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

by Ramit Sethi

Here’s what you need to do: Three to six months before your review: Become a top performer by collaboratively setting expectations with your boss, then exceeding those expectations in every way possible. One to two months before your review: Prepare a “briefcase” of evidence to support the exact reasons why you should be given a raise. One to two weeks before your review: Extensively practice the conversation you’ll have with your boss, experimenting with the right tactics and scripts. Three to six months before you ask for a raise, sit down with your boss and ask what it would take to be a top performer at your company.

Prepare for the following scenarios: ■ “You didn’t hit those goals.” If you genuinely didn’t hit your goals, you should have communicated that earlier and decided on a plan of action with your boss. But if your boss is simply using this as an excuse—to obfuscate what the goals were, or to move the goalposts—here’s your response: “If there are areas for me to grow, I’d love to discuss them. But on [date], you and I agreed to these goals. And I’ve sent you a weekly update since then. I’m all for exceeding goals—which I’ve done, as you can see from [Specific Project]—but I want to be compensated in good faith.” ■ “I didn’t agree to a raise.” Your response: “That is true. But as we discussed on [date], we both agreed that if I hit these goals, I’d be considered a top performer—and that we’d discuss a compensation adjustment in the future.” (Pull out a printout of the email chain.) ■ “We can discuss this another time.” Your response: “I understand if there’s a timeline for raises and we’re off cycle. But I’ve put six months of work in to hit these goals and I’ve updated you along the way. I plan to continue exceeding my goals, but I’d like to get clear that I’m on track for a raise on our next cycle—in writing.”

Cool Trick: Quickly Discover How Much You Make To find your annual salary, just take your hourly rate, double it, and add three zeros to the end. If you make $20/hour, you make approximately $40,000/year. If you make $30/hour, you make approximately $60,000/year. This also works in reverse. To find your hourly rate, divide your salary by two and drop the three zeros. So $50,000/year becomes approximately $25/hour.

week four 1 Get your paycheck, determine what you’ve been spending, and figure out what your Conscious Spending Plan should look like (thirty minutes). Do this now and don’t overthink it. Just break your take-home income into chunks of fixed costs (50–60 percent), long-term investments (10 percent), savings goals (5–10 percent), and guilt-free spending money (20–35 percent). How does it fit? 2 Optimize your spending (two hours). Dig deeper into your savings goals and monthly fixed costs. Try the À La Carte Method. How much does your insurance actually cost—can you improve on that? How much will you spend for Christmas gifts and vacation this year? Break these expenses down into monthly chunks, then recalculate your plan. 3 Pick your Big Wins (five hours). Open an account at You Need a Budget or Personal Capital. Assuming you want to cut your spending by $200/month, what one or two Big Wins will you target? Start using the envelope system. 4 Maintain your Conscious Spending Plan (one hour per week). Enter any cash receipts into your system each week. Tweak the percentages you send to each part of your spending plan (we’ll cover this in detail in the next chapter). And most important, make sure your system is realistic enough that you’ll stick with it for the long term.

How to connect your accounts This account . . . . . . should fund this account Paycheck ■ 401(k) ■ Checking account (direct deposit) Checking account ■ Roth IRA ■ Savings account (which is subdivided into savings goals) ■ Credit card ■ Fixed costs that don’t allow credit card payment (like rent) ■ Occasional-spending cash Credit card ■ Fixed costs ■ Guilt-free spending

When the Money Flows On this date . . . . . . these actions happen 1st of the month ■ Your salary is direct-deposited into your checking account 2nd of the month ■ Part of your salary goes into your 401(k) 5th of the month ■ Automatic transfer from checking account to savings account ■ Automatic transfer from checking account to Roth IRA 7th of the month ■ Automatic payment of bills from checking account and credit card ■ Automatic transfer from checking account to pay off credit card bill

If you’re paid twice a month: Replicate the above system on the first and the fifteenth—with half the money each time. The key is to make sure you pay your bills on time, which is why it’s important to move your bills’ due dates to the first of the month. Now—to oversimplify it for explanation’s sake—you’ll pay your bills with your first paycheck of the month, and you’ll fund your savings and investing accounts with your second paycheck of the month. I’ve also got two other options for you to use this system if you’re paid twice a month: ■ Another way to work your system is to do half the payments with one paycheck (retirement, fixed costs) and half the payments with the second paycheck (savings, guilt-free spending), but that can get clunky. ■ Save a “buffer” of money, which you can use to simulate getting paid once a month. You’re essentially using a pool of money to pay your bills and contribute to your savings and checking account, then getting “paid back” by your paycheck each month. For example, if your take-home pay is $4,000/month (or $2,000 bimonthly), you could keep $6,000 in your checking account and follow my automation system as outlined in this chapter. Why $6,000? Because each month, your automation system will begin transferring money for bills and savings and checking, and you want to build in a little extra in case something goes wrong (such as your paycheck arriving late). If you can afford to do this, this is a great way to simplify your system and simu...

week Five 1 List all your accounts in one place (one hour). As you start linking accounts to one another, you’ll need to log in to all of them. Make your life easier by getting all the login information in one place that you can access from home and work. 2 Link your accounts together (three to five days).To set up your Automatic Money Flow, link your accounts together. Connecting them is free and quick, but allow three to five days for the accounts to verify the links. 3 Set up your Automatic Money Flow (five hours). Once your accounts are linked together, set up the core of your Automatic Money Flow: automatic payments. Your system will automatically send money to your investing accounts, your savings account, and your fixed costs, and leave you money for guilt-free spending. Remember, you’ll want to reset your billing cycles so you can create a well-timed Automatic Money Flow.

All our lives, we’ve been taught to defer to experts: teachers, doctors, investment “professionals.” But ultimately, expertise is about results.

How rich you are depends on the amount you’re able to save and on your investment plan.

What can you do once you hit the Crossover Point? At a minimum, you can do nothing. Wake up, spend three hours at brunch, go work out, see friends, and practice your hobby. You can choose to work, or not—after all, you could spend the rest of your life spending down your investments. Many call this “retiring early” (RE); together, they’re Financial Independence + Retiring Early = FIRE. There’s “LeanFire,” which is people who’ve decided they can live on a “lean” amount of money—often $30,000 to $50,000 a year in perpetuity. They reject materialism and embrace simplicity, often in an extreme way.

The real answer, of course, is that you can choose whether the Crossover Point is part of your Rich Life—and if you want to reach it, you can choose how to achieve it.

Many people in the financial independence community focus on saving a huge portion of their salary. Forget about the usual 10 percent or 20 percent savings rates, they say—how about 70 percent?

old story about Groucho Marx, the famous comedian and avid investor. One trader asked, “Hey Groucho, where do you invest your money?” “I keep my money in treasury bonds,” he replied. “They don’t make you much money,” a trader shouted back. “They do,” Groucho said drolly, “if you have enough of them.”

After your 401(k) match, the next best place to invest is your Roth IRA.

Divide the number 72 by the return rate you’re getting, and you’ll have the number of years you must invest in order to double your money. (For the math geeks among us, here’s the equation: 72 ÷ return rate = number of years.)

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 want to own these, but they’d be the last ones I’d get after investing in all the better-returning options first. The Swensen Model of Asset Allocation

Second, you want to make sure the fund fits into your asset allocation.

as investments go, your primary residence is not a very good one for individual investors.

If you do buy real estate, regardless of whether it’s to live in or to invest in, be sure to keep funding the rest of your investment areas—whether

High-Risk, High-Potential-for-Reward Investments Life isn’t just about target date funds and index funds. Lots of people understand that, logically, they should create a well-diversified portfolio of low-cost funds. But they also want to have fun investing. If you feel this way, sure, use a small part of your portfolio for “high risk” investing—but treat it as fun money, not as money you need. I set aside about 10 percent of my portfolio for fun money,

I encourage you to invest 5 to 10 percent in something fun! Just make sure you have a fully functioning portfolio first, meaning you’ve completed the Ladder of Investing, you have six months of emergency funds, and you limit your exposure by periodically rebalancing.

week six 1 Figure out your investing style (thirty minutes). Decide whether you want the simple investment options of a target date fund or the increased control (and complexity) of index funds. I recommend a target date fund as the 85 Percent Solution. 2 Research your investments (three hours to one week). If you’ve decided on a target date fund, research the funds from Vanguard, T. Rowe Price, and Schwab (see contact info). This should take a few hours. If you’re constructing your own portfolio, it will take more time (and more money to meet the minimums of each fund). Use the Swensen model as a basic template and prioritize which funds you’ll buy today and which you’ll get later. Once you decide on an asset allocation, research funds using a fund screener like the one at Vanguard (search “Vanguard fund screener”). 3 Buy your fund(s) (one hour to one week). Buying a target date fund is easy: First, transfer money to your investment account. (For 401(k)s, you should already be directing money from each paycheck into your 401(k) account. For Roth IRAs, this money should be waiting in your savings account from Chapter 5. If you don’t have cash lying around to invest, set a savings goal and wait until you have enough to invest in your first fund.) Once the money is ready and has been transferred to your investment account, log in to your account, enter the ticker symbol, and you’re finished. If you’re buying individual index funds, you’ll usually need to buy one at a time an...

ask yourself what the point of all of this work is. Is it to earn an extra $10,000? Or to actually live a Rich Life?

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?

So: Why do you want to earn the next $1,000 or $10,000 or $25,000? Don’t give me an answer that’s in the clouds. Get brutally honest and bring your answer down to the street.

To keep your asset allocation on track, you’ll want to rebalance once a year

The best way to rebalance is to plow more money into the other areas until your asset allocation is back on track. How? Assuming your domestic equities now represent 45 percent of your asset allocation—but should actually be only 30 percent—stop sending money there temporarily and redistribute that 30 percent of your investment contribution evenly over the rest of your investment categories.

Every year, I spend a few hours re-reviewing my system and making any changes necessary.

Fixed costs (50–60%) ☐ Investments (10%) ☐ Savings (5–10%) ☐ Guilt-Free Spending (20–35%) ☐ Reassess current subscriptions (cut if necessary).

If, however, you hold your investment for more than a year, you’ll pay only a capital-gains tax, which is much lower than your usual tax rate. For example, take the same person who sold their stock in nine months and paid 25 percent in ordinary income taxes. If they’d held that stock over a year, then sold it, they would have only paid 15 percent in capital-gains taxes.

Just ask people five to ten years older than you what they wish they had started earlier, then do that. You’ll get three answers right off the bat: 1. Create an emergency fund.

Negotiating tactic: Always frame your negotiation requests in a way that shows how the company will benefit.

Negotiating tactic: Interview with multiple companies at once. Be sure to let each company know when you get another job offer, but don’t reveal the amount of the exact offer—you’re under no obligation

Negotiating tactic: Most of the negotiation happens outside the room. Call your contacts. Figure out the salary amount you’d love, what you can realistically get, and what you’ll settle for.

Negotiating tactic: Have a repertoire of your accomplishments and aptitudes at your fingertips that you can include in your responses to commonly asked questions.

Negotiating tactic: Your line is “Let’s talk about total comp,” which refers to your total compensation—not just salary, but everything.

Negotiating tactic: The phrase to use here is “We’re pretty close . . . Now let’s see how we can make this work.”

Negotiating tactic: Smile. Really, do it.

Negotiating tactic: Call over your toughest, most grizzled friend and have them grill you. Don’t laugh during the role play—treat it like it’s a real negotiation.

Negotiating tactic: Your line here is “I understand you can’t offer me what I’m looking for right now.

Don’t tell them your current salary.

Don’t make the first offer.

If you’ve got another offer from a company that’s generally regarded to be mediocre, don’t reveal the company’s name.

Don’t ask “yes” or “no” questions.

Never lie.

Sell your car in fewer than seven years. The real savings come once you’ve paid off your car loan and driven it for as long as possible.

If possible, buy a car at the end of the year, when dealers are salivating to beat their quotas and are far more willing to negotiate. Their saliva is your salvation!

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. You can order a customized report of the exact car you’re looking for, which will tell you exactly how much car dealers are paying for your car—including details about little-known “dealer withholding.”

Here’s how I did it: When I decided to buy—at the end of December, when salespeople are desperate to meet their quotas—I reached out to seventeen car dealers and told them exactly which car I wanted. I said I was prepared to buy the car within two weeks and, because I knew exactly how much profit they would make off the car, I would go with the lowest price offered to me. The same day, as I sat back with a cup of Earl Grey tea and three tacos with habanero salsa, responses started rolling in from the dealers. After I had all the offers, I called the dealers, told them the lowest price I’d received, and gave each of them a chance to beat it. This resulted in a bidding war that led to a downward spiral of near-orgasmic deals.