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Exclusive Q&A With Ramit Sethi:
What’s the one piece of money advice you wish everyone would follow and why?
No one is coming to save you with your money, so getting started is more important than getting everything perfect. For example, many people who write to me have never read a single book on personal finance. Money is one of the most important things in our life, and yet we’re confused about terms like “401(k)” and “asset allocation.” No one really teaches us about money and we know we’re not doing it right, but we’re not sure who to trust. The key is to just get started. Follow a simple plan for automatic savings, investing and using your money to live a rich life. You can always tweak it later.
What’s the most important thing to do to build wealth?
Long-term, low-cost investing. When you ask people what they think generates wealth, many people have these crazy ideas like “winning the lottery,” “getting an insurance settlement” or “starting a tech company.” OK, maybe that works for one in a million people. But the vast majority of Americans generate real wealth through simple, low-cost, long-term investing. You don’t have to be a Wall Street expert to do it; and, in fact, everyday Americans can get better results than Wall Street investors! What you need to do is pick a simple plan and automate it. Don’t wait until the end of the month and say, “Oh I really should try to invest some,” and don’t check the stock market every day. Set it up so you spend less than one hour per month on your money.
What’s your best tip for fighting the impacts of inflation?
If you’re frantically looking at the news and panicking about inflation, which you never even thought about six months ago, then you’re already doomed. A much better approach is to have a financial plan that already accounts for inflation. How? The way to beat inflation is to invest. At least 10% of your money should be going to investments, automatically, every month. If you’re doing this, then you will be beating the effects of inflation over the long term. What you will see most people doing is looking at the headlines in the news, panicking and then making frazzled decisions. Those same people will be making frazzled decisions today, tomorrow and for the rest of their lives. I don’t want that for you.
What’s the biggest mistake people make when it comes to money?
The biggest mistake people make is doing nothing. I often get people who write to me in their 40s and say, “I just had a daughter, what kind of account should I set up for her? Is a 529 good?” Then I find out they have virtually nothing in their own investments. They think, “I’ve lost the game of money in my life, but I don’t want my daughter to lose the game in her life.” This is the wrong approach. Your children have time; you do not.
If you start early, time is on your side. If you wait, it’s not too late, but it’s much, much harder. So don’t wait. You can do these three things in a single weekend and make INCREDIBLE progress on taking control of your money and designing your rich life:
- Read a single good book on personal finance.
- Learn your basic numbers: How much do you make? How much do you owe? How much do you spend, save and invest each month? And what is the one thing you LOVE spending money on? That you would spend more on? (We call that a money dial.)
- Then, put together a conscious spending plan. This will help illustrate where your money is going and then you can change where it’s going so you can spend more on the things you love. You can get a free template for a conscious spending plan at iwt.com/plan.
New York Times bestselling author
I Will Teach You To Be Rich