How to Manage Your Finances like the Top 1%

Last Updated on – Sep 27, 2021 @ 1:52 pm

On a previous article, we learned about some of the best ways and actionable tips to earn your first million.

And while it contained ideas and advice on how to increase your earning potential, it didn’t touch upon the do’s and don’ts on managing money once you start acquiring more wealth.

Why is this important, anyway?

Because as Kiyosaki advised in Rich Dad, Poor Dad:

“It’s not about how much money you make, but how much money you keep.”

Two people can be at the opposite ends of the income spectrum yet the other one (person who earns less) can actually be wealthier in the long run simply because that person knows how to manage her finances.

Too often, we think we need more. We don’t realize that we already have the opportunities and systems in place to start a financially-free life.

Making more money is not always the answer.

It’s a fact that changing our habits and beliefs, especially when it comes to money, is hard.

But if you think about it, having more money is not a requirement to begin changing our ideas and knowledge about it.

We can start this very moment, begin with whatever we have right now.

“I am concerned that too many people are focused too much on money and not on their greatest wealth, which is their education. If people are prepared to be flexible, keep an open mind and learn, they will grow richer and richer through the changes. If they think money will solve the problems, I am afraid those people will have a rough ride. Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.”

We all have that one friend or relative we admire when it comes to managing finances.

We believe that they are by nature, “Magaling humawak ng pera”. We believe that having high financial IQ is something you’re born with.

But this is simply not true.

Like muscles, financial IQ grows the more we put in the effort to make it grow.

But how exactly, should you do it? What are the steps to manage your wealth and money, the right way?

To answer that question, we’ll take a look at how the most successful and wealthy people—the top 1 percent—manage their finances.

Related: Wealth Management: 10 Best Wealth & Asset Management Firms in the Philippines

And as you’ll soon realize (after reading each tip), they’re really not doing anything special to build and manage their wealth.

The top 1 percent use the same basic principles that you and I can apply.

For example: In his best-selling book, Money Master the Game, world-renowned life coach, philanthropist, and author Tony Robbins shared 4 mindsets that the top 1% investors in the world have in common:

1. They don’t lose money

The logic is simple: If you lose 50% of your money, it takes 100% to get back to where you started.

Aside from the investment and effort required to recoup that lost, you’ll also lose that one thing you’ll never gain back: Time.

2. They look for low risk, high reward

It’s surprising to learn that the most brilliant and successful investors of all time are actually risk-averse.

They look for investments that can bring huge gains with little risk required. An Asymmetric Risk/Reward relationship.

3. They anticipate failure by diversifying

Even the most intelligent investors understand that they’ll lose money on some of their picks.

Their solution?

Minimize the potential losses by diversifying. Everyone who invests money is essentially making decisions with limited information. That’s just the way it is.

And the best investors in the world understand that losses are part of the game. So they prepare for it by minimizing the impact through diversification.

4. They never stop learning and growing

To continuously develop and grow your financial IQ is crucial in your journey towards financial freedom.

Read books, learn from others, invest in improving your money-making and decision-making skills.

What did you notice? What did you think of their advice?  

How come they look “too obvious” and simple?

The answer:

Regardless of your status in life, the rules and principles for successfully managing wealth remain the same.

Like steps in a recipe, we can simply follow the steps and achieve the same results.

There’s one important ingredient though that is an absolute must-have:

Discipline.

To obtain financial freedom, you’ll need discipline.

The discipline to stick to your goals. The discipline to stay within your game plan. The discipline to commit to your vision of a financially successful future. For yourself and your loved ones.

Think of the following tips as the core blocks of building wealth.

Akin to a strong and steady foundation for your house.

These proven, time-tested principles and habits are tools that you can use to craft a better life.

Ready to learn how to build a financially-brighter future? Let’s go straight to the first tip:

1. Cut unnecessary spending and costs

In his seminal book, The Richest Man in Babylon, George Clason shared that controlling one’s expenditures is one of the key ways to avoiding a “lean purse”.

‘Now I will tell thee an unusual truth about men and sons of men. It is this; that what each of us calls our “necessary expenses” will always grow to equal our incomes unless we protest to the contrary. Confuse not the necessary expenses with thy desires.

The road to wealth requires the delay of unnecessary instant gratification in exchange for asset-building and compounding.

To avoid getting stuff that we don’t really need and buy just merely out of impulse.

We all have those moments. But if we really want to get wealthy faster, we have to take the necessary steps to focus on building our assets first.

It’s going to be hard, sure. But isn’t that the case with all worthwhile endeavors?

I’m not saying you forego all unplanned purchases or stop buying stuff that makes you feel good.

The key is to identify which purchases are essential and which ones can be skipped.

Remember, the goal is to simply have more money to invest and save. To determine potential money-drains in your monthly budget. The sooner you develop your mental muscles to resist the urge of unnecessary spending, the faster you’ll reach your financial goal.

2. Automate the saving process

When I first started working, one of the features that our company’s partner payroll bank offered was an automatic savings program via payroll deduction.

Reluctantly, I signed up. I’ll be honest, it was more due to the urging of more financially-wise colleagues than by personal choice.

Not wanting to be left out, I chose to have 10% of my earnings go straight to a savings account.

It was one of those rare moments when peer pressure was actually useful.

Hopscotch a few months later, I checked my balance and was pleasantly surprised at the amount I saved.

I knew I wouldn’t have done it had I chose to do it myself. I was pretty sure I would’ve ended up spending all my income.

But why exactly, does this strategy work?

The Center for Retirement Research at Boston College conducted a study to determine what is the most effective way for the government to urge its citizens to save for retirement.

The findings revealed that automatic savings plans allow households to increase their retirement savings at a much better rate than tax subsidies.

The secret, the researchers conclude, is in the behavior that people have towards saving. They point out that the best savers aren’t the most active ones. Rather, they’re the ones who have a “set it and forget it” approach.

And it makes sense, really. If we can’t access it, we can’t spend it!

Makes me remember a friend who opted not to have the ATM option for her newly-opened savings account.

Her reason? She argued that not having easy access to her savings actually helps her in being more disciplined with not touching her savings.

The added friction of having to line up in a bank just to withdraw money kills any eagerness that she might have during “moments of weakness” to spend.

Nakakatamad nga naman pumunta ng banko at pumila.  

And while this strategy is not for everyone, it serves as proof that we’ll increase our likelihood of saving if we don’t have access to the money.

How to automate your savings

Step 1: Use online tools and personal finance apps to automate the process. Most banks nowadays offer some form of automatic savings program. Check it out and use accordingly.

Check out the Money Apps & Tools section in our “How to Save More Money” guide for a list of popular personal finance apps for saving and budgeting your money.

CNN Philippines also covered a few others that are worth checking.

Step 2: Designate a specific amount or percentage that will go to the savings account

Step 3: Set up automatic payments for your expenses and obligations (credit card bills, rent, etc.,)

Step 4: Automate your deposits into any investment accounts (more on this later)

Step 5: When you can, increase your automatic savings and contributions

3. Set clear financial goals

Deciding you want to take your financial IQ to the next level is one thing. Having a clear set of goals and plans is another.

But why is it important to set financial goals, anyway? Can’t I just save money whenever I can?

The answer is simple: You need to know what you want and where you’re going so you can craft an effective strategy for achieving it.

Imagine this scenario:

You ask your buddy how to get six pack abs (he looks fit so you thought he might have an idea).

He looks at your round belly and says, “That’s simple, just do cardio exercises and cut rice!”

Now, I’m no gym expert. But I’m pretty sure running dozens of kilometers and cutting back on rice won’t get you those pandesals on your stomach.

And the same logic applies when it comes to setting goals and strategizing in general.

Clear goals + right strategy = Success

You need to know what you want so that the steps you’ll take will be in line with your goals.

Let’s say you want to save and invest 100,000 pesos by year end. Applying the advice above, the first step would be to identify the ways you can save 10,000 a month.

After that, you’ll narrow down your list based on your skills and strengths. You’ll then start devising a strategy to get that 10k/month savings.

Should you get a side hustle? Perhaps enroll in a language class so you can (hopefully) get for that language premium bonus at work?

Maybe you want to launch a blog and earn from ads and affiliate income? Sell life insurance on the side, perhaps? Or maybe you can work part-time on weekends doing some remote online jobs?

O baka naman kailangan ko lang talaga magbawas ng gastos?

Having clear goals is essential in achieving financial freedom. Aside from the above, here are other reasons why you should have clear financial goals:

  • It helps you determine how much you need to save (aside from the other methods listed above)
  • Each financial goal will need a different set of strategy. This is important as a goal of saving for retirement will require a game plan that’s different from saving 100k.
  • It helps determine some of your career decisions.
  • Having clear goals means you have to be laser-focused. It gives you that extra push of motivation on days that your willpower or energy is low.
  • Setting goals is good for you. It helps you develop your physical and mental muscles. It pushes you to go past your comfort zone. It helps you avoid the trap of “going with the flow”.    

4. Start tracking your expenses

If you’re really keen on managing your finances like the top 1 percent, you have to make the effort of having a clear understanding of how you spend your money.

And the most effective solution is by tracking your expenses.

“How to be you po?” I jokingly asked one friend who not only tracks her spending—she actually seemed to enjoy the process.

A disciplined saver, she said it acts as her “logbook” of activities, giving her insight not only on how she has been spending, but also serves as a reference for when she’s budgeting her family’s money.

Why is this important? What’s the real purpose of tracking all the money we spend on a regular basis?

The first reason is that tracking our spending makes us aware of where exactly our money goes.

It allows us to pinpoint which portion of our budget gets eaten up by discretionary expenses, for example. These are stuff and purchases that we can (technically) live without but prefer not to do so.

Not that spending money beyond the basics is wrong. However, if you really want to have success in achieving your financial goals, you have to be more purposeful with how you spend your dough.

And being purposeful spender requires that you first become aware of the stuff that you spend money on.

Once you know where your money goes, you can then craft a spending plan (a.k.a budget) that will suit your needs and preferences.

Here’s a high-level overview of what you need to do to start tracking your expenses:

  1. Create a budget worksheet for tracking your expenses. You can see sample templates on our How to Budget Guide
  2. Once you know how your money gets spent, craft and make adjustments accordingly based on your goals.
  3. Be diligent in tracking your progress. All changes on your spending should be noted in the worksheet so you’ll know how you’re doing.

Let’s say you want to save 20,000 by the end of the year to invest it in stocks. You figured that you can easily hit this goal by stashing away roughly 1,700 pesos each month.

After coming up with that number, it’s now time to determine which expenses (on a monthly basis) you can trim down (or cut indefinitely) to hit the monthly target.

Perhaps your tracker revealed that you’ve been spending a little too much on lattes and coffee lately.

Or maybe your weekly strolls at the mall has been costing you a bit more than you realize.

Some might admit to spending more than they should on Shopee or Lazada because of those daily free shipping vouchers.

As soon as you make these realizations via expense tracking, you can then start making adjustments to your spending.

Again, the idea is not to scrimp on your spending just because it helps you save more.

The real reason you’re doing this is because tracking expenses creates financial awareness.

It helps you not lose money. Which is, by the way, the first advice from our list of recommendations earlier from the world’s top investors.

Ready to start tracking your expenses? Our comprehensive guide on how to budget your money lists down more ways you can control your spending.

5. Create an emergency fund

Think of having an emergency fund as a financial safety net for yourself and your family.

It’s about being prepared when financial hardships arise, so you can smoothly transition from the difficult undertaking back to getting your (financial) groove back.

That’s all there is to it, really.

The “hardest” part is developing a savings system that will work based on your budget and preference.

But it’s not that complicated, actually. In fact, there are several ways you use to build an emergency fund.

One popular example is the 50-20-30 rule. Put simply, you spend 50 percent of your earnings on the essentials (non-discretionary expenses like food and shelter), 20 percent goes to investments and savings, while the last 30 percent is for discretionary/optional expenses like entertainment and luxuries.

As simple as it is, applying this budgeting technique will allow you to steadily build a savings fund for emergency use. Perhaps you can do a 50-50 split on the 20 percent so that the 10 percent will be tagged for emergency use exclusively.

You may be wondering, “But how much should I keep in my emergency fund, exactly?”

There is no hard rule for it, but most financial experts advice to save at least 6 months worth of salary for a 1-income source family.

If there are two sources of income, 3 months worth of salary might be enough to cover your expenses during financial droughts.  

But don’t go overboard with it, even if having “sobra” on your emergency money looks like a good idea.

Why? Because you’ll likely have better returns for that excess money if you put it in other investments.

Instead of stashing away 1 year worth of income, for example, perhaps you can save 6 months worth and invest the rest on other investment vehicles, like stocks or bonds.

If you’re curious to know more emergency fund-building tips, check out our Emergency Fund guide.

6. Let your money work for you

“Put each coin to work so that it may reproduce its kind even as the flocks of the field and help bring to you more income, a stream of wealth that will flow constantly into your purse.”

– George S. Clason, “The Richest Man in Babylon”

When I first read this section on the book, I remember literally imagining gold coins walking and working in a Looney Tunes kinda way.

Perhaps it was the quirkiness of this imagery that made me remember all about it. As weird as it may sound, however, you can’t deny the truth behind its message:

If you want to be rich, you have to invest your money and make it work for you.

The wealthiest people of the world will tell you that this is what separates 80 percent of the world’s population from the top 20 percent.

While most of us are OK with putting our money in savings accounts in banks, rich people think of ways they can make their money multiply.

But how come most of us would rather earn and simply stash away any excess in a bank?

The reason, in my opinion, is that making your money work for you requires more work. You’ll have to be more disciplined in managing your money.

Also, investing comes with a certain level of risk.

But as the top investors in the world revealed earlier, risks can be minimized. It shouldn’t stop you completely from trying to make your money work for you.

In the “5 Rules of Gold” section from the same book by Clason he shared how we should invest our money:

“Gold slips away from the man who invests it in business or purposes with which he is not familiar or which are not approved by those skilled in its keep”

“Gold flees the man who would force it to impossible earnings or who follows the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment”

The lesson?

Invest in things you understand and know. Don’t fall for investment schemes that sound too good to be true.

And you should begin by learning more about investing. Read and learn all you can about the investment vehicle you’re interested in using.

By doing this, you’re exposing yourself to the tools and opportunities that wealthy people use to build their assets.

More importantly, you’re significantly reducing the levels of risk, simply because you’re learning and grasping everything you can about investing and doing your due diligence before putting down the money.

One last thing: In investing, timing is crucial.

A person who started investing 5 years earlier will yield more in 30 years than the person who invested 50% more but started later.

That’s the power of compound interest.

If you want to know more about the power of compounding and all the various (and totally legit) ways of investing your money, here are good places to start:

7. They build multiple income streams

I just finished watching game 2 of the NBA Eastern Conference Semifinals match between Toronto and Philadelphia.

After the game, the two top scorers from each camp were Kawhi Leonard (Raptors) and Jimmy Butler (Sixers).

If you take a look at how these two play, you’ll notice they don’t have flashy moves or flamboyant playmaking styles.

Yet, they still manage to average a high number of points per game.

How do they do it?

What separates them from the rest (and what makes them the best players on their teams) are the number of ways they can score.

Both players can drive to the hoop, take mid-range jumpers, shoot 3-pointers, and use their body as leverage to make all sorts of high-percentage shots.

And that’s how they score a lot.

In a similar fashion, the rich make a lot of money because they have multiple ways of generating earnings.

First, they invest. They utilize various investment platforms to diversify their allocations.

They leverage tax exemptions by setting up businesses. They have both passive and active income streams. They build up their retirement fund nest egg. They invest in mutual funds and UITF, and all other forms of asset-building strategies.

Some venture into real estate investing. Other prefer getting business franchises. Some find success in setting up an online business.

And so on.

In short, the rich are wealthy because they have multiple sources of income.

They utilize every potential money source because they know that having only one source of income is actually riskier than investing their money.

8. Always look for a good deal

Whether it’s a significant investment or a small purchase, wealthy people strive to get the most out of their money.

Contrary to popular belief, truly wealthy people do not buy stuff simply because they can.

Most of the time, they put their money on things that will provide some form of gain or return.

They are smart in their purchases and investments.

And one of the best ways to be smart on our spending habits is by making sure we’re getting our money’s worth.

To look for a good deal, whether on the things you buy or the investments you venture into.

Bottom line: Be smart with how you allocate your resources. Make sure you will always get some form of upside.

9. Educate yourself about money

It goes without saying that in order to get to the next level of wealth and abundance in our lives, we first need to increase our financial IQ. Here are a few ways you can raise your money-IQ and get the financial education you’ll need:

1. Read everything you can about it

Perhaps the easiest (and most hassle-free) way to expand your knowledge about money.

Read business books, magazines, blogs, listen to audiobooks, watch YouTube videos—utilize every media available to boost your financial IQ.

2. Talk to an expert

Reach out to the pros and people who have significant knowledge and experience in building wealth.

Interested in investing in real estate? Talk to a real estate advisor.

Want to know more about stocks? Chat with a stockbroker or someone who has been investing (and earning) in the stock market.

Personal finance advisors can be a good source of information too, whether via personal coaching or by simply reading their blogs.

3. Attend financial seminars and workshops, join mastermind groups

Join other like-minded peeps on your quest to educate yourself about money.

The act of being together with other people who share the same passion and seek the same knowledge is not only more fun, it ignites your desire to learn and stick to your goals even more.

Their stories will inspire you to keep on and stay focused on building your wealth.

10. Don’t fall into the trap of lifestyle inflation

Remember Kiyosaki’s advice earlier, “It’s not how much money you make, it’s how much you keep”?

Truer words can’t be said when explaining what lifestyle inflation is.

Lifestyle inflation happens when we spend more the moment we earn more.

Along with higher income comes higher expenses. And it happens more often than we care to admit.

The main reason why we start spending more the moment our incomes grow is because of the belief that the additional services, goods, experiences that we can purchase will make us happier.

That can actually be true on some levels, I would even argue that it’s not wrong to give yourself some of the perks that you didn’t have access to previously. You earned it after all.

However—and this is the crucial part—we should be conscious of the changes in our expenses. More importantly, we should be honest with ourselves if these new purchases are worth spending on.

Because if left unchecked, we’ll fall into the trap of lifestyle creep.

Endlessly feeling the need to earn more simply because we’re not aware that we are spending to merely keep up with the trends, to keep the fear of missing out at bay, or to remain relevant within your social groups.

It’s worth repeating that there’s nothing wrong with enjoying the fruits of your hard work.

But just like the disclaimer in beer commercials: “Drink moderately”. Because without moderation in spending, you’ll be trapped in an endless loop of lifestyle inflation.

So how can you avoid lifestyle creep?

Easy—start with the tips mentioned on this list!

And if you want more, here are some guides to check out:

11. Get Expert Help

Sometimes, you just need a helping hand to get your financial stuff sorted out.

Just like how businesses hire accountants to manage their books, the top 1 percent wealthiest people in the world employ the services of various experts for help in managing their wealth.

They hire tax attorneys, business advisors, stock market analysts, financial coaches, and others to get insight in building and protecting their assets.

But don’t let those titles intimidate you. Even regular Joes and Janes like you and I can get access to professional advice.

And thanks to technology, we can easily scour the web for information on people who can give us financial advice.

Of course, it goes without saying that you should do your due diligence when it comes to looking for the right person.

The most important takeaway from this advice is to not hesitate to get professional help in areas on your financial life that you feel needs some guidance.

12. Prepare for the future

Like the latest Marvel movie, retirement living can be thought of as the “Endgame”.

And I don’t mean that in a gloomy sort-of-way. In fact, our lives’ endgame can be a very happy one if we did this one thing:

Prepare.

Perhaps no other tale gets told more often than “Si Langgam at si Tipaklong” (The Ant and the Grasshopper) to kids when explaining the virtue of preparing (and saving) for the future.

We’re all aware of the moral of the story:

Save for tomorrow, save for the rainy days so you can survive when they come.

Even the simple act of saving 10 percent of your income (and preferably putting it on an investment vehicle that performs better than banks) will yield significant returns in the long term (through the power of compound interest).

Here are a few more tips for building your retirement fund:

  • Set retirement goals and start saving
  • Save more when you earn more
  • Diversify your investments
  • Review and keep track of your retirement plan regularly

Getting yourself adequately protected is also a good idea. In a way, you’re ensuring that your loved ones won’t go through much financial difficulty should the unfortunate event happen (knock on wood). That’s why getting life insurance can also be a worthwhile investment.

And there you have it folks, the 12 “secrets” of the rich that we can leverage and apply into our own lives.

We hope you find these tips useful. And we sincerely hope (and wish) that you find your own path towards wealth and success.

What’s your favorite money-saving/financial advice? We’d love to hear your thoughts and share it with others. Let us know in the comments section below!


About Amiel Pineda

Amiel Pineda is the Head of Content at Grit PH. Prior to freelancing full-time, he worked in the financial services industry for nearly a decade. He also writes on his personal blog, Homebased Pinoy, where he shares tips and guides as a work-from-home freelancer.

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