I will not teach you to be rich
Recently I was going through my "want-to-read" list and spotted a book that's been on the back of my mind for quite a while. “I will teach you to be rich”, by Ramit Sethi. The title sounds scammy enough, but I decided to give it a shot after listening to his interview with Tim Ferriss. Although I'm not going to teach you to be rich, I hope you can learn something.
1) Anyone can be rich
Ah, ah. Trash.
Seriously, you can be rich. But, first, what does a rich life look like to you? Having a boat, a luxury car, or a tree-house? When I thought of having a rich life, all those rappers throwing money away came to my mind. Millions, gold chains, and 3 piña coladas in the space of 15 minutes.
What instead is suggested, is to brainstorm all the things you want. Sure, it is nice to have the most expensive car in your neighborhood or 3 beach-houses in the Pacific. But the insight of this exercise is to stop comparing your goals with the perceived rich-life-standards and figure out what gives you the most pleasure. If you still want to have that car, it is totally fine!
During this exercise, cars were one of the least important goods for me. On the other hand, frequent short-trips and long-vacations were a top priority. This led me to set a savings goal for what I truly want, and not what is expected. Using public transportation to get more vacay? Yes, please.
And what are the things you don't care about? You might figure out that buying clothes gives you little or no satisfaction. Then, you can easily save on these items and spend unapologetically in the things you love — home decor or cook lessons.
2) Focus on the big wins
When it comes to money, it is really easy to get lost with minor details. Namely, how much to save with a 5% grocery-coupon. Where did you get yours, btw?
Although gathering coupons can lead to savings, focusing on big wins is a much smarter choice in the long run. As the 80/20 principle states, 80% of the effects come from 20% of the causes. So, improving your finances by 80% can be done by focusing on the right 20%. Here are some of that 20%:
Set-up an automated money system
Invest
Take advantage of credit-card bonuses (and don't fail any payment deadline!)
Allocate your capital smartly
Keep a great credit score (applicable only in some countries)
3) Set-up your Automated Money System
One of the biggest realizations I had while reading "I Will Teach you to be Rich" was: you can automate your money allocation. Perhaps I look like an old lady, but this idea never occurred to me. Sure, I know I can automate rent-payments, but I never thought of doing it with my accounts... I mean, for my savings, investments, vacation, and even for a trendy coat.
What Ramit suggests is dividing your money into 4 different buckets:
Fixed Costs (50%);
Investments (10%);
Savings (10%);
Guilt-Free-Spending (30%).
Your compensation gets into your main account, and it will follow different paths, according to your goals. 50% for fixed costs (rent, car payment, electricity, gas), 10% for investments, 10% for saving accounts, and 30% to guilt-free spending. These are the author's suggested percentages. But you should adapt accordingly, of course! In my case, I do allocate a higher percentage for investments, and a lower one for fixed costs.
Having this system set-up allows for a long-term approach that is compatible with your goals. Instead of waiting until the money runs out to think of saving a couple of bucks, they will automatically be deducted from your account. If you never see the money, you never spend it. Simple.
In the end, the most important idea I took from this book, is this one:
“Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.”