Becoming rich isn't something that only happens to Ivy League graduates, elite athletes or lottery winners
Anyone can become rich
What you need to do is to define what being rich means to you
You must start today
You must focus on a few areas of your personal finances where you can achieve big wins,
instead of clipping coupons and saving on $3 lattes
Then you must set up an automated money system and start to invest
Feeling overwhelmed already?
Well, don't! We will go through all of what
I just mentioned in this video
And best of all, after the first set up you will be spending no more than 90 minutes on your personal finances per month
This is a book review/summary of the, in my opinion, 5 most important takeaways from "I will teach you to be rich"
by Ramit Sethi
Takeaway number 1: What does rich mean to you?
First and foremost
You must decide what being rich means to you and become a conscious spender who prioritizes
It's 100% okay to spend unapologetically on the things you love as long as you cut down costs on other stuff
Heck, even Mike Tyson who earned hundreds of millions has been in financial trouble because he didn't spend consciously.
Oh, I see that the Joneses just bought a new Volvo, maybe it's time that we upgrade our own car?
That Armani suit that James had at work today was pretty sweet, I definitely need one of those!
Darling? The Andersons are going to Costa Rica for Christmas. Shouldn't we go to?
It's all too easy to get lost and try to mindlessly keep up with your friends - it can be a full-time job in itself
But you must remember that there's always a trade-off
Sure, you may be able to pick that house that costs
$100,000 more but in that case you may have to say no to buying that new Tesla
Take Mary as an example
She spends $6,000 a year on designer shoes with a $50,000 take-home salary
Do you think that she has control over her personal finances and that she is on a path towards an early retirement?
She is!
Because she shares an apartment with a friend and because she uses public transport
she can easily afford to spend lavish sums on what she loves which is designer shoes and
still be on her way towards financial success
There's power in saying no to things we do not like or need and
there's even more power in saying yes to the things we love
Takeaway number 2: Beware the minutia
Benjamin Franklin famously said: "don't put off until tomorrow what you can do today"
Do you want to know the single most important thing to get rich?
Starting early.
Sure, the best time to start was probably ten years ago for most of us, but you know what? The second best time is today
For example, here's something that you probably can do today:
Set up an online savings account with no fees no restriction on withdrawals and high interest rate
Simply Google: "high interest rate savings account in ....."
But here's where a lot of skeptics and procrastinators stop
How can I be sure that this is the account with the highest interest rate?
This is just an excuse not to get started
More is lost from indecision that from mediocre decisions
Ramit Sethi teaches something he calls the "85% solution"
He says that he would much rather get it 85% right than do nothing at all
Another excuse towards setting up that account today may be:
I only have $100 why bother setting up an account that will generate just a few dollars per year?
It's important to notice that no amount is too small when you are forming great money habits
In fact, the perfect time to start is now because the stakes are low
A recently formed band
shouldn't decline an invitation to a smaller festival just because they dream of filling the Madison Square Garden at some point in the future
They should view it as an opportunity to practice and get better
Likewise, you can't expect to handle millions well, if you are struggling with hundreds of thousands
Beware the minutia. You don't have to get it perfectly right the first time, but you must start at some point.
And today is a great day for that!
Takeaway number 3: Swap your attention from micro to macro
Have you ever heard this before?
Save on three dollar lattes!
Get a temporarily .1% better interest rate by switching to Ally Bank!
Clip coupons!
If there's something that I especially liked about I will teach you to be rich by Ramit Sethi
It's his emphasis on macro over micro decisions
These three examples represent micro decisions
While you may feel like you're automatically a part of the lean FIRE movement by involving yourself in such activities
this is not where the battle is won
This is like the pro
environmentalist who keeps harassing you about cooking your food with a lid on but two flies transatlantic at least four times per year
We should focus our energy on five to ten things that really matter that will yield
exceptional results and good return on invested energy
Here are a few of those big wins:
- Automating your money system, more on this in the next takeaway
- Keeping a great credit score
- Using credit cards to get free cash backs and rewards. By the way,
please comment down below if you know of a card where you live that has great rewards
- Contributing towards a 401k to get at least the full employer match
- Paying off your credit card debt
- Cancel your subscriptions and instead buy monthly. A tip from my brother here if you want to watch a specific series on,
say Netflix for instance,
you can pay the subscription for 30 days and then instantly cancel
You'll have time to watch that series that you created the account for
but you won't end up paying for a product that you're not using, say three months down the line
- Focus on cutting your costs in a few problem areas rather than a little bit here and there.
you know the areas you often tell people that
"Yeah, I've probably spent too much on ....."
- Negotiating a raise
- Doing freelance work
- Buying a house that you can afford
- Buying a car that you can afford and focus on total cost of ownership rather than the price tag
- Allocating your capital right, more on this in the final take away
Feel free to use this as a checklist
If you can get 5 to 10 of these rights, you can buy however many $3 lattes that you want
Takeaway number 4: Set up your automatic money system
We humans are weak, at times. We get distracted,
bored, unmotivated etc, which endangers our prior investing efforts and saving habits
You think that you care but that's probably just right now in two weeks. It will be back to watching cat videos and Netflix again
Therefore, we must set up an automatic money system that can save us from our worst selves
This system will make sure that we stick to our long-term money plan by allocating our income each month for us
Creating an automated money system is a way of doing some work right now
to reap a lot of benefits for years and years to come
By the way, smash the like button if you like benefits for years to come
For your system you'll need:
- A checking account
This is where the money goes first
Think of it kind of like a distribution center
Its main purpose is to feed your other accounts appropriate amounts by using automatic transfers and to pay off all your bills
- A savings account
This is a parking spot for short-term to midterm savings goals
Vacations, gifts, your wedding, a down payment on a house, etc
Pick one with no fees, no restriction on withdrawals and a high interest rate
- A credit card
Used correctly, this is a free short-term loan with rewards and perks. Get at least one which gives cash back
- A retirement savings account such as a 401k or a Roth IRA, although this is country specific
- An investment account. Get one from an online broker
Your automated money system must be based on a conscious spending plan which contains four buckets:
- Fixed costs
- Investments
- Savings; and
- Guilt-free spending. Here's a great suggestion on what percentage of your take-home pay that these should represent
Fixed costs: 50-60%
Investments: 10%. Savings: 5-10%. Guilt-free spending 20-35%
Now here's an illustration on how you could distribute your money in order to follow such a spending plan
Don't go lower than 5% towards savings and
10% towards investments, because these two buckets will be the backbone of your new rich life
However, if you implement a few of the big wins from takeaway number three
You'll be able to raise these percentages in no time
Automation is great because we learn to live without the money if we never see it we never get the urge to spend it
Takeaway number 5: The pyramid of investing options
As I mentioned in the previous take away the savings and the investment accounts will create the backbone of your new rich life
So let's have a look at how to invest your money in there
Remit Sethi presents three different ways to invest your money
You can
1. Pick your own stocks and bonds
2. Pick your own index funds and mutual funds
3. Invest in a target date fund
This is the pyramid of investing options the higher up in the pyramid the simpler the investing process
Ramit Sethi thinks that for 99% of people the second or third level in the pyramid is the best option.
I think this number may be considerably lower with you guys. Just watching these videos
probably puts you in the top 10%, but here's why Ramit thinks so:
- It's difficult for the individual investor to beat the market
- Time spent trying to beat the market could be spent elsewhere
Have a look at the big wins of takeaway number 3 for such activities.
For the majority of people Ramit suggests that even index funds and mutual funds are too much of a hassle
With the so called target date funds things such as diversification and asset allocation are solved for you
The only thing that you must do is to have your automated money system in place
For example, if you expect to retire in
2055 you can set up your investment or retirement account so that you buy Vanguard's target retirement
2055 each month
Then that's that.
No more hassle and your money will experience the wonders of compound interest
Talk about passive income!
It can also be used for specific savings goals
If you expect to get married in five years, for example, you can start buying target retirement
2025 for that specific goal
Let's have a quick recap
There are always trade-offs. You must decide what a rich life means to you and become a conscious spender
Follow the 85% solution. It's better to get it 85% right than to do nothing at all
Focus your time and energy on the big wins. Getting rich is not about saving money on three dollar lattes
Set up your automated money system to protect you from your worst self
Investing in target-date funds is a great way of achieving good investment returns with little to no effort.
I will teach you to be rich
goes into a lot more detail and is very practical about how to implement these ideas that I’ve just outlined
Especially if you're from the USA
Support Ramit Sethi and this channel by getting the book from the link in the description
Finally, if you want to form more great money habits today,
click on my playlists of personal finance book summaries. Just don't forget to open that savings account first.
Cheers people!