Ramit Sethi's 'C.E.O. System' Could Be the Key to Saving Your First $100K—And It's Easier Than You Think

Compounding is one of the greatest forces that helps people achieve long-term financial goals and retire with big nest eggs. While it's better to have daily compounding for $1 than nothing at all, it is an uphill battle at the beginning of your journey.

Financial personality Ramit Sethi recently said that it gets much easier to build wealth once you reach your first $100,000. He recently laid out the exact playbook you can use to reach a six-figure net worth, and the C.E.O. system is a key part of the formula.

Knowing the acronym and acting upon it can lead you to a $100,000 net worth. Once you get there, it's easier to set more ambitious goals, such as becoming a millionaire. Here's how the framework operates.

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Cut Costs

The "C" stands for cutting costs, especially on things that you don't care about. If you have never created a budget or reviewed your financial statements, you may be shocked by how you spend your money. Some people find unused subscriptions that have been taking small bites out of their finances for many years.

Just as compounding can help people go from six-figures to seven-figures, this same force can hurt your finances if your spending is out of control. However, Sethi isn't the type of financial guru who will have you cut every possible cost. He believes in spending money on things that matter, as long as you can afford those purchases. Then, ruthlessly cut every type of purchase that doesn't provide meaningful long-term happiness or additions to your life.

You must review your financial statements to discover opportunities to cut costs. If you want to stay disciplined, think about how your life will change if you cut costs, but also think about what would happen if you kept your current course. If you cut expenses, your portfolio can grow faster, and you’ll have less financial stress in your life. 

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However, if you stay on the current route and don't have $100,000 to your name, you will have to work in your 60s and 70s, even if your body can't handle it anymore. That's not hypothetical. Sethi gets emails from people who are in that situation because they didn't save money when they were younger, and he says that those are some of the most difficult emails he reads.

Earn More Money

There's only so much you can reduce expenses before you get into essentials like food and housing. That's why the "E" in the C.E.O. system stands for earning more money. A higher income does not guarantee that you will become richer, but it increases your likelihood of success.

You have many options to increase your earnings. Asking for a rise or working extra hours lets you earn more from your current job. You can also pick up a side hustle to boost your earnings and work additional hours. However, you can grow your earnings at a faster rate by job hopping and learning valuable career skills that will give you more opportunities.

The best way to increase your income is to start a business, but it's also the hardest. There's no ceiling to how much a business owner can earn as long as they have a product or service with significant demand. However, some businesses have plenty of upfront costs, and it takes a while to get established. If you want to start a business, don't leave your day job right away. Give your company some time to get established before you take the leap.

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Optimize Your Finances

Sethi wraps up the C.E.O. system with "O," which stands for optimizing your finances. Although Sethi is against over-optimizing everything in your life, he suggests some automations that can enhance your finances. 

You can set up your bank account so a percentage of every paycheck goes straight to an index fund in your brokerage account. These automations allow you to keep your investments out of sight and out of mind. That's a good formula for people who put their money into funds and can hold their shares for many years.

Sethi doesn't stop with portfolio automations. He also encourages people to set up automations that pay bills and credit card balances. These automations will ensure that you don't fall behind on any payments. It's easy to make mistakes and forget deadlines if you don't automate key actions in your bank accounts. These optimizations can help you avoid high-interest debt, grow your portfolio, and get closer to a $100,000 net worth.

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