy avoid debt at all costs. Living a frugal life has its advantages and they only make purchases that they can actually pay for. For instance, if they wish to go on a vacation, they avoid the temptation to use credit cards to pay for the entire trip. While credit cards can be a solution for a few weeks of fun and adventure, they can also be a reason to be in debt for years. This also helps them eliminate paying those hefty interest rates. Most successful people only use their credit cards to make purchases if they are sure that they can pay off that bill when their statement arrives. (source)

5. Creating a shopping list for annual sales and avoiding making purchases at full price.

When we make a purchase, the process of transferring money takes place. Money has gone out of our pockets and will not benefit us for any future troubles. So, it is our duty to make sure that it’s money well spent. Whenever you decide that you are in dire need of something, create a list and wait for sales to get a good bargain. Keep comparing prices and opt for the seller with the lowest price tag. When we buy something on sale – although we spend money – we certainly end up paying less than the usual price. Then, compare the retail price and the difference you have saved with your planned purchase. In the final step, deposit the savings from your purchase into your fixed deposit accounts. Take it as a challenge and you will start seeing a pattern that will eventually benefit you in the long run. (source)

6. Instead of splurging, investing in things that makes them happy and healthy.

Spending money on things that last for a long time and makes you happy is ok every once in a while. However, many self-made millionaires avoid the habit of spending money on material things. They “work hard and play harder” by investing in things that not only makes them happy, but also keeps them healthy. According to Kimberly Palmer, a personal finance expert at Nerdwallet, “It feels good and it gives me more energy. An experience that improves your health and quality of life can be a good target for a splurge”. (source)

7. Enforcing strict “no spending” days or weekends.

The idea of “no spending” days, weekends or months is simple. Set out a limit for yourself and then shelling out any money during the time period; unless there’s an absolute emergency. During this time period, your urge to shop or purchase things will be heightened but resisting the urge can benefit you in the future. For starters, set out a “no spending” day or weekend where you have home cooked meals and enroll in activities such as spending time with your family. When you reduce your non-essential wants, you might be surprised by how much you can ultimately live without. (source)

8. Having a loose change savings.

Instead of spending every $5 bill that passes through your hands, start saving them. People everywhere are yearning for a simple way to put aside some extra money, to pay for a wedding or a vacation, a new car or a house. While some of us resort to credit cards and loans for such matters, there are a few that throw loose change in a jar. Since most of us live from one paycheck to another, it might be hard to put away 10-20% of our earnings. However, setting aside loose change is something we all can do.

Although loose change savings doesn’t amount to any significant money, if you are committed to it, one day it can prove to be a lifesaver. All you have to do is simply find a jar, seal it tightly, and every time you deal with money and get some loose change, deposit it in the jar. As you see it accumulate, you won’t be tempted to spend it since you want to see how long it will take you to fill it all the way to the top. One of Warren Buffett’s ideas about investing is that we should invest in ourselves before anything else. What better way to invest in ourselves than committing to a personal savings plan? (source)

9. Not having auto-saving credit or debit card numbers.

When shopping online, merchants love to keep your credit or debit card number in hand, so that they can “make it easier for you” during your next purchase. This is a tactic often used by online retailers to apparently “simplify your life” and “save you time”. However, when you choose to allow merchants to keep your information at hand, it tempts you to spend more since it’s less work to fill out credit or debit card information. (source)

10. They’re patient.

Even though we hear stories of people becoming millionaires overnight, the reality is that that’s few and far between. The average millionaire lives by only one motto, that patience is a virtue. That’s why the millionaire next door doesn’t achieve his dreams or status until they’re 40-50 years old. Most overnight millionaires earn a modest salary, invest wisely and focus on living below their means instead of searching for get rich schemes. (source)

11. They fix things instead of discarding them.

Fixing things not only saves money, but also saves our planet from pollution. Most successful people make good investments, which keeps them at the top of the list. However, they also have the habit of fixing broken things when most of us think of replacing them. A little effort goes a long way and for most rich people, their investments become successful because they are committing themselves to their purchases until their very last breath. (source)

12. They spend money on experiences, not things.

While most of spend 95% of our our lives working, when we get a chance to spend some money, we want to make sure that it’s well spent. A 20-year study conducted by Dr. Thomas Gilovich, a psychology professor at Cornell University, found that we should never spend money on things, rather experiences. This is exactly what most successful people do. Instead of being attached to material items, they invest on experiences, that make them bold and allows them to reflect on their lives. (source)