#536： How to Achieve a ＂Rich Life＂ With Your Finances
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Summary
In this episode of the Art of Manliness podcast, Brett sits down with author Ramit Sethi to discuss his new book, "I Will Teach You To Be Rich," out 10 years after it was published. In this episode, we discuss what has and hasn't changed over the past decade when it comes to personal finance.
Transcript
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Brett McKay here and welcome to another edition of the Art of Manliness podcast. Now, if you've
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read a lot of personal finance advice, you know that it usually concentrates on what you can't
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do, what you shouldn't buy and how you shouldn't spend your money. What it doesn't often offer
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is a vision of what all that scrimping and saving is for. I guess they argue that while
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knowing how to save money is hugely important, it's also important to know how to spend it.
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His name is Ramit Sethi. He's the author of the book, I Will Teach You to Be Rich. It's
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out now as a revised second edition, 10 years after the publication of the original. We
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begin our discussion going over what has and hasn't changed over the past decade when it
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comes to personal finance. Ramit then makes the case that living what he calls a quote
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unquote rich life involves not only knowing where to cut back on spending, but where to
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increase it in places he calls money dials. We then get into some practical ways to better
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manage your money to ensure you spend it less in areas you don't care about and more in
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those you do, including how to manage and pay off credit card debt, the bank accounts
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you need and how to set them up so that your finances are automated and why you need to
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start investing today. And we end our discussion on the idea that the big money decisions that
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many people ignore are more important than the small ones that get a lot of attention.
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After the show's over, check out the show notes at aom.is slash richlife. Ramit joins me now
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via Skype. All right, Ramit Sethi, welcome back to the show.
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So last time we had you on, we were discussing behavioral science and psychology and how that
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influences decisions we make and our finances and diet and exercise. Today, we're going to
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talk about your book, I Will Teach You To Be Rich, because this thing, you originally published
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it 10 years ago, and you've updated it and republished it with new insights you've gained
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in the past 10 years. I'm curious, what's changed since you originally published the book,
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I Will Teach You To Be Rich, in the past 10 years? Is there stuff you've learned along the way since
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then? Oh, yeah. There's a lot that has changed in the outside world, and there's a lot that's changed
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with me. I didn't expect to write an update of the book because when it comes to good advice,
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most good advice is timeless. And some of my favorite books were written 50 years or more
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ago. But when I finally took a look outside, I saw there were new accounts. I use different
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credit cards than I used 10 years ago. There are better perks that you can squeeze those credit
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card companies for. There are robo advisors. There's crypto. There's movements like FIRE,
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Financial Independence Retire Early. And then also, my life has changed. I got married.
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And as you can imagine, love and money, huge topic. My business also grew. So I've come to see
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money very differently than I saw when I first wrote the book. And my favorite part of it was
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being able to share the stories of people who used the book. And in the last 10 years,
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you can see their lives have completely changed.
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And the other thing that's changed, you make a note of this in the book, interest rates have changed.
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Oh my God. Okay. This is probably the biggest mistake of my life. All right. I made a lot of
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mistakes. But you wouldn't believe for the last 10 years, every single day of my life, I wake up and I
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have 10 or so emails from random people around the world cursing me out. This is like my morning coffee.
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I wake up, I open up my email, I get cursed out by people saying, your book told me there are 5%
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savings accounts. Where are they? You liar. And I'm like, oh, at first I used to write back,
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hey guys, are you aware that interest rates are variable? And also, even if you have $10,000,
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we're talking about a difference of about $4 a month. It turns out people really don't like to hear
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that from me. So now I have just stopped responding to those. My new lesson in life is
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never write interest rates in a book. Lesson learned.
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But so you talked about, there's how these been changes in the larger world of personal finances
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and in your own life. But overall, I read the second, the update, the fundamentals haven't really
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changed all that much. That's right. If you think about investing,
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compound interest still matters. Automating your money still matters.
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And knowing how to master your money psychology still matters. I learned that when I first wrote
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the book, I could give you the perfect automation technique. I mean, down to the list of accounts,
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down to the days that money should transfer. And I did that in chapter five. But if you don't
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understand your own money psychology, then none of it matters. For example, think about how many of us
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grew up with our parents saying random offhand phrases like money doesn't grow on trees,
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or we don't talk about money in this family. And we take those messages and 25 years later,
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30 years later, they still affect us. They actually cause a lot of our purchasing decisions that we
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don't even realize. So that is something that has not changed, but I wanted to shine a light on it.
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But I would say that even though I added 80 new pages of material and I updated a bunch of stuff,
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good advice doesn't really change that often. And if you use the book 10 years ago or you use it now,
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Right. Well, another interesting thing that happens, you've had 10 years to interact with
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readers of your content. And I'm curious, during that time, you've laid out this stuff,
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the fundamentals, they're strong. But I think something you've mentioned in the book and on your
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website, that you still see people make the same money mistakes over and over and over again.
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Which ones are those? And what do you think is... What's the underlying factors? Is it the
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Yeah. Everybody knows the basic stuff of money. We all know that we should be saving more.
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We all know that we should somehow be investing. And these words are tossed around like 401ks and IRAs.
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But the biggest mistake is that people put it off until another day. And I actually completely
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understand why. If anything, in the last 10 years, I've become much more compassionate
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about people's attitudes and behaviors towards money. I mean, just think about it. You wake up in
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the morning, you go to work. Most people want to have a cup of coffee in the morning, go to work,
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not get in trouble, come back, maybe hang out with friends or family, have a nice meal,
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watch some Netflix and go to sleep. That's a good day. And I get that. I respect that.
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When you think about opening up your bills and you think about learning all this word salad of
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annuities and 401ks, that makes people feel bad. And as one person told me, he said, I don't know
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exactly what I'm doing, but I know that I'm doing it wrong. And that's how a lot of people feel about
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money. So I get why they procrastinate. That's the first mistake. Another mistake, and this is a big
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one, is people telling themselves stories that are not true. So they'll tell themselves the story that
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I need to wait to have some money to invest or only rich people invest. When in reality,
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it's actually the opposite. The way that you become rich is in part by investing. Another,
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you know, a lot of people, especially on social media these days, they love to victimize themselves.
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There's no way to get ahead. Oh my God, the student loan debt crisis. And while there are certainly
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some serious structural issues, I get that. I always come back to, okay, that's true. There is a crisis,
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a housing crisis, student debt crisis. But when was the last time you invested in your 401k?
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And if they say, there's no way I can even put aside 50 or a hundred bucks, I say, give me 10
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minutes with your calendar and 10 minutes with your spending. And I will show you your priorities
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and I will show you how you can make that money work. And then the third mistake is, and I hate to
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be blunt about this, but it's listening to losers for money advice. Like I see people going on obscure
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subreddits and listening to commenter number 86483 telling them, oh my God, there's no way to
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get 8% returns. That's impossible. And why are you listening to a random anonymous commenter on Reddit?
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Many, in fact, I would say over 95% of the people who complain about money have never spent one weekend
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reading a good book about money. And so if your entire reality is people who don't have money telling
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you why you can't have money, perhaps it's time to make a change. Yeah. And another problem that you
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mentioned is that people make the perfect the enemy of the good, right? They just think everything's
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got to be in place, right? They got to have all their debt paid off and then they can start investing
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or they got to have a perfect investment plan before they start investing. But you're saying like,
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no, you just need to get it 85% right. That's it. Yeah, that's it. I call it the 85% solution,
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in fact. And it's funny because we kind of all intuitively know this with something that we
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started and we got good at, you know, people listening, maybe they decided to improve their
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style or maybe they decided to improve their fitness. And looking back, there were so many
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things that were impossible to know when you got started. And like, I've gone on a fitness journey
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myself. And when I started, if someone had taught me about macros and calorie counting and all kinds
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of the, you know, overhead press, I would have been completely overwhelmed. I wasn't ready to learn
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that stuff. What I needed to do was show up at the gym and control what I ate. Very simple.
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Same thing with money. You need to automate your money, have some money go to savings,
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some money go to investing. You need to have the right accounts. And like, that's 85% of it.
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You're good. If you want to tweak it and go a little further, you can. I show you how in chapter eight.
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But most people will do very well with 85% solution.
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Right. So quit looking for the perfect thing. It's not going to prevent you from getting to
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where you need to go. Yeah. I mean, like I, you know, I talked about this before we got on the
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show. Like I read this book 10 years ago and one of the advice you gave was like target funds,
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right? For investing. We can talk about this later on in a little detail. I mean, I didn't know much
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about investing. I needed to start a retirement account. I didn't know what to invest in. So I just
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did that. And it's been crazy to see like in the past 10 years, how well those target funds on
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Vanguard have done. And I haven't done anything. I haven't like, we haven't had to rebalance.
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It's just, I put the money in and that's it. So this is a crazy thing. First of all,
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I'm so happy to hear that. I love, love, love talking to people who took the advice,
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they automated it, and then got on with their life. That's the beautiful part. Like you did not
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spend like hours and hours every single day tweaking and fiddling with it. That's not a rich life.
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Most people do not want to become financial experts. They want to set things up,
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move on and live their rich life outside the spreadsheet, which is exactly what you've been
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doing. And that's amazing. I think that if you look at what happened with this book,
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it came out in March, 2009. Now I don't believe in market timing, but that was probably the best
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time it could ever come out because that was the absolute bottom of the recession. Now,
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if you just followed the advice in the book, even with conservative numbers, like a hundred bucks
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a month, you're basically financially set for life. And so I want everyone listening to really
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get honest with yourself. Take a look in the mirror and say, have I been delaying, you know,
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learning about a 401k? Have I been complaining about money, but not actually picking up a good
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book and reading it? The key thing about what you said, which I love is most people in most parts of
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life want more control, right? They want to have control over their living environment,
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their work, their career, all that stuff with money. It's ironic that the more you try to control
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every last bit, the less successful you're going to be. And in fact, we see this with portfolio
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managers, people who fiddle around actively investing. They actually fail to beat the market
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over 80% of the time. And what you can see is all you need to do is automatically set money aside,
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pick a simple investment, and then get on with your life. And you will outperform over 80%
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of professional investors. So you just mentioned something there. You mentioned this idea of a
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rich life. And that's a new concept too you've been developing over the past 10 years. I don't
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think you talked about that in the first book or the first edition of the book, but this idea of a
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rich life. And when people hear that, they think, oh, it's private jet mansion. That's not what you're
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talking about. What is a rich life for you? Okay. So this is definitely the crux of what makes this book
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different from so many other books. And also my philosophy. So my philosophy is that each person's
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rich life is their own. So your rich life is different than mine. And in fact, let's kind of
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just get into it right here. So if I asked you, what's your rich life, what would you say?
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Being able to buy books whenever I want, barbell train, maybe occasionally buy some things from my
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garage gym, and spending time with my family and maybe taking a vacation to Vermont once a year. That's it.
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Love it. Love it. Okay. Love it. Now, let me ask you this. Out of the things you talked about,
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what is the thing you absolutely love spending money on? I don't mean like, I mean love.
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Going to Vermont. And I'm here right now talking to you in Vermont.
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Perfect. This could not be a better example. Okay. Now let me ask you this. What if you took
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the amount that you spend on that and you quadrupled it? What would that look like? What would that feel
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I have no clue. I'm going to have to think about that. I'm going to have to get my journal,
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maybe journal about it. Quadruple. So the amount I spent on going to Vermont,
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if I quadrupled that, I would probably buy a second home in Vermont and come here all the time.
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Just feel great. I love it here. I can relax. The nature's fantastic. The outdoors are fantastic.
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You probably have your stuff there so you wouldn't have to transport it, right? You'd travel
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lighter. You'd have something to look forward to. What about memories with your family? Maybe you'd
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even bring friends. Extend that. Yeah, that's right. Okay.
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Love it. Okay. So this is a concept I call money dials. And money dials are part of your rich life.
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If everyone's got at least one money dial, a money dial is something that you absolutely
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love spending on. Everyone intuitively knows what it is. And I call it a money dial because you can
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turn that almost like a radio dial. You can turn that dial way, way up. Now, the most common money
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dials that people tell me are travel, eating out, and to some extent, well, let me just stop there.
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Those are the two most common ones. Mine is a little different. Mine is convenience. I love
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convenience. It makes me happy. I wake up in the morning. My calendar is perfect. My food is like
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all ready. Everything is convenient. I love it. Now, what I challenge people to do, I ask them,
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what does it look like if you quadruple your spending? And what is amazing is most people have
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never thought about it. Just like you said, I'm going to have to think about it. And when they do,
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they start, they give pretty generic answers. So I had one woman in LA and she said to me,
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I love buying clothes. I love it. And I encouraged her. I said, good. Tell me more. What do you love
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about it? She's like, I love coming home to my apartment. There's boxes. And I said, cool. You
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open them up. It's like a gift. I said, what if you could quadruple your spending? She's like,
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I would have boxes everywhere. And the whole crowd was just loving it. And I said to her,
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where do you shop? And she said a store called Topshop. And I said, if you quadrupled your
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spending, where would you shop? She said, she looked confused. She said, I would shop at Topshop.
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And this is where it became very interesting. Most people have never thought about spending more on
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the things they love because most people and most topics about money are all about what you can't do.
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No, you can't buy lattes. No, you can't go out. No, you can't go on vacation. You have to hoard it
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all until you're 90. So I always start from a place of what do you love? And what if you could
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spend more on it? And I challenged her to get specific, to dream bigger. If you quadruple
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your spending, you're not just going to buy more of the same clothes. You might actually turn that
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dial way up and you might shop at a different brand, or you might fly to a headquarters and
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factory of a brand you love and take a behind the scenes tour and even get something custom created
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for yourself. So I share this example because you love Vermont. If you quadrupled or five extra,
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10 extra spending, it's not just adding a little bit more. You can actually completely change the
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entire experience. And I always say, spend extravagantly on the things you love, as long
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as you cut costs mercilessly on the things you don't. It's a totally different way of looking at
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money than most people who only focus on the things you can't do.
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Yeah, that's a good point. Because you have most personal finance advice. This is something you've
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been railing against for the past 10 years. Skip the latte. If you skip the latte, your retirement
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will be set. And it's like, well, yeah, but you're missing out on that latte. You enjoy it. It's a part
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of your routine. It gives you pleasure. It gives you joy. Money's there to also enjoy life as well.
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It's there to be spent. And it's there to be used. I grew up in a middle-class family,
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pretty large family. And one thing I learned is I love strawberries. But when we got strawberries,
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I would always try to save them. Because I like them. And I wanted to extend the pleasure.
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But inevitably, they would go bad or they would get eaten. And so I have a new philosophy, which is
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strawberries are meant to be eaten. And money is meant to serve your rich life. So you notice that
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most of the advice out there that tells you what you can't do, it never really ends up telling you
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what you can do. So it's interesting. This has really bled into people's psychology, especially
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in America. I ask them, what's your rich life? And so many people say, I just want to pay off my debt.
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That's as far as they've dreamed. And I said, man, it's no surprise you're not living a rich life.
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If your entire dream is to pay off your debt, that doesn't get anybody up in the morning.
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That doesn't get you excited. But what if you said, I want to pay off my debt, and then I want
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to take my family on an amazing vacation once a year. Or I want to donate more to charity. Or I want
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to go out and eat at a beautiful restaurant on our anniversary every quarter. That suddenly becomes
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something that gets people excited. So money can be about saying yes, not just about saying no.
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Right. And I like this idea of conscious spending. This doesn't mean you're going to be
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a total spendthrift, right? Where you're just going to spend all your money all the time. Like
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you said, you have to decide what you really want. And you put your money towards that. And then the
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stuff that you don't really care about, dial that down. Be a month if you have to, to get that thing
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Yes. So let's talk about that. Because I don't want people to think that I'm just telling everyone,
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go out and buy private jets. I have no interest in that. And let me share a little bit about what I
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don't spend on. And then I'd love to hear from you also, what do you not care about spending on?
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So for me, I rent on purpose. That's a very counterintuitive notion. A lot of people believe
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that, oh my God, buying a house is the best investment. You're just throwing money away on
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rent. That is not true. I live in Manhattan. I've rented in the same place for the last 10 years,
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even though my net worth has increased a lot. So that's a choice. I'm happy in my apartment. I don't
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need another place. Another thing, I don't have a TV. It's not important to me. So those are a
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couple of areas where, and I have the same computer for the last seven years, MacBook Air. Simple. It
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runs, it might be a little loud, but it works. And those are things where I'm like, yeah, it's good
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enough. I don't need to spend more. On the other hand, I love convenience and I love to travel to
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really, really nice locations and hotels. So I will spend a lot on that guilt-free. That's my
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conscious spending. What about yours? So I don't care much for cars. They don't,
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doesn't get me going. Like I could just, I could drive. I have, we have like an 11 year old. No,
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it's how old is it? It's a 2007 Honda Element. Love it. It's got almost 200,000 miles on it. And I'm
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going to ride that thing to the ground. And it's pretty dorky looking. I'm not a big, but you know,
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it drives, gets you going where you need to go. So that food, I'm not a foodie. Like I have a
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garbage gut. If you just give me food and it has calories and carbohydrates and protein and fat,
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it's fine. So I don't spend a lot of money on food. Like movies, going out to movies doesn't
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interest me. So those are, yeah, I don't spend money on that. So yeah, most of my money goes towards
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books and then, you know, saving up for a Vermont trip. And then that's pretty much it.
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See, I love this. I love this concept of spending extravagantly on the things you love
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and cutting costs mercilessly on the things you don't. Because when you think of how most people
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spend money, it's interesting, actually. First of all, notice that in America, everybody tells you
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how to save, but nobody teaches you how to spend. Think about that. And so where do we pick up our
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spending lessons from? We pick it up from Instagram, which tells us to just spend on stuff to keep up with
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other people, even though we may not even like it. We learn to spend from our parents and the people
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around us who probably have different values than we do. And what I recommend for people is really
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think about your own values. Like you might have heard me say, I don't particularly care for the
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apartment that I, moving apartments, or, or you say, you know, you don't care about cars. You might
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recoil at that and say, I love cars. And my answer to that is awesome. Then you should spend more on a
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car. But you also have to be honest with yourself about what you don't care about. And this takes a
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higher level of reflection than just spending a little bit here and a little bit there and getting
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to the end of the month, looking at your bills and shrugging and saying, I guess I spent that.
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I like that a lot. And it could be different for every person. So maybe someone doesn't even have a
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house or an apartment and they live in a van and they go camping all the time.
00:22:14.720
Yeah. That sounds like, that sounds like hell to me, by the way. But I respect it. Like we all have our
00:22:21.160
own things. One guy in my book, he's right at the front. He said that he used my book and he got it
00:22:26.360
10 years ago. He and his wife retired in their mid thirties and they travel around the country in
00:22:30.740
an RV. And I was like, I would rather be dead than travel in an RV around the country. But I love
00:22:38.060
that that's his rich life and that he and his wife together dialed it in and created their own rich
00:22:44.620
life. And they are unapologetic about it. Our rich lives can all be different. It's just about you
00:22:49.400
deciding what yours is and not letting anyone in society tell you that you should feel guilty about it.
00:22:54.400
Right. And a rich life can be not just about spending more on material things,
00:22:58.460
but the kind of lifestyle you want. So maybe you're willing to way downsize your house so you
00:23:03.620
can be a high school football coach instead of a lawyer.
00:23:06.060
It's so interesting. If you ask people right now, what do you truly want? What is your rich life?
00:23:12.480
I would challenge the listeners. As I said, one comment that I get, there's three answers that I always
00:23:17.560
get. One is I want to pay off my debt. We already talked about that. The second one is this word
00:23:22.740
freedom. It sounds logical, but it's actually really vague. I say, okay, freedom, what does
00:23:29.580
that mean to you? And then they look at me with their eyes glassed over. They've never actually
00:23:33.440
thought about what that means. So freedom, what is it? Does it mean you don't have to go into an
00:23:39.060
office? Does it mean that you don't have a commute? Does it mean that you're working three months a year
00:23:45.880
from somewhere else or you're not working at all? What does it mean? That's why I pushed you on the
00:23:50.520
Vermont question. I want people to be ultra specific. My answer when I first moved to New
00:23:56.220
York was, uh, I want to be able to buy appetizers. That's my rich life because growing up, we could
00:24:03.300
never afford it. And then my, as I kind of got a little bit more successful, I wanted to be able to
00:24:09.520
take a taxi. If I had a meeting in the middle of summer, instead of going on the sweaty subway.
00:24:14.480
Now my dreams are a lot bigger, but that's the level of specificity I want for people to have.
00:24:20.500
I don't want words like freedom. I, the third answer, by the way, they give me is I want to
00:24:25.240
have a million dollars. And of course that number is totally arbitrary. Depends if you live in Kansas,
00:24:29.960
Manhattan, et cetera. But what I want people to do is get as specific as saying, I want to buy
00:24:35.740
appetizers without ever looking at the price. Whatever that is for you, that is the level of
00:24:40.960
specificity that will help you create your rich life. Oh, I just thought of another thing I like
00:24:45.100
to spend money on. Entertaining. My wife and I love inviting people to our homes, feeding them.
00:24:50.540
Talking. I enjoy it. Love it. And it's not that like, it's not like we're like,
00:24:54.980
it's sometimes pizza, but I want to be able to buy pizza and not have to worry about it.
00:24:59.660
We're going to take a quick break for your word from our sponsors.
00:25:02.880
And now back to the show, right? All right. So we've been talking big picture.
00:25:07.420
Let's get down into some brass tacks things. So in the first section of your book,
00:25:12.780
I was always surprised, but I was surprised by this when I first read it initially. And then
00:25:16.160
it's still there. The first section of the book is about optimizing credit cards. It's not developing
00:25:20.640
a savings plan. It's not developing a retirement account. You start with credit cards. Why start
00:25:28.760
It's very intentional because everything in that book is done for a reason. The book,
00:25:34.920
I wanted to create a psychology book disguised as a personal finance book, because ultimately
00:25:41.620
deep down, when it comes to money, one of the most influential things is your own personal
00:25:48.300
psychology. I can show you all the math, but the truth is people already know the math.
00:25:52.320
They know they should be saving and investing more. When you pick up any other money book,
00:25:56.820
do you know what the first chapter always tells you to do?
00:26:00.740
Cut back on spending. And they even start a little bit before that, which is,
00:26:04.120
let's figure out how much you spent last year. And people look at it and they go,
00:26:10.140
well, I don't know what I spent, but I know it was bad. I think I'm going to put this book back on
00:26:14.400
the shelf. Nobody wants to start from a place of feeling bad. And also nobody wants to start with
00:26:22.500
these questions that are too big. Like, what is your rich life? That's really hard in chapter one.
00:26:29.020
Or let's create a retirement plan. Well, I'd rather not. I'd rather just go out and hang
00:26:32.760
with my friends today. But when it comes to our money, we all have credit cards. We all hate our
00:26:39.820
credit cards. And we can all get amazing perks that none of us even know when it comes to our
00:26:46.340
credit cards. So I started off there. And what I did was I, you know, a lot of people have paid
00:26:52.100
these late fees or credit card fees or annual fees. And I said, let me show you guys something.
00:26:56.580
First of all, here are the phone numbers. This is the level of specificity that I get to.
00:27:01.660
Here's the phone numbers. Here's the words to read off the page when you call your credit card
00:27:06.860
company. And suddenly people are like, I don't believe this thing's going to work. This weird
00:27:10.560
Indian guy, I don't know. Boom. They get their $37 fee waived. Or they discover that they have perks
00:27:16.760
that are going to pay them back for $1,000 computer repair, which happened to me. And suddenly they're
00:27:22.720
like, oh my God, this actually works. And for the first time, instead of being passengers in their
00:27:28.540
financial life, they're like, I can actually take control of this. So when they take control of a
00:27:33.000
$37 fee or some perks on their credit card that I show them, suddenly by the time I take them to
00:27:38.020
chapter nine and I show you how to negotiate a $25,000 raise at work, they're a believer. They know
00:27:44.300
that this stuff works. But if I put that in chapter one, there's no way. People are not ready for that.
00:27:49.400
So that's why I designed the book the way I did. So yeah, you're getting those small wins first to
00:27:54.420
build up that sense of agency and autonomy, which will allow you to tackle bigger things because you
00:27:59.460
know you have the capacity to do that stuff. It's just like training. It's just like any sort of
00:28:05.300
skill building. But you need an instructor who's very intentional about it. Otherwise, I just give you a
00:28:11.420
bunch of information and charts and you look at it and you feel bad and you move on. And I would
00:28:16.600
bet for a lot of people listening, that's happened. We've read a blog post that made us feel guilty
00:28:22.200
about not saving more. The difference and the reason that there are so many I Will Teach You
00:28:27.340
to Be Rich success stories is that the book is created with psychology first. And if you get that
00:28:33.620
right, then you know people are going to have a very successful journey.
00:28:37.440
Well, another thing about the psychology of starting with credit cards,
00:28:40.160
paying off your credit card debt, that's a big win.
00:28:43.400
A big one. Because imagine all the interest people are paying by just paying the minimum
00:28:47.040
payment on their credit card. Once you pay that off, you free up a lot more cash that can start
00:28:53.140
going towards things you actually want to spend your money on.
00:28:55.740
Yeah. It's funny. One of the common objections is I don't have the kind of money to be able to invest
00:29:01.740
every month. And it could be some people say I don't have $100 a month. Some people say I don't
00:29:06.580
have $1,000 a month. Whatever the number may be for you. The truth is that if you had a third party
00:29:13.120
come in and take a look at your spending, not making you feel bad, but just saying, hey, here's
00:29:19.080
three scenarios. If you like eating out, great. Keep eating out. In fact, spend more on eating out.
00:29:25.780
Great. But here's a couple areas that you seem to just be spending a little bit. And is this really
00:29:30.280
important to you? And just that consciousness of saying, man, I didn't realize that it all adds
00:29:36.000
up to this much. I could take that cash and redirect it to something else, whether that be credit card
00:29:41.140
debt, saving, investing, or even just spending it on something you actually love. That is very
00:29:47.880
empowering to people. And so that's why I always start from a place of yes, and what do you love?
00:29:53.320
And then we figure out what you don't actually like.
00:29:56.180
And another interesting thing about your approach to credit cards, a lot of personal finance
00:29:59.580
people out there will say, okay, pay off your credit cards as soon as possible. And you'd say,
00:30:03.300
yeah, I'd agree with that. Get rid of those interest rates, whatever. But then the personal
00:30:07.200
finance people would say, and then cut up your credit cards. Don't ever use your credit card
00:30:10.460
again. You take a more moderated approach to that.
00:30:13.060
Yeah. I mean, look, we all live in the real world. So one of the reasons that most personal
00:30:18.260
finance advice doesn't work, and we know that just by looking at the ballooning amount of
00:30:22.760
Americans' debt, their poor financial literacy scores, is that the advice takes a very impractical
00:30:28.780
approach. They tell people, don't use credit cards at all. That's pretty unrealistic for
00:30:33.800
most people. And what I say is like, let me actually show you all the amazing perks and
00:30:39.080
benefits that your credit cards give you. So I show people the exact credit cards that
00:30:45.140
I use and the exact system. When do I use a cashback card? When do I use a travel rewards
00:30:49.980
card? And how do I upgrade them for free flights and free hotel, luxury hotel stays? And I show
00:30:55.880
some stories of readers as well who paid for their entire honeymoon in the Maldives and
00:31:01.760
Bora Bora. Like these are tools that you can use and you can squeeze these companies to get
00:31:08.020
massive perks, but you got to understand how they work. And so I show you how to beat them
00:31:15.160
Right. And to reiterate the point here, people are using these credit cards, but they're paying
00:31:19.600
them off at the end of the month before they get charged any interest.
00:31:21.900
Yeah. You should not be carrying debt. And if you are, I show you how to build a plan,
00:31:26.100
but you shouldn't, I pay off my credit cards a hundred percent every time. And in exchange,
00:31:29.960
I get massive, massive perks throughout the year.
00:31:33.360
Right. And also it can help you manage your finances. You can see where you're,
00:31:36.300
a lot of these credit card companies, they'll like break down, like how you're spending your money
00:31:39.860
on gas or health insurance or whatever. It's all, you get a nice financial report.
00:31:45.220
Yeah. It's all done for you and it's just convenient. So I've actually,
00:31:47.640
since the book came out the first time I used to use cash a lot more and I actually use cash far
00:31:52.980
less and the tracking and benefits of the credit cards are amazing as well as the perks. Now there's
00:31:59.220
even better perks than there were 10 years ago. However, and I just want to say this just to be
00:32:03.860
really upfront, you need to be, you need to understand how credit works and you need to
00:32:07.840
understand that paying the minimum or late fees, those things can really, really disproportionately
00:32:13.020
hurt you. So I teach you how to use it and how to use it effectively, but I don't believe in just
00:32:17.960
saying, don't use it at all. Right. Well, the next section of your book is about bank accounts,
00:32:23.860
which is like incredibly basic because I think a lot of people, well, not a lot, you'd be surprised
00:32:28.400
the number of unbanked Americans there are. But if you came like in a middle group, in a middle
00:32:32.800
class family, you probably got a bank account when you were like 10, right? That little savers club
00:32:37.360
you joined, but you go into more detail that people aren't optimizing their accounts that will
00:32:42.660
help make their money life easier. What are people messing up there?
00:32:46.640
Well, number one, they still like, people are so funny. They have loyalty to a bank account that
00:32:51.260
they opened when they were eight years old. And I'm like, why do you, is it okay if I name names on
00:33:00.100
All right. I'm going to, I might get bleeped out guys, but I'm just going to tell you the best
00:33:03.620
accounts. Okay. No need to, uh, to hold you in suspense. First of all, I hate Wells Fargo and
00:33:09.860
bank of America. And I tell you exactly why, you know, they've done predatory borderline. I mean,
00:33:15.280
they've done some really bad stuff to my readers and to general Americans. And so I ask people who
00:33:20.880
have these accounts, why do you have them? And they're like, well, I opened it up with my mom
00:33:24.180
when I was eight. I'm like, in what other part of life would you be loyal to a multi-billion dollar
00:33:29.500
company? That's trying to screw you. And I'm personally offended at what these companies do
00:33:34.960
and also what some of the investing companies do. That's why I wrote this book. So people could
00:33:39.380
actually be empowered against these companies that are very sophisticated. What people are
00:33:44.360
resistant because they're like, Oh, it's going to be a hassle. I got my bills. It's true. I get it.
00:33:49.160
It's going to take, you know, a few hours to fix, but it's kind of like choosing the right email
00:33:54.360
software to use, right? You can sit there and use your own software or you can use Gmail and it's
00:34:00.760
probably going to be great. Right? So I believe, you know, I tell people I use Schwab for investor
00:34:06.480
checking and I can take money out from any ATM and it gets refunded and they do all these amazing
00:34:12.020
things. I say the same for investing accounts. I name names about good and bad. And I'll tell you
00:34:17.580
why I do that. Number one, I want people to know the specifics of money. When I was starting to
00:34:23.620
research money, I was frustrated because everyone would give these broad generalities, find a bank
00:34:28.740
you trust. They should be open 24 seven. I'm like, just tell me what to use. And so if you listen to
00:34:34.720
me and you trust me, then you know that I love researching this stuff. And most people are like,
00:34:40.260
all right, this guy knows what he's talking about. I'm just going to go with his recommendations.
00:34:43.420
So, so that's number one. And number two, I want people to be more specific with every part of
00:34:48.320
their money, with when they tell me what their rich life is, with how much money they're putting in
00:34:53.000
with the accounts they use. You read this book and there are no questions left. You know,
00:34:56.920
exact the accounts, exact amounts, exact days. That's why I got specific about checking accounts,
00:35:03.440
savings accounts, and investing accounts. And another thing you point out, yeah, like people,
00:35:08.480
they open up a checking account, they open up a savings account, but they don't have a purpose
00:35:11.560
for them. They just kind of like haphazardly like funnel money into each one. But yeah, you develop a
00:35:17.140
system like, okay, your checking account is your workhorse account. That's kind of money comes in and then
00:35:21.940
it's going to immediately go out to these different funnels automatically. Yeah.
00:35:26.120
Might go to your savings. Your savings account is for a specific reason. It could be an emergency fund
00:35:30.580
or it could be you're saving up for a down payment on a home or your wedding. Like you have to give
00:35:34.980
every dollar a job. Yeah. So I love systems. So let me talk a little bit about my own system and
00:35:40.920
I show you how to do this and then you can adapt it for your own needs. So for me, my checking account
00:35:46.280
is like my email inbox. My paycheck goes there, everything goes there,
00:35:50.060
and then it's automatically filtered out to different accounts. It's filtered out to multiple
00:35:56.000
sub savings accounts. So I have multiple things that I save up for. And for a lot of people,
00:36:01.380
you might be saving up for a wedding, a down payment. I actually encourage you to pick something
00:36:05.900
you and maybe your partner want to do this year. Maybe you want to take a trip. Okay. Let's actually
00:36:11.220
think about what would make this trip extra special. You know, maybe we want to go to this really hard to
00:36:16.140
get into restaurant or take this behind the scenes food tour. My wife and I love doing food tours.
00:36:21.240
And so you start to save. And if you save over 12 months, the amount you have to save on a monthly
00:36:26.400
basis is often quite manageable. So I typically have about four to six sub savings accounts at any given
00:36:33.360
time. I also have money going from my email inbox slash checking account to my investing account.
00:36:40.380
And that money goes in there and is automatically investing. So I spend less than 60 minutes a month
00:36:46.920
on my money and it all just flows. It's like a beautiful ballet. I know I sound like a psycho,
00:36:52.960
but I told you my convenience is my money dial. And so I love systems that make my life more convenient.
00:36:59.220
That's how it works. And so I would encourage everyone here to think about the four or five or six
00:37:03.960
sub savings accounts you have. And suddenly your money goes from just this random pool
00:37:08.880
into areas that you know, you love, and you can track. That is very empowering.
00:37:15.460
No. Yeah. Like I said before the show, I was talking about when I read the book initially,
00:37:18.760
you know, 10 years ago, 2009, uh, like I set up my system, you know, sort of like how you recommend
00:37:25.440
it. And it's kind of, it's basically stayed the same. I've made tweaks along the way as I've,
00:37:30.020
as I've learned more and as my situation has changed, but the general framework is still there
00:37:34.740
and it works. I don't have to really think much about it.
00:37:37.320
I love it. I love that. I love that your rich life is not sitting in Excel and logging into
00:37:42.600
accounts. It shouldn't be, you know, I talk a lot about how a rich life is lived outside the
00:37:47.280
spreadsheet and you may, this may be true for a lot of people, particularly people who are in the
00:37:51.760
FIRE community, financial independence, retire early. This is a whole new culture that has emerged
00:37:58.040
and it's pretty amazing. FIRE basically encourages people to save well over the recommended 10 or
00:38:03.820
20%. They kind of laughed and said, how about 70%? And so it's, it's an incredible community
00:38:10.020
that has basically taken these assumptions and just shattered them. But what you also find is that
00:38:16.160
in the FIRE community, there's a lot of people who, um, they use words like, I feel anxious about
00:38:24.500
money. I feel nervous. I want to escape from my job. These are not the words of someone who is
00:38:32.440
financially healthy, right? I want people to use money for positive words. I want to travel with
00:38:40.760
my family or I want to experience X, Y, Z, or I want to eat out or I want to buy a beautiful leather
00:38:45.960
jacket, whatever it is you want. Um, with FIRE, you will sometimes find deep FIRE adherents who really
00:38:53.260
live in the spreadsheet and they, every day they wake up and run another Monte Carlo simulation.
00:38:58.280
And that is not what I encourage people to do. At a certain point, your system works.
00:39:03.080
It's all it needs is time and discipline. And guess what? You earned the right to live outside
00:39:08.180
the spreadsheet. It sounds like when you were talking, describing that sounds like an eating
00:39:11.300
disorder, right? Like people who like just track their calories, like obsessively and to the point
00:39:18.260
where it gets in the way of life. Like a psychologist say, you need, you need, you need help.
00:39:23.340
You need therapy. Yeah. Yeah. I want, I want, that's a very interesting analogy. I want money
00:39:28.720
to be a healthy, positive part of people's life. When in reality, if you ask people, what's the first
00:39:36.740
word that comes to mind when you think about money, they will always tell me the same five or six
00:39:39.780
answers. Anxiety, nervous, is it too late? Embarrassed, shame, guilt. These are the most common
00:39:45.220
answers. And what I want people to do is go from what I call hot to cool. Hot are those words that
00:39:52.000
are emotionally hot, you know, shame, embarrassed, guilty. Cool are things like decided. I decided to
00:39:59.760
go to Thailand this year, right? I decided that I want to hire a personal trainer. I decided that I
00:40:05.740
don't really feel like buying a TV because it's not important to me. Those are cool words, decided,
00:40:12.020
words that you consciously choose as opposed to guilt, shame, and embarrassment.
00:40:17.540
Yeah. Going back to this analogy of food, like, so I, I count macros, but like, I don't,
00:40:22.520
I try not to let it like ruin my life. I mean, here's an example. Like I'm on vacation right now.
00:40:27.240
There's a lot of great restaurants around town. And so I'm not counting macros so much. I'm making
00:40:33.020
sure I get enough protein, enough fiber. And then I kind of just leave. It's just sort of free reign
00:40:38.500
because I want to be able to enjoy pizza and Ben and Jerry's ice cream with not having to worry,
00:40:42.460
oh, what is this going over my car mac? Like, I don't care. Like I would just ruin it. So I use
00:40:48.400
sort of a basic structure, but I don't obsess about it. And you can apply the same thing to your money
00:40:55.220
Totally. Totally. So you have reached a level of expertise and sophistication where you track,
00:41:02.420
but you also know how to let loose sensibly. Right. And, and it's like, uh, like we went on,
00:41:09.140
we track as well. My wife and I, we track our macros and we went on a very long honeymoon,
00:41:14.540
six weeks. And, um, you know, we got, I was a bit overambitious. I was like, let's just try to
00:41:20.080
work out three times a week. That'll be good. And then, you know, you're in the middle of Kenya
00:41:23.980
for parts of it and there's no gym. And so we're like, you know what? Fine. We did work on getting
00:41:29.100
our protein in, but at a certain point we're sitting with some of the best food in the world
00:41:34.020
in front of us. And we're like, you know what? We're going to enjoy this because we have the
00:41:38.180
confidence to know that when we get back, we're going to hit the gym. We're going to count and
00:41:42.560
we're going to be back, back in shape, just like it'll take. And it took us about three weeks.
00:41:46.780
So I think that getting to that level where you can actually be happy, you can actually feel in
00:41:53.380
control, but you can also know that it's okay to let loose once in a while and nothing crazy is
00:41:58.220
going to happen because you have the confidence in yourself to get back, get to work and just go
00:42:03.360
back to your old routine. That is a real joyous feeling, whether it's macros or money.
00:42:09.160
Right. Well, let's talk about another specific thing that's troubling a lot of younger people,
00:42:14.260
maybe not even young people anymore. You might be people in their 30s and their 40s still dealing
00:42:17.520
with this and that's student loans. What's your take on that? I'm sure that you have a lot of readers
00:42:22.480
asking about that. Like, should they pay off their student loans before they start investing?
00:42:26.040
Should they invest and then pay off their student loans at the same time? What's your take?
00:42:30.280
My short answer on this one is that if you have student loans, you should create a plan.
00:42:35.720
And the way to know if you have effectively created a plan is you should be able to answer
00:42:39.860
this one single question. What is your debt payoff date? And what that means is you should be able to
00:42:47.260
say to me, well, Ramit, my debt payoff date is February, 2022 or whatever the month and year is
00:42:54.040
by knowing your exact payoff date. That is the culmination of you knowing, first of all,
00:42:59.020
how much you owe. Most people don't. Second of all, putting a plan into place with automatic
00:43:03.740
repayments. Most people don't do that. And the third is knowing exactly when your debt will be paid
00:43:10.100
off using a debt payoff calculator. And almost nobody does that. So if you can tell me the answer to that
00:43:15.560
question, you're doing great. And it doesn't matter. It might take you three years. Some people,
00:43:20.000
it might take them 10 plus years. I will encourage people to invest at the same time. Why? Because
00:43:28.200
one, it's, and this is mostly psychological, although there's mathematical too. Psychologically,
00:43:33.900
it's important for you to build the muscle of investing, even 50 or a hundred dollars a month.
00:43:40.160
Now, yes, the mathematical side says you need to count your interest rates and you might be able
00:43:45.960
to get a better return by paying off a high interest loan. You can read all of that stuff in
00:43:50.260
that chapter in the book. My point is most people don't realize that you can do both.
00:43:57.660
And so when people often say, should I do X or Y? A lot of times my answer is yes and yes.
00:44:04.440
And so I would encourage people to build the muscle of investing because as soon as you pay that debt off,
00:44:09.560
you're going to see how powerful investments are. Just like you did from using my book 10 years ago,
00:44:13.740
you see how much that money has grown. It's massive. And when people see that, they're like,
00:44:21.840
Yeah. And so it was talking about investing. So that's another thing. There's so much confusion
00:44:25.760
about there about investments because people think it's about picking stocks.
00:44:29.860
That's what they think investing. And it's not because if you think about it that way,
00:44:32.480
you're going to get overwhelmed immediately. Instead, you advocate, just go for like good enough.
00:44:37.840
And for most people, like a target index fund from Vanguard is good enough. And you can go on the
00:44:45.440
forums and they'll say, well, you're missing out on some interest or some growth there.
00:44:52.000
But it's like, at the end of the day, is it going to make a huge, huge difference? Probably not.
00:44:58.100
Yeah. Investing is one of those areas that is, there are so many bad parties involved in investing,
00:45:06.840
people who want to make money off of you, that you literally do not know who to trust.
00:45:11.580
So you have people telling you that, like there's a billboard right outside in New York City here
00:45:16.640
saying, be better than average. And in most of life, that makes sense. You do want to be better than
00:45:23.820
average at your fitness and be better than average at your relationship. But in investing,
00:45:29.460
average is perfect. And most people believe that if they are in control, if they take more time and
00:45:36.020
read all these PE ratios, they'll be better. No, you will fail. You will not be good. Trust me.
00:45:41.720
I know this. And so does all the data that I cite in the book. So the simplest thing you can do
00:45:45.940
is pick a target date fund. And I talk about how to identify them. They're really low cost.
00:45:51.200
And all you need to do is automate your money from your checking account, straight there every
00:45:57.140
month. You never see it. It just goes away into the investment account. You can track it every
00:46:01.560
month or I recommend six months. And that's it. The best use of your time now is to number one,
00:46:07.940
focus on earning more and funneling more in there because it'll grow. And number two,
00:46:12.380
just get on with your rich life. You want to go out to eat at a restaurant? Go ahead.
00:46:15.800
You already solved one of the biggest financial opportunities you have in your life. And that
00:46:20.380
is automatically investing. Right. And that's the thing. The big
00:46:23.560
message from your book is if you take care of these basics, getting your credit card debts
00:46:27.300
pay off, managing your credit cards, getting these accounts set up that are automated and
00:46:31.800
just investing, even if it's like a hundred bucks a month, like you got 85% there, you have
00:46:38.000
some wiggle room. It's like going back to the macros. Like if you get basically your fiber
00:46:42.060
and your protein and some basics, you've got wiggle room and it's not going to destroy you
00:46:47.380
if you enjoy yourself or even if you slip up a bit.
00:46:50.880
Yeah, that's exactly it. I call them the big wins. And you know, what most people are preoccupied
00:46:56.360
in life with is minutiae. You know, oh my God, should I buy this sweater? And oh, I don't
00:47:01.860
know. Should I spring for the extra large Coke? It's like you're asking $3 questions. You
00:47:08.280
really should be asking $30,000 questions and $30,000 or $300,000 questions are ones like,
00:47:15.660
have I automatically invested every single month? Right. Have I picked a great job and negotiated
00:47:22.920
my salary? Is my credit good? Have I chosen a philosophy on what percentage I want to save
00:47:29.740
and invest every month? That choice. In fact, it would be much more valuable for every single
00:47:34.460
person listening to increase their savings rate by 1% per year, just 1% than to worry about
00:47:41.720
ever buying a latte again. That 1% would be worth tens of thousands of dollars to you over
00:47:49.240
your lifetime. And you only have to decide it once per year, as opposed to making a decision
00:47:58.840
Now, that idea of people getting focused on minutiae, a lot of people, they don't understand
00:48:02.980
with personal finances, they either miss the big question or the big issue. So they latch
00:48:08.500
on to those little small things that don't really make much of a difference.
00:48:12.480
Yeah. And like I said, I have a lot of compassion because most people are surrounded by other people
00:48:17.880
who are minutiae focused. So the people listening, let me ask you, have you ever had maybe your
00:48:25.420
friends or your parents or family say, wow, that must be nice. Or I sure wish I could afford
00:48:31.680
that. Or, oh, why would you waste money on that? These are all words that people use to judge and
00:48:39.100
influence you. But you always have to ask yourself, why would I take advice from this person?
00:48:45.480
And if you are taking advice from someone who's not in a financial position that you
00:48:50.700
want to be in, then you really need to question that advice. And I get this all the time from my
00:48:56.720
readers. They're like, oh my, there's, I have people who are in their twenties, thirties, forties,
00:49:00.660
and fifties, primarily 35 plus. And so sometimes it's their parents or it's their in-laws or wife
00:49:07.360
or husband, and they're getting judged for a question. But I just ask them one question.
00:49:12.740
Is this person in a financial position you want to be in? And they're like, no, oh, I get it. I
00:49:18.280
shouldn't listen to them. Exactly. Find people who you admire, who live the kind of rich life that you
00:49:24.060
aspire to. And then think about what you can do that aligns with your own values. Don't listen
00:49:30.320
to randos who tell you, you shouldn't splurge for an extra large. This has been a great conversation.
00:49:35.280
There's so much more we can talk about. And as you said in the book, there's a lot of specifics.
00:49:38.920
Where can people go to learn more about the book and the rest of your work?
00:49:41.100
Okay. So thank you. And this has been awesome. The name of the book is I Will Teach You to Be Rich.
00:49:45.720
You can get it on Amazon, Barnes and Noble, or at any bookstore. You can follow me at
00:49:50.740
IWillTeachYouToBeRich.com. I've got a newsletter with several hundred thousand subscribers.
00:49:56.180
And you can follow me on Instagram at Ramit and on Twitter at Ramit as well.
00:50:02.680
Awesome. Ramit Sethi, thanks so much for your time. It's been a pleasure.
00:50:06.280
My guest today was Ramit Sethi. He's the author of the book, I Will Teach You to Be Rich. It's
00:50:09.720
available on Amazon.com and bookstores everywhere. You can also find out more information about his
00:50:13.320
work at his website, IWillTeachYouToBeRich.com. Also check out our show notes at
00:50:16.860
AOM.IS slash RichLife where you can find links to resources where you can delve deeper into this topic.
00:50:28.380
Well, that wraps up another edition of the AOM podcast. Check out our website at
00:50:31.780
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00:50:35.800
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00:50:38.960
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00:51:07.140
As always, thank you for the continued support. Until next time, it's Brett McKay reminding you not only
00:51:10.720
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