"I Will Teach You To Be Rich" by Ramit Sethi

• We love to debate minutiae.
• People love to argue minor points, partially because they feel it absolves them from actually having to do anything.
• You don’t have to be an expert to get rich.
• The single most important factor to getting rich is getting started, not being the smartest person in the room.
• Simple, long-term investing works.
• Credit has a far greater impact on your finances than saving a few dollars a day on a cup of coffee.
• One of the key differences between rich people and everyone else is that rich people plan before they need to plan.
• Avoid cash-back cards, which don’t actually pay you much cash. People get really mad at me when I say this, but cash-back cards are worthless.
• Bottom line: If you’re getting a rewards card, find one that gives you something you value.
• Pay off your credit card regularly. Payment history represents 35 percent of your credit score. The single most important thing you can do to improve your credit is to pay your bills on time.
• Get all fees waived on your card. This is a great, easy way to optimize your credit cards because your credit card company will do all the work for you.
• Negotiate a lower APR. Your APR, or annual percentage rate, is the interest rate your credit card company charges you.
• Keep your cards for a long time and keep them active. Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score.
• To improve your credit utilization rate, you have two choices: stop carrying so much debt on your credit cards or increase your total available credit.
• Call your credit card company and ask them to send you a full list of all their rewards.
• If you’re applying for a major loan--for a car, home, or education--don’t close any accounts within six months of filing the loan application. You want as much credit as possible when you apply.
• Focus on the big wins if you want bigger results.
• The key to using credit cards effectively is to pay off your credit card in full every month.
• Managing your money has to be a priority if you ever want to be in a better situation than you are today.
• Snowball method: lowest balance first
• Pay the minimum on all cards, but pay more on the card with the lowest balance. Once you pay off the first card, repeat with the next-lowest balance.
• Standard method: highest APR first
• Pay the minimum on all cards, but pay more on the card with the highest interest. Once you pay off the first card, repeat with the next-highest-APR card.
• Leave your emotions at the door and get out of debt the quickest, cheapest, and most effective way possible.
• Paying off debt just takes hard work and a plan.
• Week 1:
• Get your credit report and credit score. Check them to make sure there are no errors and to get familiar with your credit.
• Set up your credit card. If you already have one, call and make sure it’s a no-fee card. If you want to get a new credit card, check out www.bankrate.com.
• Make sure you’re handling your credit cards effectively. Set up an automatic payment so your credit card bill is paid off in full every month. Get your fee’s waived. Apply for more credit if you’re debt free.
• If you have debt, start paying it off. Call your lender to negotiate down the APR or restructure payments and set up your automatic payment with more money than you’re paying now.
• Getting out of debt quickly will be the best financial decision you ever make.
• Fundamentally, banks earn money by lending the money you deposit to other people.
• Banks also make money from fees.
• Think of savings accounts as places for short-term (one month) to mid term (five years) savings.
• The key difference between checking accounts and savings accounts is this: savings accounts pay interest.
• The most important practical difference between checking accounts and savings accounts is that you withdraw money regularly from your checking account--but you rarely withdraw from your savings account.
• Start small now so that when you do have a lot of money, you’ll know what to do with it.
• Recommended account setup: This option means opening accounts at two separate institutions: a no-fee checking account at your local bank and a high-yield online savings account. With the checking account, you’ll have immediate access to your money and the ability to transfer cash to your high-interest online savings account for free.
• If your bank isn’t convenient, it doesn’t matter how much interest you’re earning--you’re not going to use it. Since a bank is the first line of defense in managing your money, it needs to be easy to put money in, get money out, and transfer money around.
• I would not encourage anyone to use a standard Big Bank savings account. Online savings accounts let you earn dramatically more interest with lower hassle.
• Week 2:
• Open a checking account or assess the one you already have. Make absolutely sure it is a no-fee, no-minimum account.
• Open an online high-interest savings account. You’ll earn more in interest and pay less in fees.
• Optional: Open an online checking account. Remember, the main benefits of an online checking account are a high interest rate and fewer tricky fees.
• Fund your online savings account. Leave one and a half months of living expenses in your checking account, or as close to it as you can manage. Transfer the rest to your savings account.
• When it comes to money, it’s actually very easy to end up like most other people: you just...do nothing.
• On average, millionaires invest 20 percent of their household income each year. Their wealth isn’t measured by the amount they make each year, but by how much they’ve saved and invested over time.
• By opening an investment account, you give yourself access to the biggest moneymaking vehicle in the history of the world: the stock market. Setting up an account is an excellent first step toward actually investing, and you don’t have to be rich to open one.
• The Ladder of Personal Finance:
• If your employer offers a 401(k) match, invest to take full advantage of it and contribute just enough to get 100 percent of the match. This is free money and there is, quite simply, no better deal.
• Pay off your credit card and any other debt. Whatever your card company charges, paying off your debt will give you a significant instant return.
• Open up a Roth IRA and contribute as much money as possible to it.
• If you have money left over, go back to your 401(k) and contribute as much as possible to it (this time above and beyond your employer match).
• If you still have money left to invest, open a regular non retirement account and put as much as possible there. 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.
• 401(k) benefit 1: Using pretax money means an instant 25 percent accelerator.
• 401(k) benefit 2: Your employer match means free money.
• 401(k) benefit 3: Automatic investing.
• The main reason to contribute to a 401(k) is to take advantage of your employer’s match, which won’t apply to funds you roll into the new account.
• Remember to be aggressive with how much you contribute to your 401(k), because every dollar you invest now will likely be worth many more times that in the future.
• A Roth IRA is another type of retirement account with significant tax advantages. Every person in their twenties 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.
• With a Roth IRA, you invest already-taxed income and you don’t pay any tax when you withdraw it.
• Week 3:
• Open your 401(k). Check to see if your employer offers a match. If it does, contribute enough to get the full match. If not, leave your 401(k) account open but contribute nothing.
• Come up with a plan to pay off your debt. Get serious about getting out of debt.
• Open a Roth IRA and set up automatic payment. Send as much as you can, but even $50/month is fine.
• Too often, our friends invisibility push us away from being frugal and conscious spenders.
• Frugality is about choosing the things you love enough to spend extravagantly on--and then cutting costs mercilessly on the things you don’t love.
• The mindset of frugal people is key to being rich.
• Very few people decide how they want to spend their money up front. Instead they end up spending it on random things here and there, eventually watching their money trickle away. Just as important, have you decided what you don’t love?
• Fixed costs are the amounts you must pay, like your rent/mortgage, utilities, cell phone, and student loans. A good rule of thumb is that fixed costs should be 50-60 percent of your take-home pay.
• A good rule of thumb is to invest 10 percent of your take home pay for the long term.
• Just understand that taxes ultimately will take a chunk out of your 401(k) returns.
• Remember, the more aggressively you save now, the more you’ll have later.
• A good rule of thumb is to use 20 percent to 35 percent of your take-home income for guilt-free spending money.
• Try focusing on big wins that will make a large, measurable change.
• The idea of sustainable change is core to personal finance.
• Habits don’t change overnight, and if they do, chances are it won’t be sustainable.
• Remember that getting a raise is not about you. It’s about you demonstrating your value to your employer.
• To find your annual salary, just take your hourly rate, double it, and add three zeros to the end. This also works in reverse. To find your hourly rate, divide your salary by two and drop the three zeros.
• During the job-hiring process, you have more leverage than you’ll ever have.
• There’s one important thing to remember when you get a raise: maintain your current standard of living.
• Week 4:
• Get your paycheck, determine what you’ve been spending, and figure out what your conscious spending plan should look like.
• Optimize your spending.
• Pick your big wins.
• Maintain your conscious spending plan.
• The key to taking action is, quite simply, making your decisions automatic.
• Your money management must happen by default.
• By setting up an automatic payment plan you actually make it difficult to stop the contributions to your retirement account.
• Week 5:
• List all your accounts in one place.
• Link your accounts together. To set up your automatic money flow, the first step is linking accounts together.
• Set up your automatic money flow.
• All our lives, we’ve been taught to defer to experts...but ultimately, expertise is about results.
• If you can’t perform what you were hired to do, your expertise is meaningless.
• More information is not always good, especially when it’s not actionable and causes you to make errors in your investing.
• The only long-term solution is to invest regularly, putting as much money as possible into low-cost, diversified funds, even in an economic downturn.
• When it comes to investing, fees are a huge drag on your returns.
• Not only do most fund managers fail to beat the market, they charge a fee to do this.
• Index funds have lower fees than mutual funds because there’s no expensive staff to pay.
• You just want to invest and let your money grow without having to think about or monitor it all the time. I recommend a lifecycle fund so you can invest and get on with your life.
• As Warren Buffett has said, investors should “be fearful when others are greedy and greedy when others are fearful.”
• Your investment plan is more important than your actual investments.
• Mutual funds are an excellent investment choice compared with doing nothing.
• Today, index funds are an easy, efficient way to make a significant amount of money. Note, however, that index funds simply match the market.
• Lifecycle funds are simple funds that automatically diversify your investments for you based on age. Instead of having to rebalance stock and bonds, lifecycle funds do it for you.
• The major benefit to a lifecycle fund is that you set it and forget it. You just keep sending money and your fund will handle the allocation, trading, and maintenance, automatically diversifying for you.
• The more aggressive you are when younger, the more money you’ll likely have later. This is especially important for a 401(k), which is an ultra-long-term investment account.
• 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.
• The Swensen Model of asset allocation:
• 30% domestic equities
• 15% developed-world international equities
• 5% emerging-market equities
• 20% real estate funds
• 15% government bonds
• 15% treasury inflation-protected securities
• The first thing you want to do when picking index funds is to minimize fees. Look for the management fees (“expense ratios”) to be low, around 0.2 percent, and you’ll be fine. Really, anything lower than 0.75 percent is okay.
• Dollar-cost averaging is a fancy phrase that refers to investing regularly amounts over time, rather than investing all your money into a fund at once.
• Investing isn’t a race--you don’t need a perfect asset allocation tomorrow.
• Dollar-cost averaging makes investing easy: you set it and forget it.
• Week 6:
• Figure out your investing style. I recommend a lifecycle fund as the 85 percent solution.
• Research your investments.
• Buy your funds.
• Every dollar you invest today will be worth many more tomorrow.
• It’s never easier to do this than when you’re in your twenties and thirties--and the more you feed into your system now, the sooner you’ll be rich.
• Invest as much as possible into tax-deferred accounts like your 401k) and Roth IRA. Because retirement accounts are tax advantaged, you’ll enjoy significant rewards.
• Investing in tax-advantaged retirement accounts is the 85 percent solution for taxes.
• Bottom line: Invest in retirement accounts and hold your investments for the long term. Until your portfolio swells to roughly $100k, that’s about all you need to know.
• Eventually, your emergency fund should contain six months of spending money (which includes everything).
• When you invest in your twenties and early thirties you get huge benefits from compound interest. If you wait until you’re older to invest, you’ll never be able to catch up on those earnings.
• Fundamentally, there are two ways to get more money. You can earn more or you can spend less. Because most of our income comes from work, it’s an excellent place to optimize and earn more.
• Negotiating is 90 percent about mind-set and 10 percent about tactics.
• Getting rich isn’t about one silver bullet or secret strategy. It happens through regular, boring, disciplined action.
• Surprisingly, from a financial perspective, the most important factor is how long you keep the car before selling it.
• You could get the best deal in the world, but if you sell the car after four years, you’ve lost money.
• Understand how much you can afford, pick a reliable car, maintain it well, and drive it for more than ten years, because it’s only once you finish the payments that the real savings start.
• Actually, houses really aren’t very good investments in general.
• The bottom line: Buy only if you’re planning to live in the same place for ten years or more.
• Bottom line: If you don’t have enough money to make a down payment and cover your total monthly costs, you need to set up a savings goal and defer buying until you’ve proven that you can hit your goal consistently, month after month.
• The truth: Real estate is a poor investment for individual investors.
• The total price of buying and owning a house is far greater than the house's sticker price.
• Thirty-year loans are more flexible because you can always pay extra toward your loan and pay it off faster if you want. But you probably shouldn’t.