3 Common Mistakes Young People Make When Building Wealth

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  • The most common mistake young people make is waiting too long to start investing.
  • Instead of waiting until you’re debt-free to start investing, make a habit of investing small amounts now.
  • If you’re still going all-in on crypto, consider limiting your crypto investments to 5% of your total portfolio.

Ramit Sethi, author of the best-selling personal finance book I Will Teach You To Be Rich and a new magazine to accompany the book, has seen young people make too many of the same mistakes when building wealth.

According to Sethi, the biggest mistake most young people make is waiting too long to start investing.

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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 doesn’t matter that much. But if you do the math, it’s pretty powerful.”

Here are three common mistakes young people make when building wealth, and what you can do instead.

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Wait until your 40s to start investing

Instead: Start investing small amounts regularly

“By far the biggest mistake,” Sethi says, “is that young people wait until their late 40s to invest.” He adds that most young people justify putting off investing because they think they don’t have enough money have to start.

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However, every paycheck, starting as little as $50, 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 debts to start investing

Instead: Start investing and pay off debt at the same time

“It’s part math, part psychology,” says Sethi. “In purely mathematical terms, if your interest rates are really high, like 9% or more, you should aggressively pay down that debt. But psychologically it’s important to do both because you build the habit.”

Sethi recommends paying off your debt a little less each month, if possible, and using that money to invest small amounts regularly. Once you’re done paying off your debt, you can redirect that monthly payment directly to investing. At this point, Sethi says investing monthly will be a habit ingrained deep in your financial routine.

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Do not exercise “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 into crypto, I’d say you’re addicted to gambling and 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 between 1% and 5% of your overall portfolio, while keeping the majority of your wealth in safer investments like index funds or me bind.

Sethi says: “I have nothing against people who decide that they have a fully diversified portfolio and they decide to take 1% to 5% and have some fun, maybe invest in alternative investments, individual stocks, maybe even.” her boyfriend’s bar in Brooklyn. But that kind of discipline is rarely seen when it comes to crypto.”

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