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Ramit Sethi

Money Habits: How to Create a Rich Life

Take control of your money, take control of your life.

Talking about money can be hard.

Most people would rather talk about dying than money.

It’s important to come up with a game plan.

When you get organized with your finances, the stress starts to go away.

Both high earners and people struggling with debt both need to be educated about money management.

It’s not as complicated as you think.

That’s why I’m excited to share this interview with a money guru who helped me get out of debt when I was younger: Rami Sathi.

 

“Everyone teaches you how to save money, but almost no one tells you how to spend it.” @ramit  

Ramit Sethi is a New York Times bestselling author of I Will Teach You To Be Rich and founder of GrowthLab.com. He studied technology and psychology at Stanford and has helped over a million people live a “Rich Life.”

Ramit shares tools and strategies to make the most out of your money no matter how much you make.

He argues that you can buy as many lattes as you want and still be financially successful by focusing on the bigger picture.

Listen to Episode 712 to what to do with your money if you’re a high earner and how to develop a plan if you make less than 150K. This episode is for everybody.

 

“Money is an important but small part of living a rich life.” @ramit  

Some Questions I Ask:

  • How do high earners manage their money? (8:50)
  • What are the three things high earners should invest in? (21:30)
  • Should you worry about the market going up or down? (25:50)
  • What should you do with an extra million dollars lying around? (28:30)
  • What about real estate? (31:20)
  • How do you teach people to overcome the fear of wasting money on rent? (38:00)
  • Where can you find a personal CFO? (43:00)
  • Who are the mega-earners that you learn from? (44:00)
  • Why is it hard for us to talk about money? (45:15)

In this episode, you will learn:

    • The three biggest questions high earners ask (10:30)
    • About the D to C Principle (12:30)
    • The different “money dials” that people use (15:00)
    • The incorrect assumption people make about high earners (20:00)
    • The mistake entrepreneurs often make (21:00)
    • Why you should spend 5% of your money on “fun investments” (25:00)
    • Why everyone should invest in Dollar-Cost Averaging (27:00)
    • Why Ramit chooses to rent instead of buy (33:50)
    • About the Ladder of Personal Finance (49:00)
    • Plus much more…

Transcript of this Episode

Lewis Howes:                 This is episode number 712, with New York Times bestselling author, Ramit Sethi.

Welcome to The School of Greatness. My name is Lewis Howes, former pro-athlete turned lifestyle entrepreneur and each week we bring you an inspiring person or message to help you discover how to unlock your inner greatness. Thanks for spending some time with me today. Now, let the class begin.

Benjamin Frankling said, “An investment in knowledge pays the best interest.” And Norman Vincent Peale said, “Empty pockets never held anyone back, only empty heads and empty hearts can do that.”

I’m excited about this episode, because we’ve got my man Ramit Sethi on, who is a New York Times bestselling author of the book on personal finance called, ‘I Will Teach You To Be Rich’, and the founder of growthlab.com, he’s also got the site, iwillteachyoutoberich.com [of] which his information helped me get out of debt many years ago, when I read his book.

He’s been a good friend of mine for about ten years, and I just had some incredible times with him. I said, “We’ve got to have you come back on to talk about two different things.”

One, if you are making a lot of money right now, how do you maximise your money? How do you invest your money the right way? How do you save on the taxes? How do you do all those things if you’re making over $150,000 a year in income? Or if you’re in the millions range, how do you really maximise that growth?

And, also, if you’re making under $150,000 a year, on your salary or your small business income, what can you do to earn more? What can you do to get out of debt? How can you manage your finances better? How can you have complete freedom and complete control over all these things if you’re at that stage as well, and we cover both those.

So, I’m really excited to dive into both of those spectrums. No matter where you’re at, if you’re a big earner, we’re going to cover that in the first half of the episode, and if you’re under 150K right now, a year, we’re going to talk about that in the second part of the interview.

And we really talk about why it’s so hard to talk about money, and the conversation starters you can start having with your friends, family, and peers, so you don’t feel bad talking about money. Also, knowing what your money dial is. How to turn up the money dial on the things you love and turn it down on the things you don’t love.

And how to live a rich life by taking control of your finances and of your life. This and so much more! I’m super excited about this one! Make sure to share it with your friends, lewishowes.com/712, and tag me on Instagram stories, @LewisHowes and @Ramit, of the points that you enjoyed the most about this.

Again, if you have a friend who is earning a lot of money, and they don’t really know how to take it to the next level and manage it better, send them this link. And if you have a friend who is making less than $150,000 a year in their small business or their income, then make sure to text them this and say, “Hey! There’s some powerful insights for you right now, so you can earn more.”

Before we dive in, a big thank you to our sponsor ziprecruiter.com. I have been through so many different struggles trying to find and hire the right people over the last ten years, in my business, made some massive mistakes! I have not been smart in a lot of ways.

But then, you know what is smart? Going to ziprecruiter.com/greatness to hire the right person, because you want the right people on your team. And ZipRecruiter doesn’t depend on candidates finding you, it finds them for you, guys. That’s what’s powerful about this.

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Right now, my listeners can try ZipRecruiter for free, at this exclusive web address. All you need to do is go to ziprecruiter.com/greatness. It’s the smartest way to hire.

And also, a big thank you to our sponsor, fully.com. Oh my gosh, guys! We’ve just had The Summit of Greatness, and Fully was there with all their desks, and all their different mobile chairs and stand-up desks and I’m telling you guys, people there were in love with it.

We have them in the studio at The School of Greatness, we love the active chairs, and they are all designed to help you feel better at the end of the day. And for four years, now, The Wirecutter has named Fully’s Jarvis Standing Desk as the best standing desk on the market. That’s why I love it, guys!

And that said, standing desks really aren’t about standing all day, they’re about moving, because, here’s the thing, rigid sitting can contribute to negative health effects and Fully’s desks and chairs relieve static load on joints and ligaments, while improving posture and circulation.

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Alright, guys, I’m excited about this one. It’s all about how to create your rich life, how to take control of your money and take control of your life as well, with the one and only Ramit Sethi.

Welcome, everyone, to The School of Greatness Podcast, we’ve got my man Ramit Sethi in the house.

Ramit Sethi:                    What’s up?

Lewis Howes:                 Good to see you, brother!

Ramit Sethi:                    How are you?

Lewis Howes:                 Very excited, man! I’m back in New York, it’s always good to be here. I have so many memories of us, like, eight years ago, walking around in the city.

Ramit Sethi:                    Yeah, basically eating Kati Roll.

Lewis Howes:                 Kati Roll, man!

Ramit Sethi:                    Too good!

Lewis Howes:                 Oh my gosh! I haven’t been there in years!

Ramit Sethi:                    Mcdougal and Bleecker, check it out.

Lewis Howes:                 So good! So bad for you…

Ramit Sethi:                    Horrible.

Lewis Howes:                 But so good! And just running around in Union Square, just hanging out with street performers.

Ramit Sethi:                    Yeah, man! I miss you out here.

Lewis Howes:                 I know, man! I got to come out more often. I love it here. Ramit has been on the podcast before, and we’ll link that up, but I’m excited about this one. He’s got a book that has a ten year edition coming out soon, but you can get the current edition.

It’s called, ‘I Will Teach You To Be Rich; No Guilt, No Excuses, no BS, Just A Six Week Program That Works.’ And I always talk about how I got out of debt, is with this book. I read it eight or nine years ago, and I had college debt, I had some credit cards I was still kind of figuring out, “What do I do with my money?” and transferring it over and stuff like that.

And I read this six week plan and got out of debt. Now, I had the cash to get out of debt as well, but I also just got structured with my life and my finances. And something crazy happens when you get organised with your finances and your money, it’s like the stress starts to go away, or there’s a new type of stress, which is learning how to make more, and learning how to manage it better once you have more.

But the stress went away from feeling like I don’t have the control of my life in this area. Because they don’t teach you this in school.

Ramit Sethi:                    No, they don’t, and thank you for sharing that, because I sit here and I write his book, and I write my e-mails to my e-mail list, and my social posts, but it never get old hearing a real person in front of me, telling me how they used the book to change their life.

Lewis Howes:                 Game changer, man, game changer.

Ramit Sethi:                    Yeah, I appreciate that, because, you know, a lot of this money is not just money. I mean, it’s great that you can have $20,000 in your bank account. Many of my readers used this, it came out in ’09, they did exactly what the book said, and now they have hundreds and hundreds of thousands of dollars. Which is amazing!

But I think the more meaningful part of this is that they start to realise, “Wow! I can use money as a tool to create a rich life! Money doesn’t have to be this thing that’s bad. It doesn’t have to be this thing that everyone tells me what I can’t do, no lattés, no jeans, no nothing, I can actually use it! And if I want to fly business class, I can. If I want to buy something really nice for my parents, I can.”

And you start to, almost, open up your life and realise, “Oh, money’s not holding me back, it’s actually amplifying what I really want to do.”

Lewis Howes:                 I want to talk about two different things today. One, for those who are earning a lot of money, what should they be doing with their money? Because there’s actually a new problem, once you earn a lot of money, if it’s just sitting in a bank, that’s actually a bad thing, I think.

Ramit Sethi:                    Totally. And nobody talks about it.

Lewis Howes:                 Yeah, no one really talks about it. So, there’s a lot of high earners who are listening. So what are the things – and, listen, there’s a lot of things you can invest in; there’s real estate, there’s stocks, there’s starting businesses, you can invest in other people.

Ramit Sethi:                    There’s Lewis Howes’ conference.

Lewis Howes:                 There you go! Summit of Greatness, you can invest in a lot of things. And so, I want to talk about that, what do the high earners do with their money? How can they manage it at a high level? How can they save taxes? How can they do all these other things to really earn more and save more.

And then, also, for those in the, I guess, $100,000 and below range, a year, what can the be doing so that they don’t feel so stressed and overwhelmed about their money, because they’re probably a little in debt, using too many credit cards, maybe they’re buying too many things that, maybe, they shouldn’t be buying at that stage. And they’re behind in their finances, or they feel overwhelmed.

So, I think I want to start with the high earners first. Because you’ve been good at teaching this to these $60,000 to $150,000 a year earners. It think that book is kind of like in that range, would you say? Maybe up to $200,000 a year?

Ramit Sethi:                    I think so, but then what happened was, the people who followed the advice…

Lewis Howes:                 Started making more.

Ramit Sethi:                    They’re balling! They have hundreds of thousands of dollars! They’re like, “What do I do with all this money? I don’t know what to do!”

Lewis Howes:                 Yeah, and that’s the challenge.

Ramit Sethi:                    It is a challenge, because you can’t really talk about it online.

Lewis Howes:                 No.

Ramit Sethi:                    You go onto Reddit, and everyone’s like, “Oh, you know, I rewarm my oatmeal nine times and I can get a lot out of it.” And it’s like, “I don’t want to take advice from oatmeal warmers.”

And then, if you talk about it publicly, people are kind of like, “Dude! Boohoo! What a problem! What a jerk!” And, actually, if you have been successful, if you’ve followed a program, whether it’s my program, or anyone’s program, you’ve invested, you’ve saved, you now have new challenges.

And your biggest question is, “What’s next?” LIke, “I sort of won. I won that game of personal finance. What’s next?”

Lewis Howes:                 “I’m not in debt.”

Ramit Sethi:                    “I’m not in debt, so 99% of advice doesn’t apply to me. And people telling me I should cut my pieces of bread in three, to save, no. That doesn’t apply to me, because I have earned and saved a lot.”

So then you start to say, “What’s next? Am I missing something?” And finally, and what I think is actually a highly advanced question, is, “What do I do with this money?” And this is a key thing I want everybody to pay attention to: Everyone teaches you how to save money, but almost no one teaches you how to spend it.

So, what do high earners do with their money? Why do some people spend money on business class tickets? I used to think it was stupid. “Haha! We’re all getting to the same place anyway!” And yet, as you earn more, you start to change your calculus of spending. And hopefully we can talk about some of that.

Lewis Howes:                 Yeah. You know what’s interesting? I used to sit in the back middle seat, coach, Southwest, or American, or whatever, the cheapest flight is what I would look for. And now I look for only first class, or business class, I should say, business class. And I look for, “Can I get it for free? Can I get it with points ?”

Ramit Sethi:                    Nice.

Lewis Howes:                 I don’t want to pay, still, for it, but I do sometimes, because, for example, I just went on a trip to this event called 29029, which was, you hike for 36 hours, the equivalent of Mt Everest, you go 22 miles high. It was in Vermont, a couple of weeks ago, and I’m still recovering from it, my legs are sore, still.

And I said to myself before i went to this event – I ran out of points, I was out of points, but I was like, “I’m going to pay for a first class flight, or business class, because I don’t think I’m going to be able to move my legs, and I’m going to be so uncomfortable on this 5-hour flight on the way back to L.A. I need some space. And it’s going to be worth the price for the flexibility and the freedom, in that moment. I don’t care if I could have bought a laptop with that money.”

That’s what I used to think, like, “It’s $1,000 for a flight! I could buy a laptop with that! I can buy a new iPhone!” Now it’s more, for me, about, like, “Do I feel good? Am I recovered? Am I going to feel good when I get home, so I can work harder and earn more?” That’s the way I think.

Ramit Sethi:                    Yeah, I love that, and I’m just going to unpack a couple of things that you said in that example. First off, when anyone says, “I bought a business class ticket,” notice the almost instinctive reaction. It’s almost, “Ugh! What a show-off!” and all these other things that come along with it.

And I want to challenge people. I have this principle I call ‘The D to C Principle,’ and, instead of being derisive and saying, “Oh, so stupid! That’s ridiculous, I would never do that,” I actually want to encourage everyone to be secretly curious. “Why would a guy like Lewis intentionally spend money on a business class ticket? And he earns good money, he has a lot of options, he must know something that I don’t, and I want to understand why?”

So, from D to C, and if you start to take that perspective, especially on high earners and how they spend their money, all of a sudden you stop saying, “That’s ridiculous!” or, “If I had a million dollars I would never do that!” instead, you say, “Why did that person spend on that?” And I want to know.

Maybe [you] don’t agree, maybe you become a multi-millionaire and you don’t want to spend on business class, you just don’t care, but, “It’s interesting that you do it, and I’d like to know more.”

Lewis Howes:                 Yeah! And that’s the reason I did it for that, and on the way here, I actually didn’t have points as well, for this flight. All my points were used for booking first class tickets for the speakers at The Summit of Greatness, so I used it all on that.

I didn’t want to pay for another first class ticket – or, actually, I think they were full – so I said, “Okay, what’s got the most legroom?” So I always do exit row. I just upgrade a little bit to get the exit row and have that legroom.

Ramit Sethi:                    Yeah. I think the question we’re all wondering, Lewis, is when are you going to get that private plane and then fly me out?

Lewis Howes:                 Funny, I was thinking about this last week. I was, like, “Do I ever desire having a private jet?” I don’t know if, I mean, listen, it would be great to have so much money that you don’t even have to think about it, you can afford a jet, and you don’t feel bad about it.

I mean, sure, If I had that much money, I would do it, but what I care more about is knowing twenty people that have private jets, and having free rides with them whenever I want to. That’s what I like more.

Ramit Sethi:                    Yes, so, that is actually very revealing. So, I want to share another principle we have which is this concept of money dials. And if you think about ten dials in front of you, and each of theme represents a different area of life that people spend on, it turns out that each of us has one money dial, that we love spending on.

And what you just said is extremely revealing. Your money dial, I would be willing to bet, is relationships.

Lewis Howes:                 Oh, yeah!

Ramit Sethi:                    Okay, so I have a friend, Nick Grey. Nick Grey loves hosting people at his house. Every day he’s trying a different party, he’s testing stuff, he invites people over, he does all kinds of crazy stuff. He likes relationships. That’s his money dial.

And a money dial, the reason I say it’s a dial, is, you start off, maybe you have a couple of people out to dinner. And as you start to get more money and more success, you turn that dial until you are totally dialled in. You have the perfect appetiser, you have the perfect ice breakers. You have maybe friends who have jets, you’re really turning that dial.

There are other money dials. The most common one is frugality. Most people actually focus on cost above all else. And you can tell, because when they buy something, what’s the first thing they say?

Lewis Howes:                 They look at the price.

Ramit Sethi:                    They look at the price, and they tell everyone, I got this for 60% off.

Lewis Howes:                 Oh! They brag about how discounted they got it, the deal they made.

Ramit Sethi:                    Because it’s part of their identity. Whereas, for you, dude, I see your photo’s, I see your conference. Your identity is about relationships.

Now there are a few others, there’s wellness, which is more and more common, and you’ll see people, they have the perfect diet, they have a chef -and I’m talking when they really dial it in.

Lewis Howes:                 They have a full time trainer, yeah.

Ramit Sethi:                    This is the point of an advanced personal finance, which is, you don’t have to have a trainer when you start off, when you searched for five hours, you found the perfect program. But as you have more money, you start to say, “I want better results, I want faster results, and I have money, I’m going to throw it at the problem.

My money dial is convenience. So, I love convenience, and I wake up.

Lewis Howes:                 Everything’s delivered to you.

Ramit Sethi:                    Everything’s delivered, I have a chef, when I leave to travel I have this thing that’s called a travel protocol that gets activated with my assistant and my plants get watered, my e-mail gets handled differently. I mean, it’s like I have been thinking about this for the last fifteen years. I am a psycho! But that’s my money dial, and I love it!

Lewis Howes:                 So, you’ll pay a premium for that money dial, to have convenience.

Ramit Sethi:                    Exactly, but I could not care less about certain other money dials. Other common ones that a lot of people watching, or listening, probably have, is travel. So, at a basic level, people say, “I like to travel,” but imagine you’ve truly, truly become more advanced and you’ve become more successful and you want to throw a lot of money at the problem, because you value it.

Suddenly, you’re going maybe three months a year, maybe you are leading excursions. I mean, you can just expand your mind to what you could possibly do, beyond the typical eight days of vacation a year.

So, I share this with everyone, because I like to challenge people to do something. Take a look at your spending from the last two to three months and ask yourself, “What is my money dial?” And you money dial is the thing that you love to spend money on, it’s the thing that gives you joy, and it’s the thing you could spend endless amounts of time optimising.

Lewis Howes:                 And feel good about it.

Ramit Sethi:                    And feel good about it! And so, the reason, once you know your money dial, then it enables you to do two really cool things. One is, you can cut back on stuff you don’t care about. Okay, so if you just don’t care about wellness, or if you just don’t care about travel, that’s okay, you can cut the spend to that.

But I think the cooler thing is, it allows you take that money and now spend it, extravagantly, on the thing you love, which is your money dial. So, if you’re Lewis, suddenly, you don’t mind throwing a lavish dinner for your friends, with a performer, and all kinds of crazy stuff, because that’s your money dial, no need to apologise for it.

So, for everyone, especially the advanced folks, who have money, you’ve got to think, now, you’re at a different level. You’re not just trying to cut your debt, you’re not just trying to cut back, you actually can spend on the things you love. And that, to me, is really exciting.

Lewis Howes:                 So figure out your money dial, and spend more, intentionally, on those things as opposed to spending lots on everything.

Ramit Sethi:                    Exactly.

Lewis Howes:                 Yeah, well, I mean, for me, it’s funny you say that, because I almost always pick up the check on every meal, it doesn’t matter if it’s a smoothie or a few hundred dollar meal with a bunch of people, it’s like I always want to pick it up, because I want to be investing in relationships.

I don’t even know where I learned that. I think I learned it because I was poor for a couple of years and people used to always pick up my tab, and I felt bad. But I also used to feel, “Man, they really took care of me, and I want to make sure everyone else feels like they’re being taken care of when they’re around me.

Ramit Sethi:                    I would feel that way when I was a college student, everybody picked up my checks. Because I would invite a lot of people out, like, I’d e-mail CEOs and just be, like, “I’m interested in what you do. Can we grab coffee.”

Lewis Howes:                 “And I’m poor.”

Ramit Sethi:                    Yeah! And nobody will ever let a college kid pay for a meal. Never!

Lewis Howes:                 That’s true!

Ramit Sethi:                    And the truth is, they had more money than I did, too, but now, I fell really fortunate that picking up a check, whether it’s ten bucks or a couple of hundred bucks, makes no difference to me, but it can make the difference to somebody else.

Lewis Howes:                 Absolutely, I love that, man! Yeah, the money dial. But I’m also always trying to save, like, I’m willing to spend but I want to save a lot if it’s going to be expensive. I’m like, I always tell my sister, I’m like,”Look for the deal, look for the deal.” Like, even if it’s a thousand bucks, try to get it half off.

I’m willing to spend, but save me money, too.

Ramit Sethi:                    Okay, so that’s a great point that I want to demystify a little bit about high earners. A lot of folks think that once you make 250K or 2,5 million, whatever the number is, that suddenly you’re just throwing money around left and right. And that’s not quite correct.

It might seem like that because to spend, say, $7,000 for a business class international flight just seems like, “Oh my gosh! That’s so crazy!” But I want you to get more nuanced. You’re telling your assistant, “I don’t mind spending, but save.”

Lewis Howes:                 Yes.

Ramit Sethi:                    What I do with my financial system is, I set a target each year: “This is how much money I’m going to save and invest.” And those numbers are aggressive! That’s a lot of money.

Lewis Howes:                 You’re going hard! So, like, 10%, 30%?

Ramit Sethi:                    Yeah, so anywhere between those ranges.

Lewis Howes:                 Of what you earn.

Ramit Sethi:                    Correct. And then remember, whenever I make any unexpected income, let’s say I do a speaking gig or something, yeah, I might go out to dinner, but the rest I’m just putting straight into investments, okay, so that money grows aggressively.

And I also want to remind everybody, especially the entrepreneurs watching, I know you have a lot of entrepreneurs, you wouldn’t believe how many entrepreneur friends I know who have a good business and they don’t invest at all. And that’s a huge mistake.

Lewis Howes:                 What should you be investing in if you have a good business?

Ramit Sethi:                    Simple, low cost, target date funds is a great way to go.

Lewis Howes:                 Index funds?

Ramit Sethi:                    Yeah, index funds. Entrepreneurs, they get a little too smart for their own good. They say, “I could just put that money in my own business.” And I always say, “Look, I’m glad you have a business that’s throwing off tons of cash, that’s awesome. Most businesses don’t last eighty years. So, be smart, give yourself a small Plan B. Put 5K a month, 10K a month, whatever is appropriate for your level of success.

“And, hey, maybe your business does really well, that’s awesome, but maybe one day something goes wrong. You always want to be prepared, you never want to get caught with your back against the wall.”

So, I just want to encourage everybody, whether you’re making 250K or 2,5 million, for the high earners here, don’t get too smart for your own good. Keep investing and saving.

Lewis Howes:                 What are the three or four main things you invest in with that 10% to 30% a year?” And does it change every year?

Ramit Sethi:                    Yeah, I’ll kind of walk you through, for the high earners, and then we can talk about people who earn 100K and less. So, once you have a certain amount of capital, you do have a few opportunities that you probably didn’t have before. Everybody has this idea that the rich have all these crazy tax breaks and captive insurance and this and that. And I’ve looked into all that stuff.

Lewis Howes:                 Because you’ve been building insurance companies and all these other things, right?

Ramit Sethi:                    Yeah. So here’s the truth.

Lewis Howes:                 Some of it’s a little sketchy, but yeah.

Ramit Sethi:                    Definitely, and I’ll say that my core values are, when it comes to taxes…

Lewis Howes:                 I love your principle on this.

Ramit Sethi:                    I’m very conservative. I’m like, “Dude, only in this country could I have been this successful.”

Lewis Howes:                 I love this mindset, yeah.

Ramit Sethi:                    I’m happy to pay my taxes. It means that I have the opportunity to create something great. And if I pay an extra $5,000 or $30,000, it doesn’t change my life at all, and I want to be able to give back to the society that enabled me to do what I do.

Lewis Howes:                 That’s a powerful mindset, and it gets you away from, you still want to optimise tax breaks that are out there, but it gets you away from wanting to constantly look for some of the shortcuts or schemes or something.

Ramit Sethi:                    Yes, I’ve always found that people, especially entrepreneurs who talk about tax breaks all the time, are typically the most unsuccessful ones. Two reasons: One, why are you talking about tax breaks instead of growing your business? And two, it’s a very scarcity-driven mindset.

“Ooh, I only have this much that I have to protect!” When, really, you can just grow the pie and your taxes are simply proportionate.

Lewis Howes:                 Just make more.

Ramit Sethi:                    Just make more. No, yes, you do want to optimise and take advantage of all legal tax breaks. So, as you earn more, you do have more opportunities. You have not only your 401K, you have all kinds of advanced IRA options, you have HSA’s, you have a variety of things. But, at a certain point, if you’re making enough, you’re going to max all those out.

Lewis Howes:                 Yeah. Okay, so what do you do when you max it all out?

Ramit Sethi:                    So, the next step is to simply create a taxable account, it’s just a typical non-retirement account, just that Vanguard or – I use Vanguard – whatever you want, and you just continue to invest. So that’s one, and that’s going to keep making you money over the long term, it’s just, you’re not going to get those tax breaks from a 401K or an IRA, et cetera.

The other thing is, as you accumulate more and more assets, you’re going to start to notice, a lot of different people are going to come with opportunities. Dude, I get tax message from these crazies, they’re like, “Hey, I’m opening up a bar in Brooklyn.” I’m like, “I don’t want your stupid bar! I’m not investing in that! I could burn my cash easier.”

But as you start to accumulate a lot, you’re going to want to have a little fun with your money when it comes to investing. So, some people want to do crypto. I think a lot of these people are complete nut jobs.

Lewis Howes:                 Crazy! I put a little bit in there, just to have fun, but I was, like, “Thank goodness I didn’t put more in there, because everyone’s losing their money now.

Ramit Sethi:                    Exactly, and I don’t want to get into crypto, because I’m going to get a lot of angry e-mails. Hey, if you want to e-mail me about your angry crypto opinions, just send it to [email protected] Don’t send it to me.

But you know what? I like what you said, you took a little bit, you had some fun. Five to ten percent, once you’ve got all your other stuff automated, you’ve got your index funds locked down, HSA, your different accounts, I don’ have any problem. I think you should take five to ten percent and you should have some fun with it.

For me, I did angel investing, and I basically learned that I suck! My angel investing is not good!

Lewis Howes:                 Me too! I haven’t made any money from that investment.

Ramit Sethi:                    My deal flow sucks, my choices were okay, some hit, some didn’t. I basically just wrote tha money off. But it was fun and it allowed me to have an outlet.

Lewis Howes:                 And you learned.

Ramit Sethi:                    I learned.

Lewis Howes:                 And you got to meet people, and, yeah.

Ramit Sethi:                    Yeah. So, if you want to do crypto, if you want to invest in somebody’s bar, you want to do angel investing, if you’re qualified, et cetera, be my guest, but don’t jump to that first. Get all our stuff automated, and at a certain point, the compounding is so insane, you will start to actually earn more from your investments, than you will from your income. Even if you’re making 500K a year.

Lewis Howes:                 From the index funds, you’re talking about, if you invest in that. What if the market’s going down, or up, should you even worry about that? Let’s say you put a half a million in, it went up 100,000 over a couple of years, but then it went back to the original investment. Should you be, like, “Oh my gosh! I need to take this out!”

Ramit Sethi:                    Do not do that. I’ll give you a real example.

Lewis Howes:                 “I just put two years of my money into this and it’s still he same amount! I should have just left it in the bank!”

Ramit Sethi:                    No, you shouldn’t have left it in the bank. Alright, so, this happened to me just about two weeks ago. So, the market went down, and I hardly ever log in. I log in about once a month to my investments.

Lewis Howes:                 Just to see, like, what’s [happening].

Ramit Sethi:                    Yeah. And, really, you should not be checking your investments.

Lewis Howes:                 Just check every ten years.

Ramit Sethi:                    Yeah! Once a month is good, if you’re not a day trader. So I happened to log in, and I saw that in the eleven days of that month, in one of my accounts, I had lost $75,000. Okay, so for everybody listening, how would you react if you lost $75,000 in eleven days?

Lewis Howes:                 Most people would be freaked out.

Ramit Sethi:                    They’d be freaked out, they’d pull the money out, which is exactly the opposite of what you should do. So everyone says this common thing and they just roll their eyes, “Oh, buy low, sell high,” but in reality, they actually buy high and sell low! So you know what I did? I did nothing.

I logged in, I felt no emotion, it wasn’t like, “My life is over,” it was like watching someone offer me concrete to eat. I felt nothing, I’m like, “Nah, it’s fine, whatever,” and I just closed the window. The key there is that, every month, my system is automatically investing. It’s called dollar cost averaging. It’s just automatically investing.

And you should set the same thing up, too. You shouldn’t be paying attention manually, you shouldn’t be sending a check, it just works, automatically. So, I knew, this month, market is down, and if you think about any other thing that you buy – if the price of toothpaste goes down, you’re happy, if the price of milk goes down, you’re happy – the only time we get weird is if the price of the market goes down, and then we’re like, “Oh, let me pull all my money out!” Bad move.

The price went down. If you’re young and you have a long time before you need the money, you’re getting the market at a discount.

Lewis Howes:                 You should get excited.

Ramit Sethi:                    You should get excited! So I just said, “Great, it went down. Fine, it doesn’t bother me,” and I just closed the window, and a few days later, my system will just purchase it again. So if it’s up, it’s down, it doesn’t matter in the short term, but over the long term we know that the market tends to return about 7-8%.

But it can go up, it can go down, and so you do not want to be paying attention to the short term.

Lewis Howes:                 Right. Let’s say you’ve got half a million to a million dollars extra cash lying around. You’ve maxed out all your IRAs, you’ve got five to ten grand a month going to your index funds, you’ve dabbled in the smaller investments and start-ups, you’ve done it all, you’ve got a little bit in crypto, you’ve done everything. What should you do with that extra million dollars a year?

Ramit Sethi:                    Okay, a great question. First off, this is like somebody saying to a fitness instructor, “I’ve done everything, what should I do next?” And you know what that fitness instructor is going to say? They’re going to say, “When you say everything, what do you really mean? Like, show me. Are you doing foam rolling? Are you doing this? Are you all balanced?”

For the person who’s doing this, I’m going to give you your answer, but I’m going to first say, are you sure? Have you planned out, so you know that ten years from now, you’re going to buy a house, do you have a 20% down payment set aside?

I do, and I have no plans to buy a house any time soon. But I have 20% set aside for a house.

Lewis Howes:                 For that moment, yeah.

Ramit Sethi:                    Yeah, so I already plan for what I know is coming, even though I have no interest in it today. What about the first year of your kid’s life? Do you have that aside? What about X, Y, Z? Are you taking care of your parents when they get older?

One thing that I really love to do is talk about relationships, so I love to invite my family, once a year, for a big, big vacation where we can all stay in a house and we there’s a chef and all this stuff and we can all be there and the kids can be playing. Is that something that’s important to you? Right? So plan for that.

Now, if you’ve done all that stuff, you’ve got your six months emergency fund, you’ve got your investments automated on auto-pilot, and you still have money left over, you’re in an awesome position, and now you can do a couple of things.

One, if you want to keep growing that money, you can simply invest it in a non-retirement, taxable account, and that money will grow like crazy. If you’re putting in 10K or 20K a month, that money will turn into massive amounts.

And if you guys don’t believe me, just go search for ‘compound interest calculator’, Bankrate has a really good one, and plug in 20K a month, for ten years and that’s it, juts stop and watch what happens.

Lewis Howes:                 What is that, at 7% or 8%?

Ramit Sethi:                    Yeah, at 7% returns and watch what happens. It becomes like a tsunami! You cannot stop it! So that’s one.

The other thing is, if you want to invest in a little bit of fun stuff, if you’re like, “Hey, I want to take 10% of this and invest it in this crazy investment, by buddy’s starting a thing,” go ahead! Just be prepared to write it off. Maybe it works, maybe not, and then from there you should also remember a third thing, and nobody really talks about this, maybe you should star to increase your quality of life.

Maybe, instead of staying in the middle or back seat, it’s time to upgrade to the exit row, right?

Lewis Howes:                 Or business class, or whatever, yeah.

Ramit Sethi:                    Business class. Or maybe it’s time to eat at a different restaurant. Maybe it’s time to really think about your money dial and say, “Hey, I always claim that wellness is important, and yet I’m still eating the same old thing I used to eat ten years ago. Maybe it’s time to upgrade what I eat and where I work out,” and all that kind of stuff, “my gear.”

You can do that. You’ve made it! You’ve already won the basic game, so now you get to benefit from it.

Lewis Howes:                 What about real estate? I hear of people who are all in in real estate, or who are all in in the market.

Ramit Sethi:                    Yeah,  think that real estate – so, a lot of people are going to hate me after I say this – I know you guys have all been told since you were, like, two years old, “Real estate is the best investment ever!” And it turns out that’s not really true. There’s a couple of things that might surprise you.

Lewis Howes:                 If you’re buying one home.

Ramit Sethi:                    If you’re buying a house and living in it.

Lewis Howes:                 If you’re buying multiple units, or buying multiple homes and that’s your business, it might be a better miss.

Ramit Sethi:                    Correct. Let me make the distinction. So, most people in America are told that the American life, the American Dream, is graduate from college, get married, buy a house, white picket fence, 2,5 kids, and you’ve made it. And I think we all just have to look at people who are a little bit older than us to realise that might not be our American Dream.

We might want to travel more, we might want to work remotely. I mean, here we are, in the middle of a week day, chit-chatting and sharing with millions of people. This is our dream! So, I want to challenge people to really question what you’ve been taught. That’s number one.

Number two, most people who buy a house and live in it, think that it is the best investment. But most people have never run the numbers.

Lewis Howes:                 It’s like my piggy-bank.

Ramit Sethi:                    Yeah, they think that. They don’t understand that, when you spend money on a house, you’ve incurred tons of phantom costs. You have taxes, you have maintenance, you have all kinds of things that you don’t count.

And if you actually factor all those numbers in, real estate often, in fact, many times, is not a great investment at all. It’s a place to live, and you have these phrases like, “You’re throwing money away on rent,” it’s not true. “Your landlord’s making a profit, otherwise they wouldn’t do it.” That’s not true, your landlord can’t charge you whatever they want, they can only charge you what the market will bear.

So, if you search my name and real estate, you’ll see all the numbers played out. Now, on the other hand, if you’re a real estate investor, and you’re disciplined, that’s a different story and that can be effective.

But mom and pop, who are thinking that they bought their house in 1970 for $200,000 and now its worth $600,000, they think they made $400,000. Actually not. If they had taken that money, and put it in the market, they would probably have much, much more.

Lewis Howes:                 Really? Wow! And way less headache.

Ramit Sethi:                    And less headache.

Lewis Howes:                 Well, depending if they looked at their investment every week, maybe they would be a little more stressed up with the level that’s going up and down.

Ramit Sethi:                    Yeah, so, listen, I will buy a house one day, so I don’t want anyone to think that I’m telling you not to buy a house. If you want to rent for the rest of your life, you absolutely can. Many people in New York, San Francisco and other high-cost-of-living cities, they rent. There’s no shame in that.

I rent by choice. I could buy a place tomorrow, cash, and I choose to rent.

Lewis Howes:                 Why do you choose to rent? You’ve been here for ten years?

Ramit Sethi:                    Ten years.

Lewis Howes:                 And you’ve been renting the whole time?

Ramit Sethi:                    Yeah, yeah, on purpose.

Lewis Howes:                 And how much is that, do you think? Over half a million dollars?

Ramit Sethi:                    Oh, yeah, it’s a lot of money. I rent a nice place.

Lewis Howes:                 Well over, yeah.

Ramit Sethi:                    Why do I do it? Because…

Lewis Howes:                 You could have used that money on something else! You could have put it in a…

Ramit Sethi:                    I did. I put it in the market, and I made more.

Lewis Howes:                 Because you didn’t put it into a home.

Ramit Sethi:                    Correct.

Lewis Howes:                 Where it was a lot more money up front.

Ramit Sethi:                    It was more money up front, I used that money and I put it in the market, but there’s also other reasons, too. I couldn’t get, for the amount I’m paying, where I live, if I were to buy a place in the same building, it would be four times more expensive. So that’s the first.

The second is maintenance. I’m going to give you an example. I woke up one day and the doorman was knocking on my door, it was, like, 08h30 on a Saturday. He was like, “Sir, sir, do you mind if we take a look at something?” I was, like, “Okay.”

And we go into the living room, and there’s a pool of water just sitting there.

Lewis Howes:                 In your apartment?

Ramit Sethi:                    Yeah, on the floor. And I said, “Whoa!” And it had dripped down three levels, so I was, like, “Oh my gosh!” They’re like, “Sir, go back to sleep. We’ll take care of it.” That day they came, they repaired the floors, not just of my apartment.

The ceilings for the next two levels down, that’s probably likely to have cost them, let’s just say, 50K? Maybe 100K, because it’s Manhattan and it’s a weekend service? Who knows? That’s not my fee.

Lewis Howes:                 You didn’t pay for it?

Ramit Sethi:                    No. No. And I said, “Great, that’s their problem, I’m going back to sleep, man! I’ve got another hour of sleep here.” So, you don’t have to believe me, you don’t have to believe what someone else says. All you need to do is run the numbers. That is my only suggestion to you.

Go to a buy vs rent calculator, make sure you plug in all the fees, not just the taxes, the realtor fee. If you get a bigger place, you’re probably going to get more furniture for it.

Lewis Howes:                 The HOAs, or the lawn maintenance, or trash service, or whatever it is.

Ramit Sethi:                    Yeah. The key thing is, whether it’s a house or investments, my point to you guys is, take your money seriously. Once you take your money seriously and you put some time in it, whether it’s this book, or wherever you want to get your information, you’re going to be better off for it.

You don’t want to delegate this to somebody else. I want you to understand it, and once you understand it, and you are automated, you make a few good choices in life, you never have to worry about lattés or appetisers again.

Lewis Howes:                 How did you make the emotional shift, when you started renting an expensive apartment? I mean, like, “Man, if I add all of this up after a year, that’s close to a down payment on a nice house in the Midwest. Maybe you can buy a whole house in the Midwest,” you know what I mean?

How do you emotionally rationalise that? Where you’re not frustrated, like, “Oh my gosh! I just spent ten years throwing this money away,” because sometimes I feel that way. I just feel like, “Man, I just spent a lot of money these last few years.”

Ramit Sethi:                    Well, let me ask you this…

Lewis Howes:                 But I like the freedom and the flexibility of not having to incur all those other expenses.

Ramit Sethi:                    Yeah. What do you like to eat? You like strawberries?

Lewis Howes:                 No.

Ramit Sethi:                    Okay, what do you like to eat?

Lewis Howes:                 Steak and veggies.

Ramit Sethi:                    Okay, steak. When you buy a steak and you eat it, do you feel like you just threw your money away on that steak?

Lewis Howes:                 No, I enjoyed it.

Ramit Sethi:                    But where is it? I don’t see it! Where’s my investment?

Lewis Howes:                 Right.

Ramit Sethi:                    In fact, isn’t it coming out in the toilet in a couple of hours?

Lewis Howes:                 It is, yeah!

Ramit Sethi:                    So, what are we talking about here? You get value out of a steak, just like you get value out of renting. Now, if you want to incidentally build equity, that’s great, but remember, you can also lose equity. Right now, in Manhattan, do you know rents are down?

Lewis Howes:                 Is it?

Ramit Sethi:                    Yes! And so are prices of houses is you want to buy. They’re going down every month. A lot of people are, like, “Oh my gosh! It’s so expensive!” Sometimes, but sometimes it goes down, 5%, 10%. Some of these neighbourhoods are down 15%.

Lewis Howes:                 No way!

Ramit Sethi:                    Yeah. So, a lot of people don’t realise, in fact, I did a survey of my readers; I said, “Do you think it’s possible for real estate to decrease. Over half the people said no. They had never even thought about it.

Lewis Howes:                 Remember 2008, 2009?

Ramit Sethi:                    Memories are short. You would think they would remember, but they don’t. I knew people, dude, they had three houses they had bought, they were destroyed financially, their credit was ruined, they had to give up these houses, and their identity as an investor, and three years later, they’re like, “I think I want to buy another couple of houses.”

It just goes to show, I’m not saying they’re stupid, it’s not that at all, because a lot of people have gone through this. It’s the idea that the propaganda to buy a house, or to follow a prescribed set of rules for the America Dream is so powerful, that even losing your own houses, doesn’t change people’s perspectives.

Lewis Howes:                 So how do you teach people to overcome the emotional rationalisation of blowing their money on rent? Besides that story you just told which helps me.

Ramit Sethi:                    Yeah. I’ll tell you what, I want to acknowledge that it’s real.

Lewis Howes:                 It’s a fear that people live with.

Ramit Sethi:                    Yeah. And I’ll give you an example, I call it the handshake effect, and it’s when people would come over to my apartment, for the first time, and they would say, “Wow! This is an amazing view!” and then they always say the same thing in New York, “Do you own this place?” And we’re shaking hands, right? I mean, we’ve just met, just met!

Lewis Howes:                 Yeah, “And how much did you pay for this place?”

Ramit Sethi:                    Yeah, “How much did you pay?” it’s classic New York! And I say, “No, I rent,” and it’s that moment where, if I had said I bought, they would be, like this, “Wow! That’s pretty cool!”

Lewis Howes:                 Yeah, “Pretty impressive!”

Ramit Sethi:                    “Really Cool!” Yeah! And you kind of get this pride. And then, when I don’t say that, they get really confused, because this is the I Will Teach You To Be Rich Guy, but also he rents, and I thought renting is for people who can’t afford it.” They don’t understand, and they give me this look, and I realised that so many of us are looking for somebody to approve of us, while we are shaking their hand. Someone we don’t even know.

And so, instead of getting your approval from somebody you just met ten minutes ago, or from your parents, who probably are not the most sophisticated investors, if you’re watching this show, you know, you talk about greatness. And being great means choosing your own path.

Sometimes you might choose to buy, I have no problem with that if you ran the numbers and you consciously decided, sometimes it means you don’t. But , if you want to live the life of greatness, you need to be comfortable making different choices than what other people expect.

Lewis Howes:                 Zing! I like it, man! Do you have a spreadsheet? I’m just curious about the way you think about your money. Do you have a spreadsheet or some type of system where you have all these things logically mapped out, where you know exactly where your money is going? Or where you want to put it in five or ten years?

Ramit Sethi:                    Yeah. In fact, it’s even more…

Lewis Howes:                 It’s, like, scientific, it’s like…

Ramit Sethi:                    Yeah, it’s like Minority Report. Like, I wake up and I just go!

Lewis Howes:                 Yeah, yeah, yeah!

Ramit Sethi:                    No, this is what it is: So, my money dial is convenience, okay? So as I became more advanced, I realised it was time to put on a new lens. And I think this is really important for people. Many people, when they’re starting out, they think that growth is linear. That, basically, I’m dribbling the ball – I’m going to use a sports analogy.

Lewis Howes:                 Sure, give it to them!

Ramit Sethi:                    And I’m on thin ice, because I don’t know anything about sports, but, you know, I dribble ten times a minute, and as I get faster I’m going to dribble twenty times a minute. Okay, this is a horrible analogy, but just go with it.

Lewis Howes:                 Sure, sure.

Ramit Sethi:                    At a certain point you’re not just counting the number of dribbles, you’re actually counting ball handling, you’re counting whatever else you’re doing. With money, it’s the same. You’re not just creating a more sophisticated spreadsheet as you grow, you’re actually changing the way you think about money.

Lewis Howes:                 You’re changing the spreadsheet, you’re reinventing the spreadsheet.

Ramit Sethi:                    You’re not even using a spreadsheet. So, I’ll tell you what I did. I started off doing everything myself, and that’s what’s in this book. It shows you exactly how to go from, “I don’t even know where my money’s going,” or, “I have $5,000 sitting in my savings account,” to, “Everything is running automatically, and I spend less that fifteen minutes a month on my investing.”

That’s in the book. But what happens when you get to the next level? Well, I’ll tell you what I did. I realised that it wasn’t a good use of my time to be manually tracking anything, even for 60 minutes a month, because things have become complex. I had multiple investments, I had a business.

Lewis Howes:                 Different accounts, all that, yeah.

Ramit Sethi:                    So, I found, what I call a personal CFO, and what I did was, I worked with them and I said, “Here is exactly what I invest in, here are my core values, here’s how I want you to deliver me information once a month.

So they created, basically, a dossier, they handed it to me every month, and it’s in the format that I want. Why? Because I’m the boss, and they’re working for me. And so, it shows me a couple of core things: What’s my nett worth, or any spending areas that I need to be aware of.

I typically have two spending areas that I track that are more variable. Like, sometimes, I’ll go out and buy more clothes. That’s a variable area for me. I said, “Look, I love cashmere, what am I going to do?” And then, another one is eating out, or travel.

Aside from that, all my expenses are very stable, like, I spend the same amount on stuff, I’ve had the same apartment for ten years. Look, I’m not going crazy. I’d rather save my money and invest it and spend a little on the stuff I love.

We talk for fifteen minutes each month, and if anything needs to be changed, they handle it. So, for a lot of people, the next step is not necessarily just doing what you’re doing, but better, it’s actually a whole different way of looking at the problem.

Lewis Howes:                 Where does someone find that personal, what is it? A personal…

Ramit Sethi:                    A personal CFO. For a lot of people, the basic thing you can do, to start with, is to get a bookkeeper. And we have this advanced personal finance course and we talk about how to find them.

A bookkeeper is a good thing to start with if you’ve got a business, or if you’ve got a few hundred thousand dollars a year coming in, and you’ve just got a number of accounts and maybe you have kids, and okay, they can help you organise things.

As you get more sophisticated, a personal CFO, which can be part time, or if you’re really sophisticated, it can be full time, they can help you do more sophisticated things. And they work directly with you accountant, your bookkeeper, all that stuff.

Lewis Howes:                 Okay, interesting. Just go to Craigslist and look.

Ramit Sethi:                    Yeah, you can do that! And the best place you can do it, honestly, is you ask your friends. Your friends who have sophisticated nett worths, ask them.

Lewis Howes:                 Ask them what they’re doing. Yeah. Interesting. Before we get into the strategy for those who are making $150,000 a year and less, on how they can really optimise everything, I’m curious, who are the high earners that you talk to for advice, privately, behind the scenes, in the special secret rooms, on the private jets, who are those mega-earners that you learn from?

Ramit Sethi:                    I have a CEO group, a CEO council that I belong to, and we’re really candid with each other about where we spend our money, some of them are married some of them are divorced, how does that play in? Relationships, all kinds of stuff. So, that’s one.

Lewis Howes:                 Is it a New York group? Or is it all over the world?

Ramit Sethi:                    Yeah, it’s distributed, we’re all over the place.

Lewis Howes:                 You talk online? You meet in person?

Ramit Sethi:                    Both, we meet in person twice a year, and we talk on the phone about once every month and a half. And I think that’s important for everyone listening and watching, which is, have a group of folks that are ambitious and that want to succeed.

What’s interesting is that these guys aren’t in my field at all. I actually prefer that. We’re not talking about online stuff, that’s not the point. We’re talking about culture, we’re talking about life, we’re talking about relationships. I think that’s great.

I also have a lot of entrepreneurial friends, who will share stuff, just off the cuff, when we’re hanging out. And then, finally, my audience, a million readers a month, and they’re e-mailing me the craziest stories. They’re telling me everything.

Lewis Howes:                 Really?

Ramit Sethi:                    People crave talking about what’s going on with money, because no one else will. And so I hear the best stories from my readers and that’s what I get to, kind of, bring to everyone else.

Lewis Howes:                 Wow! Why is it hard for us to talk about money? Why is it scary? Why don’t we talk about it enough with our friends? Our family? Why is that?

Ramit Sethi:                    There’s one great study showing people would rather talk about their sex lives than their amount of credit card debt. I think that’s totally true. A hundred percent!

Lewis Howes:                 That’s true!

Ramit Sethi:                    And think about what money means. It means that you were successful in this culture. And I am here, people know me as the I Will Teach You To Be Rich Guy, and I have always said, “Money is an important, but small part of living a rich life.” Just because you make more, or less, doesn’t mean we’re better friends.

Not at all! It has nothing to do with that. But it is important for people to be in control of their money, whether they’re making $15 an hour, or $15,000 an hour. And there are people I know who make that. So, that just simply shows, are you in control of your life, at whatever level you are?

It’s embarrassing for people, they’re never taught this, and then suddenly they graduate, and they’re supposed to know what tax withholding is and what a 529 and 401K and all this crazy stuff is. Nobody taught it to them.

So, my goal here, the reason I’m talking about this, is for people to feel more confident about their money, and for them to stop being afraid and listening to random people giving them advice.

Lewis Howes:                 Because I feel like it’s hard, when you’re making $150,000 or less, it’s hard to talk about it, and feel comfortable talking about it, with your peers who are in the same category, because everyone kind of feels embarrassed. I know I felt that way.

Ramit Sethi:                    For sure.

Lewis Howes:                 And if you stay in that space ,it’s going to be hard to get past it. So, what’s the conversation starter that someone who is making 150K or less, or very little, what’s the conversation starter they can have with a peer, or a family member, or a parent, or a friend, or a co-worker, that’s not gong to throw someone off, but that’s going to activate the conversation about money?

Ramit Sethi:                    Okay, having the conversation – most people don’t want to. Most people don’t want to and that’s okay. If you simply want to improve your own money, do that, and you’ll become a role model to other people. And I think that’s probably the most effective way. But if you do want to have a conversation, not to plug my own thing, get my book, get somebody else’s book, it doesn’t matter.

Get a book and say, “Hey, I realise I need to learn about money.”

Lewis Howes:                 Read any book about money, yeah, yeah, yeah.

Ramit Sethi:                    Any book! Okay? And, “Does anybody here want to join me and let’s do a  little book club.”

Lewis Howes:                 Ooh! Smart!

Ramit Sethi:                    So, suddenly, it’s not you and me talking about our money, which really reflects our “value” in a society, okay, I use “value” in quotes. “Let’s talk about this book,” which is a third party in this dynamic, and we can say, “I agree with this guy,” or, “I disagree,” or, “I really like how he…”

Lewis Howes:                 “Let’s try this.”

Ramit Sethi:                    “Let’s try this and see…” So, suddenly, it becomes an experiment, as opposed to, “You’re worth X,” or, “My value is Y.” And that’s really something you can work on together.

Lewis Howes:                 I like that, yeah. Bring something else into it, into the mix. Okay, lets’ talk about the $150,000 per year and under people. They’ve been working hard jobs, they’ve been trying to save their money, but it just seems like they haven’t been able to get past, whatever it is, fifty grand a year, a hundred grand a year, 150K, they’ve been kind of stuck.

Or they’ve crossed a hundred grand a year, and more problems have come to them, because they’re making more and spending more, and they feel more broke than ever, because they have no clue what they’re doing with their finances, still.

It’s the end of the year, they’re about to start a new year, soon, and they feel overwhelmed or just clueless, still, and uneducated, about their money and what their options are for just having peace of mind, structure, organisation, and knowing that they don’t have to stress about it and they can go earn more and it’s going to pay off for them.

What’s a few simple things that they should be doing, right now, to have a checklist to do before the end of the year, to then crush for a whole twelve months moving forward?

Ramit Sethi:                    Alright, I’m going to give you something called the ‘ladder of personal finance’, which tells you where your money should go. This is just step by step, put your money here. And if you want to know all the details about it, you can check out the system.

Lewis Howes:                 It’s in the book too, though? Yeah.

Ramit Sethi:                    It’s in great detail in the book. So, if you’ve got some money lying around, what should you do with it? First of all, if you’ve got a 401K match at work, you should max that out. That’s free money, take advantage of it. And if you’re not sure what that means, go to your HR person, and say, “Does this company match any 401K contributions?” If they say yes, do what I said.

Next, if you’ve got debt, pay it off. Pay it off aggressively. You know what’s interesting is that most people in debt, who I talk to, don’t actually know how much they owe. And that’s shocking. You would think, “Of course they would know.”

But , actually, they don’t, because who would want to…

Lewis Howes:                 Stare at their debt all day.

Ramit Sethi:                    Yeah, and just feel bad about it. But you know what? You feel much better when you have a plan. And the number one question I ask folks, when they tell me they have debt, number one, “Do you know how much you owe?” They never do.

Number two, for the rare people who say $15,000 or $70,000, or whatever, I say, “What is your debt pay off date?” You can actually plug it in, you can plug in a debt pay off calculator online, you can map it all out, and you will be able to know the exact month your debt will be paid off.

Lewis Howes:                 Based on how much you’re spending right now, on it.

Ramit Sethi:                    Based on how much you’re contributing to that debt payoff. Now you will be able to see that if you add an extra fifty bucks a month, or a hundred bucks a month, that thing will, actually, oftentimes, shorten by years, because of the interest.

It doesn’t matter if it’s going to take you three months, or four years to pay off your debt. It doesn’t matter to me, what matters is that you know the date . Okay, so that’s number two, pay off any debt you’ve got.

Three, if you’ve got money left over, go to your Roth IRA, and if you can, max that out. That’s a great tax advantage.

Lewis Howes:                 That’s tax deferred, is that right?

Ramit Sethi:                    Yeah.

Lewis Howes:                 So that’s three.

Ramit Sethi:                    That’s three. Okay, it’s actually post tax money. And then, four, if you’ve still got money, you’re going to go back to your 401K, which is another tax advantage to count, you’re going to max that out. If you’ve still got money, you’re going to create a non-taxable, non-retirement account, and just put your money in there.

Now, there’s a few wrinkles to this. There’s HSAs available, there’s still your emergency fund that’s talked about in the book. They’re details, but that just shows you, when you’ve got money, this is where you go. There is a structured way of thinking about it.

Lewis Howes:                 A ladder towards financial success.

Ramit Sethi:                    A ladder, exactly! And if you follow the steps, it’s almost like a waterfall, it just goes from from step one to step two to step three, and your money’s going where it needs to go, automatically, and you will feel great! You will feel great, which is so important, and also, you’re going to look at your accounts and see, the debt’s going down, investment and savings are going up

And all of a sudden you wake up six months from now, and you’re like, “Oh my gosh! I didn’t realise I had that much saved in my savings account.” That’s because of the decision you made today.

Lewis Howes:                 Let’s say you’re working a job, making decent money, but you’re not really breaking through, and you’re struggling to earn more to get rid of that 50K a year type of range, somewhere around there, and all your friends are making the same amount, all your peers are in the same boat.

And everyone’s stressed about money, and you hear someone say, “Well, you earn the average of the five people you spend the most time with.” Should they cut all those five friends out of their life? Because,”Well, you know, my peers are holding me back.” And if they’re having those negative conversations.

Or how can they start to level up without cutting people out of their life?

Ramit Sethi:                    Yeah, I never encourage anyone to cut off their friends. And I think that’s a common misconception, that you have to close all the doors to your friends. I mean, I’ve got friends from high school, junior high, that I still hang out with, and I’m not judging them based on their bank account. I don’t even know how much they make, or how much they’re worth. That’s not why I’m friends.

But the average of the five people you’re surrounded with, that is a very powerful idea. And instead of closing the door on the people you hang out with, why not open the door to some new people? Why not find people who go to your conference, for example? Or who are on my site?

People who are ambitious, who have gone through these programs, and say, “You know what? Can we set up a weekly check in? It could be five minutes, it could be over text, but let’s just set up this check-in and say, ‘What did you want to do last week? Did you execute? Why or why not?’ Every week, 9am, Monday. Let’s do it!”

That’s how you suddenly meet a group of people who are unapologetically ambitious, and that will change everything for you, because, instead of having to drag people to these self development conferences, and they say, “That’s weird. I don’t want to do it,” the people you actively seek out are going to be, like, “Yeah, I’m in! Let’s do it!”

Lewis Howes:                 “Let’s do it!” Yeah.

Ramit Sethi:                    And that’s powerful.

Lewis Howes:                 Yeah, so finding new communities, that you can have these conversations with. And don’t cut anyone out of your life, but just start having those conversations with people that are more aggressive.

Ramit Sethi:                    Yeah, you know what I told people to do who are on my Instagram account? So, I told people, “It’s important to find other people who support you. A lot of you are waiting around for some millionaire to fall out of the sky and invite you to their private group. It’s never going to happen. Never. Instead, why don’t you start it yourself?”

And I said, “Go into my comments, write who you’re looking for, and then invite someone to join you.”

Lewis Howes:                 I like that!

Ramit Sethi:                    You don’t need to wait, no one’s coming to rescue you, it’s not a Disney movie, nobody’s coming, it’s only you. So, take control and go find someone and then build that together.

Lewis Howes:                 I like that!

Ramit Sethi:                    Okay, so Cody working on the cameras here, asked a really great question, does my opinion on investing in real estate change if you live in the Midwest? And I think the answer is, “Yeah, it can. The calculus on buying a house in the Midwest is different than cities like Manhattan, San Francisco, and L.A.”

Lewis Howes:                 Miami and L.A., yeah.

Ramit Sethi:                    So, again the message here is not, “Don’t ever buy a house,” but it’s, “Run the numbers, to make sure that you’re making the right financial decision.

Lewis Howes:                 Yeah, because in Columbus, Ohio, you can buy a house for 200 grand, and a nice one.

Ramit Sethi:                    There you go.

Lewis Howes:                 It may be better to do that just to have the peace of mind of your own space, or whatever it may be.

Ramit Sethi:                    So, another question from Cody, here, a great one. What is my opinion on Dave Ramsey’s concept of the debt snowball. So, I think Dave Ramsey is really good for people who are in debt. That’s not really the folks I speak to that often, but I think he does a great job with them.

And what he talks about is, the debt snowball is encouraging people to pay off their highest balance, first, right? Their highest balance. So, if you have four different credit cards, you’re paying off the one with the highest balance. Whereas the mathematically correct answer is to pay off the credit card with the highest interest rate.

So, he’s actually taking advantage of a peculiar quirk of human psychology which is that we want to see a win, right? We want to get a win, and it doesn’t matter if we’re paying a little extra in interest, once you get that first credit card paid off, you’re going to want to do the next one, and it’s going to snowball.

I happen to think it’s actually really smart. And one of the reasons that I think my book has done well, is that it factors in human psychology. So I’m not telling you, in the book, don’t spend money on lattés. In fact, I want you to spend as much money as you want on lattés.

Lewis Howes:                 I’m going to get one right after this!

Ramit Sethi:                    Exactly! Get your credit right, negotiate your salary, get a good job, automate your money. You could buy ten thousand lattés, it doesn’t make any difference at all. And so, whether it’s the debt snowball, or whether it’s earning more, or whether it’s automating your money, you want to make sure that this advice is something you’re actually going to follow and that means you’re going to bake in psychology.

Lewis Howes:                 Yeah, I love it! And if you guys want to learn more about how to earn more, about how to negotiate, whether it be rates or other different things, and other things that Ramit talks about, then post an Instagram story right now, and tag @LewisHowes and @ramit and say, “Yes! I want more of this!” and we’ll do a follow-up interview sometime in the future, talking about how to earn more, how to build a side hustle, how to do all those different things, and negotiate rates better as well.

So, post those Instagram stories right now, @ramit and @LewisHowes and let us know, and connect with us.

Final thoughts, man! What’s your definition of greatness?

Ramit Sethi:                    My definition of greatness is deciding what kind of life I want to lead and then creating it, unapologetically, even if it means making different choices than other people.

Lewis Howes:                 That’s good! That’s good!

Ramit Sethi:                    What’s yours?

Lewis Howes:                 Greatness is discovering the unique gifts and talents within you, pursuing your dreams and using those gifts, and making an impact on the maximum number of people in that pursuit. That’s mine.

Ramit Sethi:                    Love it! Wow! Powerful!

Lewis Howes:                 Did I ask you your Three Truths before? I’m not sure if I asked you this on the last time you were on. So, I’m going to ask you again.

Ramit Sethi:                    Okay.

Lewis Howes:                 If you can only share three lessons with the world. You’ve got all these books and programs and courses on so many different things. But if you had to take all that with you, and no one had access to it any more, and you could only write down three things or principles, or truths, and this is all the world would have of your information left, in physical form, what would be your Three Truths?

Ramit Sethi:                    Man! You’re putting me on the spot here! I like it!

Lewis Howes:                 I know! No prep, no prep! Three principles or truths for the world on anything, life, anything.

Ramit Sethi:                    Wow! Okay, my first one would be, you can create a rich life through planning and unconventional choices.

My next one would be that you’ve got something to say, and the world needs to hear it.

And the third one would be, you could probably eat spicier food than you think. I guarantee that.

Lewis Howes:                 I’ve had some spicy food with you, yeah! That’s good, man!

Ramit Sethi:                    That’s right!

Lewis Howes:                 Well, I acknowledge you, man! I appreciate our friendship. I’ve known you for, what, eight, nine, years now, I think.

Ramit Sethi:                    Yeah, long time

Lewis Howes:                 It’s been such a fun journey, and I’m excited for all the many fun times ahead, but, again, I would not be debt free as fast as I was without your book, so, again, I appreciate you, as always. I always talk about this, make sure you guys get a copy, ‘I Will Teach You To Be Rich’, a powerful game plan if you guys are looking to get out of debt, but also a lot of the things that we didn’t cover are in here.

So, check it out, tag us on Instagram, @ramit, @LewisHowes. Thanks again, man!

Ramit Sethi:                    Dude! This was awesome!

Lewis Howes:                 Appreciate you.

* * *

Lewis Howes:                 There you have it, my friends! Do you feel richer in your life already? Do you feel richer in your mind? Do you feel like you’ve got some tools, some strategies, some insights to help you take control of your finances and your life. If so, then make sure to share this with a friend!

Again, if someone who is a high earner, sent this to them, if someone who is struggling to earn more, send them the link, lewishowes.com/712. Text it to them right now, message them on social media, get this out to your friends, do something right now, to support your friends in educating them, to learn more so that you can start having these conversations with them about money, as well.

Again, the full video interview and all the resources and links and information is back on the show notes, at lewishowes.com/712. If you’re new here, click the subscribe button on Apple Podcast, on Spotify, wherever you’re listening to this podcast, click the subscribe button.

We’ve got powerful interviews and episodes, just like this, every single week, with the most influential people in the world, on how to take your life, health, relationships, and wealth, to the next level.

It’s all about living a great life, and I’m super glad that Ramit shared with us his wisdom and his insights on this episode.

A big thank you to our sponsor, ziprecruiter.com/greatness. It’s the smart way to hire, guys. You want to build a powerful team in your company, if you’re just starting out, I’m telling you, the hiring process can be a nightmare, if you’re not doing it the right and smart way.

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I love you guys so very much! This movement of greatness, about expanding our minds, expanding our hears, expanding our love for education, for learning, for growth in ourselves and the people around us, that’s what this is all about with this movement of greatness.

And it doesn’t matter where you’re at in your journey.  You could be struggling and feel like you’re at the bottom right now, and it’s great that you’re here! It’s great that you’re here, because your willingness to learn, your willingness and desire to get better, to improve, to take action on things that aren’t working for you is what inspires me.

So, keep taking action, keep showing up, continue doing things in your own life that are going to improve your situation, and support the people around you. That’s what this is about, doing things together, and I’m so glad that you’ve joined me in this journey of inspiring greatness in the world.

I love you so very much and, as always, you know what time it is: It’s time to go out there and do something great!

Music Credits:

Music Credit:

In The Sky by L3V3LS

We Were Infinite by Inukshuck

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