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Summary: A light-hearted approach to set yourself up to become rich through a 6-week program.We need to know about a few things to invest in, and then we need to let our money grow for 30 years. - @Ramit Click To Tweet
As I explained on PB84: Automate Your Way to Saving 1x Your Income, I don’t need to become a bodybuilder to lift weights, and I don’t need to become a financial expert to invest intelligently. You are no different. Most of us don’t need to become experts at any one thing to generally understand the pros/cons. With few exceptions, the stock market is still the easiest way for most individuals to make the most amount of money over the long term. If you’re lucky, you can make a lot of money quickly, but most folks will need their entire working lives. This sounds like a long period of time is it?
For starters, most of you are already working anyway. Some will work for money forever, because all they’ve ever learned how to do is exchange work for money, and others are looking for another way. There’s nothing wrong with working all your life. After all, that is what most people will do. There is, however, a problem with working all of your life and having nothing to show for it in the end. If you choose to get over the ‘getting set up’ hump, financial independence might look something like this.
I Will Teach You To Be Rich
Keeping with my promise to read each personal finance book so you don’t have to, here is an abridged version of Ramit’s 6-week program for building riches:
- Optimize Your Credit Cards
- Beat the Banks
- Get Ready to Invest
- Become a Conscious Spender (save hundreds per month without a detailed budget)
- Save While Sleeping (automate your accounts — you may have noticed a theme)
- Realize You Don’t Need Financial Expertise to Optimize Your Investments and Savings
Spoiler Alert: I’m not rich, yet. But, here’s what I learned from I Will Teach You to Be Rich.The single most important factor to getting rich is 1) getting started and 2) starting early. Click To Tweet
Getting Rich Made Easy
People love to argue minor points, partially because they feel it absolves them from actually having to do anything.” – Ramit Sethi
Credit Card Optimization
Learn to ignore credit card offers. If you even need a credit card at all (we offer a free research tool at PaychecksAndBalances.com/Tools), you should research the card best suited to your needs. Most of the free offers that come in the mail are not best-suited. They are solicitations. Instead, find one or a few cards (Ramit recommends opening no more than one card a year) that amplify your lifestyle and pay the card’s balance in full each month with auto pay.
The single most important thing you can do to improve your credit is to pay your bills on time.” – I Will Teach You to Be Rich
For example, if you travel a lot, a travel card may be better than a points/reward card, but if you like online shopping then the latter might do the trick. Don’t just blindly choose a card or take the first offer you get. If you already have a card you like, try calling your issuer and requesting they lower your APR. Why? Because, why not?
Make sure they don’t need to conduct a hard credit check, and you’ll have everything to gain and nothing to lose. Assuming you responsibly paid off your debt, then the following spending allocations are your new #LifeGoals. Automate the payments based on your pay schedule (bi-weekly or monthly). For more details on this spending plan, click here.
How to Beat the Banks
Managing your money has to be a priority if you ever want to be in a better [financial] situation than you are today.”
With the surge in online banking, many offer higher interest rates on their saving (or money market) accounts than traditional banks. In some instances, they’ll still require you to have a main bank, so don’t close your account. However, a 15-minute online search may help you find a higher interest paying account.
If you already have money laying around or want to start saving for an emergency fund, make your money work for you by reducing your chances for overdraft fees – a billion dollar industry for your bank – by starting an emergency (aka freedom) fund and maximize your return on savings. Yes, interest rates are at historic lows so you won’t be rolling in money but anything > nothing.
As an added bonus, maintaining a separate account can help you focus on your long-term goals. Most of us — including the author of this post — do not have the personal discipline to keep our “savings” in our checking account. Suddenly, every weekend is an emergency expense. Beat yourself by playing the game better. Ramit recommends you leave only one and a half months of living expenses in your main account and put the rest in a high-interest earning savings account until you reach 3-6 months (or whatever your savings goal).
You Don’t Need to Be an Expert to Get Rich
Getting started is more important than becoming an expert. - Ramit Sethi Click To Tweet
Although some people are limited by circumstances, most people will never get rich simply because they have poor attitudes and behaviours about money. … Experts can’t guess where the market is going. – I Will Teach You to Be Rich
For most folks, “investing” will be the most intimidating area to conquer. For one, it may be completely new. For two, it’s completely confusing to everyone.
Reality check: even investors don’t know everything about investing. Knowing how to invest doesn’t make them any smarter than the computing power of your average smartphone. A couple interesting quick facts:
- Dollars and Sense: 1 in 2 Financial Planners don’t have financial plans themselves; and
- According to I Will Teach You To Be Rich, 3 out of 4 fund managers fail to beat the market.
I’m not saying there arent’s smart people who are financial planners and investment advisors. I am saying that giving advice is the easy part, regardless of industry. Just reflect back on all the years of great dating/marital/parental advice that you’ve given just this month…that you never seem to follow yourself. Giving great advice is easy because great advice boils down to regurgitating ‘the right thing.’ Everyone secretly knows that giving this advice is easy. It’s consistently doing the right thing that is the hard part.Of America's millionaires, 80% are first generation affluent, meaning their parents weren't rich.' Click To Tweet
If following objective advice devoid of emotion was easy, we’d all be rich and happy already. So if not being an investment ‘expert’ has stopped you from investing, that’s not a good reason. Unless they’re psychic, no one is a financial expert! If you’re still not convinced, use a robo advisor. It’s likely smarter than you — and any financial *expert* you could afford. Alternatively, thanks to the rise in ‘Target Date’ index funds — a collection of stocks managed by computers to match the market — there are more opportunities than ever to conservatively, yet responsibly, invest for newcomers.
Hashtag, no excuses?
Hey There, Conscious Spender
Spend extravagantly on the thing you love, and cut costs mercilessly on the things you don’t. The simple fact is that most young people are not spending consciously. We’re spending on whatever, then reactively feeling good or bad about it.” – Ramit Sethi
I’ve come to accept that people underestimate the importance of the mental part of their journey to financial freedom. “Mind over money,” is a catchy slogan that I’m far too lazy to put on a shirt but not lazy enough not to sue you for if you steal my idea. Ramit’s recommendations aren’t much different.
Like me, he believes that for most people a budget is pointless (budgets suck). If the point of a budget is to make people more disciplined, then most fail miserably. In reality, most individuals cannot stick to a budget for a long period of time, especially the long period of time needed to sustain financial independence. More importantly, most budgets don’t guarantee long-term financial freedom anyway. They do guarantee short-term miserableness.
To get around this, I Will Teach You To Be Rich suggests aligning your spending with your values/goals.
Id rather people cut their spending by 10% and sustain it for 30 years than cut 50% for just a month. Click To Tweet
American culture doesn’t help us think about investing our money. We see shows that show us the results of being rich, not how to get there.”
Make Money While Sleeping
Investing isn’t about picking stocks. A drop in the stock market is a good thing for young people. It means investments are essentially on sale. … If you want to build wealth over your lifetime, the only sure way to do it is to get your plan on autopilot and make everything that’s financially important in your life automatic.” – I Will Teach You to Be Rich
According to Ramit, with a long-term investment strategy (5-years or greater), the fluctuations of the stock market are largely irrelevant if you start early, remain consistent, and maintain a balanced investment portfolio. For most individuals, this will be through their employer as a 401(k) or 457(b). Some may use an IRA (individual retirement account) at their bank or online provider. The entry to investing is easier and the fees are lower than ever. In none of these cases is there a good excuse for someone not to invest at all.
If you need your money in fewer than 5 years, put it in a high-interest savings account. But don’t make the mistake of keeping your money in a savings account just because you’re too lazy to take the time to learn how to invest it. – Ramit Sethi
A reasonable excuse you might come up with: I don’t know how to allocate my non-existent investments, so I haven’t prioritized learning how to do it, yet. What might a reasonable allocation by age look like? There’s a pic for that.
To date, Ramit’s book has offered the most Millennial-friendly financial advice I’ve read. It’s straightforward, simple, and actionable.
Each chapter ends with a literal to-do list; he directs you to the exact accounts and services to use; and he offers a free PDF covering all the worksheets and tips with book purchase. In addition, his blog is free at IWillTeachYouToBeRich.com covering much of the same information. If you don’t want to learn to be rich, you’d have to actively ignore each chapter.
There aren’t any secrets to getting rich–it just takes small steps and some discipline, and you can do it with just a little bit of work. … If you’re not investing in the long term you’re losing money every day. It costs you money to park your money in a savings account as inflation eats into your earnings.”
The catch: like most realistic personal finance plans, depending on your consistency and return on investment, Ramit’s strategy takes anywhere from 10 to 30-years. Mathematically, does it make sense? Yes. The figures all add up and the advice is sound. In practice, does it actually work? That will depend on you.
I’ll keep reading and sharing, but I can now promise you already have all the information you need to become financially independent. The best time to start was yesterday. The next best time is today.
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