In the world of personal finance, 10 years is basically a lifetime.
That’s what bestselling author Ramit Sethi realized, having topped the charts a decade ago with “I Will Teach You To Be Rich.” His in-your-face style and unconventional advice – don’t get hung up on housing as the ‘American Dream,’ for instance, and buy the damn latte – struck a chord with readers.
But when young investors at his courses and seminars mentioned they didn’t even know he had written a book, Sethi’s head exploded – and he quickly got to work on a new edition that was published last month.
So what is fresh in the world of money advice, and what is timeless? I sat down with Sethi to find out.
Q: Many things have stormed the financial scene since your last edition, such as roboadvisors — what’s your take on them?
A: That’s one of the most popular questions I get. If your decision is choosing between roboadvisors or a discount brokerage like Vanguard, you’re already in the right ballpark. Yes, roboadvisors are convenient with beautiful apps, but sometimes they charge more and won’t get you better returns. And many of their marketing claims are overhyped. Personally, I chose to put all my money in Vanguard.
Q: The ‘FIRE’ movement (financial independence, retire early) is also big now. Are they on the right track?
A: Anything that gets Americans to raise their abysmal savings rates is a good thing. I love that people in the FIRE community laughed at the traditional 10% savings rate and said, ‘How about 70%?’ It stretched the imagination of what is possible. But if your reason for retiring early is ‘To escape,’ or ‘I hate my job,’ or ‘Sleep,’ that’s not a psychologically healthy reason. You need to think consciously about what you want to do with the rest of your life. It’s great that you want to save more, but life is lived outside a spreadsheet, and money is only a small part of it.
Q: You recently got married, so how has that shaped your understanding of money?
A: At first my wife felt like things weren’t fair, because she had opened up about her money life, but didn’t know anything about mine. That was a big mistake on my part. I violated my own rules about money and love, which is that you should be completely open about it, and that things shouldn’t be unbalanced.
The second mistake I made is that I wanted to jump right into spreadsheets. A lot of men are more comfortable with numbers. But what I really needed to do was step back, and start speaking a different language – what money means to us, and how we were raised. I realized a lot of things had been unspoken, and there were many differences in how we thought about money. Now I realize why so many couples fight about it.
Q: You have been dragged into the debates about coffee spending again – why does that seem to strike a chord with so many people?
A: People know where I stand on lattes. I’ve said everything I want to say about it. The point is, if you’re getting the ‘Big Wins’ right, then you never need to worry about the cost of lattes or appetizers. Most people are asking $3 questions, when they need to be asking the $30,000 questions.
Q: Recently you have been talking about ‘turning the dial up’ on the things you love – what does that mean?
A: It’s one of the most popular questions I ask. Most people are told to think about where they can cut back. So I ask, where do you love spending money? Their eyes light up – it’s usually things like food or travel. But like a radio dial, you can turn that up. So then I ask, what could you do if you quadruple your spending? Then the room just loses it. Most people have never even considered that option. Then they start thinking about ways to make that happen.
Q: Have your views on real estate changed over 10 years?
A: I’m a renter by choice, and have been in the same apartment for 10 years. Yes, I could have bought, but I’ve made more by investing. I don’t say real estate is a bad decision for everyone. In fact I have already saved a down payment, and I will buy at some point. But young people especially have started to question the value of real estate, and that’s a good thing. We should question those big purchases, and decide whether they are truly right for us.
Q: How was your approach to money different this time around?
A: I’ve become more accepting of different ways that a ‘Rich Life’ might look. There are so many paths to get there. So while before I said you should be investing this much, or saving this much, or getting this or that interest rate, now I know that are many different routes to wealth.
I’ve also realized the importance of the psychology of money. You can give people all the perfect tactics and charts in the world, but if they don’t master their own psychology and understand why they do what they do – then none of it matters.
