Money Expert Ramit Sethi Says Saving $100k on a $35k Salary Is Possible — Here's How in 3 Key Steps

Saving $100,000 (£73,479) on a low salary sounds impossible to most people. However, millionaire author and the host of Netflix's 'How To Get Rich' show, Ramit Sethi, might change your mind.

In his YouTube podcast, Sethi rightly said that those earning between $35,000 (£25,717) and $40,000 (£29,391) annually are told their only hope is to budget every penny, like no lattes, vacations, or guilt-free spending. However, he claimed to have helped people on a $35,000 salary to save six figures without having to limit their coffee purchases with a plan that takes only 1 hour per month to manage.

A Change in Mindset

Sethi assumed that if a person earning $50,000 (£36,739) annually lives in an expensive city with high rent, while trying every bit to save money, they might think about budgeting by cancelling subscriptions or stopping eating out. The author believes that one could try to 'cut everything' but still never get ahead.

Only focusing on the small things isn't going to work. For instance, a person with a $50,000 salary who saves $50 (£36) a month, and does not invest consistently, negotiate salary or automate capital allocation, will have saved a meagre $31,467 (£23,121) in 30 years, assuming a 3.5% annual return. 'That is the cost of playing defence. You think small, you play small, you get small results,' he said.

What if the same person negotiated a $5,000 (£3,673) raise, automated their finances using a conscious spending plan, and invested $200 (£146) a month in low-cost index funds? In 30 years, the person would have amassed over $233,000 (£171,206) in wealth, assuming a 7% annual return. 'They can still order takeout, guilt-free,' Sethi remarked.

Setting up a Handsoff System for the Long-term

Saving money is not about luck or discipline every time, but about building a system that runs automatically. Saving more and regularly without ever trying requires a system. A person can start to build one by opening a high-yield savings account for emergency funds and short or mid-term savings. Once the savings account is open, the person should set up a 401(k) through the employer and fully utilise employer-matching contributions, if available, because it is basically free money.

Sethi personally views target date funds and Roth IRA accounts as crucial investment vehicles where one must allocate a portion of monthly savings. Once you have the accounts set up and know how to allocate your savings into these instruments, automate your monthly transfers and forget about it. Sethi also recommends automating bills. He believes the system could be created in an hour, and might take a few days for some people, but is confident that you need only one hour a month to manage it. The benefit of a correctly set-up system is that you never have to worry about where your money is going, and you begin thinking about the future.

The Big Win Strategy

While there could be several big win strategies you could implement, you only need one big win that could do more for your savings than a lifetime of skipping coffee, according to Sethi.

He says the first big win strategy option is negotiating salary. A $5,000 raise annually is over $100,000 over 20 years.

Option two is side income. A $500 monthly income, or $6,000 (£4,408) annually, from freelancing and side gigs, when invested over approximately 11 years at a 7% average return, could build a wealth of over $100,000.

The third option is increasing your investments by 1% every year. Sethi believes that this move, if implemented over the next decade, could yield significantly higher returns than any of the other options.

Sethi said that if a person is willing to save more and cut down the number of years to reach $100,000 in wealth to just five years, they have to invest $1,405 (£1,032) a month for the same, assuming a 7% return.

Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks, and past performance doesn't indicate future returns.