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in: Budgeting and Savings, Consumer/Buying Tips, Investing, Money, Money & Career, Personal Finance, Podcast

August 21, 2019 Last updated: September 16, 2019

Podcast #536: How to Achieve a “Rich Life” With Your Finances

If you’ve read a lot of personal finance advice, you know that it usually concentrates on what you can’t do — what you shouldn’t buy and how you shouldn’t spend your money. What it doesn’t often offer is a vision of what all that scrimping and saving is for.

My guest today argues that while knowing how to save money is hugely important, it’s important to know how to spend it too. His name is Ramit Sethi and he’s the author of the book I Will Teach You to Be Rich. It’s now out as a revised second edition, ten years after of the publication of the original. We begin our discussion going over what has and hasn’t changed over the past decade when it comes to personal finance. Ramit then makes the case that living what he calls a “rich life,” involves not just knowing where to cut back on spending, but where to increase it in places he calls “money dials.” We then get into some practical ways to better manage your money to ensure you spend less in areas you don’t care about, and more in those you do, including how to manage and pay off credit card debt, the bank accounts you need and how to set them up so that your finances are automated, and why you need to start investing today. We end our discussion on the idea that the big money decisions that many people ignore are more important than the small ones that get a lot of attention.

Show Highlights

  • How have things changed since Ramit first published his book 10 years ago?
  • How your money psychology impacts your finances
  • The money mistakes that people make over and over again (and why!) 
  • The 85% solution 
  • Automating your investing 
  • What does it mean to have a “rich life”?
  • What are “money dials”? How do you turn them way up?
  • How do you turn the dials down on the things you don’t really care about
  • Why extreme frugality isn’t necessarily the solution 
  • Where we learn spending habits, and why the usual places are terrible 
  • Optimizing your credit cards (and why to start there)
  • The best bank accounts to have
  • How to deal with student loans
  • Why investing is so confusing  

Resources/People/Articles Mentioned in Podcast

i will teach you to be rich book cover

Connect With Ramit

Ramit’s website

Ramit on Instagram 

Ramit on Twitter 

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Read the Transcript

Brett McKay: Now if you’ve read a lot of personal finance advice you know that it usually concentrates on what you can’t do, what you shouldn’t buy and how you shouldn’t spend your money. What it doesn’t often offer is a vision of what all that scrimping and saving is for.

My guest today argues that while knowing how to save money is hugely important, it’s also important to know how to spend it. His name is Ramit Sethi, he’s the author of the book I Will Teach You To Be Rich. It’s out now as a revised second edition 10 years after the publication of the original.

We begin our discussion going over what has and hasn’t changed over the past decade when it comes to personal finance. Ramit then makes the case that living what he calls a quote unquote “rich life” involves not only knowing where to cut back on spending, but where to increase it in places he called money dials.

We then get into some practical ways to better manage your money to ensure you spend it less in areas you don’t care about and more in those you do. Including how to manage and pay off credit card debt, the bank accounts you need and how to set them up so that your finances are automated, and why you need to start investing today. We end our discussion on the idea that the big money decision that many people ignore are more important than the small ones that get a lot of attention.

After the show is over, check out the show notes at aom.is/richlife. Ramit joins me now via Skype. All right Ramit Sethi, welcome back to the show.

Ramit Sethi: Thanks for having me back again.

Brett McKay: So, last time we had you on we were discussing behavioral science and psychology and how that influences decisions we make in our finances and diet and exercise. Today we’re going to talk about your book I Will Teach You To Be Rich because this thing you originally published it 10 years ago and you’ve updated it and republished it with new insights you’ve gained in the past 10 years. I’m curious, what’s changed since you originally published the book, I Will Teach You To Be Rich in the past 10 years, I guess. Is there stuff you’ve learned along the way since then?

Ramit Sethi: Oh, yeah. There’s a lot that has changed in the outside world and there’s a lot that’s changed with me. I didn’t expect to write an update of the book because when it comes to good advice, most good advice is timeless. And some of my favorite books were written 50 years or more ago. But when I finally took a look outside I saw there were new accounts, I use different credit cards than I used 10 years ago, there are better perks that you can squeeze those credit card companies for. There are Robo-advisers, there’s crypto, there’s movements like FIRE, Financial Independence Retire Early. And then also my life has changed. I got married, and as you can imagine love and money huge topic. My business also grew. So I’ve come to see money very differently than I saw when I first wrote the book. And my favorite part of it was being able to share the stories of people who used the book. And in the last 10 years you can see their lives have completely changed.

Brett McKay: And the other thing that’s changed, you make a note of this in the book, interest rates have changed.

Ramit Sethi: Oh my God. Okay this is probably the biggest mistake of my life. All right? I made a lot of mistakes but you wouldn’t believe for the last 10 year every single day of my life I wake up and I have 10 or so emails from random people around the world cursing me out, this is like my morning coffee. I wake up, I open up my email, I get cursed out by people saying, “Your book told me there are 5% savings accounts, where are they you liar?”

And I’m like, “Oh.” At first I used to write back, “Hey guys, are you aware that interest rates are variable.” And also even if you have $10,000 we’re talking about a difference of about four dollars a month. It turns out people really don’t like to hear that from me, so now I have just stopped responding to those. My new lesson in life is never write interest rates in a book. Lessons learnt.

Brett McKay: Lesson learnt. There’s obviously been changes in the larger world of personal finance and in your own life but overall, yeah, I’ve read the second, the update, the fundamentals haven’t really changed all that much.

Ramit Sethi: That’s right. If you think about investing, the compound interest still matters, automating your money still matters and knowing how to master your money psychology still matters. I learned that when I first wrote the book, I could give you the perfect automation technique. I mean, down to the list of accounts, down to the days that money should transfer and I did that in chapter five. But if you don’t understand your own money psychology then none of it matters.

For example, think about how many of us grew up with our parents saying random offhand phrases like, “Money doesn’t grow on trees,” or, “We don’t talk about money in this family.” And we take those messages and 25 years later, 30 years later they still affect us. They actually cause a lot of our purchasing decisions that we don’t even realize.

So, that is something that has not changed but I wanted to shine a light on it. But I would say that even though I added 80 new pages of material and I updated a bunch of stuff, good advice doesn’t really change that often. And if you used the book 10 years ago or you use it now, you’re going to be financially set.

Brett McKay: Right. Well, another interesting thing that’s happens, you’ve had 10 years to interact with readers of your content and I’m curious during that time you’ve laid out this stuff, the fundamentals they’re strong but I think some of them you’ve mentioned in the book and on your website that you still see people make the same money mistakes over and over and over again. Which ones are those and what do you think is going, like what’s the underlying factor? Is it the psychology that’s the problem?

Ramit Sethi: Yeah. It’s everybody knows the basic stuff of money. We all know that we should the saving more, we all know that we should somehow be investing and these words are tossed around like 401ks and IRAs, but the biggest mistakes is that people put it off until another day. And I actually completely understand why. If anything in the last 10 years I’ve become much more compassionate about people’s attitudes and behaviors towards money.

I mean, just think about it. You wake up in the morning, you go to work, most people want to have a cup of coffee in the morning, go to work, not get in trouble, come back, maybe hang out with friends or family have a nice meal, watch some Netflix and go to sleep. That’s a good day. And I get that. I respect that. When you think about opening up your bills, and you think about learning all these word salad of annuities and 401ks that makes people feel bad.

And as one person told me, he said, “I don’t know exactly what I’m doing, but I know that I’m doing it wrong.” And that’s how a lot of people feel about money. So I get why they procrastinate. That’s the first mistake. Another mistake, and this is a big one, is people telling themselves stories that are not true. So they’ll tell themselves the story that, “I need to wait to have some money to invest, or only rich people invest.”

When in reality it’s actually the opposite. The way that you become rich is in part by investing. A lot of people especially on social media these days they love to victimize themselves. “There’s no way to get ahead. Oh my God the student loan debt crisis.” And while there are certainly some serious structural issues, I get that. I always come back to, “Okay that’s true, there is a crisis, a housing crisis, student debt crisis but when was the last time you invested in your 401k?” And if they say, “There’s no way I can even put aside 50 or a hundred bucks,” I say, “Give me 10 minutes with your calendar and 10 minutes with your spending and I will show you your priorities and I will show you how you can make that money work.”

And then the third mistake is, and I hate to be blunt about this but it’s listening to losers for money advice. Like I see people going on obscure subreddits and listening to commenter number 86483 telling them, “Oh my God, there’s no way to get 8% returns. That’s impossible.” And why are you listening to a random anonymous commenter on Reddit? Many in fact, I would say over 95% of the people who complain about money have never spent one weekend reading a good book about money. And so, if your entire reality is people who don’t have money telling you why you can’t have money, perhaps it’s time to make a change.

Brett McKay: Yeah, another problem that you mentioned is that people make the perfect enemy of the good. Right? They think everything’s got to be in place, right? They got to have all their debt paid off and then they can start investing. Or they got to have a perfect investment plan before they start investing. But you’re saying like, “No, you just need to get it 85% right, that’s it.”

Ramit Sethi: Yeah. That’s it. I call it the 85% solution in fact. And it’s funny because we all intuitively know this, with something that we started and we got good at. You know, people listening maybe they decided to improve their style, or maybe they decided to improve their fitness and looking back there were so many things that were impossible to know when you got started. And like I’ve gone on a fitness journey myself and when I started if someone had taught me about macros and calorie counting and all kinds of, overhead press I would have been completely overwhelmed.

I wasn’t ready to learn that stuff. What I needed to do was show up at the gym and control what I ate, very simple. Same thing with money. You need to automate your money, have some money go to savings, some money go to investing, you need to have the right accounts and that’s 85% of it. You’re good. If you want to tweak it and go a little further you can. I show you how in chapter eight. But most people will do very well with 85% solutions.

Brett McKay: Right. So, quit looking for the perfect thing. You’re just going to prevent you from getting to where you need to go. Yeah, I mean, like I talked about this before we got on the show. I read this book 10 years ago and one of the advice you gave was like target funds, right, for investing. We can talk about this later on in more detail. I mean, I didn’t know much about investing. I needed to retirement count. I didn’t know what to invest in. So, I just did hat. And it’s been crazy to see like in the past 10 years how well those target funds on vanguard have done and I haven’t done anything. We haven’t had to rebalance. I put the money in and that’s it.

Ramit Sethi: So this is a crazy thing. First of all I’m so happy to hear that. I love, love, love talking to people who took the advice, they automated it and then they got on with their life. That’s the beautiful part. You did not spend hours and hours every single day tweaking and fiddling with it. That’s not a rich life. Most people do not want to become financial experts. They want to set things up, move on, and live their rich life outside the spreadsheet. Which is exactly what you’ve been doing. And that’s amazing.

I think that if you look at what happened with this book, it came out in March 2009. Now I don’t believe in market timing but that was probably the best time it could have ever come out because that was the absolute bottom of the recession.

Now, if you just follow the advice in the book, even with conservative numbers like a hundred bucks a month, you are basically financially set for life. And so, I want everyone listening to really get honest with yourself. Take a look in the mirror and say, “Have I been delaying learning about a 401k? Have I been complaining about money but not actually picking up a good book and reading it?”

The key thing about what you said, which I love, is most people in most parts of life want more control. Right? They want to have control over their living environment, their work, their career, all that stuff. With money, it’s ironic that the more you try to control every last bit, the less successful you’re going to be.

And in fact, we see this with portfolio managers, people who fiddle around actively investing they actually fail to beat the market over 80% of the time. And what you can see is all you need to do is automatically set money aside, pick a simple investment and then get on with your life. And you will outperform over 80% of professional investors.

Brett McKay: So you just mentioned something there. You mentioned this idea of a rich life. That’s a new concept too you’ve been developing over the past 10 years. I don’t think you talked about that in the first book or the first edition of the book. This idea of a rich life and when people hear that they think, “Oh, it’s private jet, mansions,” that’s not what you’re talking about.

Ramit Sethi: No.

Brett McKay: What is a rich life for you?

Ramit Sethi: Okay. So, this is definitely the cracks of what makes this book different from so many other books and also my philosophies. So my philosophy is that each person’s rich life is their own. So your rich life is different than mine. And in fact, let’s just get into it right here. So, if I ask you what’s your rich life, what would you say?

Brett McKay: Being able to buy books whenever I want, barbell train, maybe occasionally buy some things for my garage gym and spending time with my family, and maybe taking a vacation in Vermont once a year. That’s it. That’s it.

Ramit Sethi: Love it. Love it. Okay. Love it. Now, let me ask you this, out of things you talked about what is the thing you absolutely love spending money on, I don’t mean like, I mean love.

Brett McKay: Going to Vermont and I’m here right now talking to you in Vermont.

Ramit Sethi: Perfect. This could not be a better example. Okay, now let me ask you this. What if you took the amount that you spend on that and you quadrupled it? What would that look like, what would that feel like, what would that be for you?

Brett McKay: I have no clue. I’m going to have to think about that. I’m going to have to get my journal, maybe journal about it. Quadruple like so the amount I spend on going to Vermont, if I quadruple that I would probably buy a second home in Vermont and come here all the time.

Ramit Sethi: Nice. And what would that feel like?

Brett McKay: Just feel great. I love it here. It’s relaxed, the nature is fantastic, the outdoors are fantastic.

Ramit Sethi: You probably have your stuff there. So you wouldn’t have to transport it.

Brett McKay: Yeah.

Ramit Sethi: Right? You travel. Writer. You’d have something to look forward to. What about memories with your family? Maybe you’d even bring friends, extend that.

Brett McKay: Yeah, that’s right.

Ramit Sethi: Okay.

Brett McKay: Yeah, I would do all those things.

Ramit Sethi: Love it. Okay. So, this is a concept I call money dials. And money dials are part of your rich life. Everyone’s got at least one money dial. A money dial is something that you absolutely love spending on. Everyone intuitively knows what it is. And I call it a money dial because you can turn that almost like a radio dial. You can turn that dial way, way up. Now, the most common money dials that people tell me are travel, eating out, and to some extent, well, let me just stop there, those are the two most common ones.

Mine is a little different. Mine is convenience. I love convenience. It makes me happy. I wake up in the morning, my calendar is perfect, my food is like all ready, everything is convenient. I love it. Now, what I challenge people to do I ask them what does it look like if you quadruple your spending? And what is amazing is most people have never thought about it. Just like you said I’m going to have to think about it.

And when they do, they start, they give pretty generic answers. So I had one woman in L.A. and she said to me I love buying clothes. I love it. And I encouraged her. I said, “Good, tell me more. What do you love about them? She’s like, I love coming home to my apartment there’s boxes.” And I said, “Cool, you open them up it’s like a gift.” I said, “What if you could quadruple your spending?” She’s like, “I would have boxes everywhere.”

Brett McKay: A lot of boxes.

Ramit Sethi: Yeah and the whole crowd was just loving it. And I said to her, “Where do you shop?” And she said a store called Topshop. And I said, “If you quadrupled your spending where would you shop?” She said, she looked confused. She said, “I would shop at Topshop.” And this is where it became very interesting. Most people have never thought about spending more on the things they love because most people and most topics about money are all about what you can’t do. No, you can’t buy lattes. No, you can’t go out. No, you can’t go on vacation. You have to hoard it all until you’re 90.

So, I always start from a place of what do you love and what if you could spend more on it? And I challenged her to get specific, to dream bigger. If you quadruple your spending you’re not just going to buy more of the same clothes, you might actually turn that dial way up and you might shop at a different brand, or you might fly to a headquarters and factory of a brand you love and take a behind the scenes tour and even get something custom-created for yourself.

So I share this example because you love Vermont, if you quadrupled or 5X or 10X your spending it’s not just adding a little bit more, you can actually completely change the entire experience. And I always say, “Spend extravagantly on the things you love as long as you cut cost mercilessly on the things you don’t.” There’s a totally different way of looking at money than most people who only focus on the things you can’t do.

Brett McKay: Yeah, that’s a good point because, yeah, most personal finance advice is like, this is something you’ve been railing against for the past 10 years. Like skip the latte. If you skip the latte your retirement will be set. And it’s like, “Well, you know, yeah,” but you’re missing on that latte. You enjoy it. It’s a part of your routine. It gives you pleasure. It gives you joy. Money is there to also enjoy life as well.

Ramit Sethi: It’s there to be spent and it’s there to be used. I grew up and we… I grew up in a middle class family, pretty large family and one thing I learned is I loved strawberries. But when we got strawberries I would always try to save them because like I liked them and I wanted to extend the pleasure. Inevitably they would go bad or they would get eaten. And so, I have a new philosophy which is strawberries are meant to be eaten. And money is meant to serve your rich life.

So, you notice that most of the advice out there that tells you what you can’t do it never really ends up telling you what you can do. So it’s interesting. This has really bled into people’s psychology especially in America. I ask them what’s your rich life and so many people say I just want to pay off my debt. That’s as far as they’ve dreamed. And I said, “Man, it’s no surprise you’re not living a rich life.” If your entire dream is to pay off your debt, that doesn’t get anybody up in the morning. That doesn’t get you excited, but what if you said I want to pay off my debt and then I want to take my family on an amazing vacation once a year.

Or I want to donate more to charity, or I want to go out and eat at a beautiful restaurant on our anniversary ever quarter. That suddenly becomes something that gets people excited. So money can be about saying yes, not just about saying no.

Brett McKay: Right, and I like this idea of conscious spending. This doesn’t mean you’re going to be a total spendthrift, right? Or you’re just going to spend all your money all the time. Like you said, you have to decide what you really want and you put your money towards that and then the stuff that you don’t really care about, dial that down. Like be a monk if you have to, to get that thing that really cranks up that money dial for you.

Ramit Sethi: Yes. So, let’s talk about that because I don’t want people to think that I’m just telling everything go out and buy private jets, I have no interest in that. And let me share a little bit about what I don’t spend on and then I’d love to hear from you also what do you not care about spending on. So for me I rent on purpose. That’s a very counterintuitive notion. A lot of people believe that, “Oh my God, buying a house is the best investment. You’re just throwing money away on rent.” That is not true. I live in Manhattan, I’ve rented in the same place for the last 10 years, even though my net worth has increased a lot.

So that’s a choice. I’m happy in my apartment. I don’t need another place. Another thing I don’t have a TV. It’s not important to me. So, those are a couple of areas where, and I have the same computer for the last seven years, MacBook Air. Simple. It runs, it works, it might be a little loud but it works. And those are things where I’m like, “you know what? It’s good enough. I don’t need to spend more.”

On the other hand, I love convenience and I love to travel to really, really nice locations and hotels. So I will spend a lot on that guilt free. That’s my conscious spending. What about yours?

Brett McKay: So I don’t care much for cars. That doesn’t get me going. I could … we have an 11 year old, no, how old is it? It’s a 2007 Honda Element.

Ramit Sethi: Love it.

Brett McKay: It’s gone almost 200,000 miles on it. And I’m going to ride that thing into the ground. I know it pretty dorky looking. I’m not a big fun, but it drives, gets you going where you need to go, so that. Food, I’m not a foodie. Like I have a garbage gut. If you just give me food and it has calories, and carbohydrates, and proteins, and fat it’s fine. So I don’t spend a lot of money on food. Like movie, going out to movies doesn’t interest me. So those are, yeah, I don’t send money on that. So, yeah. Most of my money goes towards books and then saving up for Vermont trip and then that’s pretty much it.

Ramit Sethi: See I love this. I love this concept of spending extravagantly on things you love and cutting costs mercilessly on things you don’t because when you think of how most people spend money it’s interesting actually. First of all, notice that in America everybody tells you how to save but nobody teaches you how to spend. Think about that. And so where do we pick up our spending lessons from? We pick it up from Instagram which tells us to just spend on stuff to keep up with other people. Even though we may not even like it.

We learn to spend from our parents and the people around us who probably have different values than we do. And what I recommend for people is really think about your own values. Like you might have heard me say I don’t particularly care for the apartment that I, moving apartments or you say you don’t care about cars, you might recoil at that and say, “I love cars.” And my answer to that is awesome.

And you should spend more on a car. But you also have to be honest with yourself about what you don’t care about. And this takes a higher level of reflection than just spending a little bit here and a little bit there and getting to the end of the month looking at your bills and shrugging and saying I guess I spent that.

Brett McKay: I like that a lot and it can be different for every person. So maybe someone doesn’t even have a house or an apartment and they live in a van and they go camping all the time.

Ramit Sethi: Yeah, that sounds like hell to me by the way. But I respect it. Like we all have our own things. One guy in my book, he’s right at the front. He said that he used my book and he got it 10 years ago, he and his wife retired in their mid-thirties and they travel around the country in an RV. And I was like, “I would rather be dead than travel in an RV around the country.” But I love that that’s his rich life. And that he and his wife together dialed it in and created their own rich life and they are unapologetic about it. Our rich lives can all be different, it’s just about you deciding what yours is and not letting anyone and society tell you that you should feel guilty about it.

Brett McKay: Right and a rich life can be not just about spending more on material things but the kind of lifestyle you want. So maybe you’re willing to way downsize your house so you can be a high school football coach instead of a lawyer.

Ramit Sethi: You know, it’s so interesting if you ask people right now what do you truly want? What is your rich life? I would challenge the listeners. As I said one comment that I get, there’s three answers that I always get, one is I want to pay off my debt, we already talked about that. The second one is this word freedom. It sounds logical, but it’s actually really vague.

I say, “Okay, freedom. What does that mean to you?” And then they look at me with their eyes glassed over. They’ve never actually thought about what that means. So freedom, what is it? Does it mean you don’t have to go into an office? Does it mean that you don’t have a commute? Does it mean that you’re working three months a year from somewhere else or you’re not working at all? What does it mean?

That’s why I pushed you on the Vermont question. I want people to be ultra-specific. My answer when I first moved to New York was I want to be able to buy appetizers, that’s my rich life. Because growing up we could never afford it. And then as I got a little bit more successful, I wanted to be able to take a taxi if I had a meeting in the middle of summer instead of going on the sweaty subway. Now my dreams are a lot bigger. But that’s the level of specificity I want for people to have.

I don’t want words little freedom. The third answer by the way they give me is I want to have a million dollars. And of course that number is totally arbitrary depends if you live in Kansas, Manhattan et cetera. But what I want people to do is get as specific as saying, “I want to buy appetizers without ever looking at the price.” Whatever that is for you, that is the level of specificity that will help you create your rich life.

Brett McKay: I just thought of another thing I like to spend money on, entertaining. My wife and I love inviting people to our home and just feeding them talking.

Ramit Sethi: Love it.

Brett McKay: Talking. I enjoy it. Love it. And it’s not like we’re like, it’s sometimes pizza but I want to be able to buy pizza and not have to worry about it.

Ramit Sethi: I love that.

Brett McKay: Right? All right. So, we’ve been talking big picture. Let’s get down into some brass tacks things. So in the first section of your book, I was always surprised by this when I first read it initially and then it’s still there. The first section of the book is about optimizing credit cards. It’s not developing those savings plans, it’s not developing a retirement account. It start with credit cards. Why start there? What’s the point there?

Ramit Sethi: It’s very intentional. Because yeah, everything in that book is done for a reason. The book I wanted to create a psychology book disguised as a personal finance book. Because ultimately deep down when it comes to money, one of the most influential things is your own personal psychology. I can show you all the math but the truth is people already know the math. They know they should be saving and investing more. When you pick up any other money book, do you know what the first chapter always tells you to do?

Brett McKay: Cut back on spending.

Ramit Sethi: Cut back on spending and they even start a little bit before that which is let’s figure out how much you spent last year. And people look at it and they go, “Well, I don’t know what I spent but I know it was bad. I think I’m going to put this book back on the shelf.” Nobody wants to start from a place of feeling bad and also nobody wants to start with these questions that are too big. Like what is your rich life? That’s really hard in chapter one. Or let’s create a retirement plan. Well, I’d rather not I’d rather just go out and hang with my friends. But when it comes to our money, we also have credit cards, we all hate our credit cards and we can all get amazing perks that none of us even know when it comes to our credit cards.

So, I started off there. And what I did was, a lot of people have pay these late fees or credit card fees or annual fees and I said, “Let me show you guys something. First of all, here are the phone numbers.” This is the level of specificity that I get to. “Here’s the phone numbers, here’s the words to read off the page when you call your credit card company.”

And suddenly people are like, “I don’t believe this thing is going to work. This weird Indian guy, I don’t know.” Boom! They get their $37 fee waived or they discover that they have perks that are going to pay them back for a thousand dollar computer repair which happened to me. And suddenly they’re like, “Oh my God, this actually works. ”

And for the first time instead of being passengers in their financial life they’re like, “I can actually take control of this.” So, when they take control of a $37 fee or some perks on their credit card that I show them, suddenly by the time I take them to chapter nine and I show you how to negotiate a $25,000 raise at work, they’re a believer. They know that this stuff works. But if I put that I chapter one, there’s no way. People are not ready for that. So that’s why I designed the book the way I did.

Brett McKay: So yeah, you’re giving those small wins first to build up that sense of agency and autonomy which will allow you to tackle bigger things because you know you have the capacity to do that stuff.

Ramit Sethi: It’s just like training, it’s just like any sort of skill building but you need an instructor who’s very intention about it, otherwise I just give you a bunch of information and charts and you look at it and you feel bad and you move on. And I would bet for a lot of people listening that’s happened. We’ve read a blog post that made us feel guilty about not saving more. The difference and the reason that there are so many I Will Teach You To Be Rich success stories is that the book is created with psychology first. And if you get that right then you know people are going to have a very successful journey.

Brett McKay: Well, another thing about the psychology of staring with credit cards, paying off your credit card debt, that’s a big win.

Ramit Sethi: It’s a big win.

Brett McKay: A big one because imagine all the interest people are paying by just paying the minimum payment on their credit card, once you pay that off you free up a lot more cash that can start going towards things you actually want to spend your money on.

Ramit Sethi:  Yeah. It’s funny, one of the common objections is I don’t have the kind of money to be able to invest every month. And it could be some people say I don’t have a hundred dollars a month, some people say I don’t have a thousand dollars a month. Whatever the number may be for you. The truth is that if you had a third party come in and take a look at your spending not making you feel bad, but just saying, “Hey, here’s three scenarios, if you like eating out, great keep eating out. In fact spend more on eating out. Great. But here’s a couple areas that you seem to just be spending a little bit and is this really important to you?”

Just that consciousness of saying, “Man, I didn’t realize it all adds up to this much. I could take that cash and redirect it to something else, whether that be credit card debt, saving, investing or even just spending it on something you actually love.” That is very empowering to people. And so that’s why I always start from a place of yes and what do you love and then we figure out what you don’t actually like.

Brett McKay: Another interesting thing about your approach to credit cards you know a lot of personal finance people out there will say, “Okay, pay off your credit cards as soon as possible,” and you’d say, “Yeah, I’d agree with that.” Get rid of those interest rates, whatever. But then the personal finance people would say and then cut up your credit cards, don’t ever use your credit card again. You take a more moderated approach to that.

Ramit Sethi: Yeah. I mean look, we all live in the real world. So, one of the reasons that most personal finance advice doesn’t work, and we know that just by looking at the ballooning amount of American’s debt, their poor financial literacy scores is that the advice takes a very impractical approach. They tell people, “Don’t use credit cards at all.” That’s pretty unrealistic for most people.

And what I say is, “Let me actually show you all the amazing perks and benefits that your credit cards give you.” So, I show people all the exact credit cards that I use and the exact system. When do I use a cash back card, when do I use a travel rewards card and how do I upgrade them for free flights and free hotel luxury hotel stays?

And I show some stories of readers as well who paid for their entire honeymoon in the Maldives and Bora Bora. These are tools that you can use and you can squeeze these companies to get massive perks, but you got to understand how they work. And so I show you how to beat them instead of just abandoning them.

Brett McKay: Right. And to reiterate the point here like people are using these credit cards but they’re paying them off at the end of the month before they get charged any interest.

Ramit Sethi: Yeah. You should not be carrying debt. And if you are, I show you how to build a plan but you should… I pay off my credit cards a hundred percent every time and in exchange I get massive, massive perks throughout the year.

Brett McKay: Right. And also it can help you manage your finances. You can see where you’re… a lot of these credit card companies they’ll break down how you’re spending your money on gas or health insurance or whatever, it’s all to get a nice financial report.

Ramit Sethi: Yeah, it’s all done for you and it’s just convenience. So, I’ve actually since the book came out the first time, I used to use cash a lot more and I actually use cash far less. And the tracking and benefits of the credit cards are amazing. As well as the perks now there’s even better perks than there were 10 years ago.

However, and I just want to say this just to be really upfront, you need to understand how credit works and you need to understand that paying the minimum or late fees, those things can really, really disproportionately hurt you. So I teach you how to use it and how to use it effectively. But I don’t believe in just saying, “Don’t use it at all.”

Brett McKay: Right. Well, the next section of your book is about bank accounts, which is incredibly basic because I think a lot of people, not a lot, you’d be surprised the number of unbanked Americans there are. But if you came in a middle group in a middle class family you probably got a bank account when you were like 10.

Ramit Sethi: Yep.

Brett McKay: Right? That whole savers’ club you joined, but you go into more detail that people aren’t optimizing their accounts that will help make their money life easier. What are people messing up there?

Ramit Sethi: Well, number one, they still, people are so funny. They have loyalty to a bank account that they opened when they were eight years old. And I’m like, “Why do you…” Is it okay if I name names on this recording?

Brett McKay: Go ahead.

Ramit Sethi: Oh thank God. All right. I might get bleeped out guys, but I’m just going to tell you the best accounts, okay? No need to hold you in suspense. First of all, I hate Wells Fargo and Bank of America and I tell you exactly why. They’ve done predatory borderline, I mean, they’ve done some really bad stuff to my readers and to general Americans.

And so, I ask people who have these accounts why do you have them? And they’re like, “Well, I opened it up with my mom when I was eight.” I’m like, “In what other part of life would you be loyal to a multi-billion dollar company that’s trying to screw you?” And I’m personally offended at what these companies do. And also what some of the investing companies do. That’s why I wrote this book so people could actually be empowered against these companies that are very sophisticated.

What people are resistant because they’re like, “Oh, it’s going to be a hustle, I got my bills.” It’s true. I get it. It’s going to take a few hours to fix, but it’s like choosing the right email software to use. Right? You can sit there and use your own software, or you can use Gmail. And it’s probably going to be great, right? So I believe, I tell people, I use Schwab for investor checking. And I can take money out from any ATM and it gets refunded, and they do all these amazing things.

I say the same for investing accounts. I name names about good and bad. And I’ll tell you why I do that. Number one, I want people to know the specifics of money. When I was starting to research money, I was frustrated because everyone would give these broad generalities. Find the bank you trust. They should the open 24/7. I’m like, “Just tell me what to use.”

And so, if you listen to me and you trust me, then you know that I love researching this stuff and most people are like, “All right. This guy knows what he’s talking about. I’m just going to go with his recommendations.” So that’s number one.

And number two, I want people to be more specific with every part of their money. With when they tell me what their rich life is, with how much money they’re putting in, with the accounts they use. You read this book and there are no questions left. You know exact the accounts, exact amounts, exact days. That’s why I got specific about checking accounts, savings accounts and investing accounts.

Brett McKay: Another thing you point out, yeah, people they open up a checking account, they open up a savings account, but they don’t have a purpose for them. They just kind of like haphazardly like funnel money into each one, but you develop a system where, okay your checking is your work course account, that’s money comes in and then it’s going to immediately go out to these different funnels automatically. Your savings account is for a specific reason, it could be an emergency fund or it could be you’re saving up for a down payment on a home or your wedding. You have to give every dollar a job basically.

Ramit Sethi: Yes. So, I love systems. So let me talk a little bit about my own system and I show you how to do this and then you could adapt it for your own needs. So for me my checking account is like my email inbox. My paycheck goes there, everything goes there and then it’s automatically filtered out to different accounts. It’s filtered out to multiple sub savings accounts. So I have multiple things that I save up for.

And for a lot of people you might be saving up for a wedding, a down payment, I actually encourage you to pick something you and maybe your partner want to do this year. Maybe you want to take a trip. Okay, let’s actually think about what would make this trip extra special. Maybe we want to go into this really hard to get into restaurant or take this behind the scenes food tour, my wife and I love doing food tours.

And so you start to save and if you save over 12 months, the amount you have to save on a monthly basis is often quite manageable. So, I typically have about four to six sub savings accounts at any given time. I also have money going from my email inbox/checking account to my investing account. And that money goes in there and is automatically invested.

So, I spend less than 60 minutes a month on my money and it all just flows. It’s like a beautiful ballet. I know I sound like a psycho, but I told you my convenience is my money dial. And so I love systems that make my life more convenient. That’s how it works. And so, I would encourage everyone here to think about the four or five or six sub savings accounts you have. And suddenly your money goes from just this random pool into areas that you know, you love and you can track. That is very empowering.

Brett McKay: No, yeah. Like I said before the show I was talking about when I read the book initially 10 years ago 2009, I set up my system sort of how you recommended and it’s basically stayed the same. I’ve made tweaks a long the way as I’ve learned more and as my situation has changed but the general framework is still there and it works. I don’t have to really think much about it.

Ramit Sethi: I love it. I love that. I love that your rich life is not sitting in excel and logging into accounts it shouldn’t be. You know, I talk a lot about how a rich life is lived outside the spreadsheet. And you may, this may be true for a lot of people, particularly people who are in the FIRE community, Financial Independence Retire Early. This is a whole new culture that has emerged and it’s pretty amazing. FIRE basically encourages people to save well over the recommended 10 or 20%. They laughed and said, “How about 70%?” And so, it’s an incredible community that has basically taken these assumptions and just shattered them. But what you’ll also find is that in the FIRE community there’s a lot of people who they use words like, “I feel anxious about money, I feel nervous, I want to escape from my job.”

These are not the words of someone who is financially healthy, right? I want people to use money for positive words. “I want to travel with my family,” or, “I want to experience X, Y, Z,” or, “I want to eat or I want to by a beautiful leather jacket.” Whatever it is you want. With fire, you will sometimes find deep FIRE adherence who really live in the spreadsheet. And every day they wake up and run another Monte Carlo simulation and that is not what I encourage people to do.

At a certain point your system works, it’s all it needs is time and discipline, and guess what? You earn the right to live outside the spreadsheet.

Brett McKay: It sounds like, when you were talking describing that, sounds like an eating disorder, right?

Ramit Sethi: It’s funny you say that.

Brett McKay: People you just track their calories obsessively to the point where it gets in the way of life. Like a psychologist says you need help, you need therapy.

Ramit Sethi: Yeah. Yeah I want, that’s a very interesting analogy. I want money to be a healthy positive part of people’s life. When in reality if you ask people, what’s the first word that comes to mind when you think about money? They will always tell me the same five or six answers. Anxiety. Nervous. Is it too late? Embarrassed. Shame. Guilt. These are the most common answers. And what I want people to do is go from what I call hot to cool. Hot are those words that are emotionally hot. Shame, embarrassed, guilty. Cool are things like decided. I decided to go to Thailand this year, right? I decided that I want to hire a personal trainer. I decided that I don’t really feel like buying a TV because it’s not important to me. Those are cool words, decided. Words that you consciously choose as opposed to guilt, shame and embarrassment.

Brett McKay: Going back to this analogy of food, so I count macros but I don’t, I try not to let it ruin my life. I mean here’s an example, I’m on vacation right now. There’s a lot of great restaurants around town. And so, I’m not counting macros so much, I’m making sure I get enough protein, enough fiber and then I leave, it’s just free ring because I want to be able to enjoy pizza and Ben and Jerry’s ice cream with not having to worry, “Oh, what is this going over my carb max.” I don’t care. Like I would just ruin it. So, I use a basic structure, but I don’t obsess about it. And you imply the same thing to your money as well.

Ramit Sethi: Totally. Totally. So you have reached a level of expertise and sophistication where you track but you also know how to let loose sensibly, right? And it’s like we went, we track as well. My wife and I we track our macros. And we went on a very long honeymoon, six weeks. I was a bit over-ambitious, I was like, “Let’s just try to work out three times week. That will be good.” And then you’re in the middle of Kenya for parts of it and there’s no gym. And so we’re like, “You know what, fine.”

We did work on getting our protein in, but at a certain point we’re sitting with some of the best food in the word in front of us and we’re like, “You know what? We’re going to enjoy this.” Because we have the confidence to know that when we get back we’re going to hit the gym, we’re going to count and we’re going to be back. Back in shape just like and it took us about three weeks.

So, I think that getting to that level where you can actually be happy, you can actually feel in control but you can also know that it’s okay to let loose once in a while. And nothing crazy is going to happen because you have the confidence in yourself to get back, get to work, just go back to your old routine. That is a real joyous feeling. Whether it’s macros or money.

Brett McKay: Right. Well, let’s talk about another specific thing that’s troubling a lot of younger people, maybe not even be young people anymore you might be people in their thirties and their forties still dealing with this, and that’s student loans. What’s your take on that? I’m sure that you have a lot of readers asking about that. Like should they pay off their student loans before they start investing? Should they invest and then pay off their student loans at the same time? What’s your take?

Ramit Sethi: My short answer on this one is that if you have student loans, you should create a plan. And the way to know if you have effectively created a plan is you should be able to answer this one single question. What is your debt payoff date? What that means is you should be able to say to me, “Well Ramit, my debt pay off date is February 2022.” Or whatever the month and year is.

By knowing your exact payoff date, that is the culmination of you knowing first of all how much you owe, most people don’t. Second of all, putting a plan into place with automatic repayments, most people don’t do that. And the third is knowing exactly when your debt will be paid off using a debt payoff calculator. And almost nobody does that.

So, if you can tell me the answer to that question, you’re doing great. And it doesn’t matter, it might take three years, some people it might take them 10 plus years. I will encourage people to invest at the same time. Why? Because, one, and this is mostly psychological, although it is mathematical too.

Psychologically it’s important for you to build the muscle of investing. Even 50 or a hundred dollars a month. Now yes, the mathematical side says you need to count your interest rates and you might be able to get a better return by paying off a high interest loan. You can read all of that stuff in that chapter in the book. My point is most people don’t realize that you can do both.

And so, when people often say should I do X or Y? A lot of times my answer is yes and yes. And so, I would encourage people to build the muscle of investing because as soon as you pay that debt off you’re going to see how powerful investments are. Just like you did from using my book 10 years ago. You see how much that money has grown. It’s massive. And when people see that they’re like, “Oh my God, I can continue growing my money.”

Brett McKay: Yeah. And so, I was talking about investing. There’s so much confusion about there about investments because people think it’s about picking stocks.

Ramit Sethi: Yeah, it’s not.

Brett McKay: That’s what they think investing, and it’s not because if you think about it that way you’re going to get overwhelmed immediately. Instead, you advocate, just go for good enough, and for most people a target and index fund from Vanguard is good enough. And you can go on the forms and they’ll say, “Well, you’re missing out on some interest or some growth there.” But it’s like at the end of the day is it going to make a huge, huge difference? Probably not.

Ramit Sethi: Yeah. Investing is one of those areas that is, there are so many bad parties involved in investing. People who want to make money off of you. That you literally do not know who to trust. So you have people telling you that, like there’s a billboard right outside in New York City here saying be better than average. And in most of life that makes sense. You do want to be better than average at your fitness and be better than average at your relationship but in investing average is perfect.

And most people believe that if they are in control, if they take more time and read all these P/E ratios they’ll better. No, you will fail. You will not be good, trust me. I know this and so does all the data that I cite in the book. So the simplest thing you can do is pick a target date fund, and I talk about how to identify them. They’re really low cost, and all you need to do is automate your money from your checking account, straight there, every month. You never see it. It just goes away into the investment account. You can track it every month, or I recommend six months.

And that’s it. The best use of your time now is to, number one, focus on earning more and funneling more in there because it’ll grow. And number two, just get on with your rich life. You want to go out to eat at a restaurant, go ahead. You already solved one of the biggest financial opportunities you have in your life and that is automatically investing.

Brett McKay: Right. And that’s the thing, the big message from your book is if you could take care of these basics, getting your credit card paid off, managing your credit cards, getting these accounts set up that are automated and just investing, even if it’s just like a hundred bucks a month. Like you got 85% there, you have some wiggle room.

It’s like going back to the macros. Like if you get basically your fiber and your protein and some basics, you’ve got wiggle room. And it’s not going to destroy you if you enjoy yourself or even if you slip up a bit.

Ramit Sethi: Yeah, that’s exactly it. I call them the big wins. And most people are preoccupied in life with is minutiae. “Oh my God, should I buy this sweater?” And, “Oh, I don’t know, should I spring for the extra-large coke.” It’s like you’re asking three dollar questions, you really should be asking $30,000 questions. And $30,000 or $300,000 questions are ones like, have I automatically invested every single month, right? Have I picked a great job and negotiated my salary? Is my credit good? Have I chosen a philosophy on what percentage I want to save and invest every month?

That choice, in fact, it would be much more valuable for every single person listening to increase their savings rate by one percent per year, just one percent, than to worry about ever buying a latte again. That one percent would be worth tens of thousands of dollars to you over your lifetime. And you only have to decide it once per year, as opposed to making a decision 365 times a year for a three dollar expense.

Brett McKay: No, that idea of people getting focused on the minutiae a lot of people they don’t understand what personal finance is they, I don’t know, they either miss the big question or the big issue so they latch on to those little small things about that don’t really make much of a difference.

Ramit Sethi: Yeah, and like I said, I have a lot of compassion because most people are surrounded by other people who are minutiae-focused. So, the people listening let me ask you, have ever had maybe your friends or your parents or family say, “Wow, that must be nice,” or, “I sure wish I could afford that or, “Why would you waste money on that?”

These are all words that people use to judge and influence you but you always have to ask yourself, why would I take advice from this person? And if you are taking advice from someone who’s not in a financial position that you want to be in, then you really need to question that advice.

And I get this all the time from my readers. They’re like, “Oh my…” I have people who are in their twenties, thirties, forties and fifties, primarily 35 plus. And so, sometimes it’s their parents, or it’s their in-laws, or wife, or husband. And they’re getting judged for a question but I just ask them one question, “Is this person in the financial position you want to be in?” And they’re like, “No. I get it. I shouldn’t listen to them.” Exactly. Find people who you admire, who live the kind of rich life that you aspire to and then think about what you can do that aligns with your own values. Don’t listen to randos who tell you, you shouldn’t splurge for an extra-large.

Brett McKay: This has been a great conversation. There’s so much more we can talk about. And as you said in the book, there’s a lot of specifics. Where can people go to learn more about the book and the rest of your work?

Ramit Sethi: Okay. Thank you and this has been awesome. The name of the book is I Will Teach You To Be Rich. You can get it on Amazon, Barnes and Noble or at any book store. You can follow me at iwillteachyoutoberich.com. I’ve got a newsletter with several hundred thousand subscribers. And you can follow me on Instagram @Ramit and on Twitter @Ramit as well.

Brett McKay: Awesome. Ramit Sethi, thanks for your time. It’s been a pleasure.

Ramit Sethi: Thanks, this was awesome.

Brett McKay: My guest today was Ramit Sethi. He’s the author of the book I Will Teach You To Be Rich. It’s available on amazon.com and bookstore everywhere. You can also find out more information about his work at his website iwillteachyoutoberich.com. Also, check out our show notes at aom.is/richlife where you can find links to resources where we delve deeper into this topic.

Well, that wraps up another edition of The AOM Podcast. Check out our website at artofmanliness.com where you can find our podcast archives as well as thousands of articles we’ve written over the years about personal finance, how to be a better husband, better father, physical fitness.

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