Main lesson of the book: Automate your savings and investing.
Now this was a very interesting book. The focus of this book was strictly on the concept of Personal finances. Ramit Sethi clearly states that by mastering your own spending and finances you can become rich. And he then goes into detail about how you can go about it and what the steps are you should take. This book to me was a very good remix of “A Random Walk Down Wallstreet” with an updated methodology on how to function in the current market. This book isn’t about leaving the “Rat Race” nor is it about creating a steady cashflow, but it’s all about your financial future and achieving retirement as soon as possible.
To reach your goal of being rich, Ramit Sethi starts with clearing your debt and understanding the concept of Credit Scores. The first chapter solely focuses on credit cards and how they can be used to your benefit and what you should avoid. What really put a smile on my face is that Ramit tends to give you advice and then go into detail on how you should or could execute his advice. This can prove extremely helpful to those people who want to start changing but don’t know how to. Ramit will often give you the very words you need to say to your bank or credit card company. These conversations are usually about the fees that are incurred as you use your credit card. And making sure that the company doesn’t put a scratch on your Credit Score. Taking care of your credit cards is the first week of 6 but for many people this will be a huge part of the process. Because many of us tend to buy on credit and then pay it off in installments. By doing this, you’re creating a system of debt that can be really hard to breakthrough. The book mentions a process called the Snowball method in which you pay off the minimum on all credit cards but pay a bit more on the credit card with the least amount of debt. And once you clear that card you use the money you have set free on the next card with the least amount. Thus creating a snowball effect in which you clear them all. Not a bad method in my personal opinion. Because being able to clear one card can really help you out mentally, as it is a financial victory proving to yourself that it is possible.
In chapter 2 he goes in on banks and I mean he goes IN. His distaste for banks can at times feel as if his personal vendetta gets in the way of his message but his points are still clear. He also recommends Vanguard as a bank for people to use. Which came across a lot in “A Random Walk Down Wallstreet” as well. His point is that big banks are extremely vile in their handlings with customers and they get away with it scot-free because they are banks. This I have to agree with, because a bank is nothing more than a business and a business’s goal is always to make money. And that is often at the expense of the customer which is you and me. So by making sure you pick a bank that has your best interest at heart and doesn’t charge you exuberant fees you can make sure you don’t get cheated out of a lot of money. This step was something I never really looked into, because my assumption was always that every bank is the same, but it according to this book they are indeed different which if I think about it for a second makes sense. Ramit loves to challenge pre conceptions in this book and this is one of them. A great point he makes in this chapter that he keeps building on is automating your money management.
This concept isn’t necessarily new but the way Ramit explains it, it make a lot of sense and really helps relieve the stress of worrying about your money. All your money should be in one good checking account and all your monthly expenses should then be deducted from that account. You should have also put several saving accounts in place that will also deduct a set amount every month from your checking account. By making sure that a certain percentage is taken off every month for everything you need to pay for and or save for, you are effectively freeing up your time. Because what ever is left over will be “Guilt Free” spending money. Ramit is effectively saying that you should pay yourself first and then pay your bills and use whatever is left to have fun.
The next step in I Will Teach You To Be Rich is setting up your 401k and Roth IRA. These two are the main points of this entire book in my opinion. Because you need to clear your debt just so you can invest in these 2. And once you invest as much as you can into these two, can you do other things. Ramit really focuses on 25 to 30 years down the line. By saving your money and investing it in the safest possible options you will become rich. That is the entire premise of the book and it’s foundation is these 2 points. Your 401K and Roth IRA are pension plans that you build over time and you can use to invest. By investing them instead of just using them as glorified saving accounts you can double you money. This is of course based on the premise that the economy will maintain a steady growth rate and you can benefit from it. Creating these two accounts with the least amount of fees and proper investment portfolio will allow you accumulate wealth at a steady but constant pace. And by automating the process you don’t even have to look at it.
But this system would never work unless you take a good look at your own finances and how you actually spend your money. Ramit does make a valid point in stating that worrying about the small expenditures doesn’t do much and instead we should focus on the big wins. By cutting costs on our main expenses such as subscriptions and or life style choices we can reduce our monthly expenses by a lot. This of course sounds a lot like budgeting and that is something a lot of people don’t like to do. Hence the automation process, which will help you no longer needing to look at your budget. Because it’s all automated and thus out of your mind. But Ramit does recommend using apps or websites to keep track of your expenses such as https://www.mint.com/.
My favorite chapter would have to be chapter 7. In this chapter I will teach you to be rich goes into detail about how you should invest your money. He uses examples from scholars such as Swensen to illustrate his point. I personally will be using the Swensen model for my Roth IRA as it makes a lot of sense and based on what I have learned so far it is indeed properly diversified. Ramit however did teach me something else as well. The concept of Target Date Funds. These funds are automated investment portfolios that correct themselves to adjust to my personal preference without me having to look at them. Fully automated investments that will allow my money to grow without me having to look at it all the time or worry about the market. A beautiful system indeed for those who are looking for an easy way to invest that doesn’t give them an headache from all the possible options or keep them up at night.
The concept of automating my expenses and savings and investments has now been fully embedded in my psyche and I will follow his advice. I can surely recommend this book.