Planning your finances at a young age can help you achieve major milestones as you get older. Not everyone has a mentor who can discuss money, and that's why many people listen to financial guru Ramit Sethi. He wrote the book, "I Will Teach You To Be Rich," and has been teaching people about personal finance for decades.
He broke down the ultimate financial plan for young adults who are in their 30s. Sethi identified three things you should do with your money to march toward your goals.
"Build a system that runs in the background," Sethi explained.
These are the other key points he shared in a recent TikTok.
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Automate Everything
Sethi starts by encouraging people to automate their finances. These automations can ensure that you pay every bill on time while investing and leaving enough money for guilt-free spending. He specified fixed costs, savings, investments, and guilt-free spending as the four key buckets for automated transfers.
Personal finance has many moving parts, and consistently forgetting to make investments or pay bills on time can create obstacles on the path to long-term financial wealth. Automating your finances allows everything to run like clockwork.
You'll also spend less time staying on top of your money if you have all of these automations in place. While Sethi recommends knowing your expenses, he's also against obsessing over every dollar on a spreadsheet.
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Max Out Your 401(k)
Sethi's next recommendation is to max out your 401(k) plan. Young adults can't make catch-up contributions quite yet, but they still have high maximum contributions. You either shield your money from taxes until you withdraw it, or you pay taxes now but don't have to pay taxes on any withdrawals.
Maxing out your 401(k) plan is essentially free money, especially if your employer offers to match your contributions. Although traditional 401(k) plans require that you pay taxes on withdrawals, you will likely be in a lower income bracket when you are older, especially if you retire.
You can set up automatic transfers to your 401(k) plan to ensure you make the maximum contribution each year. Making the maximum contribution for multiple decades will add up and put you in a good position by the time you are eligible for penalty-free withdrawals.
Grow Your Income
Sethi referred to income growth as the #1 financial lever you can pull. There is a limit to how much you can reduce expenses, but there is no limit to how much you can grow your income.
Mastering the art of negotiation, developing new career skills, and job hopping can gradually boost your income. You shouldn't settle with your current income and always entertain opportunities to earn more. Side hustles present many great opportunities, and some side hustles can turn into full-time careers that generate more earnings than your current job.
"If your income grows, that solves a lot of financial problems," Sethi explained.
Income growth may be the solution to all of your financial woes, especially if you commit to boosting your earnings over several years instead of settling with your current salary.
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