Insider’s experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.
Ramit Sethi, author of the bestselling personal finance book “I Will Teach You To Be Rich” and a new journal to accompany the book, has seen young people make too many of the same mistakes while building wealth.
The key mistake most young people make, according to Sethi: Waiting too long to start investing.
Sethi advises young people to use compound interest to their advantage and start investing as soon as possible. “Time is on your side. When you’re young, it feels like $100 a month wouldn’t add up to that much. But when you run the math, it’s quite powerful.”
Here are three common mistakes young people make while building wealth, and what you can do instead.
Waiting until your 40s to start investing
Instead: Start investing small amounts on a regular basis
“The No. 1 mistake by far,” says Sethi, “is that young people wait to start investing until their late 40s.” He adds that most young people justify putting off investing because they think they don’t have enough money to start.
However, starting with as little as $50 every paycheck can go a long way in the long run. Instead of putting off investing, do your research and start small.
Waiting until you’ve paid off all your debt to start investing
Instead: Start investing and paying off debt at the same time
“This is part math and part psychology,” says Sethi. “Purely mathematically speaking, if your interest rates are really high, like 9% or more, you should pay that debt off aggressively. But psychologically, it’s important to do both because you are building the habit.”
Sethi recommends paying a little less toward your debts each month, if possible, and using that money to invest small amounts on a regular basis. Once you’re finished paying off your debts, you can redirect that monthly payment directly to investing. At that point, Sethi says investing on a monthly basis will be a habit deeply ingrained in your financial routine.
Not exercising ‘financial discipline’ when investing in trends like crypto
Instead: If you want to invest in crypto, limit it to 5% of your portfolio
“If you’re still going all in on crypto, I’d say that you’re a gambling addict and you’re probably doomed. It’s just a matter of time,” says Sethi.
If you still want to invest in crypto after all the horror stories of people losing their life savings, Sethi recommends limiting crypto to 1% to 5% of your overall portfolio, while keeping the majority of your assets in safer investments, like index funds or I bonds.
Sethi says, “I don’t mind people who decide that they have a fully diversified portfolio, and they decide to take 1% to 5% and have some fun, maybe you 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.”