How To Save $100K on a Low Salary, According to Ramit Sethi
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Peter Burns
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Molly Sullivan
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If your job doesn’t pay well, it can be discouraging. Most people struggle to make any financial progress, let alone save up $100,000. However, according to some money experts, you can break out of your paycheck-to-paycheck lifestyle and secure your financial future if you go about it the right way.
Ramit Sethi, finance YouTuber and New York Times bestselling author of “I Will Teach You To Be Rich,” provided some tips in a recent video. Here’s what you need to know about saving a lot on a little.
Don’t Depend on Discipline
Discipline is good, but it can only take you so far when it comes to your finances. One bad day of overspending can set you back weeks and ruin all of the sacrifices you previously made. In fact, if you’re making a low salary in a place with a high cost of living, you could cancel your subscriptions, stop buying lattes and rein in the amount you’re eating out without ever making a real difference.
According to Sethi, this kind of approach is thinking small and getting small results. Fighting to save $50 a month will just amount to $600 extra a year. Instead, Sethi suggested developing a system where you automate your spending plan, invest a monthly amount into a low-cost index fund and negotiate a higher salary.
Use the Right System
Having a system in place ensures your money is directed to the right places. To set up your system, Sethi suggested opening a high-yield savings account, a 401(k) and a Roth IRA to start. The day after payday, automate your bank to make transfers to these accounts so you don’t need to think about saving. Begin investing in low-cost index funds, which will compound over time and create secondary savings accounts for big purchases that you can contribute to.
Sethi isn’t the only financial influencer who recommends this. Dave Ramsey, founder of Ramsey Solutions, suggested using a similar structure to make investing easy. By immediately transferring money into your retirement accounts at the beginning of each month, you’re not leaving your financial health up to chance. When you transfer money into savings and investment accounts shortly after getting paid, you can then spend the rest guilt-free.
Ask for a Raise
It sounds difficult to go out and find success that will turn your finances around, but Sethi has some suggestions. For example, negotiating a salary raise of $5,000 can add up to an extra $100,000 on its own over the course of 20 years.
It can seem intimidating to ask for a raise, but it’s important to realize many positions aren’t going to consider upping your salary unless you do. Before asking, you can prepare by determining if your workload has increased, reviewing your past evaluations and identifying areas where you’ve been effective. You should also research the average salary for your position, experience and location to build your case. If you aren’t in a position to negotiate your salary yet, begin working harder and documenting your success so you can try to get a raise in the future.
Create a Spending Plan
Sethi isn’t a fan of budgets and finds them to be too restrictive. However, he does think conscious spending plans are effective. For this plan to work, all you need to do is hit four numbers: 50% to 60% on fixed costs, 5% to 10% on savings, 5% to 10% on investments and 20% to 35% on anything else. Putting this plan in place lets you hit your goals without feeling guilty when you spend your money.
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