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

by Ramit Sethi

10 Rules for a Rich Life 1. A Rich Life means you can spend extravagantly on the things you love as long as you cut costs mercilessly on the things you don’t. 2. Focus on the Big Wins—the five to ten things that get you disproportionate results, including automating your savings and investing, finding a job you love, and negotiating your salary. Get the Big Wins right and you can order as many lattes as you want. 3. Investing should be very boring—and very profitable—over the long term. I get more excited eating tacos than checking my investment returns. 4. There’s a limit to how much you can cut, but no limit to how much you can earn. I have readers who earn $50,000/year and

ones who earn $750,000/year. They both buy the same loaves of bread. Controlling spending is important, but your earnings become super-linear. 5. Your friends and family will have lots of “tips” once you begin your financial journey. Listen politely, then stick to the program. 6. 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.) 7. Beware of the endless search for “advanced” tips. So many people seek out high-level answers to avoid the real, hard work of improving step by step. It’s easier to dream about winning the Boston Marathon than to go out for a ten-minute jog every morning. Sometimes the most advanced thing you can do is the basics, consistently. 8. You’re in control. This isn’t a Disney movie and nobody’s coming to rescue you. Fortunately, you can take control of your finances and build your Rich Life. 9. 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 outsi...

So, call your credit card company and ask them to lower your APR. If they ask why, tell them you’ve been paying your bill in full on time for the last few months, and you know there are a number of credit cards offering better rates than you’re

the

It involves getting more credit to improve something called your credit utilization rate, which is simply how much you owe divided by your available credit. This makes up 30 percent of your credit score. For example, if you owe $4,000 and have $4,000 in total available credit, your ratio is 100 percent (($4,000/$4,000) x 100), which is bad. If, however, you owe only $1,000 but have $4,000 in available credit, your credit utilization rate is a much better 25 percent (($1,000 / $4,000) x 100). Lower is preferred because lenders don’t want you regularly spending all the money you have available through credit—it’s too likely that you’ll default and not pay them anything.

“Hi there. I checked my credit and noticed that I have a 750 credit score, which is pretty good. I’ve been a customer of yours for the last four years, so I’m wondering what special promotions and offers you have for me . . . I’m thinking of fee waivers and special offers that you use for customer retention.”

Your key takeaway: Call your credit card company and ask them to send you a full list of all their rewards. Then use them!

Call Date Time Name of Rep Rep’s ID# Comments Whenever you make a call regarding a dispute on your bill, you wouldn’t believe how powerful it is to refer back to the last time you called—citing the rep’s name, the date of the conversation, and your call notes. Most credit card reps you talk to will simply give in because they know you came to play in the big leagues. When you use this to confront a credit card company or bank with data from your last calls, you’ll be more prepared than 99 percent of other people—and chances are, you’ll get what you want.

probably shouldn’t buy this, but $100 is just a drop in the bucket compared to how much I owe. Oh well

Once the problem is sufficiently large, we rationalize any single change as “not enough” (when in reality, real change happens through small, consistent steps). There are lots of similarities here between the decision making of those in serious debt and those who are overweight.

First, to inspire you to take action on paying off your student debt, play with the financial calculators at bankrate.com. You’ll be able to see how paying different amounts changes the total amount you’ll owe.

I’d like a lower APR.

Other cards are offering me rates at half of what you’re offering. Can you lower my rate by 50 percent, or only 40 percent?

No, that won’t work for me. Like I mentioned, other credit cards are offering me zero percent introductory rates for twelve

months, as well as APRs of half what you’re offering. I’ve been a customer for X years, and I’d prefer not to switch my balance over to a low-interest card. Can you match the other credit card rates, or can you go lower?

Remember the philosophy behind the 85 Percent Solution: The goal is not to research every last corner to decide where the money will come from; it’s action.

Set up your credit card (two hours). If you already have one, call and make sure it’s a no-fee card. If you want to get a new credit card, check out bankrate.com to find the best one for you.

Schwab rolled out a phenomenal high-interest checking account years ago that offered unrivaled benefits for free. They’ve honored it and improved it over time. I trust them and have a checking account with them.

Vanguard has consistently demonstrated a long-term focus on low costs and putting their clients first. They actually lower fees proactively. I trust them and invest with them.

Five Shiny Marketing Tactics Banks Use to Trick You 1. Teaser rates (“6 percent for the first two months!”). Don’t get sucked in by this trick—your first two months don’t matter. You want to pick a good bank that you can stick with for years—one that offers overall great service, not a promo rate that will earn you only $25 (or, more likely, $3). Banks that offer teaser rates are, by definition, to be avoided. 2. Requiring minimum balances to get “free” services like checking and bill paying. No, I’m not going to agree to a minimum amount. I’ll just go somewhere else. 3. Up-sells to expensive accounts (“Expedited customer service! Wow!”). Most of these “value-added accounts” are designed to charge you for worthless services. I can’t wait to have kids one day so my three-year-old can walk into a Wells Fargo, throw his lollipop at the bank manager, and say “THIS ACCOUNT IS CLEARLY A RIP-OFF!” Good job, little Raj. 4. Holding out by telling you that the no-fee, no-minimum accounts aren’t available anymore. They are. Banks will resist giving you a no-fee, no-minimum account at first, but if you’re firm, they’ll give you the account you want. If they don’t, find another bank. There are many, many choices, and it’s a buyer’s market. 5. Bundling a credit card with your bank account. If you didn’t walk in specifically wanting the bank credit card, don’t get it.

Checking Accounts Schwab Bank Investor Checking with Schwab One Brokerage Account (schwab.com/banking): This is the checking account I use. In my opinion, this is the single best checking account available. Schwab offers a stunningly good account with no fees, no minimums, no-fee overdraft protection, free bill pay, free checks, an ATM card, automatic transfers, and—best of all—unlimited reimbursement of any ATM usage. That means you can withdraw from any ATM and you’ll pay no fees. When I saw this account, I wanted to marry it.

Capital One 360 Savings (capitalone.com/bank): This is the savings account I use. It lets you create virtual sub-savings accounts, in which you can specify savings goals like an emergency fund, wedding, or down payment for a house. You can also set up automatic transfers to other accounts (“Transfer $100 on the 1st of every month from my checking account to my savings account, and send $20 to my investment account on the 5th of every month”). There are no fees, no minimums, and no tricky up-sells or annoying promotions. It’s not always the highest interest rate, but it’s close. Capital One 360 Savings is just a simple savings account that works.

Ally Online Savings Account (ally.com/bank): Also recommended. This no-fee savings account also lets you create multiple savings accounts, which will help your automation system. It has solid interest rates and works great.

Other savings accounts to consider: Marcus by Goldman Sachs and American Ex...

Banks to consider Banks to avoid Ally Bank: ally.com Bank of America CapitalOne360: capitalone.com Wells Fargo Schwab: schwab.com Marcus by Goldman Sachs: marcus.com American Express Personal Savings: americanexpress.com/personalsavings/home

I recommend you keep your old account open with a small amount of money in it in case you have any automatic transfers that are still trying to draw from your old account. Set a 60-day calendar reminder to close the old account. And we’re off to our next step!

Because the money you’re contributing isn’t taxed until you withdraw it many years later (that’s why it’s called “pre-tax money”), you have much more money to invest for compound growth—usually 25 to 40 percent more.

To help me keep track of all my accounts, I use a password-management tool called LastPass. It securely stores the URLs, passwords, and details of every account, and it works on my laptop and phone.

Yes! I know, I know. You may have heard about a study that found money makes us happy up to $75,000, then it levels off. In reality, the 2010 study by Deaton and Kahneman found that “emotional well-being” peaks at $75,000. But if you take another measure, “life satisfaction,” you find no plateau—not at $75,000, or $500,000, or even $1 million.

To get more prescriptive about your spending, I recommend using a piece of software called You Need a Budget (youneedabudget.com) or YNAB (I know, the name is ironic in this chapter where I talk about how I hate budgets). YNAB lets you assign every dollar a “job,” like “cell phone bill” or “guilt-free spending.” Use it for two weeks—just two—and you’ll get incredible insight into your spending.

To run calculations on investment scenarios, I use the calculators at bankrate.com

but I want to be compensated in good faith.”

On the day you negotiate, come in with your salary, a couple of competitive salaries from salary.com and payscale.com, and your list of accomplishments, and be ready to discuss fair compensation.

You want to proceed as partners, as in “How do we make this work?”

you’re currently working with a financial adviser, I encourage you to ask them if they are a fiduciary (i.e., if they’re required to put your financial interests first). Joe’s adviser was not a fiduciary; he was a salesman.

Google “Ramit best accounts” for the best checking and savings accounts and credit cards. I make no money from these recommendations. I just want you to avoid getting ripped off.

Are you a fiduciary? How do you make your money? Is it through commission or strictly fee-only? Are there any other fees? (You want a fee-only adviser who is a fiduciary, meaning they put your financial interests first. Any response to this question other than a clear “yes” is an instant no-hire.) ■ Have you worked with people in similar situations? What general solutions did you recommend? (Get references and call them.) ■ What’s your working style? Do we talk regularly, or do I work with an assistant? (You want to know what to expect in the first thirty, sixty, and ninety days.)

“Don’t wish it was easier, wish you were better. Don’t wish for less problems, wish for more skills.” Don’t wish for someone to hold your hand like you’re a four-year-old skipping rope and chewing bubblegum. Wish to build discipline of long-term investing, like an adult. Others have done it and you can too.

Bottom line: Automatic investing may not seem as sexy as trading in hedge funds and biotech stocks, but it works a lot better. Again, would you rather be sexy or rich?

traditional mutual fund, which employs an expensive staff of “experts” who try to predict which stocks will perform well, trade frequently, incur taxes in the process, and charge you fees. In short, they charge you to lose.

Anyway, Swensen suggests allocating your money in the following way: 30 percent—Domestic equities: US stock funds, including small-, mid-, and large-cap stocks 15 percent—Developed-world international equities: funds from developed foreign countries, including the United Kingdom, Germany, and France 5 percent—Emerging-market equities: funds from developing foreign countries, such as China, India, and Brazil. These are riskier than developed-world equities, so don’t go off buying these to fill 95 percent of your portfolio. 20 percent—Real estate investment trusts: also known as REITs. REITs invest in mortgages and residential and commercial real estate, both domestically and internationally. 15 percent—Government bonds: fixed-interest US securities, which provide predictable income and balance risk in your portfolio. As an asset class, bonds generally return less than stocks. 15 percent—Treasury inflation-protected securities: also known as TIPS, these treasury notes protect against inflation. Eventually you’ll

Stocks (“Equities”) 30 percent—Total Market Index/equities (VTSMX) 20 percent—Total International Stock Index/equities (VGTSX) 20 percent—REIT index/equities (VGSIX) Bonds 5 percent—Short-Term Treasury Index Fund (VSBSX) 5 percent—Intermediate-Term Treasury Index Fund (VSIGX) 5 percent—Long-Term Treasury Index Fund (VLGSX) 15 percent— Short-Term Inflation-Protected Securities Index Fund (VTAPX)

“dollar-cost averaging” is a phrase that refers to investing regular amounts over time, rather than investing all your money in a fund at once. Why would you do this? Imagine if you invest $10,000 tomorrow and the stock drops 20 percent. At $8,000, it will need to increase 25 percent (not 20 percent) to get back to $10,000. By investing at regular intervals over time, you hedge against any drops in the price—and if your fund does drop, you’ll pick up shares at a discount price. In other words, by investing over time, you don’t try to time the market. You use time to your advantage. This is the essence of automatic investing,

The Annual Financial Checklist

I also highly recommend using Fighting Chance (fightingchance.com), an information service for car buyers, to arm yourself before you negotiate. For the price, the service is completely worth it.