Ramit Sethi: Stop Saving and Do These 5 Things Instead To Build Wealth
Written by
J. Arky
Edited by
Cory Dudak
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Financial influencer Ramit Sethi has built a career on teaching people how to grow their money. In a new Youtube video, Sethi had some tough love lessons to share — namely, saving money will not make you rich. It’s not that we should go out and spend every dollar in our account, but rather, Sethi debunked the old notion that if you just save all your money, one day you will find yourself to have amassed a fortune.
There are only so many costs you can cut from your life, and saving money can only go so far. Instead, Sethi recommended doing these five things to build wealth.
Invest Your Money
Right off the bat, Sethi got to the point: you can try to save up all your money in a traditional savings account, only to end up spinning your wheels (financially speaking) or worse — going broke.
Sethi compared the growth of someone who saves $1,000 each month against a person who invests that same amount in the stock market, which historically earns 7% per year after inflation. Thirty years later, the savings account has only grown to $383,092 while the investment has reached $1,176,064.
The big takeaway: invest your money instead of saving it using tools that allow you to set up how much you want to put into your investments, then watching them grow over time.
Fight Inflation With Interest
Do you think your money is safe in savings? Sethi pointed out how it is not due to inflation. “Every dollar in your savings account is worth less every year,” Sethi highlighted, citing that just last year, the inflation rate was at 2.9%.
With a typical savings account, the average interest rate is about 0.41%, meaning there is almost no way for your money to expand against inflation. So while your bank is paying you interest on your account, inflation is taking more purchasing power away from you.
Sign Up for 401(k) Match
If you have an employer that offers a 401(k) match, take it. In Sethi’s words, not taking it means you are “literally leaving money on the table.” Sethi described that a 401(k) match is the best return on investment you will ever get because whatever you put into it, your employer will match — doubling your money.
Get a Roth IRA
According to Sethi, a Roth IRA is one of the most powerful investing accounts available to you. That’s because the money you put into the account is tax-free after the first year. So, once you have your Roth IRA set up, you pay those taxes in the first year, and everything afterwards is pure growth that goes to expand your wealth.
Look at Target Date Funds
Sethi encouraged everyone to start checking out Target Date Funds (TDF). “Once you put money into your retirement accounts, you actually have to buy investments, otherwise it is just sitting there,” explained Sethi. On the other hand, the average person should not be picking stocks on their own, but rather investing in low-cost TDFs that will do all the work for you.
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Sources
- I Will Teach You To Be Rich (YouTube channel), “Saving Every Penny? You’re Doing It Wrong“
