Many of you will probably remember the little debate between myself and Ramit Sethi a few weeks ago about the usefulness of frugality. Ramit stated that the best move a person can make is to focus on the “big five” – identify the five biggest way to save money in your life and make them happen. My position is a bit different – I believe there is a lot of value in digging into frugality and finding additional tactics that work for you.
More than anything, the “debate” outlined two things. First, Ramit and I have different tones and styles of writing. He’s far more brash and “loud” than I am (at least in terms of writing about personal finance) – and I think the two styles appeal to different people to an extent. Second, we also have different audiences. Ramit focuses on people who have likely never considered how to cut back their spending, while I tend to write for people who have already made that realization and are working through the implications of it.
Frankly, I’m glad Ramit is out there writing in his style, addressing his audience. He’s reaching people that I wouldn’t be able to reach (and vice versa), but we’re both largely sharing the same message: there is great benefit in turning your financial life around, and cutting spending is one big part of the puzzle.
This brings us to his book, I Will Teach You To Be Rich. All one has to do is glance at the cover to realize what you’re going to find inside. It’s full of Ramit’s style of brash writing, which covers the big issues of personal finance in a way that will greatly appeal to a specific audience – twenty- and thirtysomethings who want irreverent and in-your-face basic personal finance advice.
Is there worthwhile content inside, though? Let’s dig in and see what Ramit has to say.
Would You Rather Be Sexy or Rich?
What does “rich” mean to you? I somewhat addressed this question a few weeks ago. In the end, Ramit speaks the truth here – we all have different definitions of “rich” and, because of that, we all want to be “rich.” Most of his examples revolve around people with more material desires – a woman who enjoys buying jeans, a guy who loves to travel – but the message is still true. Before you can be “rich,” you need to figure out what “rich” means for you. (For me, incidentally, it means being able to securely support my family and involve them in a lot of fulfilling experiences.)
Optimize Your Credit Cards
Ramit’s first step is getting your credit cards in order, and the first part of that is getting your credit report and making sure it’s accurate. After that, set up a debt repayment plan to clear out this debt as quickly and efficiently as possible. The one piece of advice that might irritate some (though I do agree with it) is Ramit’s suggestion that everyone get a credit card, even if they don’t use it. Why? Establishing a credit history helps you in many ways, from lowering your insurance rates to helping you with job applications (since many jobs run a credit check on applicants).
Beat the Banks
Get a good checking account (one that doesn’t eat you alive with fees and pays a bit of interest) and a good savings account (one that pays a solid interest rate and has good customer service). Then set up an automatic savings plan to start putting money in your savings account – in other words, start building a real emergency fund. That’s Ramit’s advice here in a nutshell, and while it seems basic, it’s information that a surprising amount of people have never done. I should know – for many years, I had an awful checking account with a large bank that dinged me with tons of fees every month with no real benefit.
Get Ready to Invest
Here, Ramit basically orders the readers to open up a 401(k) and/or Roth IRA now, even if you’re not sure what to invest in. Start saving now – if you don’t know what investment to put your money in, put it in something very safe until you’re able to figure it out. The key is to start saving now – don’t worry about the investing choices. Why? If you get started now instead of a year from now, you’ve got a year’s worth of savings built up even if you haven’t done anything with it. Even if it’s just sitting there earning 2%, at least you’re saving and earning a bit – that’s far, far better than nothing, especially if you’re getting an employer match.
Most of this chapter focuses on the idea of a “conscious spending plan.” In a nutshell, a conscious spending plan means identifying what your “required” spending is – your housing, your food, your automobile, and other basic needs – then adding savings and investing on top of that, leaving 20-25% of your money “free” to be spent on non-essential things. This works very well if you have a strong income, but the advice doesn’t apply nearly as well to lower-income folks.
Save while Sleeping
Automate as much as you can. That’s Ramit’s message here. Get as many of your accounts linked as you can (using online banking tools) and make as many of your payments automatic as you possibly can. This drastically reduces the time involved with paying bills, plus it ensures that you won’t be late with payments. Even better, you can also add in automated savings here, treating them as another “automatic” bill, which makes it easy to save.
The Myth of Financial Expertise
Ramit’s chief argument here is that so-called “financial experts” rarely know significantly more than a well-motivated person can with a bit of research on their own. He cites several reasons for this, most notably that even the best financial experts can’t beat the market consistently (so why not just invest in an index fund and ride the market?). If you really need advice, seek out a fee-only financial planner who can help you get things in order, then handle most of the management yourself (it’s easy with all of the online tools available these days).
Investing Isn’t Only for Rich People
The internet has brought the tools for investing to the masses. You have access to tons and tons of information – everything from the very basics of investing all the way to reams of data on virtually every investment out there. Plus, you have plenty of tools to actually do the investing yourself. You can set up an investing account, research investments, and make your investing choices all from your computer. The excuse for not doing it isn’t lack of information or lack of tools – it’s up to you and you alone to take the first step in investing.
Much like dieting and exercising, it’s easy to get started, but it’s much harder to do the maintenance needed over a long period of time. Thankfully, personal finance maintenance can be quite easy. Automate as much as you can, first of all. After that, maintenance mostly revolves around keeping an eye on things and making pretty infrequent decisions (such as rebalancing and, rarely, deciding to sell an investment). The more work you do up front, the easier maintenance becomes.
A Rich Life
The final chapter focuses on major life expensses: a car, a home, a wedding, an education, and so forth. The best solution for all of these is a simple one: plan ahead. The earlier you begin planning (and saving), the less you have to save and the easier the entire process becomes. Ramit also discusses some strategies for negotiating a salary. Even better, on page 240, the book features a two-page sidebar discussion written by me on how to utilize raises.
Is I Will Teach You To Be Rich Worth Reading?
I Will Teach You To Be Rich actually reminds me quite a lot of another good personal finance book I reviewed in the past, You’re So Money by Farnoosh Torabi. They both speak to a young audience with a fair dose of irreverence, humor, and brashness. They both often advocate a more consumer-oriented lifestyle than I enjoy. They’re both also written for a somewhat younger audience than I am, since they’re both targeting young, single professionals (Torabi specifically targets young female professionals, while Ramit seems to target both genders).
Yet I can easily see how I Will Teach You To Be Rich can bring personal finance to life for a person fresh out of college and looking to conquer the world. In fact, I Will Teach You To Be Rich would probably be my default “graduation gift” for a college student who needs to learn the basics of personal finance.
I Will Teach You To Be Rich is the perfect book for that audience. Other readers may be driven away by the tone or, in some cases, the simplicity of the advice, but, to put it simply, it’s pretty obvious the book isn’t written for you. Ramit has a pretty specific audience in mind and he hits it almost perfectly. Good work.