In “I Will Teach You to Be Rich“, Ramit Sethi explains step-by-step how you can master your finances. With tips on saving, spending, and investing for you to gain control over your finances and become wealthy in the long term.
Here are my key takeaways from the book:
Conscious Spending Plan
Know where you are spending your money.
Create a Conscious Spending Plan which involves four major buckets of where your money will go: (1) Fixed Costs, (2) Investments, (3) Savings, and (4) Guilt-free Spending Money.
A typical conscious spending plan may consist of 60% for fixed costs, 10% for investments, 10% for savings, and 20% for guilt-free spending.
When you have used up the amount for the month, you’re not allowed to spend more in that category. It takes self-discipline not to overspend on the categories.
He also provides a script for talking to credit card companies and banks. Often, it’s possible to get fees removed but we don’t know what to say. If that is you, this book has the exact phrases you can use.
Automate Your Transfers
To increase your fiscal discipline, link your accounts together and set up automatic transfers.
By automating transfers, money goes straight to your investments and savings without you seeing it.
For instance, if you get paid on the 1st, automate payments so that on the 2nd, money is sent to your 401k, on the 5th it goes to savings, and on the 7th bills are paid.
Don’t listen to the ‘experts’
No financial expert can predict the future.
Nobody can “time the market” and consistently guess which funds or stocks will outperform the market over time. Anyone who claims they can is lying.
When investing, follow simple and sound advice.
The key to constructing a portfolio is not picking killer stocks. It’s figuring out a balanced asset allocation that will let you ride out storms and slowly grow over time.
If you’re buying index funds, look out for the management fees. Low management fees or “expense ratios” around 0.2% and you’ll be fine. Really, anything lower than 0.75 percent is okay.
On Cutting Expenses
Frugality isn’t about cutting your spending on everything. That approach wouldn’t last two days. Frugality, quite simply, is about choosing the things you love enough to spend extravagantly on—and then cutting costs mercilessly on the things you don’t love.
Focus on small changes will have very little effect on your average total spending. Instead, focus on the big wins that will make the greatest change in your budgeting.
The Most Important Step
Often times, we think that we have to do the most research and get everything perfect.
But getting started is more important than becoming an expert.
As Ramit Sethi puts it aptly,
“The single most important factor to getting rich is getting started, not being the smartest person in the room.”