From: alexhormozi
Achieving wealth is not merely about how much money you earn, but fundamentally about the choices you make regarding your spending and saving habits [00:00:26]. Staying poor is a decision, as the average U.S. minimum wage employee will earn over a million dollars in their lifetime, and a median income earner will make $3 million [00:00:16]. The challenge lies in where that money goes [00:00:36].
Deciding to Become Wealthy
The first step to becoming wealthy is to decide that it is within your control and to shift from a victim mindset to a victor mindset [00:02:00]. You must become the most powerful person in your life regarding money [00:02:11].
The Core Principle: Wealth as a Ratio
Wealth is a ratio between what you earn and what you need [00:01:30]. The number one rule of money is to spend less than you make [00:01:35]. This means being very conservative with expenses relative to income [00:01:41].
Six Steps to Transform Your Financial Life
1. The “Buy Nothing” Challenge
This challenge encourages you to buy nothing unnecessary [00:00:40].
- Disconnect credit cards from online shopping platforms [00:00:44].
- Leave your wallet at home [00:00:46].
- Only cover essential fixed costs like gas, insurance, rent, and car payments [00:00:49].
- Buy food at discount grocery stores and pack your lunch [00:00:51]. This austere approach, modeled by the speaker, allows for significant savings, even when earning high income [00:01:00].
2. Eliminating Risky Spending and Debt
A significant portion of American paychecks, about 35%, goes towards paying banks and lenders for debt [00:02:17]. This includes mortgages, car payments, and credit cards [00:02:30]. This debt leverages compounding interest against you [00:02:49].
- Pay off High-Interest Debt: Prioritize paying off debts with high interest rates, especially consumer debt and credit cards (e.g., 24% interest) [00:03:00].
- Psychological Approach to Debt Repayment: Instead of strictly following the logical path of paying off the highest interest first, prioritize paying off the debt you can clear fastest [00:08:52]. This provides quicker wins and reinforces the process [00:09:14].
- Downgrade Vehicles: Get rid of car leases and high car payments [00:12:31]. Buy a cheaper, used car for cash (e.g., 10,000) [00:12:33]. Consider reducing to one car per household to save on convenience costs, which can translate to millions in lost future investment potential [00:13:06].
3. Building Your Emergency Fund
Start by saving an initial emergency fund of 5,000 [00:03:45]. This initial fund helps cover unexpected expenses, which occur about once a month [00:04:05]. Once comfortable, expand this to 3 to 6 months of living expenses, kept in an interest-bearing account (e.g., 5-6% interest) [00:11:45]. This “brick of safety” significantly reduces anxiety and allows you to look beyond paycheck-to-paycheck living, enabling you to identify and pursue opportunities [00:11:57].
4. Optimize Housing Costs
- Renters: Downgrade to the cheapest possible rent [00:19:22].
- Homeowners: If you have an affordable mortgage, consider refinancing if rates are lower, or switch to a 15-year fixed mortgage to pay it off faster [00:19:27]. Living in a cash-paid-for house significantly reduces stress and unlocks earning capacity [00:19:49]. This frees up monthly income for investments in yourself or assets that appreciate over time [00:20:00].
5. Invest Consistently and Continuously Learn
- Automate Investments: Invest 15% of your pre-tax income into appreciating assets like the S&P 500 [00:20:17]. Make it hard to spend and easy to save and invest by setting up automated transfers [00:20:28].
- Invest in Education: Dedicate another 15% of your pre-tax income to education to increase your earning capacity and skills [00:21:04]. Investing in yourself often yields higher returns than passive investments [00:24:22].
- Monitor Accounts Daily: Regularly check your accounts to maintain a pulse on your money—what’s coming in and what’s going out [00:21:42]. This awareness helps you identify areas for savings and profitable expenditures [00:22:04].
6. Increase Earning Capacity and Sacrifice
- Increase Active Income: Take on an extra job or shifts, or offer to do more at your current job to increase your monthly income [00:22:34]. For example, an extra 52 million [00:23:01].
- Embrace Sacrifice: Early stages of wealth creation often involve elimination, not addition [00:16:40]. This means cutting out unnecessary expenses, letting go of unsupportive people, and avoiding showing off [00:16:44]. If you’re unwilling to sacrifice, you won’t become a millionaire [00:16:51].
- Focus on Being Rich, Not Looking Rich: Many desire to “look rich” rather than have actual financial security [00:17:45]. True wealth allows for less stress about money [00:18:39].
“The first 100,000.” [00:18:47]
- The 30x12 Working Challenge: Work 30 days straight, 12 hours a day, without days off [00:26:10]. This challenge reveals your capacity to work harder and dramatically reduce negative spending while increasing positive earning [00:26:49].
By adopting these lifestyle changes, you decrease personal financial risk, allowing you to take bigger, more impactful business risks that lead to significant wealth [00:06:47]. The money you pay in debt is money that someone else is compounding and building wealth with [00:25:27]. The choice is whether that money belongs to you or to banks and their shareholders [00:25:36].