Yahoo Finance Ramit Sethi: Ask the $30,000 Questions, Not the $3 Ones
Financial influencer Ramit Sethi recently tackled the concept of getting ahead financially by asking yourself the $30,000 questions instead of $3 ones.
In a video on his YouTube channel he said, “If you are obsessed and agonize over $3 questions, there is a better way. I want you to focus on the areas that will make the biggest impact — what I call the ‘big wins.'”
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Sethi continued by saying that if you get a few big wins in life right, you really won’t have to worry too much about the small things. He said that achieving five to 10 big wins is worth way more than 50 small things you can do to get ahead financially. Here are the $30,000 questions you should be asking yourself.
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How Much Are You Paying in Investment Fees?
Sethi said that many people who have a financial advisor are not aware how much the advisor is costing them in investment fees. If you’re one of those people, it’s time to start asking questions.
“If your advisor is charging you 1% AUM — or assets under management — that means that you’re losing about 28% of your lifetime returns in fees,” Sethi explained. “That is a lot of money — tens of thousands of dollars — sometimes hundreds of thousands of dollars.”
How Much Could You Gain If You Negotiate Your Salary?
Putting the time and effort in to negotiate your salary can pay off for years to come. Sethi said that if you negotiate one single $5,000 raise in your 20s, it can equal hundreds of thousands of dollars more than you’ll earn over your lifetime.
Likewise, Sethi said that concept can hold true in your 30s, 40s, 50s and beyond. He said you can take part of the money and invest it to amplify your earnings.
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Do You Play ‘Defense’ With Your Money?
Are you worried about your money constantly?
Sethi said he receives emails from people who are worrying about what the Fed is going to do and what their investments are earning (or losing) each day. Sethi says it’s futile to worry about things you cannot control and by doing so, you actually may be neglecting stuff you can actually influence for your benefit.
“What reason is there to be logging into your accounts every day?” Sethi queried. “If you’ve set your money up automatically, you don’t need to do that. What this tells me if someone has an app that they log into every day is No. 1: they don’t feel in control of their money. No. 2: they don’t have a financial system in place. And No. 3, most importantly, they are obsessed with the maneuver. They’re playing small and they’re playing defense with their money.”
Are You Following Invisible Scripts?
Sethi said that invisible scripts are beliefs so deeply embedded in us that we don’t even realize how they guide our attitudes or behaviors. “Over time, these scripts can become dangerous psychological traps that hold us back,” he said.
Sethi gave examples of invisible scripts people tend to follow, such as the following:
You should buy a house because you’re throwing money away on rent.
I can’t afford it.
We don’t talk about money.
Sethi said the next time you have a negative reaction to a money-related manner, write down your money belief, acknowledge it and question why you believe it. He said to ask yourself what would happen if you did the opposite or what would someone you admire think about the belief. Then, he said you should decide whether you want to continue following that script or invent a new one to follow.
Are Your Goals Generic?
Sethi said that people make generic goals like “I want to get healthy” or “I want to pay off my debt.” However, he believes these goals mean nothing because they’re not specific.
“I want you to get specific about exactly what you want to do, when you want to do it, who you want to do it with — and then you can control that part of the process,” Sethi explained.
Sethi recommended using SMART goals, which stands for specific, measurable, attainable, relevant and time-oriented.
“Let me give you a few examples,” Sethi said. “A terrible goal: ‘I need to get better with money.’ A bad goal: ‘I want to save $1,000 this year.’ A smart goal: ‘I want to have $40 per paycheck automatically transferred to my vacation savings account for one year.”
Are You Spending Without a Plan?
“My dream for you is to have a vision for spending money on the things you love, and once you do, then, you can cut costs mercilessly on the things you don’t,” said Sethi.
He recommended using his Conscious Spending Plan template, which has four major buckets: fixed cost, investments, savings and guilt-free spending.
Sethi said that fixed costs should be no more than 50%-60% of your take-home pay to avoid feeling stressed about money. He said you should put at least 10% of your take-home pay toward investments, but the more the better because that, he said, is how real wealth is created.
Also, he said the amount of money you put toward savings should be 5%-10% of your take-home pay at a minimum. Finally, he said that you can use 20%-25% of your take-home pay on guilt-free spending.
Sethi said if you follow the conscious spending plan, you’ll save and invest automatically each month and spend your money with intention.
Do You Have a Scarcity Mindset?
Sethi said if you’ve said things like, “I’m never going to be able to afford that” or “That’s a waste of money,” you may find it difficult to spend money on yourself. He said to examine your finances to find out why you feel that way.
“Sometimes, you’re right,” Sethi said. “If you have a huge amount of credit card debt, you probably shouldn’t be staying at an ultra-luxury hotel if your fixed cost exceeds 60% of your take-home pay. In other cases, it’s a scarcity mindset, and I’ve spoken to people who have millions of dollars in the bank and they can’t bring themselves to buy blueberries or take a trip that their spouse has wanted to take for decades.”
Instead of this scarcity mindset, Sethi challenges his audience to adopt a growth mentality to use money to live a rich life. “Because the point of money is not to hoard it and save it; it’s to use it for your rich life now,” he stated.
Should You Follow Sethi’s Advice?
Annie Hanson, a financial coach and owner of Mindfully Money, agreed that focusing on giving up a $3 coffee habit or trying to save $1 on spaghetti sauce isn’t going to help you afford a home or fully fund your retirement account, which makes Sethi’s advice to think bigger so important.
However, Hanson said that paying attention to the small amounts you spend is also important if you are struggling financially.
“If money is tight, you live paycheck to paycheck, are accumulating credit card debt or feel like you never have enough money for the things you want, you absolutely should be paying attention to the $3 decisions as well as the $30,000 ones,” she said. “Doing so can create more breathing room in your budget and reduce stress. Chances are that it is not just one $3 coffee — it’s likely many small items that add up.”
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