Book Review: I Will Teach You To Be Rich

Book Author: Ramit Sethi

I Will Teach you to be Rich, as cheesy as the title is, is an excellent and enjoyable read on how to get a handle on your personal finances.

This book opens up with a great line; “Would you rather be sexy or rich?”.

He chastises our society for focusing on minutia, largely the stuff spouted from pundits on the boob tube (whose predictions are usually wrong).

Instead, he says, focus on the fundamentals and get started.

This message immediately hooked me, in a world obsessed with chasing magic bullets I find myself attracted by the few truthtellers who advocate long term thinking.

It was the same reason I attended Launchschool, their motto was the ‘slow path for serious developers’ and they delivered.

Ramit Sethi also delivers.

Side Rant

Short termism… it drives me nuts.

Case in point, people hitting the gym want to focus on protein shakes, supplements, and machines.

That stuff is garbage.

In reality, 99% of your results will come from the fundamentals: sleep, hydration, a clean diet, and a consistent routine (over years) that emphasizes large multi-joint movement patterns like squats, deadlifts, pullups, etc.

Side-side-rant: stop bench pressing so much society – your posture is most likely whack from constant sitting. Consider shoulder pressing instead–or more squats.

Seriously, stop with the short term, magic bullet thinking! Focus on the fundamentals and think long term.

End rant.

Content Overview

The content of the book is organized around a few topics: 1) Building credit. Use credit cards (responsibly) to pay zero interest, build credit and earn rewards (if you can’t be disciplined and like paying companies high interest rates then don’t use ‘em) 2) Investing. Passive index fund investing and lifecycle funds 3) Negotiation. Save thousands on purchases, salary increases, and fees 4) Developing a Spending Plan. That’s right, have a plan! 5) Automate. Figure out how this all works, create a system and focus on other higher ROI areas of your life.

What I love about the book is every chapter outlines a clear series of action steps to take to put what you just read about into place.

I’ve literally read thousands of books, but I didn’t change till I started taken action and this book makes it relatively easy to get started.

Building Credit

As someone originally leery of credit cards I was baffled a few years ago that my credit was in 500’s. I’d always paid my debt off quickly (20k student loans in 6 months) and paid my bills on time–I should have a great credit score!

Sadly no.

Ramit reviews the equation that lenders use to qualify how risky you are. A large portion of that is paying on time, credit utilization, but also longevity of accounts.

Will you stick with them and be a repeat customer? Ramit proposes tactics like putting your oldest account on autopilot paying for a subscription every month. This keeps the account open and assuming you are clearing out the card, costs you nothing and probably earns you some ‘points’.

Credit cards can help you:

• build credit
• earn rewards
• provide consumer protections for things like fraud

Good credit:

• can save you tens of thousands in loan interest
• qualify for loans

Key takeaway: when used correctly, credit cards are a useful consumer tool to build credit.

Investing

Ramit presents similar advice that, hopefully, you’ve heard before: don’t try to time the market, instead invest in passive index funds and max out your tax advantaged accounts including 401k, Roth/IRA, HSA, etc.

He also advises you choose bank accounts with, shock, good rates. The money in your bank is losing value on the dollar due to inflation because banks generally give terrible returns on standard savings and checking. A fraction of a percent in most cases.

Online bank saving accounts not only have good rates but allow you to segregate funds into unlimited accounts.

Tax Advantaged Accounts

Ramit quotes some pretty crazy stats like less than 4% of employess max out their 401k and only 16% max out their company match.

He presents a stupid simple approach I enjoyed; his ‘ladder of personal investing’, it goes like this: 1) if employer matches on 401k, invest enough to max out their match (it’s free money!) 2) pay off your debt (that you pay interest on) 3) open a Roth IRA and max it out (unless you make too much then just do an IRA) 4) max out your 401k 5) open a non-retirement account and invest there

Should you have a robinhood account if you aren’t maxing out your tax advantaged accounts? Probably not.

Developing a Spending Plan i.e. Conscious Spending

Ramit derides budgets but then basically suggests you budget (what he calls conscious spending). That is a little odd, but the advice is still good.

Most people I’ve met don’t review their spending weekly or monthly and it just sort of ‘happens’. I heartily recommend Ramit’s advice to gather up all your accounts in a service like Personal Capital or through your bank so you can easily view and categorize your spending.

Afterall, if you don’t measure it, you will have no idea if you are on track.

He says it’s okay to spend guilt free and makes the point that much of finances is psychological. I’d comment that everything is–our lives are filtered through our human bodies afterall!

The basic spending sketch might look like:

• 50% to fixed expenses
• 20% to investments
• 10% to savings
• 20% to blow

Just be careful that as your income increases, your spending on the unimportant doesn’t. You don’t have to buy a house or a nice car–despite popular opinion, it’s usually not an asset (unless you rent it out).

Another great point he makes is to follow the Pareto principle–don’t make yourself insane clipping coupons, instead identify your 1-3 biggest fixed expenses and try to optimize them. Move to a smaller place, cancel all those subscriptions you’ve been ignoring… etc.

Negotiate!

A simple conversation can mean thousands, tens of thousands or more.

Ramit goes over job negotiation, purchase negotiation, and more! This was my favorite part and I recommend reading what he has to say on the subject.

Automate It!

This is nothing new but a welcome reminder. Automate all of your saving and investing so you can spend the leftover money without thinking or questioning it. Basically, have contributions taking from your paycheck for your 401k, put the rest in checkings, then have auto withdraw to your various investment and savings accounts. Then, if you are smart and doing dollar-cost average passive index investing, then you can auto invest at the same time.

Personally I have 6 Ally savings accounts:

• emergency
• travel
• opportunity
• real estate
• other (gifts, charity, etc.)

I then have checking through US Bank (legacy account) and I link everything up together in Personal Capital so I can view all my credit cards and spending across all my bank accounts. This let’s me #1 track spending every week and every month and 2) track net worth etc over time.

Conclusion

Overall, an excellent common sense guide on how to optimize your finances while consciously developing your desired lifestyle.