Ramit Sethi Says This Is Essential if You Want to Live a Rich Life

Living a rich life is a good goal when it comes to managing your money. After all, the point of working hard isn't just to have a big bank account balance -- it's to accomplish financial goals that are important to you and do things with your hard-earned cash that make you happier throughout your life.

It's difficult to figure out how to live a rich life, though. If you aren't sure how to make that happen for yourself, this advice from Ramit Sethi can help.

Here's what Sethi says is necessary for a rich life

According to Sethi, there's one key thing you must do if you want to live a rich life. "To live a Rich Life, we have to know what we value," Sethi said. "You intuitively know this. It's the area of life where you'd happily spend more."

But, he explained that while many people may think casually about the areas where they would increase their spending if they could, they never really take the time to consider what this would actually look like.

"Most of us have never actually thought about what spending more would look and feel like. We never get specific," he explained in a tweet.

Sethi thinks this is a problem because many people focus on making a budget and depriving themselves or setting restrictions when it comes to managing their money, rather than figuring out how to spend consciously to make the most of their hard-earned funds without jeopardizing long-term security.

How to make a plan for a rich life

Sethi is absolutely right to stress the importance of using your money in a way that brings you the most happiness -- and to focus on this, rather than just on things you can cut out of your life. If you want to find a balance so you end up with plenty of cash in your brokerage account and so you get to enjoy life now, the key is to take care of the essentials first and then be conscious about where you want the rest of your cash to go.

I've actually done this personally -- and here's how I made it happen.

First, I set some hard-and-fast money rules to make sure I didn't end up off track from my long-term financial goals. These included:

• Avoiding high-interest consumer debt so my money isn't sucked away in interest costs.
• Keeping my housing costs below 25% of my income.
• Saving 20% of my income.
• Automating my savings so it goes where it needs to each month, and setting up autopay on my credit cards to ensure they're always paid in full.

After that, everything left over was mine to spend. Then, the key was to decide where to spend it. For me, I wanted to increase the amount of time I spend traveling, so I actually tripled my travel budget. In order to make that happen, I also thought about what I didn't value as much.

For instance, since I work from home, I don't really care very much about clothes at all. I decided to change where I buy my clothing to a less expensive store, to cut the amount of new clothes I buy in half, and to primarily start shopping at secondhand stores for clothes for my kids since they outgrow things quickly. This ended up freeing up about $2,000 dollars a year -- enough to fund an extra vacation.

I didn't have many other things I wanted to cut from my spending since I was already being pretty reasonable with most things -- and I wanted to make my life rich, not feel poor and deprived by stripping every last luxury from my budget. So I opted to try to increase my income to come up with the rest of the money I needed. I committed to working an extra few hours a week in order to fund two additional vacations a year.

Now that my spending is done more consciously, I don't have to stress about money because I know it's going where it should and I get to take more awesome trips.

You may find if you tweak spending on things you don't care about, you can actually spend the amount you wish to on the things that matter the most. If you do, you'll be able to live your rich life simply by allocating your money smartly. And if you still fall a little short, this can create the incentive to increase your income so you can hit your target number -- so that rich life can become yours to enjoy.