Ramit Sethi Explains How Automatic Investing Can Grow Your Wealth: 'If You Don't See It, You Won't Miss It'

Ramit Sethi has helped millions of people improve their finances with his book, "I Will Teach You To Be Rich." Many of the strategies he shared in his book still hold value, including automatic investing.

Sethi recently shared an X post that came in response to a question in an online forum. The question revolves around a piece of advice that sounded stupid at first but turned out to be life-changing. 

He used the opportunity to tout the benefits of automatically investing 10% of your income.

"If you don't see it, you won't miss it," Sethi explained. 

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If it's not broken, you don't have to fix it. Sethi has used this approach for various personal finance strategies, including automatic investing. Here's how it can help you.

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Live Below Your Means

Making automatic investments will force you to live below your means. If 10% of your paycheck disappears from your bank account before you have the chance to spend it, you won't think about it.

Keeping the money out of sight also allows your portfolio to compound over time. Some investors do not check their portfolios for several weeks, making them less prone to stressing out about volatility in the stock market.

Living below your means is also a great way to keep spending in control and stay out of bad debt. Automatic investing can also leave you with a sizable nest egg by the time you are ready to retire.

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Gradually Increase How Much You Automatically Invest

Using automatic investing to build wealth can give you more financial flexibility in the future. Sethi recommends investing 10% of your paycheck, but you should strive to raise this percentage by at least one point every year.

For instance, if you contribute 10% of your paycheck this year, you should aim to invest at least 11% of your paycheck next year. These gradual increments won't have substantial ramifications on your ability to cover expenses. You may end up reviewing your budget and removing unnecessary items to make this small accommodation.

However, you don't even have to stop at 11%. If you have the flexibility to go from contributing 10% of your paycheck to 15% of your paycheck in one year, then go for it. An annual 1% bump is the minimum, but feel free to invest as much as you can.

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Keep Things Simple With An ETF

You can buy individual stocks, but an ETF is a lot simpler. Investors can choose from ETFs that mirror popular benchmarks like the S&P 500 and Nasdaq Composite. While you can outperform indices by selecting good stocks, it's riskier to construct a portfolio of individual stocks. 

Buying an ETF instead of individual stocks can also save you a lot of time. You won't feel the need to look at your portfolio and various stocks every day. Instead, you can focus on growing your income while knowing that a percentage of every paycheck is going into ETFs. 

Investors do not have to outperform the stock market to achieve their long-term goals. Achieving market returns may be good enough if you practice effective money habits. 

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