Yahoo Finance Ramit Sethi Says Becoming A Multimillionaire Is Simple — 'Invest 10% Of Your Salary Every Year' With 1 Condition
Ramit Sethi, a self-made millionaire and author of "I Will Teach You to Be Rich," offered advice to young professionals on their journey toward financial proficiency. "You've got to invest 10% of your salary every year," he told CNBC Make It. At the end of the year, increase that by 1%. Do this for as long as possible, and you will be a multimillionaire."
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Sethi is famed for his strong beliefs about investing. One of his 10 Money Rules is to save 10% and invest 20% of annual gross income. He says this should come after your emergency fund is in place, and once that's built up, move on to a high-yield savings account. From there, start putting away a portion of your income toward investments.
Understanding that not everyone can start saving and investing 10-20% of their income immediately, Sethi says, "That’s a lot of money. You typically have to have quite a high income in order to be able to do that. But if you can’t do that, adjust it. Make it work for you. At a minimum, maybe your money rule can be to invest and save 5-10% of net income."
He says to start where you can, but always do one thing: "Every single year, add 1% to your savings rate and 1% to your investment rate. That single decision alone will be worth hundreds of thousands of dollars to you."
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So, where do you start with investing this percentage of your income?
Sethi recommends getting started by purchasing low-cost index funds through your 401(k) and Roth IRA accounts. On his website and YouTube channel, he explains three tips for finding the right Roth IRA company: low fees, automation, and good service.
"When you evaluate these Roth IRA companies, you want to find one that offers you the ability to open up the account without huge larded-up fees," Sethi says. "A lot of these guys are going to charge you tons of fees; they’re going to only offer funds that are fattened with fees so that they can make a ton of money of your money."
His second tip is to find companies that allow you to automatically invest on a regular basis. You shouldn't need to write out a check each month.
Lastly, good service. Sethi says, "What I mean by that is you can call them on the phone and they can explain what’s going on with your funds, what’s your expense ratio, what is an expense ratio, and what would be a recommendation for other people like you."
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Sethi also recommends three Roth IRA companies he likes for their low fees and good customer service: Vanguard, T. Rowe Price, and TIAA.
"Vanguard is a very well-known company with a lot of low-cost funds," he says. "Their expense ratio, in other words, the amount that they charge you to service your account, is very, very low. In some cases, 0.18% or even lower than that. That’s very low compared to other people who might charge you 2%, which is tens of thousands of dollars over your lifetime."
Ramit Sethi's advice on achieving financial success through consistent investment is simple and profound. By committing to saving and investing a percentage of your income each year and gradually increasing that amount, Sethi outlines a clear path to building wealth over time.
Navigating the world of investing can be daunting without proper guidance. That's where a financial advisor can play a crucial role. A qualified advisor can help you implement Sethi's principles tailored to your specific financial situation, recommend suitable investment vehicles like low-cost index funds, and ensure your investments align with your long-term goals.
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