Ramit Sethi: Do These 3 Things To Save an Extra $1K Each Month
If you ask anyone if they could use an extra thousand dollars each month, the answer would be an unequivocal “yes.” Most would also probably tell you that their financial situation doesn’t allow that kind of savings.
Ramit Sethi, personal finance expert and New York Times bestselling author of “I Will Teach You to Be Rich,” has a different opinion. He believes you can save an extra $1,000 a month by following three steps, which he outlined in a YouTube video.
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These three things make up Sethi’s “CEO” approach: cutting costs, earning more and optimizing spending. Following these tactics will help you save big. Determining your purpose for saving and visualizing your efforts paying off will keep you motivated over the long haul.
Cut Costs
The “C” in Sethi’s CEO approach is all about cutting costs. Sethi is vocal that this is more than simply skipping your morning latte. He explained that to really cut costs and start accumulating extra cash each month, you’ll need to reexamine two significant areas of spending: your housing and car costs.
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Housing Costs
Sethi explained that housing expenses, which include the monthly cost of your mortgage or rent payment, insurance, repairs and taxes, shouldn’t exceed 28% of your monthly income. The higher that percentage goes above 28%, the more pressure you’re putting on your other spending categories.
Taking steps like getting a roommate or moving into cheaper accommodations can significantly reduce your monthly percentage.
Car Costs
One way people often end up overspending in their car category is by miscalculating the monthly costs. It might be easy to budget for a $400 car payment each month, but your total monthly cost inflates when you tack on phantom costs, such as parking, maintenance and gas.
This type of oversight can be the difference between putting money away for your trip to Hawaii and your crippling financial stress rolling over to the next month.
Other Spending Categories
While managing these two large categories is crucial for reducing monthly spending, reducing expenses in other areas is still important. Instead of trying to cut back on everything, Sethi advises choosing two discretionary expenses and trying to cut both in half over the next six months.
You may track your expenses and find you spend $700 on monthly shopping. Aim to drop that number a little bit more each month with the final goal of spending only $350 per month. This approach is practical, because you won’t be making drastic changes overnight.
If you can successfully cut your spending by 50% in two areas, you’ll be saving hundreds of dollars to invest or put toward other areas.
Earn More
Adding to your monthly income sounds like an obvious solution, but it can be challenging to put into practice. In fact, many people spend hours looking for ways to reduce their taxes or cut corners with discounts and coupons instead of using that time to generate more money. Sethi offered some wisdom to live by when he said: “There’s a limit to how much we can cut, but no limit to how much we can earn.”
Ask for a Raise
If you’re working a 9-to-5 job and don’t have extra time to devote to a side hustle, it’s time to think about asking for a raise. However, as Sethi pointed out, your boss won’t give you a raise for being nice. You’ll have to put in the work to earn it.
He suggested asking for a meeting with your boss months before your performance review and establishing that you want to become a top performer. Get specific numbers and percentages from your manager for what you’ll need to accomplish to exceed expectations. After the meeting, email your manager a recap of your one-on-one so that you can reference it in your performance review.
Once you’ve done that, all that’s left is to work hard and deliver exceptional results.
Pick Up a Side Gig
For those with extra time, Sethi advised finding ways to use your existing skills to earn more income. People will pay for things they don’t have time to do or things that you didn’t realize you were good at, such as analyzing Excel spreadsheets or walking dogs.
Side jobs like these can start small, putting a few extra dollars in your pocket. However, they could balloon into a full-blown business down the line.
Optimize Spending
The final part of Sethi’s CEO approach calls on you to optimize your spending. You can start this process by negotiating lower bills or debt interest rates.
Negotiate Rent
Sethi explained that most renters don’t realize they can negotiate their rent and often just accept a hike in their monthly rate. By doing your due diligence and tracking the going rates for similar accommodations nearby, you can reason with your landlord to keep your rent as is or even lower it, depending on the market.
Sometimes, the landlord may give you a more favorable price for agreeing to an extended lease. In others, you might get one or two months free so the rental price stays the same on paper.
Negotiate Other Expenses
You can also try to negotiate other aspects of your finances, such as a lower APR for your credit card or better monthly rates for your car insurance. Any reduction in these costs will pay dividends as time goes on. It may not always work, but it’s worth a try.
“Unless you ask, you will never get a lower monthly bill,” Sethi said.
Optimize With Your Credit Card
Another way to optimize your spending is through credit card points — most credit cards have programs awarding you points when you use the card. These can lead to perks, like free flights and accommodations for your next trip, as well as deals on insurance, cash back and other areas, depending on the issuer. You can use these points strategically to maximize your savings.
However, Sethi noted that you should never spend more or put yourself into unneeded debt to gain credit card points.
Use the CEO Approach To Save Each Month
Saving an extra thousand dollars each month might sound impossible at first. However, by cutting costs, earning more and optimizing your spending, you can do it. Use Sethi’s CEO approach to build up your savings, save for your dream home or have more money for guilt-free spending.
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