Book Review: I Will Teach You To Be Rich by Ramit Sethi
Last night I read the first 291 pages of Ramit’s bestseller in one sitting, and today I managed to finish it (during a child’s nap). When you read about financial savvy all the time, nothing out there seems very new. The book is a great resource and would benefit most readers no matter where along the path to a financially peaceful and streamlined life they may be.
Most of the financial advice you will ever need is in books like I Will Teach You to be Rich, or on the Internet. It’s the implementation that people struggle with. (This is where financial coaching proves helpful:)
Ramit suggests pretty much the same steps to financial freedom that I use with clients, although I emphasize having peace of mind, whereas he emphasizes ‘being rich.’
Streamline your bank accounts- Checking for bills, savings for emergencies and goals.
Keep 1-2 months of income in your checking account so that you never have to worry about cash flow, and can automate your bills so that you don’t have to worry about them
Make an educated spending plan for your take-home pay so that you know how much you can spend guilt-free each month, while still meeting your goals
Automate your savings after your cash-flow is clear and you have a buffer
If you’re able to contribute to retirement, automate it and treat it like a bill.
Use YNAB to make sure you’re setting aside money for true expenses and savings goals monthly.
Instead of thinking you ‘can’t’ contribute to your own retirement, simply get intimate with your spending and decide how much you want to save. Do the math on what a contribution might amount to if you stuck with it for the remainder of your working years. Compound interest is your friend.
If you are doing all of that, and not overspending every month, then perhaps it would make sense for you to use credit cards to your advantage. This only works if you have them set up to be automatically paid in full from your checking account each month. It does not make sense otherwise, as a 25% APR on any unpaid debt will far outweigh a 2% return you might get on purchases.
Automate how your money flows. I agree with his cash-flow chart on page 177, but only for those who track their spending and won’t treat a credit card any differently than a debit card.
If you have irregular income, build a buffer equal to a few months of expenses so that you can still automate and weather the ups and downs in your income.
This book isn’t very unique, but again, I’m glad it’s a best-seller as it could help a lot of people!
Now, some caveats to I Will Teach You To Be Rich:
The book does indeed need to be done in order, or else the system won’t work. The first step is to get an intimate knowledge of your spending, every bill, everything you’re committed to, and to name the short and long-term goals you have. It’s critical that you make a plan for your take-home pay that you feel good about.
Using credit cards to your advantage only works if you won’t be taking on any additional debt. Period. In fact, for most people who are carrying credit card debt, it probably makes the most sense to tackle paying it off before using cards for ‘perks.’ Unless you spend a significant amount of money each month, the perks might not be worth the potential annual fee and the potential for accruing debt on high interest.
Though I don’t agree with his header, ‘I don’t believe you need a financial advisor,’ I do agree that if you aren’t looking for someone to manage your wealth (especially if you’re just starting to invest), then you would need to look for a fee-only advisor to consult with, and someone who is a fiduciary- meaning they are legally obligated to give you the best advice for your particular situation. In other words, they won’t be trying to sell you anything to benefit themselves. I think many people who are knowledgeable about retirement could still benefit from meeting with an advisor so that they have an accurate picture of how much they actually want to be saving in order to have the standard of living they will need/enjoy in retirement. For example, if someone making decent money didn’t start saving his or her often-recommended 10-20% until age 47, they might be surprised to find it hasn’t grown to what they hoped it would be by 65. An advisor can help someone understand what they want to be aiming for, and this knowledge is what I’ve seen helps people increase their savings. This is especially helpful for couples who want to get on the same page about their savings goals.
Not everyone who follows this plan will become ‘rich,’ although I understand that is a relative term. If half of our country is earning $30K or less per year, then saving 10% toward retirement will definitely be a great idea, but it might not mean they will later feel ‘rich.’ They would also need to save regularly for the true expenses of life in order to prevent going into debt, would need to keep their expenses pretty low, and would also need to save additional money out of their take home pay for short and long-term goals.
Adding to my above comment- I just wish this book had more of an awareness about income inequality. Though I agree it’s easy to get stuck in a cycle of ‘I can’t save on my income,’ and the reality is that you probably could save some -- someone earning $40K/year is going to have a much harder time ‘spending a lot on things they love,’ as he suggests, then someone earning $100K/year. There just isn’t always a lot left over after bills, debt payments, childcare costs, and savings. I wish his book acknowledged this more.