Paid Promotion for Non-Customers: Affiliate links for products on this page come from partners who compensate us (see our advertising disclosure with our list of partners for details). However, our opinions are our own. See how we rate investment products to write unbiased product reviews.
- The most common mistake young people make is that they wait too long to start investing.
- Instead of waiting until you are debt-free to invest, start the habit of investing small amounts now.
- If you are still investing all your money in cryptocurrencies, consider limiting those investments to 5% of your portfolio.
Ramit Sethi, author of the bestselling personal finance book “I Will Teach You To Be Rich” and host of the Netflix show “How to Get Rich,” has seen young people make many of the same mistakes when building wealth.
The key mistake most young people make, Sethi told Business Insider in 2022, is waiting too long to start investing.
Sethi advises young people to take advantage of compound interest and start investing as early as possible. “Time is on your side. When you’re young, $100 a month doesn’t seem like that much. But when you do the math, it adds up pretty solidly.”
Below are three common mistakes young people make when building wealth and what you can do instead.
Wait until you’re 40 to start investing
Instead: Start investing small amounts on a regular basis.
“By far the number one mistake,” says Sethi, “is that young people wait until they are 40 to start investing.” He adds that most young people justify delaying investment because they believe they do not have enough money to start with.
However, starting with as little as $50 in each paycheck can go a long way in the long run. Instead of putting off investing, do your research and start small.
Wait until you have paid off all your debts to start investing
Instead: Start investing and paying off debt at the same time
“This is part math and part psychology,” Sethi says. “In pure math terms, if your interest rates are really high, like 9% or higher, you should be paying down that debt aggressively. But psychologically, it’s important to do both because you’re creating the habit.”
Sethi recommends paying a little less on your debts each month, if possible, and using that money to invest small amounts on a regular basis. Once you’ve finished paying off your debts, you can redirect that monthly payment directly into an investing app. At that point, Sethi says monthly investing will become a deeply ingrained habit in your financial routine.
Failing to exercise “financial discipline” when investing in trends like cryptocurrencies
Instead, if you want to invest in cryptocurrencies, limit it to 5% of your portfolio.
“If you’re still all-in on crypto, I’d say you’re a gambling addict and probably doomed. It’s just a matter of time,” Sethi says.
If you still want to invest in crypto after all the horror stories of people losing their life savings, Sethi recommends limiting crypto to between 1% and 5% of your overall portfolio, while keeping the majority of your assets in safer investments, such as index funds or I-bonds.
Sethi says: “I don’t mind people who decide they have a fully diversified portfolio and decide to take 1% to 5% and have a little fun, maybe invest in alternative assets, individual stocks, maybe even their friend’s bar in Brooklyn. But you rarely see that kind of discipline when it comes to crypto.”
This article was originally published in October 2022.
