Ramit Sethi has been helping people master their finances for more than 20 years. He understands how complex finances can get but has recently broken down some simple steps you can take to start taking control of your money. Sethi started his video by explaining that many people aspire to financial freedom but get paralyzed by uncertainty when it’s time to take action.
He pointed to anxiety and fear as two of the main reasons why people stop in their tracks after they decide to take a closer look at their finances. Before you can achieve long-term financial goals, you have to demonstrate that you can make progress. Rather than rushing to make big moves, Sethi suggests starting with something small, like saving some extra money each month.
One of his primary recommendations is to start with a small emergency fund and contribute up to $200 per month to a high-yield savings account. If you contribute $200 per month, you can quickly build a $1,000 balance. Along with steady interest payments, an emergency fund provides financial protection before another emergency strikes.
Many people fall behind on their finances because they have to take out loans to cover emergency expenses. Origination fees and interest then reduce their wealth, making it more difficult to climb out of debt.
Starting with a small emergency fund
An emergency fund mitigates that risk and positions you to fortify your investments later on. Sethi emphasizes the power of creating a positive feedback loop. “When you save $1,000, you start asking yourself, ‘What else can I do with my money?'” he explains.
This mindset helps some people go from a $1,000 emergency fund to a $2,000 balance, leveraging the power of compounding in their favor. Your interest will grow each month as you save more money, reinforcing good financial habits. As you see your progress, you may find yourself contributing even more, like $500 to your emergency savings account each month.
Millionaires often become so by adopting a specific mindset long before reaching a $1 million net worth. Sethi stresses that this mindset begins with taking control of your money. Creating and sticking to a financial plan is key.
Seeing initial progress can encourage doubling down on your efforts and sustaining a positive feedback loop. Establishing long-term goals combined with short-term benchmarks, like saving a specific amount of money each month or starting a side hustle, can give you greater control over your finances and future. “That’s when you take control of your money,” Sethi proclaimed after revealing the first crucial step.
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