Ramit Sethi lays out six steps to build wealth: get your 401(k) match, pay off high-interest debt aggressively, open a Roth IRA, max out your 401(k), use a Health Savings Account for its triple tax advantage, then invest extra money in a taxable brokerage account.
My ladder of personal finance is a good place to start. The first rung starts with your 401(k) through work. Are you contributing to get the full match amount? I'm sure you are if you are watching this video. But just as a reminder, if your company is matching 5%, you want to be investing at least that much. The next rung is paying off any high-interest debt. Now, a lot of people get complacent with just making the minimum payments, even people who have a considerable amount of wealth. If this is you, what you don't need is a big hug and a cookie. You need somebody like me to tell you, stop it. Make a plan to pay off your high-interest debt immediately. It might mean bumping your payments up 20 to 50% more. It probably means you need to cut back on some of your discretionary spending. Make the plan, automate it. The third rung is opening up a Roth IRA. Now, with a Roth IRA, you contribute to it with after-tax dollars, but everything you earn is tax-free after that. It is an amazing account. Be aware of the eligibility requirements for high-income earners. For the fourth rung, max out your 401(k). That means you go back to your 401(k), invest above and beyond your company match to max out the full allowable contribution. The fifth rung on the ladder is something not a lot of people talk about. It's a health savings account or HSA. This is an awesome triple tax-advantaged account. Now, to qualify for these, you usually need to have a high deductible health plan., but an HSA allows you to save money pre-tax for any qualified medical expense. The cool part is that you can actually invest that money. So if you don't actually use the money or need it right now for medical expenses, it grows. For the final wrong, consider opening up a taxable brokerage account. This is something that a lot of people who start to earn money do not realize exists. They think that I'm limited to invest my 401(k) and my Roth and etc., etc. No. If you wanna invest $1 million a month, you can. You open up a taxable brokerage account.
