6 Things Ramit Sethi Says You Aren’t Setting Enough Money Aside For

Ramit Sethi smiling with a wooden wall in the background.
©Ramit Sethi

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Have you ever been on a vacation you thought you “budgeted” for only to return home and realize you spent way more than you anticipated? Or felt frustrated when an “unexpected” cost — like a parking ticket-cropped up and threw your spending plan off for the month? 

You aren’t alone. Personal finance guru, host of Netflix’s “How To Get Rich,” and New York Times bestselling author Ramit Sethi says he’s made similar mistakes and more which is why he encourages those following his “conscious spending plan” (also known as a budget to the rest of us) to be conservative with their cost estimates and factor in a buffer. 

Here are six areas where he says you need to set aside more money in your estimation costs just in case:

1. General Expenditures/Fixed Costs

When creating your monthly Conscious Spending Plan or budget that includes all of your expenses, give yourself a little padding, Sethi suggests in his “I Will Teach You to Be Rich” book. Tack on another 15% to your general expenditures category to account for things like car repairs, stupid mistakes, medical emergencies and unexpected expenses like traffic tickets. By putting a little more money into this area, you’ll be glad you have some savings set aside should something crop up.

2. Travel

Sethi says that when he travels he often estimates that it’ll cost him on average double what he spends on the hotel as a daily estimation of his expenses. So if he’s renting a room for $200 a night, he knows that by the time he’s done paying hotel fees and taxes, renting a car and/or paying for transportation, eating, and maybe even a spa service, he should plan for his trip to cost at least $400 a day. 

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He also suggested on X (formerly Twitter) that when trying to account for how much you’ll spend on a vacation, “Identify the big three (airfare, hotel, daily spend on food), then adding 15% to account for things you didn’t factor in.”

3. Timeshares

They might have been sold to you as an “investment” and a “great deal” that you’d be foolish not to take advantage of but in most cases, Sethi believes timeshares “are a scam.” The fees on timeshares –which often aren’t drilled into your mind during these presentations-include nightly fees, annual fees, and maintenance fees. Any of these fees can be raised without you having a say in it and whether or now you’ve used the timeshare, according to some sources. If you decide to try to get out of your timeshare, you might also need to pay a lawyer to do so. We’re betting that you didn’t add in a buffer for that aspect of the timeshare buying experience.

4. Cars

Perhaps you bought one of the safest cars of 2024 because you calculated that you could afford the monthly payments and it seemed like a financially-savvy move at the time. But then you found yourself putting in more gas than you anticipated, or finding that the car required maintenance you weren’t accounting for, or your insurance plan increased. Sethi suggests you take your car payment and double it to have a healthy buffer of how much you might need to spend on your car each month. Put $500 in the account to pay the $250 car payment, for gas and tolls, to account for insurance, car registration, inspections, tickets or traffic violations, maintenance and possible repairs.

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5. Buying a House

There have been quite a few times on Sethi’s “I Will Teach You to Be Rich” podcast that he asks couples why they bought a house or why they think they should be saving for a house even when it seems that they can’t afford it. That’s because first-time home buyers aren’t always factoring in all the costs that go into owning a home, like repairs, maintaining the property, tax increases, heating and cooling that home, furnishing the house, oh and did we mention repairs?

When buying a home, Sethi’s advice is again to be conservative. He suggests you put down 20 percent to avoid PMI (private mortgage insurance), a 30-year fixed-rate mortgage, and a monthly payment that’s 30 percent of your household income’s gross pay.

6. Freelance Taxes

In Sethi’s book he also addresses the concern many first-time freelancers or independent contractors have in the beginning, “How much should I set aside for taxes?” While Sethi acknowledges that many experts suggest putting 30 percent of your gross earnings aside for taxes, he divulges that 40 percent is even better. Remember, you’ll have to pay self-employment tax and might get hit with unexpected local taxes as well.

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