How to get rich as student – follow 4 simple rules

Let me tell you about four rules I follow towards my money. I wrote these rules to help everyone get some essential habits toward their income and capital.

Sometimes the hardest thing about investing is getting money for investing. Without having at least a few hundred Euro, it is harder to invest in something. In this post, I will write about my rules, which help me to get this budget ready.

More important than following those rules into details is the habit of doing them and have them in mind.

1) Expenses < Income

4) Diversification

1) Expenses < Income

My expenses should always be less than my income. Spending less than I earn means I should have no debt. I always follow this ‘easy’ rule:

If I made X Euro last month, I try never to spend more than X Euro the following month.

It is not a problem on paycheck day, but with the following days, it gets harder and harder.

To help myself keep to this rule, I look at my income from a shorter period. Not month to month, but most of the time from the day-to-day or week-to-week period. I subtract my expected costs like rent, food, and regular bills from my paycheck. And the number I will get I will divide between days to the next paycheck. Finally, I will get the amount I can spend every day.

Example

Imagine your income is €1000 this month and your rent is €400/month, for food you spent on average €200/month and for other costs you have to pay €100/month. You would take what will rest = €300 (€1000(income) – €400(rent) – €200(food) – €100(other) = €300) and divide it by 30 (days to next paycheck) -> it makes €300/30days = €10 to spend every day on average. 

If I need to make a one-time purchase of something more expensive I look ‘further’ to week income – it means I can spend today €30 on something, because I expect I will not buy that item again for next two days that makes the total cost of €10 per day.

If it costs even more, like €300, I look at my monthly income and do the same. I can put this expense into two months, then I know I can those two months spend only €5 per day. If I use that item of purchase longer, I can spread this expense even in a more extended period. That will give me a bigger daily budget.

But I would never take a loan for such a thing! If I would need a loan, it simply means I can’t afford it. Even if there is a 99% chance, I will get my salary tomorrow. I will reconsider if I need a loan. The need for more money should motivate me to find out about some new ways how to make them on my own, not spend someone else’s money.

This simple rule tells me what I can afford and what I can’t afford. (Yes, I can’t afford everything… yet ;)). Just switch between periods of the purchase. If it is something that you will use for one day or something, you will be using the next five years and take it into account.

How long will I use it?

To put it in other words. I always ask myself:

How long will I use the object of a purchase?

For example, If I want the new iPhone for €1000, I would have to save for about four months, but I can use the iPhone for more than 3-4 years. The question is – Does it worth it, to spend those four months on nothing else, just one phone? For me, personally not. I could buy simply a cheaper phone, and most of this money invest in something else.

I know that by investing this money, I will be able later in time to buy this phone purely by passive income I will receive then, without lowering my comfort. If it is four months of my passive income, I will have no problem buying one iPhone, because my active income will be intact and passive will still flow into my pocket.

Therefore, I spend less on unnecessary consumer goods, and the difference I manage to save every day will usually become the money for future investments and my freedom.

2) Put 10% of income away for ‘bad times’

The day I get my salary before I can spend that money on something else, I put 10% to the exclusive account made just for one purpose – this money is not for spending or investing, only my private insurance account.

I always think about this money as throwing them away and burning them, so I don’t touch them at all. Also, because of this, I may cheat a bit and lower that money I ‘burn’ down to 5% if I need more money the next month. But I always put away something small, that I will not miss in the following month and to keep this habit.

What is this money good for if I don’t ever touch them?

This money is my ‘last life reserve,‘ and I’m trying not to touch them or at least not to go with this budget under my three months of income.

The idea behind this is that if something, unfortunately, happened to me, I don’t have to be in more stress, and I can use this money to keep me safe. Life is full of unexpected events, and one may never know what disease or physical disability may happen to one or when something happens to one’s home like flood, tornado, or robbery. I will use this money at that time, so I don’t have much to worry about, and my life can, more or less, continue as usual.

If I will be lucky and won’t need this money, I can use this money for a downpayment and buy some Real Estate with them and rent the property. That will be a potent usage of those savings.

Another usage of this money is after I reach my three months income level, I can buy some golden bricks with this money to diversify my savings. No matter what I would do with this money, I would always keep at least three months of income in that account to be ready for unexpected.

3) Put 20% of income away for investments

I try to put somewhere around 30% (not just 20%) of my money away and build my ‘investment money’ as I mentioned in the first rule. When ‘investment money’ in my saving account hits:

• About €600, I usually buy some shares or ETF.

• About €100, I send them to P2P.

• About €50, I buy some Cryptocurrencies.

This proportion I find entirely rational in the long term – having around 5% of my money in Cryptocurrencies, then roughly 15% in P2P and rest in the stock market. In a short time, it can vary, depending on the market situation.

Whether my salary is not enough to invest some months or I don’t want to invest all of my money that left after each month (for example, when I save for something else), that 20% is what I try to put away at least. It is easy to get used to it, and it helps to move towards financial freedom. Not much shortcut is here possible. The more, the better.

Does it mean I always put at least 25% of my net salary away for investments and bad times?

4) Diversification

Diversification is crucial for me. I’m cautious where I put and keep my money. It is essential to diversify not just in platforms, but also different options in each platform. For example, in the stock market, I don’t seek only for different stocks but for different sectors as well as it gives me more safety if one of the industries goes down.

What is diversification?

Diversification answers for the following question:

If X will not exist tomorrow anymore, will I feel it in my finance?

In place of X, you may put anything, like the company name (Apple, Mintos, Google) or state name (USA, China) or sector name (Technology, Finance, Healthcare). The better idea you will have, the better the diversification you should achieve. If the answer to that question is ‘yes, I will feel it,’ then I’m not doing diversification properly. If the answer is ‘no, not significantly,’ then I may be calmer about my situation.

As I would get more productive, I think it is wise to keep money in different currencies and perhaps two banks either. If some economy or bank collapses, I will still have a Dolar or Euro to spend. Diversification is also one of the reasons I buy Cryptocurrencies or invest in gold.