The path to building wealth isn’t a secret—it’s a set of proven principles that wealthy individuals consistently follow. While these rules might seem simple, they require discipline and long-term commitment.
Let’s explore these seven crucial financial rules that separate self-made millionaires from those struggling financially.
Here are the seven financial rules the rich follow to build their wealth that broke people ignore:
1. Buy Assets That Make Money, Not Things That Cost Money
The fundamental difference between building wealth and staying broke is understanding assets versus liabilities. Wealthy individuals prioritize purchasing things that put money in their pockets—like stocks, real estate, and businesses—rather than items that drain their financial resources. Warren Buffett exemplifies this principle through his value investing strategy, focusing on companies with strong fundamentals and sustainable competitive advantages.
When considering a purchase, wealthy people ask themselves: “Will this generate income or cost me money?” A rental property can provide monthly income and appreciation over time, while a luxury car typically loses value and requires ongoing maintenance.
Starting small is key—even beginning with dividend-paying stocks or a small rental unit can build momentum toward more significant income-producing investments.
Successful investors often start with low-cost index funds, which provide broad market exposure and minimize risk through diversification. As their knowledge and capital grow, they might expand into direct real estate investments or business ownership. The key is to focus on assets that generate positive cash flow or have strong appreciation potential.
2. Live Below Your Means, Even When Your Income Grows
Warren Buffett, one of the world’s wealthiest individuals, still lives in the house he bought in 1958 for $31,500. This exemplifies a crucial principle: wealth is built not by displaying success but by quietly accumulating it. As income grows, wealthy individuals resist increasing their spending proportionally.
Lifestyle inflation—the tendency to spend more as you earn more—is one of the biggest obstacles to building wealth. The rich understand that it’s not about how much you make but how much you keep and invest. They maintain a substantial gap between income and expenses, directing the difference toward investments and wealth-building opportunities.
Many wealthy individuals follow the 50/30/20 budgeting principle, allocating 50% of income to necessities, 30% to discretionary spending, and at least 20% to savings and investments. As their income increases, they maintain or reduce the percentage allocated to spending while increasing their investment percentage.
3. Focus on Growing Your Income, Not Just Cutting Expenses
While controlling expenses is essential, wealthy individuals emphasize increasing their earning potential. They understand there’s a limit to how much you can cut costs, but income potential is unlimited. They invest in themselves through education, skill development, and pursuing multiple income streams.
Many wealthy people develop side businesses or invest in opportunities that generate passive income. They view their skills and knowledge as valuable assets that can be leveraged to create additional revenue streams. Instead of solely focusing on saving a few dollars here and there, they look for ways to earn hundreds or thousands more.
This might involve negotiating for better salaries, developing specialized skills that command higher pay, or creating scalable business models. They often reinvest early profits into growth opportunities rather than personal consumption.
4. Make Financial Education a Lifelong Priority
Wealthy individuals treat financial education as an ongoing investment. They stay informed about investment strategies, tax laws, and economic trends. They often build relationships with financial advisors, tax professionals, and other experts who can provide valuable insights and guidance.
Understanding basic investment principles, tax strategies, and wealth preservation techniques isn’t optional—it’s essential. The wealthy regularly read financial publications, attend seminars, and seek mentorship from those who’ve achieved the success they desire. They view financial knowledge as a tool for making informed decisions and avoiding costly mistakes.
This education extends beyond traditional investment knowledge to understand business cycles, market psychology, and risk management. They recognize that markets and economic conditions change, requiring continuous learning and adaptation.
5. Automate Your Wealth Building and Pay Yourself First
Successful wealth builders remove emotion and chance from their financial decisions through automation. They set up systematic investment plans that automatically direct money to various investment accounts before they have a chance to spend it. This “pay yourself first” approach ensures consistent wealth building regardless of other financial demands.
Wealthy individuals make saving and investing non-negotiable by automating contributions to retirement accounts, investment portfolios, and emergency funds. They understand that waiting to invest whatever is “leftover” at the end of the month often results in nothing being invested.
These automated systems often include regular contributions to tax-advantaged accounts like 401(k)s, IRAs, and after-tax investment accounts. They might also automatically rebalance portfolios and reinvest dividends to maintain their desired asset allocation.
6. Use Debt as a Tool for Building Wealth, Not Funding Luxuries
The wealthy view debt as a potential lever for building wealth, not a means to afford luxuries. They distinguish between good debt—like a mortgage on a rental property that generates income—and bad debt, such as high-interest credit card balances for consumer purchases.
Strategic debt use can accelerate wealth building when used to acquire assets that appreciate or generate income. However, wealthy individuals are careful to maintain favorable debt-to-income ratios and avoid overleveraging themselves, ensuring they can weather economic downturns.
They often use strategies like debt recycling and converting non-deductible personal debt into deductible investment debt. This approach requires careful planning and risk management but can enhance investment returns when done correctly.
7. Protect Your Wealth With a Strong Emergency Fund and Insurance
Building wealth is only half the equation—protecting it is equally important. Wealthy individuals maintain substantial emergency funds to avoid liquidating investments during unexpected circumstances. They also ensure comprehensive insurance coverage to protect their assets and income-generating ability.
A robust emergency fund typically covers six to twelve months of expenses, providing a buffer against income disruption or unexpected costs. Proper insurance coverage—including life, disability, liability, and property insurance—protects against potential financial catastrophes that could derail wealth-building efforts.
Beyond basic insurance, many wealthy individuals implement asset protection strategies through legal structures like trusts, corporations, and LLCs. They regularly review and update their estate plans to ensure their wealth is preserved and transferred efficiently to future generations.
Conclusion
These financial rules aren’t complex, but they require consistency and discipline to implement. The key difference between those who build wealth and those who don’t often comes from daily decisions and long-term habits.
By following these principles, anyone can build wealth, regardless of their starting point. Success in building wealth isn’t about making perfect decisions—it’s about making good decisions consistently over time.
The path to financial success begins with adopting these proven principles and maintaining the discipline to follow them through market cycles and life changes. Start with one principle at a time, build strong habits, and gradually incorporate all seven rules into your financial life.