I Will Teach You to Be Rich: No Guilt. No Excuses. No B.S. Just a 6-Week Program That Works.

by Ramit Sethi

Every December, I sit down with my wife and we get intentional about the next year. Where do we want to travel? Who do we want to invite with us? What can we imagine doing in the next year that we’ll remember for the next fifty years?

think about your Rich Life. Why do you want to be rich? What do you want to do with your wealth?

Build a collection of “spending frameworks” to use when deciding on buying something. Most people default to restrictive rules (“I need to cut back on eating out . . .”), but you can flip it and decide what you’ll always spend on, like my book-buying rule: If you’re thinking about buying a book, just buy it. Don’t waste even five seconds debating it. Applying even one new idea from a book is worth it. (Like this one.)

Part of creating your Rich Life is the willingness to be unapologetically different. Once money isn’t a primary constraint, you’ll have the freedom to design

your own Rich Life, which will almost certainly be different from the average person’s. Embrace it. This is the fun part! 10. Live life outside the spreadsheet. Once you automate your money using the system in this book, you’ll see that the most important part of a Rich Life is outside the spreadsheet—it involves relationships, new experiences, and giving back. You earned it.

There is power in saying no to the things we don’t care about. But there is even more power in saying a big YES to the things we love.

Conscious spending isn’t about cutting your spending on everything. That approach wouldn’t last two days. It is, quite simply, about choosing the things you love enough to spend extravagantly on—and then cutting costs mercilessly on the things you don’t love.

THE PROBLEM IS THAT HARDLY ANYONE IS DECIDING WHAT’S IMPORTANT AND WHAT’S

NOT, DAMMIT! That’s where the idea of conscious spending comes in.

automatically send money to my investment and savings accounts, then spend extravagantly on the things I love”),

When was the last time you scrutinized your monthly subscriptions and canceled one? Probably never. I offer you the À La Carte Method.

automatically enabling yourself to save, invest, and spend—enjoying it, and not feeling guilty about those new jeans, because you’re spending only what you have. You can do it. All it takes is a plan. And it’s really as simple as that.

“Looking back at the past few years of my life and at my bank account, I would gladly give away a hefty chunk of it and work longer if it meant I could have experienced more of the world and found more passions. I built my savings, but I never built my life.”

To cut back on mail, I’ve opted out of credit card offers at optoutprescreen.com, and I use a service called Catalog Choice (catalogchoice.org) to keep from getting unwanted catalogs in the mail.

I focus on my critical two or three Big Wins each month: eating out, clothes, and travel. You probably know what your Big Wins are. They’re the expenses you cringe at, the ones you shrug and roll your eyes at, and say, “Yeah, I probably spend too much on _______.”

Deciding to change the way you spend is the most difficult part of this book. It involves making choices and saying no to certain things.

plan to do less and less work as I go through my life. When I meet people on a career path that will have them working more, not less, I’m always puzzled.

You front-load the work now, then you get to benefit for years and years. By investing a little now, we don’t have to invest a lot later.

Money exists for a reason—to let you do what you want to do. Yes, it’s true, every dollar you spend now would be worth more later. But living only for tomorrow is no way to live. Consider one investment that most people overlook: yourself. Think about traveling—how much will that be worth to you later?

Money should be about all the good things it can do, not the bad. To do that, you can’t agonize over thousands of micro-decisions per month—you have to focus on the bigger picture.

DID YOU KNOW THAT OVER TIME A 1 PERCENT FEE CAN REDUCE YOUR RETURNS BY AROUND 30 PERCENT? No, you didn’t. Nobody does. That means if I invested $100,000 with them, their fees would reduce my $2.1 million to $1.5 million—which they would pocket! THAT 1 PERCENT FEE IS MASSIVE!

No thanks—I prefer to keep my money for myself. The average person doesn’t understand how crushing these fees really are because the math is extremely counterintuitive. Wall Street has engineered this to be opaque. One percent doesn’t seem like a lot, but it is gargantuan. Investing on my own, I could get better returns and pay less.

One percent can cost you 28 percent of your returns. A 2 percent fee can cost you 63 percent of your returns. This is unreal stuff. It’s why Wall Street is so rich. It’s also why I insist you learn this for yourself and why I get so mad when Wall Street rips off individual investors. IF YOU ARE READING THIS AND YOU’RE PAYING OVER 1 PERCENT IN FEES, I’M GOING TO KILL YOU. Get smart. You should ideally be paying 0.1 to 0.3 percent.

Think about that. Think about the hundreds of thousands of dollars—even millions—that you can keep instead of paying some wealth manager.

Once you have seven figures in assets, or complex transactions involving kids or retirement or taxes, you’ve earned the right to consider advanced advice. Hire a fee-only financial adviser for a few hours or see my website for my advanced course on personal finance.

John Bogle, the Vanguard founder, once shared a shocking example with PBS documentary series Frontline. Let’s assume you and your friend Michelle each invested in funds with identical performance over fifty years. The only difference is that you paid 2 percent lower fees than she did. So your investment returned 7 percent annually, while hers returned 5 percent. What would the difference be? On the surface, 2 percent in fees doesn’t seem like much. It’s natural to guess that your returns might

differ by 2 percent or even 5 percent. But the math of compounding will shock you. “Assuming a fifty-year horizon, the second portfolio would have lost 63 percent of its potential returns to fees,” Mr. Bogle said. Think about that. A simple 2 percent in fees can cost you over half of your investment returns. Or that 1 percent fee. One percent can’t be that much, right? For the same fifty-year time period, that fee will cost you 39 percent of your returns. I know, I know. Maybe fifty years is too long to think about. Let’s try a thirty five-year outlook. What would a 1 percent fee cost you? Try a 28 percent reduction in your retirement returns, according to the Department of Labor. This is why I’m so fanatical about reducing fees. In investing, fees are your enemy. If your decision was determined by fees alone, index funds would be the clear choice. But let’s also consider another important factor: returns.

What you really want is solid, long-term returns. So, if you’re thinking about using a broker or actively managed fund, call them and ask them a simple, point-blank question: “What were your after-tax, after-fee returns for the last ten, fifteen, and twenty years?” Yes, their response must include all fees and taxes. Yes, the return period must be at least ten years, because the last five years of any time period are too volatile to matter. And yes, I promise they won’t give you a straight answer, because that would be admitting that they didn’t beat the market consistently. It’s that hard to do.

So, the safe assumption is that actively managed funds will too often fail to beat or match the market. In other words, if the market returns 8 percent, actively managed funds won’t return at least 8 percent more than three-fourths of the time.

when combined with their high expense ratios, actively managed funds have to outperform cheaper, passively managed funds by at least 1 to 2 percent just to break e...

Investors, both individual and institutional, and particularly 401(k) plans, would be far better served by investing in passive or passively managed funds than in trying to pick more expensive active managers who purport to be able to beat the markets.”

Bottom line: There’s no reason to pay exorbitant fees for active management when you could do better, for cheaper, on your own. Yet you and I know that money isn’t purely rational—even seeing the clear math here. It’s emotional. So once and for all, let’s tackle the invisible money scripts below that keep people believing that active investment is worth it—then we can start investing.

Remember that life is lived outside the spreadsheet. Be as aggressive as you want with your goals—dream bigger than you ever thought!—but remember that money is just a small part of a Rich Life.

“Once you’ve won the game, there’s no reason to take unnecessary risk.”

“I believe that 98 or 99 percent—maybe more than 99 percent—of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs.” —Warren Buffett, one of America’s greatest investors

Sometimes financial advice just blindly encourages people to do “more, more, more” without stopping to ask, “Is this enough?” The concept of winning becomes the goal instead of knowing why you’re playing in the first place. When do you get to stop and enjoy all the hard work you’ve done?