Ramit Sethi: How To Become Rich on a Low Salary

Ramit Sethi headshot

Many people see financial prosperity as an unattainable dream reserved only for those born into affluent families or lucky and talented enough to attain fantastic six-figure jobs. In a recent YouTube video, Ramit Sethi said, “The majority of millionaires are first-generation wealthy.”

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What does that mean for you, and what are your chances of reaching that lofty financial milestone? According to Sethi, “You don’t have to depend on having wealthy parents in order to become a millionaire.”

Sethi emphasized that even those who didn’t come from a wealthy background or didn’t attend an elite university can still take charge of your financial future. He introduced the concept of “three levers,” empowering factors that you can use to steer your wealth creation journey.

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Ramit Sethi’s ‘Three Levers’ of Wealth Creation

There are three primary levers in Sethi’s example: the duration of your investment, the quantity invested and the returns you see on those investments.

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Time: The First Lever

Time can be a powerful ally in the wealth-creation process. Sethi used the analogy of a snowball rolling down a hill — the further it rolls, the larger it gets. The longer you invest, the greater the potential of your investments due to compound interest. By making time your ally, you can make even modest investments grow into substantial sums, giving you the push you need toward a brighter financial future.

Sethi explained the hypothetical case of someone earning $50,000 a year. If that person is diligent enough to set aside 15% of their salary, that adds up to $7,500 each year. After investing this sum annually for 30 years, they could have an impressive $750,000 in their account. Let that snowball roll for four more years, and they’ll likely hit the coveted million-dollar mark.

What’s also striking about this wealth accumulation process is that “million dollar milestones” aren’t solely dependent on substantial salary increments. Naturally, as your salary increases over time, so too does your potential for investing greater amounts. Sethi is quick to point out that you shouldn’t wait for that big promotion or some other boost to your income before investing — even without these somewhat predictable increments in earned wealth, your initial investments can grow into a significant amount of money from compound interest and persistence alone.

Your Investment Amount: The Second Lever

The second lever is the amount you invest. It’s a straightforward concept: The more you invest, the faster your wealth grows.

Don’t panic if you don’t have much to invest. Sethi recommended a more empowering approach, in which you focus on what strategies will work best for your situation.

Consider starting small, investing comfortably within your budget. As the years advance, increase your investment rate incrementally, even by just 1%. Over time, that slight change can lead to investments worth hundreds of thousands of dollars.

Of course, bigger contributions lead to more substantial wealth, but Sethi cautioned against increasing your investments in colossal leaps. Small, consistent increases, coupled with strategic measures to rein in expenses, can help free up money that can go toward investments.

Your ROI: The Third Lever

The third lever is your ROI, or return on investment. While this “lever” may not be under your direct control, it still plays a crucial role. Keep in mind that you’re likely to get an average return of around 7%-8% per year, adjusting for inflation. While larger returns can happen, don’t count on them. Instead, Sethi pointed out that better investment returns may lie hidden not in higher percentages, but in lower fees.

For instance, a 1% management fee may seem minimal on the surface, but over time, it could devour around 28% of your lifetime returns. Paying a fat percentage of your earnings in fees isn’t the most enriching path to your millionaire dream. Instead, aim for flat fees or hourly rates if you consult with a financial advisor.

Ramit Sethi’s Plan for Self-Made Millionaires

A firm focus on the destination isn’t enough to chart a path to hefty wealth. You need to study your attitude and behavior toward money. Some feel they can’t afford to invest or divert funds to it. Others have responsibilities, like taking care of an elderly parent, raising a young child or prioritizing mental health, that deters investing plans.

Sethi said it’s important to focus on what works when creating wealth. Once you grasp the importance of consistently investing, regardless of the amount, the distance between your current financial state and becoming a millionaire becomes much shorter. As your income grows, so will your investments, and before you know it, you’ll hit that magic million-dollar mark.

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