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About the Author
Ramit Singh Sethi is an American personal finance advisor and entrepreneur. He is the author of the 2009 book on personal finance, I Will Teach You to Be Rich and founder of GrowthLab.com, owner of IWillTeachYouToBeRich.com, and owner and a co-founder of PBworks, a commercial wiki website.
In 2004, he graduated from Stanford University with a Bachelor of Arts (Information & Society) in Science, Technology & Society with a minor in Psychology. In 2005 he received a Master of Arts in Sociology (Social Psychology and Interpersonal Processes), also from Stanford.
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About the Book
This New York Times bestselling book on getting the most out of your money — no guilt, no excuses, no BS. Just a 6 week program that works.
You don’t have to be perfect to be rich. Or the smartest person in the room. Or a type-A personality. In fact, with Ramit Sethi’s six-week program to financial independence, you can start with any amount of money. Do just 85% of what he suggests, and succeed brilliantly through good times and bad.
The book I’m talking about is the I Will Teach You To Be Rich second edition. It was published in 2019 as an update to the 2009 original book.
Download the first chapter of the book here: https://www.iwillteachyoutoberich.com/book/
Visit the I Will Teach You To Be Rich blog with heaps of tips and advice on personal finance: https://www.iwillteachyoutoberich.com/blog/
Listen to Ramit on the Tim Ferriss Show talking about how he applies his lessons and designs his ‘rich life’: https://tim.blog/2019/05/07/ramit-sethi/
BIG IDEA 1 (6:55) – Debt first.
This biggest opportunity costs you have to your finances is debt, particularly credit card debt. Ramit is loud and proud that he won’t accept anyone who has credit card debt onto some of his courses because this is the first thing that needs addressing before you can optimise your finances further.
Debt is a huge opportunity costs due to compound interest which is toxic to your personal finances. There are a number of stories, tables, examples and scary calculations in the book about how much you are paying in compound interest if you only payoff the minimum balance on your credit card.
So if you are in this situation, this is the number one thing to change.
BIG IDEA 2 (7:53) – Time in the market > timing the market.
People tend to overthink and over-analyse investing by thinking about the time they need to wait when the market is soft and the price is the lowest rather than just getting in. This is another opportunity cost because you are sitting on your money.
Don’t obsess and sit on your money trying to pick the exact time because while you are doing that, you’re losing money due to inflation by letting it sit in your bank account.
One of the key concepts in the book is asset allocation and how that balance is a key. It is more important to spread the risk in your portfolio than the exact date or time you enter the market. As long as the allocation is good and suited to your finances you’re moving in the right direction.
By asset allocation Ramit means how much of your assets is invested in stocks, bonds or property. Throughout the book Ramit gave some examples and some starting points about what kind of percentages will be good based on what you are aiming for.
Another important point about time in the market is staying in. For example, if you are young, you should be thinking of long term investment in the market (with the right asset allocation) and not planning to cash out within a few years.
BIG IDEA 3 (10:15) – Challenging your money mindset.
In the book Ramit Sethi gives some examples of people’s misconception about money. For example, investing is only for rich people. He said that is not the case and that’s actually often how people get rich – by clever investment – not by starting off ‘rich’. It is of course about investing sensibly with a balanced profile to maximise potential returns over the long term.
Another money mindset that you hear a lot is buying property is a good investment. He argues it’s not often a good investment because your money goes into the costs of maintaining that property. Paying (a lot of) interest and fees and then reinvesting it in more debt with a bigger property. Ramit does say that if you have a balanced portfolio (asset allocation) then property can be part of this. But preferably not your only investment strategy.
Another money mindset that I find useful is the idea that there’s a limit of how much money you can spend but not how much you can earn. Ramit’s idea is having a conscious spending plan – spending ‘extravagantly on the things you love and cutting cost mercilessly on the things you don’t’.
He talks about how much of your income you should be spending towards living costs versus savings versus investments etc. And in that there is a money allocated that you can spend on fun or things that you love and bring you joy (including lattes).
Also listen to Originals by Adam Grant
There was also a conversation about reflecting on the money story you heard whilst growing up. For example, that money doesn’t grow on trees or you can’t take it with you so might as well spend it. These can (and do) impact your relationship with money as an adult.
Finally in the money mindset area, a lot of the book is about designing your rich life, one which is unique to you and will change over time. This isn’t necessarily about flying first class all over the world or having a lot of material things (although it can be). It’s as much those everyday things that would make life easier, how you can give back and/or treat those around you to make their lives easier or better. It’s definitely an interesting concept to reflect on and think about as your ‘so what’ when deciding to take control of your personal finances.
Music By: Jell-O – Instrumental Version Song by Egozi
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