1. Simplify budgeting
Although Sethi claims he hates budgeting, the alternative he offers is just a simplified budget with another name: conscious spending. Having a monthly or annual budget for household expenses is a common piece of financial advice. In fact, more than 80% of Americans claim to have a monthly budget, according to a survey by Debt.com.
However, having a budget isn’t the same as sticking with it. Sethi believes in keeping things simple. Instead of tracking every small expense each day, he encourages people to create four broad baskets for their monthly expenses. This includes fixed expenses such as rent and utilities, long-term investments, savings and guilt-free discretionary spending.
A fixed percentage for each of these baskets should be easier to track and maintain, he believes.
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Learn More2. Master credit card rewards
Credit card debt is a major concern for many Americans. At the end of the third quarter of 2023, Americans collectively had credit card debt worth $1.08 trillion, according to the Federal Reserve Bank of New York.
Sethi encourages his viewers to not only minimize credit card debt, but turn the game on its head and start maximizing reward points. This technique already seems popular, as 47% of American adults claim to have used their credit cards just to collect points, according to a survey by Finder. Some consumers are even “card churning,” which means rapidly switching cards to collect sign-up bonuses.
If you have a rewards card already, consider ways you can maximize your points to collect additional rewards. But be careful you’re not overspending simply to collect points.
3. Automate personal finances
Another way to simplify your finances, Sethi says, is to automate your cash flow. Setting up autopay for your cards or auto-deposit for your investment accounts can help you stay on track.
For example, tech-enabled investment platforms allow users to auto-deposit funds or auto-invest in stocks on a recurring basis. These features could be a critical tool in your long-term financial plan. Auto-investing in a dividend or income fund could generate passive returns every month over an extended period.
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The final step is to pick the right investment strategy. There’s some evidence to suggest a low-cost index fund is a good option for most investors. Even legendary investor Warren Buffett is a fan of passive index funds and recommends them for everyday people. A Morningstar analysis of stock market returns found that the majority of actively managed funds underperformed passive index funds over a 20-year period.
While young Americans seem to be turning torward equities and mutual funds, here’s where Sethi diverges from the norm. He believes there’s a better option: target date funds.
“They’re fantastic for people who want their money to grow with the least possible effort,” he said. “This is the option that I recommend to my family.”
Simply put, a target date fund is a passive investment fund that automatically accounts for risk. Investors can pick a set target date for their tentative retirement, say 2050. A fund that targets this date will automatically divert more funds to bonds (versus stocks) over time to reduce risk as the investor gets older. In other words, the fund gets more conservative over time.
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