Personal finance guru Ramit Sethi wants you to live a rich life. This may sound a little slick, but he knows a thing or two about the subject. Coming from a middle-class background, he started investing his scholarship money into the stock market while at Stanford. Although he initially lost money, the sharp learning curve led him to start the blog I Will Teach You to Be Rich, which evolved into a successful money coaching program of the same name. The course inspired a New York Times bestselling book, and Sethi recently starred in the surprisingly bingeable Netflix show How to Get Rich, in which he transforms the money woes of regular families. Think of him as a no-nonsense money Marie Kondo, here to clean up your personal finances.
But what exactly does he mean by a rich life, and what would it look like to you? Sethi says the answer will be different for everyone. “It could be traveling for two months a year, it could be buying a beautiful cashmere coat, or it could be picking up your kids from school every afternoon,” he says. “By the age of 40, money is the primary worry for most people, and yet the vast majority have never read a single book about personal finance. Most of us can take control of our money in about six weeks: You can get the right accounts, you can set up your investments to be automatic, and you can even give yourself a very generous amount of money to spend guilt-free every month. But nobody’s going to do it for you.” Ready to take control? Here’s Sethi’s five-point plan.
Analyze your money psychology
Before we start tackling our bank balances, Sethi says we need to examine and try to shift our deeply entrenched views about money, many of which took root in childhood. Maybe you feel bad about spending extravagantly, or maybe you worry so much about not having enough that you rarely treat yourself. But money shouldn’t be a source of overwhelming guilt.
The biggest money script that holds people back is feeling that they have no control over it, says Sethi, who helps his clients realize that “money is not something that happens to me. I can take control. I can make a debt payoff plan. I can invest.” Another common thing he sees is people feeling clueless. “Money involves a few new terms, but it’s just like learning to drive—you’re learning some new terms and skills. It’s not that complicated, and anyone can become very good at it.” The first step could be as simple as listening to money podcasts at the gym or on your commute—we like Black Girl Finance, by Selina Flavius, Financial Feminist, by Tori Dunlap, or Sethi’s own I Will Teach You to Be Rich.
Sethi believes that overcoming our ingrained money beliefs is essential. “Too many people underemphasize money psychology and overestimate math,” he says. “In reality, you should be spending as much time studying your own money beliefs as you do setting up your investment accounts.” Try this exercise: Jot down all your money beliefs that spring to mind, and pick the four worst offenders. Then make it a four-week project to flip the script, one belief per week. If you need support, you can try the Unblocked Money manifesting workshop by To Be Magnetic.
Crunch your numbers
According to Sethi, there are just four key numbers to focus on when you look at your monthly spending. “You really do not need to know how much you spent on asparagus last month,” he says. This is his breakdown of where your take-home pay should go; looking closely at past statements will give you a sense of your current breakdown and what you need to adjust:
- 50 to 60 percent should go to fixed costs. That includes your mortgage or rent, car payments, gas, groceries, and any debt repayments.
- 5 to 10 percent should go to savings. Sethi recommends setting up these payments to automatically transfer into a high-yield savings account.
- 10 percent should go into investments. More on this below.
The good news: You’ll have 20 to 35 percent left to spend guilt-free. “That’s a lot of money, right?” says Sethi. “Once you’re hitting your numbers, you don’t need to feel bad about eating out or buying something nice for yourself.”
Treat yourself to what you love
Put your spreadsheets and receipts aside and ask yourself this simple question: What do you enjoy spending money on? “Most of us think about money only in terms of restriction, guilt, and feeling overwhelmed,” says Sethi. He recommends figuring out what you most like to spend on and giving yourself permission to “spend extravagantly on that and cut costs mercilessly on what you don’t.” For example, if fancy fitness classes or monthly facials make you feel happy and energized, don’t skimp on them, but cut back in another area.
Think of debt like a game
A game you are destined to win, that is. “Ninety percent of people who are in debt don’t know exactly how much debt they have, and 95 percent don’t know when their debt will be paid off,” says Sethi. “That’s why it feels like such a burden—because we don’t know when it’s ever going to end. But there’s almost always a light at the end of the tunnel.”
First things first: Pull your head out of the sand and write down everything you owe, including all the interest rates: credit card balances, your mortgage, student loans, the whole gamut. Next, plug the numbers—and the amounts you can pay off each month for each—into an online debt repayment calculator (there are plenty of free ones, like this one from Credit Karma). “No matter what you plug in, you can see when you will be debt-free,” says Sethi. You can play around with numbers to see how much more quickly you could be debt-free by paying off just a little extra each month. “You’ll realize that you have a lot more control than you thought. For example, if you pay an extra $100 a month to your mortgage, you can often shave off years.”
Be the sheep of Wall Street
“Investing is where true wealth is created,” says Sethi. In I Will Teach You to Be Rich, he highlights that if you were to pay $20 a week into an investment fund it would most likely be worth $15,672 in a decade.
But many of us find investing alarming at best. We’ve all heard horror stories about a friend who invested in a tech start-up after a “hot tip” from their nephew over Thanksgiving dinner, only to lose their shirt. Rather than doing constant research and investing in individual stocks and shares, Sethi recommends choosing a low-cost index fund. For those new to investing, this means a set of investments passively managed (meaning the money isn’t moved around frequently) by a professional money manager. You’ll pay a small fee to this manager, but make sure it’s fixed and not a percentage of your investment. “If you pay 1 percent in fees to a financial adviser, that means that over the course of your lifetime, you’ll pay 28 percent of your lifetime returns in fees,” warns Sethi.
This style of investing is a much safer bet than investing in individual stocks, which can be more volatile—meaning you’ll end up with something far more valuable than dollars: peace of mind.
Rosie Hopegood is Deputy Health Editor at Oprah Daily. She writes, edits, and assigns stories at the intersection of science, medicine, psychology, wellness, spirituality, and fitness. A Brit in Brooklyn, her ‘to read’ book pile is taller than her toddler, but she’s still pinching herself that she gets to read and write for a living.