What’s the definition of rich? More specifically, how should someone making a middle-class income—somewhere between $50,000 to $100,000 a year and living paycheck to paycheck—define being rich? And what can they do to get there? Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free In a recent BiggerPockets Money Show podcast episode, host and BiggerPockets CEO Scott Trench asked personal finance guru Ramit Sethi just that. Here’s how Sethi responded and what he thinks middle-class Americans stand to gain by following his personal finance advice. Related: BiggerPockets Money Podcast 73: Ramit Sethi Will Teach You to Be Rich! How to Improve Your Personal Finances First off, if you’re living paycheck to paycheck, you need to get out of that cycle. I have something called the CEO strategy, which stands for cutting costs (and I don’t mean on lattes—I mean on big areas), earning more (such as negotiating your salary), and optimizing your spending. 1. If you aren’t saving money, start immediately. Even for people who are living paycheck to paycheck, start putting aside some savings every month. It doesn’t matter if it’s $20, $200, or $2,000. Most people’s objection will be, “There’s no way I can cut back any more.” I ask them what they’ve tried. They’ll probably say I try to eat out less, maybe I could cancel my phone service. Not much thought has gone into it. Call subscriptions and use the scripts in my book to negotiate fees down. Those fees accumulate. It’s doesn’t equate to $10 a month; it’s much more over the course of a year. So before you can look ahead at financial independence, I would say you first need to be saving some money every month. 2. Enjoy your lattes, but cut back on spending. To save more money, I really like to be conservative on the big items. I have what I call the “tripod of stability.” I want to be stable in three areas, those being my primary residence, my employment, and my relationships. I moved to New York 10 years ago. I’ve lived in the same apartment ever since, despite my net worth increasing. My computer is seven years old. It may sound like an airplane, but it works. Being conservative in those areas allows me to be very risk-seeking in others. It allows me to invest aggressively, take risks with my business, and splurge on things I love. I would say that if most people followed a few simple formulas when it came to their spending, they would be in really good shape. Related: Living Frugally vs. Spending on What Matters: How I Achieve a Happy Medium 3. Create a cash emergency fund, and avoid any kind of debt. Here are some simple formulas I have. I want a one-year emergency fund in cash. I want to have a no-debt policy overall. If I do use debt, it would be for a house, and I would start with a down payment of 20 percent—minimum. I have several other rules that I use that are very, very conservative. If you follow the advice that you shouldn’t spend more than 28 percent of your pay for your housing, you’re going to be in a good conservative position. But what happens is most people overspend on the big things. They forget to account for phantom costs. And then they wake up one day and wonder where all their money is. The money they can’t find they spent six years ago on a poor decision. 4. Average is acceptable (if not preferable) when it comes to investing. But just because I’ve created a large cash cushion for myself doesn’t mean I’m aggressive when it comes to investing. You should actually have kind of a backwards bending curve. If you start out when you’re young, you’re slightly more risk-seeking. There’s a new billboard going around New York. It says, “Be Better Than Average.” It’s complete B.S. You should actually be average and be happy with it. I want to have a better than average relationship. I want a better than average bicep. But when it comes to investing, you should be really happy with average, with 8 percent returns. The real problem comes when you go after 18 percent and years later realize you really weren’t as smart as you thought. So the backwards bending part happens as you become wealthier. At that point, you actually cut down on your risk. There’s a great story about Suze Orman. She recommends people have simple index funds, etc. A reporter from The New York Times asked her how much she has. She said about $25 million. Then they asked her where she invests it. She said she puts a million in the market and all the rest in bonds. Everyone in the personal finance community was outraged. Why would Suze Orman tell everyone to put their money in bonds?! Well, Suze Orman has 24 million more reasons than you to put her money in bonds. She already won the game of personal finance. So once you win the game, you don’t have to compete at the same growth level as other people. Therefore, I’m risk-seeking in my business, but in my investments, I have a very stable, roughly 70/30 portfolio. I wouldn’t call it aggressive; I wouldn’t call it conservative. It’s maybe slightly aggressive—or average. It should be average! How else could you cut back on expenses relatively painlessly? If you’re investing, have you considered whether you’re doing so too aggressively? Comment below!