Ramit Sethi: How To Change Your Money Management When You Start Earning $100K per Year
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John Schmoll
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Amber Barkley
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Best-selling author Ramit Sethi has helped millions of Americans to get their finances in order to pursue wealth. Sethi had humble beginnings, but he used prudence to amass riches. In a recent YouTube video, the financial guru argued that the strategies needed to build wealth change depending on income level.
Here’s how Sethi recommends managing your money when earning at least $100,000 and how that differs from earning $35,000 to $75,000 annually.
Determine What Rich Means to You
Rich is a relative term, but it’s understandable for Americans at this level to ponder what it means to them. Unfortunately, it’s something that plagues many Americans earning over $100,000 a year. Nearly half of Americans earning six figures lived paycheck-to-paycheck as of 2024, according to PYMTS Intelligence.
“A lot of high-income people are terrible at defining at what they want to do with their money; how to live their rich life,” said Sethi.
The key to solving this is knowing what you want.
“Defining your rich life suddenly makes all your money have a purpose,” said Sethi.
He said not to simply overspend, but to identify what you want to do with your wealth and attack it. That can range from luxurious travel to being incredibly charitable — whatever gives your resources purpose.
Employ Math
Sethi argued the importance of using math to guide decisions for Americans earning over $100,000 annually.
Financial Advisor Fees
Hiring a financial advisor, for example, can seem like the right thing to do at this income level. However, paying a 1% fee for this outsourcing seems insignificant, but it adds up, according to Sethi.
“Let’s just say you have $100,000 in your portfolio, and you’re earning an average 7% real annual return. Over 30 years, here’s what happens: If you paid no fee, your $100,000 would grow to $761,000, but if you’re paying a 1% fee, that $100,000 grows to only $574,000,” said Sethi.
That’s a difference of $186,000 — or 25% of your returns. Hiring an advisor may be right for some needs, but Sethi recommended an hourly or flat-fee advisor.
The Cost of Homeownership
The same is true for homeownership. Buying a house is part of the American Dream, but in doing the math, if it sacrifices opportunities to move for a higher-earning job or you won’t be in the house long enough, it can cost you more than it’s worth.
Don’t Manage Your Money Blind
Running the math is vital for Americans earning over $100,000 annually. You want to live your life, not blindly following what you think should be done.
“This is why I want you to understand the math, because it will change what you decide what to do with your money. Your rich life is yours,” said Sethi.
Applying this wisdom is key for six-figure income earners to maximize their resources.
How Money Management Differs for $35K and $75K Annual Earners
The key strategy for $35,000 earners, according to Sethi, is to achieve breathing room in the form of growing an emergency fund.
He explained that earning $35,000 annually gives you roughly $2,500 monthly after taxes. With the average rent currently over $1,800, according to Zillow, this leaves minimal wiggle room.
“If you are in this situation, the first and most important step is to save at least 5% to 10% of your take-home pay, and then to use that to gradually build an emergency fund of roughly one to two months’ worth of essential expenses,” said Sethi.
This can be done in small, monthly increments in a high-yield savings account. Much of this can be accomplished by finding small cuts you can make to free up savings.
Sethi suggested pairing that with free or low-cost ways to grow your skillset to increase your income.
Money Management at $75K
Achieving a higher income of $75,000 annually opens up opportunities. These include maximizing 401(k) opportunities, investing in a Roth IRA and creating systems to build wealth.
“So, $75,000 is where you have a pivotal decision to make, and I think $75,000 is where you have the best opportunity to set yourself up for massive growth,” said Sethi.
However, Sethi argued against fretting over small expenses, like a $3 daily latte, at this level. Instead, he advised Americans at this income level to consider the $30,000 questions, such as whether you’re paying too much in investment fees or negotiating a larger raise at work.
These are “strategic, high-impact questions that can transform your financial future,” said Sethi.
These questions intensify for Americans earning over $100,000 annually.
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