Ramit Sethi enjoys helping people to get rich. Even better, he teaches people how to enjoy their money.
He starred in a Netflix series demonstrating how to master your money. This eight-part series illustrates many of his teaching principles through actual couples. I recommend the whole series. Here, I will highlight some of the main learnings I absorbed from the entertaining series.
Ramit is a well-known author and podcaster who helps people improve their financial lives. He focuses on the emotional aspect of money and living a “rich life.” His college degree is in psychology, and that interest and background are evident in his approach.
Get Your Emotions Right
The first couple he consulted with had deep emotional issues around money. They fought over money. Amani felt stress, insomnia, and crushing financial responsibility. Her husband felt powerless and undervalued as a SAHD. He used to work as an electrical engineer. He quit his job since the required travel interfered with their home life. Now, he does more work but feels less respected. He has less decision-making authority and feels fewer rewards for all his work.
70% of couples argue about money – more than chores, sex, or what’s for dinner.
To live a rich life, you must be honest with yourself and others. Please don’t buy a $1,500 purse and pretend you did it to get a bargain. If you like an expensive handbag and can afford it, get it. But you have to know when you are ready to buy it.
Your money psychology is the way you grew up with money. You acquired invisible scripts that you absorbed. You must understand them before you can manage and master them.
Some people use money to hide deeper truths about what is going on in the relationship.
Money is not something you can run away from. People in debt don’t want to open their bills. But they must so they can plan.
More money isn’t always the answer. One client was only 27 years old, making $250k per year, yet worried about money.
Be Emotionally Honest
Money lies are not simple and are different from other lies. Money cuts deep. Most of us feel so insecure about money that it goes much deeper than the numbers on the page when we lie about it.
If you become competent at money, you will become confident about it, and you can then talk about it.
People are scared and worried about money. Take that away. Money is a thing. A tool.
If you bought a bad stock or joined a lousy company, make a change. It is a trap! If you are in one, get out. It is hard to overcome the inertia and embarrassment, but you must go forward. Cut your losses. Ignore your sunk costs. The solution isn’t to look back and fixate on losses but to look forward and make better decisions. Learn, grow, and move forward.
Don’t be scared of bills and envelopes. Take decisive action. Take control of your money. You can’t undo 30 years of decisions at once. But you can step in the right direction and see the power of controlling your money.
Money is political and cultural, more than numbers on a page. That becomes clear when planning weddings, which are very important in some cultures.
Is the way you think about money serving you? Are you willing to change your money habits?
We can reduce fear and shame by increasing our communications. You will gain permission not to be scared. Taking care of your finances will help you take control of your life.
Many of us need to change the way we look at money.
Communicate Better
Ramit recommends his clients journal and work together. They need to bring unspoken money conflicts to the surface.
We should talk about money in our relationships. But because people don’t understand money, they wait. Then something explodes. It would be best to push through the discomfort to get to something good on the other side.
People need a reason to pay attention to money. Change is hard. An event like marriage can make people receptive to making changes. I don’t particularly appreciate hearing people feeling bad about money. There’s a way to feel good about money.
In a relationship, the one who earns less often feels some loss of control and contribution. They feel less worthy. Sometimes, earning money or increasing their income can help equalize those feelings. It is essential to feel like an equal partner in the relationship.
Sometimes, couples avoid talking to each other about money because they don’t know how to do it. Money cuts across everything in a relationship. It affects where you live, what food you eat, how you vacation, schooling, and retirement.
Ask your partner money questions like, “What is your rich life?” “How can we best use money together?” “How were you raised with money?” “What are your learned money behaviors?”
When people divorce due to money, it is often due to years of inability to talk about money.
Have a series of serious money conversations before getting married.
With couples, equal doesn’t mean you both make the same amount. It is that you both contribute in your way.
Don’t Deny Debt
The average American has $90,460 in debt – credit cards, loans, and mortgages.
Know your credit card score. A general guideline: 720-850 is excellent. Less than 630 is in the danger zone. You will pay thousands of dollars more per year for credit.
Paying extra amounts can speed up credit card payoff. He gave an example of a $12k balance. Paying an additional $200 per month took an entire year off the time it took to become debt-free.
More than 1.5 million Americans file for bankruptcy annually.
You will often pay more in interest than in principle when paying loans. Realize that is the norm. Are you okay with that? Does that sound right to you?
A red flag is not paying off your credit card in full each month.
Most people get into trouble with housing, cars, and debt.
Don’t ignore your student loan debt. It isn’t going away; it is growing.
For example, a $100K debt paid at $600 monthly will take 30 years and $116k in interest payments. Just $100 more per month reduces the payoff by a decade and saves $40k in interest.
Consider an aggressive plan. Consider refinancing. He didn’t mention government programs like PSLF. Before refinancing, make sure you understand the effects on any government payment plans.
Don’t ignore your student loan debt. Too many do. Those loans will continue to grow over time. You can’t discharge them in bankruptcy. If you default on your student loans, that can have significant consequences.
The government can take up to 15% of your paycheck. They won’t let you buy a house. Your car loan might have an interest rate of 13%, costing you thousands of extra interest dollars per year. They can even garnish your social security benefits in retirement.
Make More Money
Remember that you can only cut so much when working on your spending plan. However, you can earn unlimited amounts.
More than 44 million Americans have a ‘side hustle.’
He talked about starting a business. He noted that too much time is wasted on business cards, website development, and creating an LLC. Getting immediate customers to pay you is what counts. Although I see his point, this isn’t always good advice. Before entering business transactions, it is often wise to plan risk mitigation. What good is all that revenue if you lose it all and more from an avoidable legal action against you? For example, I know a family who rushed into starting a landscaping business. They didn’t want to waste time setting up an LLC or separate business structure. A lawsuit put their house and assets at risk of complete loss.
80% of jobs are obtained through a network.
If you don’t have a great network, start doing informational interviews. They are not to get a job but to learn, get advice, and connect with others in your field. Before you try to help others with money, help yourself. It is like oxygen on an airplane. You can’t help others if your money runs out.
Avoid Quick Fixes
Robinhood is fine – but you shouldn’t use it. It is meant to encourage people to trade. You seem to get a free share but don’t do it. It is a trap! In the short term, you could win, but you are almost certain to lose in the long term. You incur fees and taxes and lose money. It seems exciting. Investing should be boring.
Some of your money should be automatically invested monthly. Could you keep it simple, low-cost, and long-term? To diversify, buy a target date or index fund at a place like Vanguard. Then, you go and live a rich life outside of the spreadsheet.
DraftKings on margin is gambling. Trading is not investing. It is gambling. Trying to guess the direction of changes may sound sexy, but it won’t get you rich.
No individual investor should be options trading. It is like entering a casino and announcing, “I’ve got a system. I’m going to win.” You are going to lose. It is a matter of time.
It is easier to talk about investments or gambling when winnings are up. We fall silent when losses occur. That’s when we need to realize our winnings were from luck, not skill or knowledge.
People usually don’t succeed in network marketing. It would help if you kept recruiting until the whole planet was involved. It is a waste of money. Could you not do it?
Don’t approach money like a slot machine. Avoid gimmicks and get-rich-quick schemes: no Draft Kings, MLM, or individual stock purchases.
99% of MLM sellers lose money.
He feels MLM companies target vulnerable people like stay-at-home moms, to whom they give false hope. They may saddle them with car lease payments and blame them for reduced sales. They are legal and not a pyramid scheme, but the distinction is razor-thin.
Don’t be House-Poor
People fixate too much on the “American Dream” of buying a house. It doesn’t mean you are a failure if you don’t buy a home. Run the numbers and make your own decision. Renting may be the better deal – despite what “someone” told you.
Renting may make more sense than buying a house. It provides flexibility and predictability. Rent is the maximum you pay. Your mortgage is the minimum you pay. It doesn’t include taxes, interest, HOA dues, etc.
Are you ready to buy a house? Ramit’s criteria:
1. Are your total housing costs less than 28% of your gross income? This includes utilities, future roof repairs, irrigation systems, etc.
2. Have you saved 20% for a downpayment?
3. Do you plan to live there for at least ten years?
Simplify
Ramit argues for simplicity also. One couple had 20 checking and savings accounts! It would help you get organized and know where your money is going. It would help if you simplified to achieve that.
One client sold her $2.2M house and transferred the money to her financial advisor. He charges a 1% management fee. She felt that it was small and reasonable. Ramit disagreed. He noted that she could grow that money to $9M over 20 years but would start paying her advisor $22,000 annually. Over time, she would pay $1.3M in commissions.
When investing, expect a 7-8% return on your investment.
He contends we should never pay a financial advisor a percentage. It is a ripoff. If you have a complex situation and need advice, pay for the project or a few hundred dollars per hour.
One couple had over a dozen credit cards. He wanted them to close and consolidate. One argument for not doing that is the effect on credit scores. Their credit scores would dip after closing accounts. Although that is true, it isn’t a reason to avoid closing them. Don’t let the tail wag the dog.
One couple paid hundreds of dollars for a monthly storage unit. They intended to sell the items but never did. Ramit pointed out the financial illogic of paying to store items they bought at a bargain price. He convinced them to sell many of the items and downsize their storage.
Ramit hates late fees and feels you should be able to waive them. Call up the institution and insist they waive it. Keep a paper trail when talking to institutions.
Ramit is an advocate for taking advantage of perks from credit card companies. Understand and use those benefits. They will often reimburse you for defective, lost, or damaged items.
Have a Plan
Spend extravagantly on the things you love, but cut costs mercilessly on things you don’t.
You can’t live a rich life unless you get your money under control. But you can live a rich life no matter how much you earn. Just because you make a lot of money doesn’t mean you know how to manage it well.
Your rich life is up to you. It doesn’t need to be a country club or fancy car. It may mean being free to pick up your kids from school each day.
One of his clients received a monthly stipend of $25,000. Still, she lived paycheck to paycheck. If that stream dried up, she would face a catastrophe.
One client dreams of starting a “billion-dollar” restaurant. She had no money to start it. She has no formal business education. Her prior restaurant lost $40,000 per month until finally going bankrupt and costing her $1.5M. Yet she is hopeful that this time, she will succeed. Here’s a piece of reality for her:
The business failure rate in the U.S. within the 1st year is approximately 20%
1 in 3 restaurants won’t survive the 1st year.
When we create a conscious spending plan, we decide where our money will go. This can be fun. The plan should include savings, investing, and guilt-free spending.
What to do with unexpected money? This could be from an inheritance, bonus, legal settlement, game show winning, or a tax refund. You need to respond well and fast. That is hard for people. Without a plan the money gets sucked up into day-to-day spending. Take ownership of your financial life.
Ramit recommends investing 50%. Take the other half and spend it. Direct it -guilt-free – to something you love.
Put Your Plan Into Action
One client was in the red every month. She spent more than she made. And that is when all is going well. Her housing costs were 45% of her gross income. She needed that to be closer to 30%. Her options were to increase her income, reduce her housing costs, or both. But she needed to change something for sure.
The basic steps of getting control of money often include:
· Take control of spending. Have a plan.
· Begin paying off debt.
· Start saving and investing.
· Make more money.
To say yes to your rich life, you must say no to everything that doesn’t contribute. We often need guidance on setting up healthy money behaviors, and few of us have great role models around money.
You can’t put your head in the sand and magically become a millionaire. You’ve got to make decisions to get there.
Without a plan, you only have random tactical decisions.
Dream bigger and live your rich life! Until then, enjoy Ramit’s entertaining Netflix series on how to get rich. I also recommend his excellent book; I will teach you to be rich.
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