Ramit Sethi is a well known money guru who isn’t afraid to speak his mind. He is the bestselling author of the book “I Will Teach You to Be Rich,” as well as the host of the Netflix series “How to Get Rich.”
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In a recent newsletter, Sethi shared the biggest mistake people make when it comes to their money: letting money sit in a checking account. Instead, Sethi explained, it’s important for people to invest their money.
He’s not wrong: According to data from Charles Schwab’s 2024 Modern Wealth Survey, 58% of Americans have investments. While that’s a majority of the population, there is still a large percentage who don’t.
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Why People Don’t Invest
There are many reasons why people decide not to invest. Primarily, in order to invest, people need to have extra money to allocate to investing — and not everyone has access to a job that automatically invests their money into a retirement account to make investing easier.
A quarter of people currently live paycheck-to-paycheck, according to 2024 research from the Bank of America Institute. With the prices of everyday goods increasing, it can be hard for people to prioritize investing when they’re trying to afford groceries.
Some Fear the Risk
Another reason is that some people distrust the stock market and prefer to keep their cash on hand rather than risk losing it.
However, Sethi explained to his followers that investing is how people become financially free. Because of inflation, the value of cash sitting in a checking account will erode over time, whereas with investing, money has the potential to grow and outpace inflation.
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Invest Money the Smart Way
Sethi recommended that people invest in target date funds or index funds, not hot stock picks. He explained that investing involves a long-term strategy, and that target date funds take much of the guesswork out. With these funds, people can choose the year they plan to retire, and the fund will automatically adjust to become more conservative as that year approaches.
Sethi also praised index funds, which are funds that mimic a particular index, like the S&P 500.
With an index fund, investors purchase a portfolio of stocks or bonds. That way, it’s naturally diversified. If one company doesn’t perform well, the fund still has several others to balance out the performance. Index funds also have lower expenses and fees, which can help investors to keep more of their money.
Final Thoughts
Ultimately, Sethi’s goal is to encourage his followers to invest, even if they place money in a high-yield savings account to start. He stressed that real wealth can’t be built by putting money in a checking account and encouraged his readers to learn more about building wealth through investing.
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Sources
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Charles Schwab, “2024 Schwab Modern Wealth Survey Shows Increasing Financial Confidence From Generation to Generation and Younger Americans Investing at an Earlier Age.”
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Bank of America Institute, “Paycheck to paycheck: what, who, where, why?“
This article originally appeared on GOBankingRates.com: Ramit Sethi Offers a Harsh Truth About Saving Money — And What To Do Instead
