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Kindle Notes & Highlights
by
Ramit Sethi
Read between
August 6 - August 19, 2024
The single most important thing you can do to be rich is to start early.
Cut costs, Earn more, and Optimize your existing spending.
In relationships and work, we want to be better than average. In investing, average is great.
I encourage you to pick your financial system and move on with your life, which means not “living in the spreadsheet,”
Your friends and family will have lots of “tips” once you begin your financial journey. Listen politely, then stick to the program.
For example, I set it up so that one of my credit cards pays a $12.95 monthly subscription through my checking account each month, which requires zero intervention on my part. But my credit report reflects that I’ve had the card for more than five years, which improves my credit score. Play it safe: If you have a credit card, keep it active using an automatic payment at least once every three months.
(Note: Always end your sentence with strength. Don’t say, “Can you remove this?” Say, “I’d like to have this removed.”) At this point, you have a better-than-50-percent chance of getting the fee credited to your account.
Only after you’ve already paid off your debt should you try to increase your available credit. Sorry to repeat myself, but this is important!
What happens in disputes like this is the credit card company fights the merchant for you. This works with all credit cards. Keep this in mind for future purchases that go wrong.
The interest on my debt crushed me. Just because you have room on the card doesn’t mean you have room in your budget!!!!
Managing your money has to be a priority if you ever want to be in a better situation than you are in today.
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.
In other words, if your friends want to go out on Friday night, you’re not going to say, “Hold on, guys, I need three business days to transfer money to my checking account.”
Finally, in my experience, banks that try to offer checking and saving and investing tend to be mediocre at all of them. I want the best checking account, the best savings account, and the best investment account—no matter where they are.
Checking Accounts Schwab Bank Investor Checking with Schwab One Brokerage Account (schwab.com/banking):
Other savings accounts to consider: Marcus by Goldman Sachs and American Express Personal Savings.
To see a more comprehensive list, compare banks at bankrate.com or check my website to see what my blog readers think of different bank accounts.
Also, pay extra on any mortgage debt you have, and consider investing in yourself: Whether it’s starting a company or getting an additional degree, there’s often no better investment than your own career.
Imagine a pie chart that represents the money you earn every year. If you could wave a magic wand and divide that pie into the things you need and want to spend your money on, what would it look like? Don’t worry about the exact percentages. Just think about the major categories: rent, food, transportation, maybe student loans. What about savings and investing? Remember, for this exercise, you have a magic wand. And how about that once-in-a-lifetime trip you’ve always wanted to take? Put that in too.
The simplest way to start is to use Mint (mint.com), which will automatically sync with your credit card and banks to categorize your spending and show you trends. Mint is a great way to get a feel for your spending without much work, but you’ll quickly see that Mint has its limitations.
My system has changed since the first edition of this book. I used to use Mint, but then Intuit bought it and let it deteriorate, so now I don’t use it (and after you use it for a few weeks and get familiar with your spending, neither should you). My next step was to use YNAB, which is much better.
“What if you focused on your overdrafts? If you eliminated just those fees, you’d be so much better off.”
upwork.com
When you embrace the idea that you can earn more, one of the biggest surprises you’ll discover is that you already possess skills others would pay for—and you’ve never even realized it. In my business, we built an entire course around this, called Earn1K, and I absolutely love highlighting the different ideas that my students turned into profitable businesses.
whenever I receive money I didn’t expect, I use 50 percent of it for fun—usually buying something I’ve been eyeing for a long time. Always!
The other half goes to my investing account.
because once you start getting accustomed to a certain lifestyle, you can never go back. After buying a Mercedes, can you ever drive a Toyota Corolla again?
About a day later, her Automatic Money Flow begins transferring money out of her checking account. Her Roth IRA retirement account will pull 5 percent of her salary for itself. (That combines with the 401(k) contribution to complete the 10 percent of take-home pay for investing.) One percent will go to a wedding sub-savings account, 2 percent to a house down-payment sub-savings account, and 2 percent is earmarked for her emergency fund. (That takes care of her monthly savings goals, with a total of 5 percent of take-home pay going into savings.)
Don’t just set up the transfer. Remember to set the amount too. (To calculate the amount, use the percentage of your monthly income that you established for savings in your Conscious Spending Plan—typically 5 to 10 percent). But if you can’t afford that much right now, don’t worry—just set up an automatic transfer for $5 to prove to yourself that it works. The amount isn’t important: $5 won’t be missed, but once you see how it’s all working together, it’s much easier to add to that amount.
Focus on time in the market, not timing the market.
That was instantly obvious by his recommendation that Joe (a single man in his twenties) “invest” in life insurance. The only reason for someone like Joe to have life insurance is if he has a dependent—not to fatten his adviser’s wallet.
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.
Imagine one day you woke up and you had enough money in your accounts to never work again. In other words, your investments were generating so much money that your money was actually producing more money than your salary. That’s the Crossover Point, first described by Vicki Robin and Joe Dominguez in their book, Your Money or Your Life.
It’s an incredibly influential idea in personal finance: Money makes money, and at a certain point, your money is generating so much new money that all of your expenses are covered. This is also known as being “financially independent” (FI).
Anyway, the little-known fact is that the major predictor of your portfolio’s volatility doesn’t stem from the individual stocks you pick, as most people think, but instead from your mix of stocks and bonds.
Since you cannot successfully time the market or select individual stocks, asset allocation should be the major focus of your investment strategy, because it is the only factor affecting your investment risk and return that you can control.
Remember, the goal isn’t to be exhaustive and to own every single aspect of the market. It’s to create an effective asset allocation and move on with your life.
For example, if you’re investing $1,000 per month and your Swensen allocation recommends 30 percent for domestic equities, you’ll calculate ($1,000) (0.3) = $300 and put that toward your domestic-equity fund. Repeat for all other funds in your portfolio.
That said, just as Roth IRAs are great retirement accounts, 529s—educational savings plans with significant tax advantages—are great for children’s education. If you’ve got kids (or know that one day you will) and some spare cash, pour it into a 529.
Remember, if your goal is less than five years away, you should set up a savings goal in your savings account. But if you’ve invested money for a longer-term goal that you’ve achieved, sell and don’t think twice.
I also highly recommend using Fighting Chance (fightingchance.com), an information service for car buyers, to arm yourself before you negotiate.
The easiest way to see if you should rent or buy is to use the New York Times’s excellent online calculator “Is It Better to Rent or Buy?”
The government wants to make it easy for first-time home buyers to purchase a house. Many state and local governments offer benefits for first-time home buyers. Check out hud.gov/topics/buying_a_home to see the programs in your state.
