Financial Expert Ramit Sethi: Here’s How To Live a Rich Life
Ramit Sethi is a renegade in the world of money coaching, most of which is geared toward restriction — depriving yourself of small pleasures like lattes and take-out to slowly build wealth that doesn’t materialize until you’re too old to enjoy it.
Sethi swims against the current. His approach is based on making big moves that let you live a rich life both now and later.
In Sethi’s words, “A $5 coffee is not going to change your financial life. But learning how to automatically invest, how to select the right asset allocation and how to negotiate a $15,000 raise will. I believe in asking $30,000 questions, not $3 questions.”
His central thesis is that money isn’t about math. It’s about psychology — and that psychology is what has earned him tens of thousands of followers, a New York Times bestselling book, a Netflix show, a top-rated podcast and the status as one of the country’s most trusted money coaches.
Also see how to stay rich once you get there.
What Does It Mean To Be Rich?
Sethi’s approach starts with identifying what, exactly, a rich life looks like to you.
For some, it might be the cliche stuff like yachts and VIP access to exclusive clubs. But for others, a rich life might mean taking your kids to and from school every day, traveling a few weeks per year or saying “yes” without worrying when your friends invite you to dinner.
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“Start with my Money Dials exercise,” Sethi told GOBankingRates. “What do you love spending money on?”
He refers to the 10 pleasure-based spending categories that get most people excited — and you can tune each one up or down just like a dial to match your ideal of a rich life:
- Convenience
- Travel
- Health and fitness
- Experiences
- Freedom
- Relationships
- Generosity
- Luxury
- Social status
- Self-improvement
To begin conceptualizing your idea of a rich life, identify the dials you want to turn up.
“The most common answers are eating out, travel, health and wellness and convenience,” Sethi said. “If you could quadruple your spending on that area, what would it look and feel like? The goal is to connect your money with your rich life. Most of us have been taught that money is always about restriction, but money should actually be used to say yes to the things you love.”
OK, I’m All Dialed In — What Now?
Conceptualizing your rich life is the easy part; but, unless you’re making big bucks, how do you turn up your preferred dials?
“Living a rich life is, of course, easier with a high income,” Sethi said. “But the fundamentals are the same.”
Those fundamentals are based on the four key numbers from Sethi’s Conscious Spending Plan:
- Fixed costs (including housing, cars, utilities and loans): 50% to 60% of take-home pay
- Savings: 5% to 10%
- Investments: 10%
- Guilt-free spending: 20% to 35%
Sethi said, “These will help you get a bird’s-eye view of your numbers and help you reallocate your money.”
Forget About Saving for Some Day
Most money coaching involves sacrificing during your earning years so you can retire securely in old age — and maybe finally get to take that Alaskan cruise. Sethi’s philosophy is that you don’t have to choose between living well now and enjoying security in retirement.
“You should live a rich life today and tomorrow,” Sethi said. “I don’t love the idea that you should save on everything now so you can eventually live your ‘real’ life tomorrow. People get sick. People have to take care of their families. Most of all, if you wait until some magical day to spend your money, you will lack the skills to spend your money.”
Sethi’s system allows you to enjoy a rich life both now and later by building balance into your spending plan by implementing the following concepts:
- For every dial you turn up, turn another down: If you love lattes, buy them whenever you want — but compensate by being ruthless in dialing back on the spending that doesn’t bring joy.
- Shoot for 85%: In school, 85% puts you in B+ territory — likewise for your finances. Don’t get discouraged if your spending plan isn’t perfect. Expect mistakes and strive to get 85% of the way to your goals. The key is to get started now.
- Keep your investments boring, stable and profitable over the long term: You must invest consistently to guarantee future financial security, but focus on enjoying your money now, not building wealth for later. Investing doesn’t have to be complicated. Every hour you spend researching and checking your returns is one you don’t spend enjoying your money dial of choice.
- Don’t make excuses: The “I’m not good with money” state of mind can sink your rich life before you even start living it. No one is going to swoop in and rescue you — just as it’s your rich life to live, it’s your rich life to build.
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