Save and Invest

Saving is not the key to building wealth—here's what is, says author of 'I Will Teach You to Be Rich'

The typical millennial has about $2,400 socked away in a savings account. But personal finance advisor Ramit Sethi says having savings is not the key to building wealth.

"One of the most surprising things that people don't realize about money is saving is not enough," Sethi, the best-selling author of "I Will Teach You to be Rich," tells CNBC Make It.

Millennials are actually pretty good at saving. Over 40 percent of them report setting aside money on a monthly basis, according to the Allianz Life Generations study.

And while savings accounts can be great for short-term goals, they're not ideal if you're putting money away for longer term goals, like retirement or a house. That's because, if your money is in a traditional savings account, you're probably earning less than inflation, which is how the price of everyday goods increases steadily over time. It's why something that cost $5 in 1980 usually costs just over $15 today.

"What they don't realize and what nobody really tells you is that money is invisibly losing value," Sethi says.

The only way to 'truly grow' your money

Over the long term, the only way to "truly grow that money" is to invest it, Sethi says.

That's a step that still spooks many millennials. Only 12 percent of them use a brokerage account, according to a 2018 Bank of the West study.

But investing doesn't have to complicated or scary, Sethi says. "I log in into my investing account about once a month and I spend less than an hour a month on investing," he says. "It just works automatically."

Your investments should be "low cost and long term," he says. Instead of picking an individual stock, look for a low-fee index fund that tracks the market. This is an approach that's backed by many of the top financial experts and investors, including Warren Buffett.

"Consistently buy an S&P 500 low-cost index fund," he told CNBC's On The Money. "I think it's the thing that makes the most sense practically all of the time."

If you don't want to set up a brokerage account and pick a fund on your own, there are robo-advisors that will guide you through the process. Services like Betterment and WiseBanyan let you start investing with just $1.

"The true way to grow your money is not just to save it," says Sethi. "That's a start, but I want you to go further and start investing."

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