Book:  I Will Teach You to Be Rich

Author:  Ramit Sethi

Purchase:  PrinteBookAudiobook

Citation:  Sethi, R. (2019). I will teach you to be rich : No guilt. No excuses. No BS. Just a 6-week program that works. New York: Workman Publishing Co.

Three Big Takeaways

  • Every young person should have a Roth IRA, even if you're also contributing to a 401(k). It's simply the best deal I've found for long term investing. Roth IRA's allow you to invest in anything you want: index funds, individual stocks, anything. A Roth IRA uses after-tax dollars to give you an even better deal. Think about it - in a Roth IRA you pay taxes on the amounts you contribute, but not the earnings. And if you invest well over thirty years, that is a stunningly good deal. (pg. 111)

  • Recommended categories of spending include: 50-60% of take home pay on fixed costs (rent, utilities, debt, etc.); 10% on Investments (401k, Roth IRA, etc.); 5-10% on Savings Goals (vacations, house down payment, emergency fund, etc.); and 20-35% on Guilt-free spending money (dining out, movies, clothes, shoes, etc.) (pg. 140)

  • I recommend the "envelope" system, in which you allocate money for certain categories like eating out, shopping, rent, and so on. Once you spend the money for that month, that's it: You can't spend more. If it's really an emergency, you can dip into your other envelopes - but you'll have to cut back until you replenish that envelope. (pg. 153)

Other Key Ideas:

  • When it comes to weight loss, 99 percent of us need to know only two things: Eat less and exercise more. Only elite athletes need to do more. But instead of accepting these simple truths and acting on them, we discuss trans fats, obscure supplements, and Whole30 versus paleo. (pg. 7)

  • My book-buying rule is the following: If you're thinking about buying a book, just buy it. Don't waste even five seconds debating it. Applying even on new idea from a book is worth it. (pg. 20)

  • The truth about credit cards is as follows: As long as you manage them well, they're worth having. But if you don't completely pay off your bill at the end of the month, you'll owe an enormous amount of interest on the remainder. (pg. 26)

  • Journalists love to write about the student debt "crisis." Yet a student loan can be one of the best investments you ever make, with the average bachelor's degree holder earning over $1 million more than people with only a high school diploma. (pg. 27)

  • Never sign up for the retail store credit cards. (pg. 34)

  • If you're booking travel and eating out, use a travel card to maximize rewards. For everything else, use a cash back card. (pg. 37)

  • If you decided to get a new card, should you close your old card? The typical advice is to keep cards open for as long as possible. However, I have friends who own over 20 rewards cards. You may have to make a decision on risk versus reward and simplicity versus complexity. There's lots of advice warning against closing credit cards, but as long as you're paying your balances on time and have good credit, closing an old card will not have a major long-term impact on your credit score. (pg. 43)

  • There is lots of free stuff you get with rewards credit cards: 1) Most cards extend the warranty on your purchases - this is true for nearly every credit card for nearly every purchase. 2) In terms of care rental insurance, if you rent a car, don't let them sell you on getting the extra collision insurance. It's completely worthless! You already have coverage through your existing car insurance, plus your credit card will usually back you up to $50,000. 3) Trip-cancellation insurance: If you book tickets for a vacation and then get sick and can't travel, your airline will charge you hefty fees to rebook your ticket. Call your credit card and ask for the trip-cancellation insurance to kick in, and they'll cover those change fees. (pg. 45)

  • If you're applying for a major loan for a car or home, don't close any accounts within six months of filing the loan application. You want as much credit as possible when you apply. (pg. 46)

  • If your first thirty seconds in a restaurant are bad, it never gets better. This is the moment when restaurants put their friendliest, most charismatic staff out front to greet you. If they fail at that, who knows what's going on in the kitchen? (pg. 71)

  • Albert Einstein said, "Compounding is mankind's greatest invention because it allows for the reliable, systematic accumulation of wealth." Over the twentieth century, the average annual stock market return was 11 percent, minus 3 percent for inflation, giving us 8 percent. (pg. 95)

  • 401(k) Accounts: Only one-third of people participate in a 401(k); Among people earning under $50,000 a year, 96 percent fail to contribute the maximum amount into their 401(k); and, astonishingly, only 1 in 5 contributes enough to get the full company match. The company match is literally free money, so 80 percent of people are losing thousands of dollars per year. (pg. 96)

  • The American Psychological Association reports that Americans today, compared to the 1950s, seem less happy, even though we eat out twice as much and own twice as many cars. We have so many more toys, like big-screen TVs, smartphones, etc. But that isn't leading to a more satisfying life. (pg. 101)

  • 401(k) accounts are tax deferred, meaning you can invest the full amount now and let it grow for about thirty-plus years. Sure, you'll pay taxes when you withdraw your money, but that extra 25 percent turns out to make a huge difference as it gets compounded more and more. (pg. 106)

  • If you withdraw your 401(k) money before you are 59 1/2 years old, you incur severe penalties, including income taxes and an early-withdrawal penalty of 10 percent. (pg. 108)

  • Although your 401(k) is tax-deferred, it's not tax free. When you start withdrawing after age 59 1/2, you'll have to pay taxes. But don't feel bad about paying these taxes, since your money will have been compounding at an accelerated rate for the last 30 to 40 years. Because you agreed to invest your money in a 401(k), you were able to put in about 25 percent more money to grow for you. (pg. 108)

  • Moving money from a 401(k) to an IRA when you switch jobs is probably better then rolling into another 401(k) since an IRA gives you more options. (pg. 108)

  • A Roth 401(k) allows you to contribute after-tax money to a 401(k) instead of pre-tax money like a traditional 401(k). If you expect your tax rates to be higher later in life, a Roth 401(k) is a great option for you. Also, with a Roth 401(k) there are no income restrictions like there are with a Roth IRA. (pg. 109)

  • With Roth IRA's you can withdraw your principal (the amount you actual invested from your pocket) penalty-free. There are also exceptions for down payments on a home, etc. You qualify for these exceptions if you have had an IRA open for five years or more. Nevertheless, unless you really have no other recourse, you should not withdraw money from your retirement account. (pg. 112)

  • The mindset of conscious spenders is the key to being rich. Indeed, as the researchers behind the landmark book "The Millionaire Next Door" discovered, 50% of the more than 1000 millionaires surveyed have never paid more than $400 for a suit, $140 for a pair of shoes, or $235 for a wristwatch. (pg. 130)

  • There is strong data indicating that the more you earn, the more satisfied you are with your life. People who spent money to buy themselves time, such as outsourcing disliked tasks, reported greater overall life satisfaction. (pg. 134)

  • 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. The other half goes in my investing account. If you get a raise, be realistic: You earned it, and you should enjoy the results of your hard work. Treat yourself to something nice, and make it something you'll remember. After that, however, I strongly encourage you to save and invest as much of it as possible, because once you start getting accustomed to a certain lifestyle, you can never go back. (pg. 164)

  • 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 to you later? Or attending that conference that will expose you to the top people in your field? (pg. 184)

  • If you're currently working with a financial adviser, I encourage you to ask them if they are a fiduciary (i.e., they're required to put your financial interests first). If you discover that your adviser is not a fiduciary, you should switch. Don't be worried about the emotional tactics they'll use to get you to stay. Keep your eye on the prize and put your financial returns first. (pg. 199)

  • Paying out one percent to an adviser can cost you an upwards of 28% on your returns over 25 years or 39% over 50 years. A 2% fee can cost you 63% on your returns. If you are reading this and you're paying over 1% in fees you need to stop right now. You should really be paying .1% - .3% There's no reason to pay exorbitant fees for active management when you could do better, for cheaper, on your own. (pg. 204)

  • The rule of 72 is a fast trick you can do to figure out how long it will take to double your money. 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 example, if you are getting a 10% return, it would take you a little more than seven years to double your money. As a rule of thumb, you should assume 8 percent returns. (pg. 243)

  • If you inherit a large amount of money, the general though is that you should use a dollar-cost average approach to investing the money. However, Vanguard research found that lump-sum investing actually beats dollar-cost averaging two-thirds of the time. But, you need to make sure the stock market isn't going down. (pg. 250)

  • When I ask you "Why do you want more money?" the common answers are "freedom" or "security." Those are fine, but I want to challenge you to go deeper. The problem is that high-level, vague visions never motivate us much as we'd hope. True motivation is often real and concrete. It's something that affects our day to day. (pg. 262)

  • People think that getting a tax refund is bad. In reality, it's great. Research says that you would have spent the money that you could have kept in your paycheck by doing allowances. Instead, the money usually gets spent. People are better about taking big tax refunds and using the money to save or pay off debt. (pg. 270)

  • Out of every $100 in federal taxes you pay, around 1 percent goes toward foreign aid which is much lower than most people think. (pg. 271)

  • Don't worry or complain about paying taxes. Go and take a ride on a road anywhere else in the world. Notice the difference in infrastructure? Pay your taxes. (pg. 273)

  • I've never sold a single one of my investments. In general, anytime you sell your investments, you'll be eligible to pay taxes when April 15th rolls around. If you sell an investment you've held for less than a year, you'll be subject to ordinary income tax, which is usually 25 to 35 percent. Most people who buy a stock and make $10,000 in nine months and decide to sell it really pocket only $7,500. 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. If you hold on to a stock over a year, and then sell it, you would only pay 15 percent in capital-gains taxes. (pg. 276)

  • Negotiating your salary at a new job is the fastest legal way to make money. Your starting salary is even more important than you think, because it sets the bar for future raises and, in all likelihood, your starting salary at future jobs. A $1,000 or $2,000 salary increase, in other words, can equal many times that over your career. (pg. 306)

  • Don't 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. Most people sell their cars far too early. It's much cheaper to maintain your car well and drive it into the ground. (pg. 318)

  • Let me be crystal clear: Can you afford at least a 20 percent down payment for a house? If not, set a savings goal and don't even think about buying until you reach it. I urge you to stick by tried-and-true rules, like 20 percent down, a 30-year fixed rate mortgage, and a total monthly payment that represents no more than 30 percent of your gross income. (pg. 322)

  • The facts show that real estate offers a very poor return for individual investors. According to data from 1915 to 2015, home prices have increased, on average, only .6 percent per year. Over time, investing in the stock market has trumped real estate quite handily. (pg. 324)

Copyright © 2019 by Dr. Jared Smith LLC.  Specializing in Leadership, Education, and Personal Growth.