Money

Here's the trick to 'becoming wealthy,' says author who studies millionaires

Getting rich is about more than making a lot of money — it's about managing the money you have.

Tom Corley, author of "Rich Kids: How to Raise Our Children to Be Happy and Successful in Life," has a formula for that. He goes by the 80:20 rule, which suggests that you live off of 80 percent of your paycheck and save the rest.

"It's a simple rule, really," he writes in the book. "[It] requires that you set aside 20 percent of every paycheck and learn to live off the remaining 80 percent. You do this no matter how much money you make.

"If you stick to the 80:20 rule," he adds, "you will save a lot of money and you'll be wealthy long before you reach retirement age."

Corley, an accountant and financial planner, draws conclusions from surveys of 233 wealthy individuals on their daily habits and compares them with 128 lower-earning individuals. "I learned in my five-year study of the rich and the poor that becoming wealthy is not always about how much you make, but how much you keep," Corley tells CNBC Make It.

When it comes to your spending, Corley has a few suggestions:

  • Don't spend more than 25 percent of your monthly net pay on housing. It doesn't matter if you own or rent.
  • Don't spend more than 10 percent of your monthly net pay on entertainment. This includes movies, restaurants and bars. To cut costs, cancel your subscriptions to unused streaming services or magazines. And, if you're headed out, have a meal or glass of wine at home to avoid overspending on both dinner and drinks.
  • Don't spend more than 5 percent of your monthly net pay on auto loans, and never lease. Buy your cars and take good care of them.
  • Stay away from accumulating credit card debt. If you are doing this, it means you are living beyond your means and need to cut back.
  • Always invest your savings. Never gamble your savings on get-rich-quick schemes. The power of compounding interest can grow your savings and help make you wealthy.
  • When you start working, max out your contributions to the company pension plan, if they allow it.
  • Know what you spend every month. Create a monthly budget and track what you spend.

With his budget, this customer service rep paid off $30,000 in student loan debt in one year. With their budget, this couple is trying to pay $600,000 in five years.

It can also help to try automating your savings so that money transfers directly from your paycheck into an interest-earning account.

Saving is one of the most important aspects of budgeting and managing money, Corley says. But if you can't stash away 20 percent of what you earn, that's OK.

"Save 10 percent, or 5 percent, or 1 percent," Corley tells CNBC Make It. "The point is to get into the habit of saving money. You can always increase the percentage of savings down the road."

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