According to self-made millionaire and author of “I Will Teach You to Be Rich,” Ramit Sethi, the process of building wealth might not be as challenging as commonly thought. With two decades dedicated to writing about finance and psychology, Sethi possesses valuable insights into wealth accumulation.
His primary advice for achieving prosperity is to stick to unexciting strategies, as he conveys to CNBC Make It. He emphasizes that the most effective methods to enhance one’s wealth are surprisingly straightforward, although they might not appear so at first glance.
By adhering to these mundane approaches, significant financial gains can be achieved in the long run, as indicated by Sethi.
1. Start investing and gradually increase the amount
The foremost, and indeed the most crucial, method of expanding your wealth is through investing, as outlined by Sethi. He advises allocating a portion of your income for investment purposes annually, and progressively increasing this allocation by 1%. Sethi underscores that opting for a low-cost index fund, such as the S&P 500, yields comparable growth to the supposedly exclusive “secret investments” available to the wealthy.
Contrary to the notion that affluent individuals possess unique access to exceptional investment opportunities, Sethi asserts that such investments usually don’t outperform a basic S&P index fund. Drawing on his own access to these investment options, he contends that the historical performance of the S&P index has been impressive. According to Howard Silverblatt, senior index analyst for S&P Dow Jones Indices, the index posted an annualized total return of 10.34% from January 1926 to June 2023.
Sethi underscores that the truth lies in the fact that substantial returns can be achieved through a straightforward, cost-effective, and long-term index fund.
2. Push for the salary you deserve
Once you’ve mastered the art of investment, the subsequent stride toward expanding your wealth, according to Sethi, involves advocating for equitable remuneration: “Acquire the skills of negotiating your salary and securing payment that accurately reflects your value.”
Since companies might still be understating their publicly disclosed salary brackets, persistently striving for your optimal income is imperative. Compensation experts advise that the upper echelon of a salary range should ideally surpass the lower limit by 40% to 60%. Nonetheless, actual job listings often exhibit a mere 28% disparity on average, as reported by Bloomberg.
Conducting thorough research and gathering insights about the earnings of peers in comparable roles stands as a pivotal measure in guaranteeing fair compensation, Sethi underscores.
When embarking on salary negotiations, it’s prudent to seek counsel from well-informed recruiters regarding their candidates’ salary ranges. Recruiters are likely to possess more current and tailored data compared to online databases.
Moreover, when presented with a salary offer, Madelyn Machado, a reverse recruiter based in Tampa, Florida, previously advised CNBC Make It to augment that figure by $20,000. She further emphasized the importance of refraining from immediately accepting the initial offer provided.
3. Pursue a side hustle
The third stride in your journey towards expanding your wealth involves engaging in a side venture, as advocated by Sethi. “To substantially augment your earnings, contemplate launching a supplementary business endeavor,” he suggests.
As you embark on this path, it’s prudent to reflect upon your aspirations, objectives, and the time you’re willing to dedicate, as advised by Anuj Nayar, LendingClub’s financial health officer, in a prior conversation with CNBC. This introspection aids in pinpointing the side hustle that aligns best with your circumstances.
Several possibilities warrant consideration: during the summer, you might choose to lease your residence on Airbnb or other rental platforms; pet sitting through Rover could be an option; exploring employment as an AI content assistant is another avenue; or pursuing a role as a notary public could also be explored.
If the steps are so easy, why aren’t people doing them?
According to Sethi, these three steps are straightforward and achievable. However, they tend to be overlooked by many individuals.
The reason for this oversight, as Sethi explains, is due to the prevailing notion that achieving wealth necessitates complex actions, such as monitoring multiple screens displaying intricate PE ratios and meticulously selecting stocks. This perception also portrays investing as a form of gambling, which is far from accurate. Sethi asserts that investing is distinctly dissimilar to gambling and should not be approached as a source of entertainment.
In contrast, Sethi emphasizes that investing and financial management are routine responsibilities, not sources of excitement. He underscores this by highlighting that he dedicates “less than one hour per month” to his entire financial affairs. Describing genuine investing as uneventful, he likens it to observing paint dry.
Sethi contends that the popular narrative about investing is misleading, as it often treats it as a form of entertainment – a perspective he deems inaccurate. For entertainment, he suggests adopting a pet dog or enjoying his Netflix show, implying that investing should not be conflated with amusement.
Source: cnbc.com