In terms of personal finance books, I Will Teach You to Be Rich by Ramit Sethi is a no-nonsense guide through setting up your basic financial system. He cusses, calls out Wells Fargo (twice), and explains how you can spend money on the things you love while still saving for the future. In terms of providing the I Will Teach You to Be Rich Summary, I figured it would be best to highlight my personal 7 favorite key takeaways from the book.
Overall, if you have never read a personal finance book, or are just getting started in your financial journey, I Will Teach You to Be Rich is a great place to start.
7 Key Take-Aways from I’ll Teach You to Be Rich
1. Why do you want to manage your finances in the first place?
You need to know what your financial goals are before working toward them. To help with this, Ramit asks everyone he helps these two questions:
- Why do you want to be rich?
- What does your rich life look like?
There are no right answers to these two personal questions. Think about your answers and reflect upon it. You are “rich” in your own definition. Does that mean traveling every year to Europe, purchasing designer clothes every season, having the time wealth to take a two-month sabbatical, or just afford your own studio apartment in your dream city?
Everyone’s Rich Life is different, don’t worry what Instagram or other’s tell you what being rich means, only you can define that for yourself.
2. Focus on Big Wins
Common financial advice is to focus on saving during the day. Instead of buying $5 coffee every day, make it at home for 50 cents every day. Saving money every day is good practical advice. However, Sethi points out that this isn’t fun (cutting joy out of life if coffee is your thing), and that these same people who cut out lattes will buy a home they can’t afford.
Instead of looking to save on daily expenses, focus on high price items. Work on improving your credit so you can get a lower mortgage rate and use that to buy an affordable house over a mansion your bank says you can afford. Other tips include getting a lower credit card APR, buy an affordable car, and research when saving for big-ticket items such as appliances. Several hours of researching and negotiating for a reliable car can save more than five years of diligently managing day to day spending on coffee.
3. Saving alone is not enough
“If you make $50,000 and save every dollar, you still only save $50,000,” says Sethi. That is great to save, don’t get me wrong, but at the end of the day, you can only save so much. Instead of focusing on saving every dollar, focus on making more. Making more money can be done by negotiating for a raise at work, or by starting a side hustle to make money outside of work.
Ask yourself these 9 questions to see which side hustle works for you!
4. Create a system that makes money while you sleep
Ramit describes this automated system by following several proactive steps.
Set your pay-check to be a direct deposit to your checking account. From there, match 100% of your employer 401-k match to earn extra money for your retirement. Set automatic payments to your Roth IRA, investment portfolio (mainly index funds), and savings to take care of your investing. Then, set automatic payments to pay your credit card bills in full each month. Usually, fixed costs like rent and utilities can be automated. For any other bills, set reminders to pay them in full each month.
With this system, you are investing in the future, saving money, and paying all your bills. Then whatever money left over is your free money to spend on your conscious spending plan.
5. Create a conscious spending plan
“Conscious spending isn’t about cutting your spending on everything. That approach wouldn’t last two days. It is, quite simply, about choosing the things you love enough to spend extravagantly on – and then cutting costs mercilessly on the things you don’t love”
Ramit
Replace your budget with a conscious spending plan. Ask yourself, what do you love and want to spend your money on? You could love going out, shoes, aquariums, vacations, or whatever you enjoy. Cut the spending in other area to afford more money to spend on the things you care about.
After setting up the automated financial system, whatever money you have left-over can be spent here. Ramit says that most Americans go through life without ever asking themselves what they value. Instead, they are focused on budgeting the money that society tells them they should be putting their money towards. By creating a conscious plan of how to spend your money, you are making a plan and lifestyle that works for you. Allowing you to ignore the items you don’t want, while spending extra on the items or experiences you love.
6. Live Life Outside the Spreadsheet
Regarding the FIRE movement, Samit loves the idea of aggressive savings and financial goals. Especially since aggressive saving leads to being able to become financially independent quickly. However, he worries that “when people use words like ‘miserable’ ‘rat race’ and ‘anxiety,’ that’s a red flag. My suggestion: remember that life is outside the spreadsheet.”
FIRE can focus too much on a “magic number” that will all of a sudden “save us” from the Rat Race. Finding a job we like can help. Aside from that, we have to recognize even with aggressive saving, achieving FIRE can take a while. Saving 75% of your income still requires you to work for at least a decade.
A decade is a long time to be miserable, and then thinking a FIRE lifestyle will make all of the problems go away is a misconception. Focus on saving for your goals while also enjoying life. Sethi recommends saving around 10% and having 20-35% for guilt-free spending.
For me, this ratio should be flipped, but I am a big saver. Which shows how personal, personal finances can be. Make a system that works for you and lets you build your rich life.
7. Ignore the noise
“ignore the noise. Remember, investing shouldn’t be dramatic or even fun – it should be methodical, calm, and as fun as watching grass grow.”
Ramit
As you become more financially literate, you will notice all the noise and opinions people have about how to manage their finances. Remember, it is personal finances, and as long as your system aligns with your goals then you are all set.
Also know, no one has an idea of how the market will go in the short-term or which stocks will become “millonare maker” stock. The articles proclaiming “the top ten stocks like Amazon” don’t know which stocks to pick and will just as quickly write that same ten as duds the next day. That’s why low-cost index funds that track the whole market are usually the best way to go. Trust the system you set up, research and optimize as you go, and rest assured that the noise isn’t sure where the market is going either.
I Will Teach You to Be Rich Summary: I recommend this book for –
- People starting the personal financial journey
- Recent college graduates
- Anyone interested in automating their financial system set-up
Main Take-Aways
- Know your financial goals even before you start making your plan so you know what you want your financial system to do for you.
- Set up an automated system that invests in low-cost index funds, target-date retirement funds, and pays all your bills in full. Setting up an automated-system can fund a lifestyle that saves for the future, pays off all debts, and that also affords consciously spent luxuries along the way.
- Personal finances can be complicated, but using an automated system makes the work easier and less stressful.
Action Item
Assess how your financial system is working for you and develop a conscious spending plan today. Work on creating your automated system through-out this week.
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