8 Decisions That Will Make (or Cost) You $1 Million

It's not that hard to predict if you're going to become a millionaire. After 20 years working with high earners, entrepreneurs, and couples, I have found there are 8 differences between those who build real wealth and those who stay stuck. And it's not their current income. It's certainly not their intelligence. Instead, there are just a handful of decisions, decisions you might be making right now without realizing it. And those unconscious decisions could be costing you hundreds of thousands or even millions of dollars over your lifetime. The smarter you are, the more likely you are to make them. In this video, I'm going to walk you through those 8 factors that determine whether you will end up a millionaire, including one factor that if you miss it, can erase 10 years of smart money decisions in an instant. Let's get into it, starting with number 1, investing today versus 10 years from now. There is a common default decision that could be costing you about $650,000. $100,000 without you ever realizing it. It is the decision to wait to start investing until you feel ready. Now, you might wait until your loans are paid off, until you move into a new place, or until you start making more money. I know someday soon. I want to show you exactly what waiting is costing you. Here's the scenario. Two people, same income, same circumstances. Just one change. One starts investing $500 a month at 25. The other starts at age 35. Let's fast forward to age 65. The person who started 10 years later has grown their investments to about $585,000. But the person who started at 25, just 10 years earlier, has over $1.2 million. Do you see what happened? A simple 10-year delay cost over $650,000. That's $65,000 every single year waiting for the right time. This is why investing earlier is so powerful that you can even beat someone who makes way more money. I'll show you another example. Let's say Person A invests $200 a month for 10 years starting at age 20, and then they stop completely. Person B invests that same amount for 20 years. That's twice as long, but they start at age 45. That's quite common. Sometimes you have these outliers who start investing early, and then you have much more commonly people who start start getting serious about investing around their 40s. But what is the result? Person A, who stopped investing at age 30, ends up with over $260,000 more than Person B. And Person B invested for twice as long, but they started later. So what does it mean? Basically, you better make time your best freaking friend. Stop waiting around. Stop saying, I'm going to do it someday. You remember what my old personal trainer told me about doing more pull-ups? I was wondering, what other exercises can I do to do more pull-ups? He goes, you want to do more pull-ups? Do more pull-ups. You want to make more money? Invest more money right now. Here's what you do. Open an investment account today. You can use Vanguard or Fidelity or Schwab. You can check out chapter 3 of my book for specific advice on how to do this in 1 hour. Get it at the public library. Next, set up automatic monthly contributions so you do not have to think about this again. Finally, do not wait for extra money. My suggestion to you is to target an investment rate of 10% of take-home pay. But if that's too much, start with 5%. Increase it by 1% every December. Whatever you have to do right now to get the ball rolling. Because once you do, you're not even going to notice the money is gone from your account. Remember, starting early is essential when it comes to investing. But there is one legitimate reason to delay before starting to invest, and most people treat it like background noise. Number 2, carrying high-interest debt. You think I'm going to sit here and lecture you about your credit card debt? No, I'm just going to show you the math that is going to crush you and you don't even know it yet. Carrying high-interest credit card debt is one of the most dangerous things you can do for your money. But so many people have grown up seeing their parents in credit card debt that they just think it's normal. Here's why this type of debt is so destructive. Credit cards compound against you on average about 27% a year. Compare that to what you could make in the stock market. Real returns over the last 40+ years, 7%. Let me show you the difference between these two numbers. Even if you are doing everything else right, you cannot beat the interest rate that your credit cards are charging you, 27% per year. It's mathematically impossible for you to consistently get the same anywhere else. So you got to get out of this cycle. Let me say that again. Stop the gimmicks. Stop the zero balance transfers. You need to make this a key priority if you are in credit card debt. Here's what you do. Start by dispelling the myth. Your credit card APR is not fixed. A lot of times it can be negotiated down. I have word-for-word scripts for exactly what to say in Chapter 1 of my book, and you can often get your APR lowered just by calling your credit card company. Next, I want you to stop treating the balance like it is a permanent part of your financial life. It's not. Paying the $150 minimum payment is not enough. I want you to treat credit card debt like an emergency because until you solve this problem, it's like going swimming with a 50-pound weight on your back. You just cannot move forward until you get this thing off your back. Once you have eliminated that high-interest debt, you are ready for the next moves that can build real wealth. But there is a common fee that many of us ignore that takes hundreds of thousands of dollars away from even the smartest investors. Do you know what it is? Number 3, paying 1% fees on your investments. 1% doesn't sound like a lot, but that is the amount that many financial advisors are charging you or certainly your parents. Like if I took 1% out of your bank account, you might not even notice it. But what if someone took a quarter of your bank account balance away? Would that set off some alarms for you? Probably. Yet that is what most financial advisors do in the way that they charge. Many of them charge a 1% AUM fee, assets under management, on everything that you've invested with them. And over your lifetime, the math of investing blows that 1% up and costs you about 28% of your total returns. I'll show you the math. Let's say you start with $50,000 and you invest $1,000 a month with a low-cost index fund. After 35 years, you'd end up with about $2 million, which is great. But what if you put that same investment into an account that costs you 1% annually? You're paying your financial advisor 1%. That doesn't sound like much, right? The amount you would have in your account at the end drops by over $400,000. So where did that $400,000 go? It went to your advisor 1% at a time. Let me tell you why this math is so counterintuitive, because you're not just handing over 1%. You are handing over the compounding that 1% would have given you if it had stayed invested in your account. In the example I just gave, it's like you're handing over $980 to your advisor every single month for 35 years. That's if we spread it out. That's an expensive subscription, and your advisor is almost certainly not beating the market. No advisor is consistently beating the market. Remember also that that fee is backloaded. In the early part of your investment, it doesn't cost you that much because you don't have that much under management. But as you get older and less likely to switch away because you've gotten comfortable, you are often paying tens of thousands of dollars per year in fees. Now, I don't mind. You want to buy a beautiful sweater for $5,000? God bless. You want to take a trip that costs you $75,000? Okay. But almost nobody who pays 1% AUM truly understands how much it is costing them. Now, most people can manage their money just fine. In fact, I'll give you some specific recommendations, including picking a low-cost index fund at any of those institutions I've mentioned. You can see them on screen right now. You can set up an automatic transfer every month to buy the fund. It's super low cost. It's almost free. That's it. If you truly need personalized financial advice, Find someone that you can pay a flat fee to or an hourly rate, never a percentage of your assets. That is where having expert guidance can make a massive difference, and it's where our partners at Facet can help. Facet offers dynamic financial planning that evolves with you, including monthly check-ins to help you stay accountable so you can stay on track with your financial and retirement goals. All Facet planners are CFP professionals and fiduciaries supported by a team of specialists. The best part is that unlike traditional advisors who charge a percentage of your assets, which can easily cost tens or even hundreds of thousands of dollars over your lifetime, Facet charges an affordable flat membership fee for financial planning. I've worked with them to help many couples on my podcast understand scenarios like if they can retire early, pay for their kids' college, or be more generous. If you have ever wished you had a smart team to help guide your biggest financial decisions, Check them out to see if their financial planning is a fit for you. Head to facet.com/Ramit or click the link in the description below to learn more. That's facet.com/Ramit. Now there is a trap that still catches people who do all of this correctly. It actually has nothing to do with the market. And that is number 4, unconscious spending. 1 in 3 households earning between $100K and $150K a year still worry about paying their bills. Even when your income goes up, people's anxiety around money stays the same. Let's say this is your income and this is your spending. The income line you see here isn't what builds real wealth. It isn't your spending either. It's the gap between the two. The space here. That's what matters. And for most of us, whenever our income goes up, we don't increase that gap. Most people unconsciously take a bigger paycheck and they go and buy a nicer car, a bigger apartment. More expensive dinners out. Now, please remember, I don't mind you spending more money. In fact, if you make more, you should spend more, but you should also save more and invest more. But what most people do is as their income rises, unconscious spending also rises. They're not even thinking about this. Some people call this lifestyle creep, but personally, I don't even believe in lifestyle creep. Remember, if you make more, you should spend more, but you should do it consciously. Before you upgrade your lifestyle, start by potentially upgrading your investments. Then start by increasing your savings. If you have debt, particularly at a high interest rate, you may want to pay that off and then take some of the money and go and have a great time. You want to get a drink? You want to take a trip? Do it. But focus on the wealth building areas first. For example, your investments should already be automated. So the only move you need to do is to increase the investment percentage. Maybe you're currently investing 7%. Bump that thing to 9%. Have a nice time. You just made an extra hundreds of thousands of dollars over the course of your lifetime. Keep your investments at 10% of take-home pay or more as your income grows and let your conscious spending plan handle the rest. If you want to download my conscious spending plan for free, you can get it at iwt.com/csp. Then upgrade your life. Just do it consciously. Instead of increasing every area of spending without thinking about it, focus on the key money dials, the things you truly love and want to spend more on. Otherwise, you end up just being a statistic. Six figures coming in, but still feeling as stressed as ever. Can I tell you all something? I knew that when I went through life, I wanted it to become easier. I don't want to play life like a freaking video game where as I progress, it gets harder. No. Life should be getting easier for me. That means that I am making plans for how to spend my money, how to invest it. And then when I make more, I am actually using it to buy back my time or to go to a nicer restaurant or a nicer hotel. Those are the things that are important to me. I want you to have the same level of specificity for your rich life. If you can control how you spend your money as your income grows, you will be far better position to grow your wealth. But there is one purchase that many of us, especially in America, are conditioned to make from an early age. And that puts even the most financially savvy people behind. Before I share that, I need to be honest with you. Even if you avoid management fees, even if you pay off your credit cards and start investing early, if you haven't done the basics to automate your money, much of the rest is not really going to work. Do you have an actual plan with your money? If I asked you today, of the next $1,000 that you earn, where is it going to go? What percentage is going to vacations? What percentage is going to spending on childcare? What percentage is going to your mortgage or your rent? Would you know? Most people do not know these basic key numbers. And so they go through life just trying to figure out, what do I do? Whoa, I made this extra money. Where should it go? Ah, why can't I pay my bills on time? There is a different way. You should actually be super calm about your money. Your money should flow like water. And that's why I created Money Coaching. Inside the program, I'm going to walk you through setting up your entire financial system in just 48 hours. Imagine 2 days from now, you're going to know the answers to those exact questions. We're going to open up the right accounts together, automate your investments, and build a plan so you know exactly where your money's going, how much you're going to have at retirement. Can you retire early or afford that vacation next year? You will get live calls with me to answer your specific questions. You will get step-by-step playbooks you can use right now and a community that is just like you and can answer your questions because they have built their rich lives. This is how you go from avoiding your money to taking control. We've got built-in accountability and you will get real results fast. If you are ready to stop avoiding your money and start building your system, Scan the QR code here or click the link below to join money coaching today. Here's one thing you must avoid doing now if you want to get ahead with your money. Number 5: Buying a house without thinking it through. Okay, tell me if you've ever heard this phrase: "If you rent, you're just throwing money away." This is one of the most powerful invisible scripts in America, and it leads a lot of us to make the biggest financial decision of our lives based on a feeling without actually running any numbers. Let me put it bluntly. If you decide to buy a house based on whether you can afford the mortgage payment each month, you are making a mistake. You're only looking at part of the overall picture. Let me show you. Take a look at this graphic. Here's your mortgage payment on a $500,000 house. Do you notice that is a really small part of the entire chart? Are you curious what the rest of it is? These are your phantom costs. These are costs that people don't ordinarily think of or calculate. They include property taxes, insurance, maintenance, one-time closing costs, opportunity cost of your down payment, and more. I call these phantom costs because they are invisible to most of us, but they are very, very expensive. So if you make a decision based only on the monthly payment, you're making one of the biggest decisions of your life essentially blind. Have you heard people right now talking about how expensive their property insurances. It's going up and up. Sometimes it's costing them hundreds of dollars more every single month. You need to understand this concept because you think, oh, my mortgage is a fixed rate. It's not going to change. Yes, but all the other expenses will and they will go up. Let me give you another example that will shock you. I was living in New York and I ran the numbers on buying a very similar apartment to the one that I was renting. It was right outside my window. Same square footage, same number of bedrooms and bathrooms. And when I looked at the result, I discovered it would have cost me over twice as much to own that apartment versus renting it. I'll give you a math example. Let's say I was paying $3,000 a month to rent. It would have cost me $6,600 a month to own the equivalent property. So you know what I did? I loved where I was renting. I didn't have to maintain any of it. The landlord took care of that. So I took the difference $3,600 per month and I invested it in the market instead. And I made more money renting and investing than I ever would have by owning. Please stop. I know what you're about to do. A bunch of keyboard warriors are gearing up, puffing their chest out. Smoke is starting to come out of your keyboard as you write this comment. "Yes, but what about equity?" My equity happens to be in the top 500 companies in America. And it's liquid. If I want that money today, I don't have to pay freaking 6% transaction fees. It's liquid and it is large, much larger than I ever would have had by buying. Please, before you make the biggest purchase of your life and certainly before you leave me an ignorant comment on YouTube, just run a freaking buy versus rent calculation. I recommend the New York Times buy versus rent calculator. Fill it out, put the costs in there. It automatically calculates rent increases and all those things you're about to comment to me. and it will give you a more realistic estimate of TCO or total cost of ownership. Yes, it depends where you live, but right now it's more expensive to buy than to rent in 100% of the top 50 US metro cities in America. Next, I want you to treat your house, your primary residence, as a lifestyle purchase first, not an investment. If you wanna buy because you have non-financial reasons to buy and you wanna factor those in, great, you should. Things like school district or ability to redecorate, or you just love it. Those are fine, but always start with running the numbers first, then the non-financial considerations. I want you to also factor in mobility. If you are young, for example, if you're in your early 20s, in most cases, in my opinion, it makes no sense to buy because what is important to a 20-year-old who's beginning their career? Mobility. The ability to move for a different career opportunity. But if you are locked into a home especially one where you do not want to sell in sooner than 10 years because of all those expensive phantom costs, then you are potentially slowing your career growth down. Now, there is one financial lever that has no ceiling, but a lot of people never factor it into their money equation. And I am talking about number 6, underinvesting in your career. Let me tell you the story of Sophie, who saved every penny she had for a decade. She skipped vacations. She cut her spending down to the bone. She was incredibly efficient. But in those 10 years, there was one thing that she never changed— her income. She never asked for a raise. Do you know people like this? They focus on controlling their costs and they're good at it, but they do not think about the other side of the equation— increasing their income. I personally find it to be a tragedy when we play small, when we live a smaller life than we have to. Because in reality, if Sophie had had one simple conversation, a salary negotiation, she could have earned more in that one move than almost everything she saved over that decade. And if that salary increase had been invested, it might have earned hundreds of thousands of dollars on top of the raise itself. I want you to stop focusing on optimizing tiny money decisions. Hey everybody, um, if I get the generic jelly beans, I can actually save $0.26 cents. And if you compound that over 45 years, it's a considerable amount. No, it's not. Get the freaking jelly beans and focus on negotiating your salary. Earning $10,000, for example, early in your career is not just an extra $10,000 a year. It raises your baseline for almost every job you take after that. Too many of you are focusing on saving the freaking tartar sauce from Long John Silver's instead of learning how to have a salary negotiation. Do not make the same mistake. Negotiate your offers. You don't have to accept the first number that's given to you, and you should come prepared using my briefcase technique, which I've talked about elsewhere on my channel, to show your company how you will add more value. Beyond that, focus on building rare and valuable skills. And if you don't know what these skills are, ask your boss. Ask them, hey, I want to increase my salary. What skills do I need to build here that would allow me to do that? Upgrading your skills usually costs a fixed amount of time or money, but allows you to move into higher and higher paid roles. Remember, making more money is a skill. It does not just happen accidentally. Nobody just walks into their— oh, feed me more money. That's not how it works. It's a skill and you can build it. Sometimes you can switch jobs strategically. A lot of people get massive salary increases by switching company when the time is right. If you find yourself plateauing at one employer, they will not negotiate salary, then you may want to make a decision to make a move. But even a high income does not guarantee wealth if you ignore one of the biggest money decisions of all, which is number 7, the person you partner with. Some of you make horrible decisions about your relationship. What the fuck is wrong with you? Um, I'm not sure why my partner is in credit card debt. Oh really? How long has he been in debt for? Um, since we met, but also 20 years before that. Gee, I wonder why this person is continuing the exact same pattern they've been doing for their entire adult life. Who could have known? Except everyone. Who you choose to spend your life with does not seem like it would be a financial decision. It's about kisses and love. Y'all are living in a freaking Disney movie instead of realizing when you get married, you are creating a business. The business of running a household together. If you are getting married and you are not talking about numbers, what are you doing? I speak with couples all the time who've been together for years, sometimes decades, and they haven't talked about their debt. Goals. They haven't explicitly talked about what they want their lives to look like financially. I would rather that you have a conversation where one of you says, "Hey, I want to get to the point where when I go to the grocery store, I do not have to look at the price. What will it take for us to get there?" We could knock that out in 10 minutes. I could do it before the end of this video. But if you haven't had that conversation, you got to ask yourself why. Sometimes we just avoid it. And wherever there is silence, Financial decisions get made unconsciously. The truth is financial conflict is one of the top relationship stressors. I have an entire podcast where I introduce you to couples and they talk about real numbers, their income, their debt. It's fascinating to hear these conversations. I also have a new book, Money for Couples, where I show you and your partner exactly what to say so you can get on the exact same page, including the right accounts and how the money should flow. Your partner can either be your greatest financial asset or they can derail your money completely. Imagine you decide to go for a little swim. You say, hey, I want to swim to the other side of this small little river, but you have a 55-pound anchor sitting on your back, and that anchor is also pulling you in a different direction. It would be impossible to swim across. I would rather you have a financial partner where the two of you both look where you want to go. And you both work to get there together. Any of these issues with money need to be worked out early. But if you've been together for a while, it's never too late. You can revisit these conversations regularly and you can move and make faster progress than you ever thought possible. Here's what's helped the hundreds of couples that I have spoken with and my own relationship. We talk about money early and often, often. I'm talking about weekly or certainly biweekly. We have a standing meeting with an agenda. Is it weird? Yeah. Do I care? No. If you take things seriously at work and you have standing meetings with agendas, you should do the same thing with the business you run at home. You're talking about things like what is our philosophy on spending? You should have one. What do you value spending on and what do you not care about at all? You should have this written down as a list. You want to get aligned and then every 6 months you can revisit and change it if you need to. You also want to discuss your debt and goals before you combine your finances. How much do you each make? How much do you each owe? Do you know that 50% of the couples I talk to, married couples, do not even know their own household income? Do you and your partner? I bet half of you do not. Finally, I want you to create a rich life vision together. What do you want your rich life to actually look like? This should actually be exciting and fun. Now, I show you how to do all of these things in my new book, Money for Couples, including the word-for-word scripts on how to approach these delicate topics with your partner so that if they're a little defensive or if one of you is not involved in the money, you can actually come together to create that rich life. But what makes all of these decisions stick? Well, there is a mistake that derails the best investors, even when they are aligned with their partners. Now, before I get there, if you are watching this right now and you are not yet subscribed to this channel, hit the subscribe button and turn on notifications. Notifications, you can tell that the material in my videos is not like anything else you will find online. I'm going to be sharing more videos about money psychology and investing, and you want to be notified when those drop. Number 8, trying to time the market. A lot of you need to stop right now. Just look at your body. You can't even control your own body. Hands moving everywhere. Can't keep your mouth straight. Stop it. You're doing the same thing with your money. The way that people behave with their money is like a toddler coming in when you're trying to make dinner and then they start throwing shit everywhere. Oh, here's a knife. Oh, here's a fork. I'm going to stab myself in the forehead. And you're like, can you please leave? I'm trying to make dinner so that you don't starve to death. Well, that's what you're doing, except in this case, you're not the cook. You're the toddler. You log into your account. You get scared of something you see in The New York Times. You decide to sell or move investments, but you don't know what you're doing. You just stabbed yourself in the forehead as an adult. Stop it. You do not need to be moving and trading. You need to be calm and automatic with your investments. Oh, I saw this thing about silver in the New York Times yesterday. Do you think I should pull all my money? I literally get 50 emails a day saying that. Hey Ramit, with all the stuff that's going on, what should I do with my investment? How about nothing? Because the investors who get the most returns do something called buy and hold. What's that second word? Hold. They let the money grow and compound in the market. For a lot of us, this feels wrong. Especially when we see the news talking about a market crash, we get scared. Our instincts kick in. We want to protect our money and we think, whoa, if I pull out right now, I'll just put it back in when it goes in. You don't understand the math. And that's what I'm here for. It feels smart, but this is just a sophisticated version of panic selling. And when you do this, it can cost you dearly. Look at this study from 2004 to 2019. If you invested $10,000 and kept your money in the market for 15 years, you'd end up with $30,711. But if you missed just the best 30 days of investing, you would only have $6,873. From $30 grand to $6 grand. Here's the key: you don't know which days are the best investing days. Nobody can predict. So you simply keep your money, let it grow. Even if it goes down a little bit, We know that over time, historically, we have seen the market continue to grow. What matters here is time in the market, not timing the market. You cannot predict which days are going to matter most for investing. None of us can. That's why the smartest move is to realize you're not going to be able to outsmart the market and just stay in. I think this is really hard for people, especially people who are intelligent in one other part of their life. They become too smart for their own good. And they start to think that they can predict what's going on. But if I ask them 2 or 3 questions about investing, like, do you know about the Putnam Study? Do you know about timing in the market and buy and hold return? They have no idea. They are reacting emotionally, but they are trying to cover it up with logic. Sometimes the very best thing you can do is just stop, stay put, look around, chill. When things look scary, I want you to zoom out. Don't focus on this week. Look at the 10-year performance. What feels like a crisis in the moment is almost always a blip with some perspective. Automate your investments so money goes in every single month, whether the market is up or down, and remove yourself from the decision. You think I'm sitting here looking at the news and deciding when to invest? No. My investments happen every single month automatically, whether I am in town or traveling, whether I'm tired or not, whether I just ate a bowl of strawberries or— it doesn't matter. The investments happen. Next, stop watching the daily financial news. Who am I kidding? You freaks are not watching news. You're watching some scammer on TikTok in front of a whiteboard wearing Under Armour shirt saying, hey everybody, here's a cool whole life investment alternative that can make you a lot of money. Stop it. Why do you love to be scammed? Do you know how many people say to me, Ramit Sethi, that can't be true? Why would you talk about index investing? You're obviously trying to make money off us. There's this alternative investment. I'm over here trying to give you free advice. For investing your money in low-cost index funds. But a lot of you want to be scammed. A lot of you want the get-rich-quick material. And then when it doesn't work, I never hear from you again. You simply vanish and disappear, never realizing that your desire to make money quick was just a get-rich-quick need. That's it. Stop it. Y'all are causing yourself a lot of heartache. You could just sit, make the money grow automatically and Go and have a burger. Think in decades, not days. Remember, you're not building wealth for next year. You're building it for decades from now. And if you want to hear about the 20 most common things we spend our money on that are actually a complete waste, check out this video next.