How Money Makes Money? What is Warren Buffett 7-3-2 Rule?

The salary of middle-class people is like sand in a fist. The tighter you try to hold it, the faster it slips away. As soon as the salary comes into the account, first you remember the EMI. Then you remember the rent. Electricity bill, internet bill, petrol expenses, the Netflix subscription, and then suddenly some wedding, some medical expense, or some emergency comes up. In the middle of the month, only one question keeps going round and round. When will the next salary come? We work hard. We toil day and night. We give extra time in the office. But money never works for us. We earn money and the money quietly leaves us. But is this life, or is there also a way out of it? Today we will understand in depth how money makes money. What is this 7-3-2 rule and why does the world's biggest investor, Warren Buffett, consider only one thing as the secret of his wealth? Compounding. Read this post till the end, because maybe after today, your thinking about money will change forever.

What is Warren Buffett 7-3-2 Rule

The Story Of Vijay, Shubham And Akash

The story starts with three friends - Vijay, Shubham and Akash. All three grew up in a small town. Where evenings came early, shops closed early, and dreams often remained limited within the four walls of the house. There, people considered a job to be the biggest achievement. If you get a government job, your life is set, that was the thinking. But these three had something else going on in their minds.
In the final year of college, when everyone else was confused about their future, these three used to sit on the hostel terrace late at night and talk. The topic of conversation was always the same - we have to become rich. Not just do a job, not just manage the monthly expenses, but do something big. All three had an engineering degree. After 4 years of study, practicals, exams, projects, and the tension of placements. Now they had that paper in their hands, which in the eyes of society made them settled. But for them, that degree was not the destination, it was just a ticket, a ticket to go to Mumbai.

Mumbai, the city of dreams, where every second person has come to become something, where there is a lot of crowd, but there are even more opportunities. When all three reached Mumbai for the first time, they were scared for a moment seeing the crowd at the station. So many people, so much hustle, such a fast life, but in that same crowd they also saw their future. They felt if lakhs of people can become something here, then why can't we? The dream of all three was the same - to become rich. But their thinking, their perspective was completely different. Vijay was always the most excited and enthusiastic boy in the group. In college too, if something new came, he was the first to try it. For him, the meaning of life was experience. He used to say, what is the use of earning money if you cannot enjoy life. He felt that young age will not come again. We have to travel now, we have to be seen now, we have to live now. In his eyes, becoming rich meant a good lifestyle. Branded clothes, new phones, a social circle and a different status among people. He believed that when he starts earning, gradually everything will be set. We will save later, we will invest later. Right now, we have to live life.

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On the other hand, there was Shubham, calm, thoughtful, who understood everything in depth. In college too, when others used to talk about salary packages, he used to ask how many years will the company survive? When others used to make plans to buy a bike, he used to ask that if the same money is invested somewhere else, how much return will it give after 10 years. He was always interested in land, property, and infrastructure development. Whenever a new mall or building was built in the city, he used to read about it. He wanted to understand how cities grow and where the real money comes from. For him, becoming rich meant creating assets. Creating things that would work for him day and night even while he sleeps. And when after 5 years the price of that land tripled, then he understood that real peace is not in seeing the bank balance notification, but in passive income coming in.

And there was the third friend, Akash. He was neither showing off like Vijay nor buying land like Shubham. Akash's entire focus was on only one thing. System and compounding. Since childhood, Akash knew that if you want to become rich, you have to make maths your best friend. He grabbed Warren Buffett's rule that compounding is the eighth wonder of the world. Akash would put a fixed part of his salary, no matter what, without any emotion, on the first date of every month into good companies' stocks and mutual funds through SIP. When the market crashed and the whole world panicked and sold their shares, Vijay was scared, but Akash was happy because he knew that now the same shares are available at cheap prices in more quantity. Akash never showed off in his whole life. Even today he lives in his old phone and simple clothes. But inside, his money was preparing an army in the stock market that was working for him day and night without getting tired.

So now the question comes, what do we finally learn from the story of these three? Why even today 90% of people remain stuck in the rat race for their whole life and the remaining 10% of people achieve financial freedom and become free?

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7-3-2 Rule of Wealth Building

The answer is hidden in a very powerful formula which we call The 7-3-2 Rule of Wealth Building. There are three most important pillars of this rule. The first pillar is the 70% Rule. Use a maximum 70% of your total monthly income only for your basic living expenses, household expenses, rent and bills. If your expense is going above this, then understand that you are directly trapped in the dangerous trap of lifestyle inflation. The second biggest pillar is the 30% Rule. The remaining minimum 30% of your income should go directly into assets that give you returns. Like stocks, mutual funds, real estate, or your own business. This is the same money which will compound further and make you rich. And the third and most critical pillar is the 2 Years Emergency Fund. Always keep at least 2 years of your basic expenses safely in a separate liquid savings account or FD, so that if suddenly you lose your job or a health emergency comes, you don't have to extend your hand in front of anyone or take a high-interest loan.

Warren Buffett said a very wonderful thing, "If you buy things you do not need, soon you will have to sell things you need."

Vijay did exactly the opposite of this line. He first bought everything that he did not need at all and later he had to sell everything that was most important to him. Vijay spent first and got trapped in golden chains for his whole life.
Shubham created smart real estate assets and achieved financial stability, and Akash created a foolproof financial system and achieved real freedom by using the world's biggest power, compounding. Now the decision is completely in your hands, whether you want to show off like Vijay and wear golden chains, or think like Shubham and Akash and achieve real financial freedom. Think, understand, and change your money system today.