Ramit Sethi: How To Use Risk To Build Wealth
Written by
Sean Bryant
Edited by
Amen Oyiboke
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Are you risk-averse or risk-seeking? If you asked a handful of people, you would most likely have varying answers. Risk isn’t inherently bad.
Take Tesla, for example. Tesla has been willing to take risks from day one, having several “firsts” under its belt. From being the first to be aggressive with emerging technologies to the first to actively pursue the idea of electric cars, Tesla is a great example of a risk-seeking company.
Risk can be a powerful tool in your wealth-building arsenal, helping you take leaps of faith with confidence. Recently, personal finance expert Ramit Sethi talked about how he took a risk when he moved out of his affordable apartment in Palo Alto and moved to San Francisco. That led him to think about three ways that successful people think about risk and how these actions build wealth.
The Tripod of Stability
When you look at a tripod or triangle, there are two grounding points and one point at the top. People who use risk to build wealth adopt this same mindset. By keeping the major things in their life stable — the grounding points, they are able to be ultra-risky in a few core areas — the point.
What does this look like in real life? Maybe you are considering taking a risk and investing in a startup with a positive growth outlook. Instead of putting every penny to your name into the startup, you leave your emergency fund untouched. This gives you a solid foundation to fall back on if you lose your job or the startup goes under.
Confidence Is Key
Another necessary mindset to build wealth by taking risks is confidence. Being confident in a risky decision allows you to jump feet first into any situation or decision with confidence that you have the skills to figure it out. Take Sethi’s recent move to San Francisco. Was it scary to give up his affordable place in Palo Alto for uncertainty in San Francisco? Of course!
This move was daunting, but he was confident in his ability to figure out whatever was thrown his way. Maybe he would have had to work harder or cut his takeout order frequency in half, but he was confident in his decision to take the risk.
Pivoting Is Normal
Wealth-building with risk also requires the ability to pivot. Risk-taking doesn’t always work. What’s the worst that can happen if your risk doesn’t work out? Are you able to weather the storm? If his move to San Francisco didn’t work out, he could have simply moved back to Palo Alto.
Risks won’t always pan out the way you planned, but staying agile and pivoting is important to keep moving toward your end goals. Maybe one of your stock market investments dips and you need to recognize a small loss or a major life decision goes haywire. Finding ways to adapt and overcome propels you on your wealth-building journey.
If you constantly live life in fear, you’ll be paddling to the same place forever. For most of you reading this article, that probably isn’t the end goal. With the power of a positive psychological framework, you can achieve success for the rest of your life by accepting and implementing strategic risks to build your wealth.
More From GOBankingRates
