Book Review and Summary: I Will Teach You To Be Rich by Ramit Sethi
Note: This book summary is based on my personal understanding and viewpoint.
This book is the New York Times best seller.
This book is for all ages, however highly impactful for people who are in their early twenties. This book is written in the USA perspective, however equally applicable in other countries too.
1. Optimize Your Credit Cards
Ramit stresses in having a good credit score. The rate of interest in loan depends on the credit score. In the long term, this higher rate of interest costs exponentially more. Credit scores in the United States range from 300 to 850. Credit scores are calculated from various factors such as payment history, length of credit history, debt amount.
Most of the credit cards companies charge very hefty amount in the interest, sometimes it goes up to 30 to 40 percent. There are examples on how to have a conversation with the credit card companies to waive the fees and receive lower rate.
He stresses enough to pay the bill on time and that too automatically.
He also mentions to pay the bill using credit card and collect the points which can be converted to airline miles, cash back and rewards.
2. Beat The Banks
People especially older generation are afraid of the online banks although these banks offer the best new accounts you can get. He explains the importance of having separate saving and checking accounts and use it based on the appropriate purpose. If one wants to save money, instead of checking account put it in the high yield saving account. Generally, the online banks provide high yield saving account compared to the brick-and-mortar banks.
3. Get Ready To Invest
The key message is to open 401(k) and Roth IRA accounts. Money is invested in 401(k) before tax deduction. There are fewer instruments where the money can be invested in 401(k). Many employers match the amount contributed by the employees for 401(k) up to a certain percentage of the salary. Ramit stressed to contribute the same amount which is contributed by the employer. Tax needs to be paid during withdrawal of the money.
In Roth IRA account, money is invested after tax deduction. Unlike 401(k), one can invest in various financial instruments in Roth IRA. As already tax deducted money is invested, tax need not be paid during withdrawal in Roth IRA.
He suggests investing in both 401(k) and Roth IRA and not withdraw it till the retirement age unless you are desperate enough.
4. Conscious Spending
Many people don’t realize, where their spending is going. Different material things and possessions give different level of happiness, satisfaction and accomplishment to different people. Few like travel, shoes and few like fine dining. He mentions, not to spend just because your friends or surrounding spend on it, spend on something which you really love. Make a monthly budget and spread the spending on fixed cost (essential items), guilt-free spending money (dining, clothes, luxury items), saving, investment, unexpected expenditure like car repair etc. Once the spending limit is reached for one category, then you cannot spend more on it. If it is absolutely needed, you can bring from the other categories. However, try to keep your spend within the budget limit.
Live frugal not cheap.
5. Save While Sleeping
List all your accounts together. Set up the bill-pay and transfer system that works for you based on when you receive the salary like once in a month, twice in a month or irregular income for freelancers. Make all the payments automatic so that there would be no late fee and other charges.
6. The Myth of Financial Expertise
For individual retail investors like you and me, we might not need the consultancy of financial experts. We need not understand fancy terms like derivatives, future and options etc. Most of the financial experts and in fact no one knows for sure, whether the market will be upside or downside tomorrow. No one can time the market. Based on the research, most mutual fund managers fail to beat the market. So, you need not depend on the financial experts and manage your money yourself. You can invest in low expense ratio financial instruments like index fund.
7. Investing Isn’t Only For Rich People
Balanced portfolio asset allocation is more important than the “best stock of the year”. There are many investment instruments. Based on your risk profile, age and financial need, choose the right mix of portfolio. If someone is in twenties and early thirties, then he can invest more amount in equities and less in CDs, bonds. If someone is approaching the retirement age, then he can invest more in safer instruments like bonds and CDs and less portion in equities.
8. Easy Maintenance
Maintenance of the financial portfolio is as important as building the portfolio. If one of the funds has not performed good and another fund has given exceptional return, then take time to rebalance your portfolio. Let not the fear of tax guide your investment decision.
9. A Rich Life
There are several financial questions we all face in our day-to-day lives. These questions can be pay student loan or invest, whether to buy a home or rent, what are the factors to be considered to buy a car etc. The answers depend on the context and several factors. Write it down and take decision which makes sense. When it comes to buying a house, the rental yield is comparatively less and also the house needs maintenance, insurance, property tax. As a thumb rule, it’s a good investment only if you are staying in it for more than 10 years.
Conclusion:
Being rich is more than money. It means different things to different people. For few it means freedom to do whatever they like with their own time, freedom to do whatever they like without worrying for money.
I enjoyed going through the book. This is one of the must reads book for people in their early twenties.
