Ramit Sethi: 5 Steps To Simplify Your Finances
Written by
Heather Altamirano
Edited by
Daria Uhlig
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Learning how to manage your money and prepare for retirement takes commitment and discipline, and it’s easy to get off track even with clear goals. That’s why New York Times bestselling author Ramit Sethi, host of Netflix’s “How to Get Rich” and the hit “I Will Teach You To Be Rich” podcast, says that simplifying your finances is key.
“Always fight for simplicity,” he wrote in an Instagram post. “The more complex your financial system is, the more likely things can go wrong.”
In a newsletter the financial expert sent on August 20th, Sethi revealed the following simplification strategy to help you manage your money and build wealth.
Two Credit Cards
While some financial experts, like Dave Ramsey and Mark Cuban, strongly oppose using credit cards, Sethi disagrees. He encourages responsible usage and wants people to take advantage of perks such as waived fees and free flights and hotel stays.
Sethi primarily uses just two credit cards:
- Fidelity 2% Cash Back card, which gives 2% cash back on all purchases
- Chase Sapphire Reserve card, which he noted has great travel rewards
One Checking and One Savings Account Only
Some people have multiple accounts for various reasons. According to Sethi one checking and one savings account are all you need to keep track of funds, set up automatic transfers between accounts and link credit cards to your accounts to pay the monthly balances.
In the Instagram post mentioned above, he emphasized keeping your system simple and automating your money.
“You should be spending less than one hour a month managing your money…and the rest of your time outside of the spreadsheet, living your life,” he wrote.
Simple Investments
Sethi has grown his wealth in various ways, including with simple investments.
“You’ve got to invest 10% of your salary every year,” he told CNBC Make It. “And at the end of the year, increase that by 1%. Do this for as long as you can, and you will be a multimillionaire.”
To get started investing, Sethi recommends contributing to your 401(k), opening a Roth IRA, putting money into a health savings account (if you’re eligible) and opening a non-retirement investing account.
“Investing is the single most effective way to get rich,” he wrote in a recent blog post. “But many of you mistakenly believe that investing is something complex and fancy, requiring a huge chunk of your time. It doesn’t have to be!”
Pick One to Two Areas to Spend More On
The next step in making your finances manageable, according to Sethi, is to understand what you love to spend money on.
In a blog post, he explained that spending categories like travel, relationships, fashion and fitness are “money dials” that can be tuned up or down.
“Money dials are an easy way to diagnose what you claim is important vs. what is actually important. In a nutshell, your money dials are the things that you are willing to spend extravagantly on by cutting back mercilessly on the things you don’t care about. They’re a necessary part of living your Rich Life. “
Cut Back on the Rest
Making a budget can be challenging when cutting expenses. But if you follow Sethi’s suggestion to dial up your priorities — the things you want to spend extravagantly on — the things you don’t care about become clear. Either reduce your spending on these items or eliminate them entirely.
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