Ramit Sethi: The Top 2 Spending Choices Ruining Your Finances
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Mary Green
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Molly Sullivan
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Most of us try to be careful with our money, but we don’t always achieve the financial security we dream of. Ramit Sethi, the host of Netflix’s “How to Get Rich” and author of “I Will Teach You To Be Rich,” said it all comes down to two major spending habits. These bad habits grow out of commonly held misconceptions that Americans have about their finances.
In a recent interview posted on Instagram, Sethi critiqued Americans for overspending on cars and houses. He took aim at some widely accepted truths that, in his view, are doing major damage to people’s wallets and financial well-being.
The Housing Trap
Sethi said that for many Americans, owning their own home is one of the highest priorities. Most people, he said, take it for granted that homeownership is a smart investment that will guarantee security in the years to come.
However, homeownership is increasingly out of reach for many Americans. Today, the median cost of a new home in the United States is $429,800. According to Zillow data, a person making the median income in the U.S. would need a 34.5% down payment to afford a typical home.
Sethi pointed out that in spite of the new reality, many Americans still believe that homeownership is the first step to financial success.
“I need to own because housing always goes up … It’s as simple as that,” the finance guru said, summing up the commonly held belief. But of course, it’s not as simple as that.
“They don’t care to know about interest, or phantom costs, or anything,” he said, listing just a few of the common additional costs that homebuyers face.
Car Buying
Housing isn’t the only area where Americans overspend. According to Sethi, Americans are also “peculiar” about their vehicles — and it all comes down to a lot of misplaced anxiety.
The average cost of a new car today is over $47,000. Car loans are becoming more expensive too, with the average interest rate on a new car loan at 6.73% as of the first quarter. If you’re buying a used car, the average interest rate on the loan is a whopping 11.91%.
So why are Americans still taking out loans to buy expensive, inefficient cars and trucks? Sethi said it grows out of emotional reasoning. “Americans love cars, and it shows up in some peculiar ways. The minute they have kids, what’s the first thing they do? They go, ‘I need to buy a seven-seat SUV … and a house with a backyard for the baby.’ And so we transfer all of our anxieties to our baby. Huge mistake,” he said.
The Fallout From Poor Spending Habits
Why does it matter if Americans spend too much on their homes and their cars?
Sethi said that pouring all that cash into house and car loans may drain resources and cause a lot of unhappiness.
Spend too much on your car, and you may not have enough money to go out for dinner or even buy a few little things at Target. Spend too much on your house, and you may not have anything left over for little luxuries. Over time, depriving yourself of the little pleasures in life can lead to fights with your spouse and a general sense of missing out.
Let’s be clear: There is nothing wrong with buying a lovely home and a nice car — as long as you can afford them.
Before you make these big-ticket purchases, make sure you’ve done your research and can be confident it is the right decision for you. Don’t ever make a big purchase just because it seems like the right thing to do.
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