Welcome to five minutes five ideas. I'm your host Samanvay. Today we're going
to talk about five lessons I've learned from the book I will teach you to be rich
by Ramit Sethu. This is a personal finance book geared towards twenty to
thirty five year-olds. Over the last week I've really enjoyed reading it and I'd
recommend it to anyone looking to level up their finance game. So let's get into
it. The first lesson is the difference between online banks and big banks. We're
all too familiar with the brick and mortars bank where we first opened our
bank account. These are the banks with branches in every city and personal
customer service. Big banks make most of their money through fees. In 2018 alone
banks in Australia made 13 billion dollars solely in fees. This is where
online banks come in. They allow you to open an account for free, allow you
access to better savings rate and allow you 0 withdrawal fee at most ATMs locally
and internationally and they can provide you with all of those benefits due to
the lack of physical branches and significantly less overhead. Let's take a
look at this graph which compares the interest rate you would get at a big
bank as opposed to an online bank. It's important to note that the inflation
rate in a country like Australia is about 1.61%. The money you have in a
savings account with a big bank is actually losing its value over time and
that's a pretty significant difference. The second lesson I learned in the
book was getting rid of bank fees. Now until Ramit mentioned in the book I had
no idea you could do something like that and I'm sure that's the case for many
people out there and he suggested simply calling up the credit card company and
asking them to waive your credit card fees or that could be any time other
type of fees such as overdraft fee on your debit card or even maintenance cost
of your account but there's a caveat to that that requires you to be a loyal
customer of the bank for a while and ensure that you pay your credit card
bills on time as that's gonna be the leverage that gives you the fee waive
and logic behind that is that it's a lot easier for banks to waive the fee rather
than lose a customer over it because getting new customers is a costly
process. The third lesson I learned is that financial expertise is a myth.
Now when most of us think about it we jump straight to picking stocks or
paying a professional to manage our money the truth is that when you go with
a managed fund which is where you pay advisers to invest your money for you.
They are only able to beat the market less than 25% of the time. Now this is a
stat from 2006 when the book was written but recently when I research I found
that less than 5% of the funds actually beat the market on a regular basis so
you're much better off investing in the market and you can do that through index
funds which over 40 years have had a return of eight percent. Now that was a bit of
an eye-opener for me because it's very counterintuitive to what we're told as
growing up we're always taught to rely on experts speed a doctor for your
medical services or plumber to fix up your house but this claim shows all of
those beliefs out the window and I've definitely read about this in other
finance books and that's also how I do my investing which is primarily through
index funds and into the market the fourth lesson I learned was about
conscious spending. Something that Ramit introduces in the conscious spending
section is the A La Carte method of spending so this is to do with the
expenses of any subscription service it could be a magazine subscription gym
membership or cable TV membership so he motivates the user to cancel all those
subscriptions and turn them on as they see fit and as they use them. So his
thesis is that most people that sign up for a gym membership only go about 4.3
times a month let's say a gym membership is $100 a
month each visit is actually costing you $25 so what if you cancel the gym
membership and buy a one visit pass which could be hypothetically 10 to $15.
So if you're going 4 times you could be spending 40 to $50 a month instead of
$100 a month and slowly if you do end up going more then turn on your gym
membership and I thought that was a pretty intuitive way of spending. The
fifth lesson I learned from book is the 85 percent rule it's always better to go
85 percent of the way then not doing anything at all go ahead and read that
next book about investing go ahead and open up that brokerage account while
you're at it and I thought this was a great rule to a highlight that the most
important bit is just to get started. That wraps up five lessons I've learned
from the book I'll teach you to be rich. I definitely recommend reading the book
if you want to find out more about the topics discussed today. Don't forget to
like and subscribe and I'll see you next time.