Personal Finance

Ramit Sethi says to watch this one aspect of your finances and you will see your road to riches open up new possibilities

David Beren

Published: November 20, 2024 11:30 am

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• Ramit Sethi breaks down money in smart and easily digestible ways. 
• He has helped hundreds through his podcast get back on the right financial track. 
• Sethi breaks down the four most important ways to spend your take-home pay. 
• Also: Are You On Track to Retire? Take This Quiz and Find Out ^(Sponsored) 

As the host of the “I Will Teach You To Be Rich” podcast, Ramit Sethi does a fantastic job of breaking down the finances of his guests. Navigating financial stress and even windfalls requires great care to find the right path and ensure you are not spending money frivolously. Having someone like Ramit in your corner can make all the difference. 

It’s for this exact reason that Ramit introduces his four essential money rules. With these rules, he tells you exactly how to balance your money across all your spending needs every month. What he calls his “basic language of money,” Ramit indicates there are four rules everyone must know to get rich. 

Fixed Costs

The first part of Ramit’s rule is to understand exactly what your fixed costs are every month. You have to spend on these things and know exactly what the dollar amount should be. 

In other words, fixed costs include rent or mortgage, debt payments like credit cards or student loans, and even the monthly groceries you spend money on. Other things that could be included under fixed costs include car insurance, utility payments, health insurance, streaming service, gym memberships, and property taxes. 

Anything that fits within this category should be something you can properly plan for without any issues because the dollar amount shouldn’t change from month to month. To help you manage your finances better, Ramit suggests that your fixed costs should equal 50-60% of your take-home pay. 

Savings

Savings is arguably the most important aspect of managing money. In today’s world, having savings is not just nice; ensuring you have enough money set aside in an emergency is necessary. 

Of course, savings can go a few different ways. For most people, savings are best associated with an emergency fund, but it’s not the only reason you may want to save. Sethi says you may want to start putting 5-10% of your take-home pay aside and into a savings account. 

If you are looking to save and put money down on a home or purchase a new car, these savings will help you do that without worrying about paying the rest of your bills because this money has already been set aside to use for larger purchases. 

Investments

If you’re looking for that one aspect of your finances that can help open the road to all kinds of possibilities, it will be through your investments. Notably, Seth suggests that you portion 5-10% of your take-home pay and use it for investments that you can use to generate wealth. 

The more you can put toward your investments, the better your long-term financial outlook is. If you don’t spend as much on groceries in a month or receive a bonus at the end of the year, you can put this money into savings or, better yet, drop it into your investment account. 

Should your goal be to generate wealth while working, savings aren’t going to get that done. Only through the investment opportunities you have for yourself will you make significant money that can be used during your retirement and or to create generational wealth for your family. 

Guilt-Free Spending

Unsurprisingly, this is Ramit Sethi’s favorite spending category, and likely yours and mine. With this money, you will go out to dinner with friends or family, buy new clothes, and maybe even start the weekly yoga class you’ve been excited about. 

This may be controversial, but Sethi says this area should account for approximately 20-35% of your take-home pay. We all work to survive, but working should be more than just survival; it must also be about living and having fun. 

The best part is that any money you don’t spend out of your monthly guilt-free spending budget can be put toward savings or investments. It’s important to consider this money flexible, but never feel nervous about doing something for yourself.