Reading Ramit Sethi’s writing is a lot of fun for me.
Partly this is due to the fact that his writing is just plain entertaining. But a lot of it has do do with the fact that when it comes to me and Ramit, there are a lot of similarities and a lot of differences.
He and I share a lot of the same conclusions about money. For instance, he would certainly agree with this sites core premise of spending less than you earn and investing the difference.
But it’s also pretty clear that we’ve had very different backgrounds and hold many different values.
Here’s a quick comparison of the two of us based on what I know about him:
- It seems like Ramit grew up with both parents, I was raised in a single parent household
- Ramit has moved to bigger cities as he’s gotten older (San Fran to NY), I’ve moved to smaller towns (Tampa to Gainesville)
- He has a degree from a prestigious private university (Stanford), I went to a public state school
- He started his personal finance blog in 2004, I didn’t start mine until 2021
- Ramit runs an outrageously profitable company, my primary source of income is as an employee
- As far as I can tell, Ramit has a mostly secular worldview and I am a Christian
- Ramit got married at 36, I got married at 24
- As far as I can tell, he is still childless (as of 2021). I have three kids
I’m not listing any of those comparisons to make value judgement. Instead, I’m trying to point out that he and I are very different and we should expect to have tome clashing perspectives.
Big Ideas I Love
The 85% Solution
In life in general and money in particular, too many people fail to act unless they’ve got things figured out 100%. The truth is, people who actually get stuff done aren’t afraid of moving forward with a solution that’s 85% of the way there.
As Ramit says: “85 percent of the way there is far better than zero percent.”
Even if you make mistakes, it’s better to make them when you’re just getting started and less money is at stake.
The 85% solution is all about knowing when your plan is “good enough” to move forward with, even if it isn’t perfect.
Don’t Spend More Than 5 Minutes Deciding
At one point in the book, Ramit lays out two strategies for paying off debt. He has a nice chart that compares the Dave Ramsey “Debt Snowball” (pay off lowest balance first) to the standard method of paying the highest interest first.
His advice on making a decision? Just make a decision. As he says: “Bottom Line: Don’t spend more than five minutes deciding.”
This is similar to what I call the “outcome report card” method. If what is at stake is an “A+” outcome vs. an “F” outcome, take your time. Run the numbers. Do your homework. If what’s at stake is an “A” outcome as opposed to an “A+” outcome, go with your gut or flip a coin.
Another good personal finance “A” vs. “A+” decision is a Roth vs. a Traditional 401k or IRA. Chances are one is better for you, but both are great. Getting started with either one is better than waiting until you know for certain.
As Ramit would put it, don’t spend more than five minutes deciding.
Humans are risk-averse. More accurately, we’re loss-averse. Many people are scared to invest because they might lose money.
Ramit points out that not only will inflation eat the purchasing power of your money if you don’t invest, but most people spend all they make and run out of money anyway.
I love this insight:
People have peculiar beliefs about risk, We worry about dying from a shark bite (when we should really worry about heart disease). When there’s a sale on eggs or chicken, we’re happy—but when the stock market gets cheaper, we think it’s bad. (Long-term investors should love when the market drops: You can buy more shares at the same price.)I Will Teach You to Be Rich (Kindle edition) pg. 97
Yes, there is risk with the stock market. But if you stay the course, things work out in the long-term. Even for people who invest just before a crash.
Front Load the Work
Ramit points out that it might be hard work to figure out how to invest your money and create an automated system, but it’s worth it.
Putting more energy in up front means having to put less energy in later. Also, because of the way compounding works, getting started investing now is more powerful than investing more later.
This really applies to every area of personal finance: Frugality, Income Generation, and Investing.
It takes a lot of work on the front end to find a louse you can afford, but once you do it’s much easier to live below your means.
Increasing your income is all about front-loading the work. Whether you’re starting a side hustle or angling for a raise, you’ll have to front-load the process with lots of planning and effort to see results.
Do the hard things now so that life gets easier over time.
Fees Matter. A Lot
Here’s what Ramit has to say on the importance of keeping fees low in investing:
DID YOU KNOW THAT OVER TIME A 1 PERCENT FEE CAN REDUCE YOUR RETURNS BY AROUND 30 PERCENT? No, You didn’t. Nobody does.I Will Teach You to Be Rich (Kindle edition) pg. 202
Actually, I knew that. Fees are no joke. That’s why I wrote the post The Tyranny of Compounding Costs—an essential read for anyone who wants to understand the impact of fees.
For what it’s worth, 99% of the book is written with normal capitalization. But I appreciate the all-caps to underscore this importance of this point. He also follows it up with this gem:
IF YOU ARE READING THIS AND YOU’RE PAYING OVER 1 PERCENT IN FEES I’M GOING TO KILL YOU.I Will Teach You to Be Rich (Kindle edition) pg. 202
Ironically, his standards for an acceptable fee are looser than mine. He says you should ideally be paying between 0.1% and 0.3%. I think that’s too high. Especially for a stock market index fund. I say to look for an expense ratio below 0.05% (which you can get with funds like FZROX or VTSAX). Of course, bond funds and international stock funds are usually more expensive, so less than 0.2% is probably a good target for those asset classes.
And yes, right after saying that he doesn’t always write in all caps, I included an all-caps quote. And there’s another one coming. I guess I just like those sections.
Ramit frequently uses the phrase “negotiate like an Indian” and cites stories from his childhood when he would tag along with his dad as they spent days negotiating the price of a car with a dealership. Ramit says he even remembers eating breakfast at a dealership one time.
Here are some of his tips for negotiating salary:
- Remember: No one cares about you
- Frame your negotiation in terms of how the company benefits
- Key phrase: “Let’s find a way to arrive at a fair number that works for both of us.”
- Have another job offer to use as leverage (don’t lie about this)
- Interview with multiple companies, don’t disclose which ones or their exact offer
- Come prepared
- Bring a plan or proposal for what you’d do in the position
- Bring a record of accomplishments and aptitudes
- Stories about your past success
- It’s disarming and people forget to do it when interviewing or negotiating
- It feels weird, but it helps you prepare for the real thing
- Have a friend grill you. Make sure you don’t laugh during the role play. Take things seriously
- Save Face
- If you fail to negotiate a higher salary, this is your line (and a direct quote from page 308): “‘I understand you can’t offer me what I’m looking for right now. But let’s assume I do an excellent job over the next six months. Assuming my performance is just extraordinary, I’d like to talk about renegotiating then. I think that’s fair right?’ (Get the hiring manager to agree.) ‘Great. Let’s put that in writing and we’ll be good to go.'”
Not a “big idea,” but something I really enjoyed about the book.
This is definitely not a dry, boring personal finance book. I got some good chuckles from passages like this:
When I want to sound smart and intimidate people, I calmly look at them, chew on a muffin for a few seconds, and then throw it against a wall and scream, “DO YOU DOLLAR-COST AVERAGE???” People are so impressed that they slowly inch away, then whisper to the people around them. I can only guess that they’re discussing how suave and knowledgeable I am.I Will Teach You to Be Rich (Kindle Edition) pg. 249
Areas Where Ramit and I Clash
We agree on so many core issues that its surprising when I find points of disagreement. But I do find them. Here are a few. Two of them are strongly tied to worldview, and one I feel i misleading information.
Ramit and I would agree that it’s a bad idea to go into debt to fund your wedding. Financial struggles are among the most common reasons for divorce. Starting your marriage by taking on debt is a foolish act of self-sabotage.
So what does Ramit recommend?
He says that we know that the average age for a first marriage for a woman is 27. The average age for a man is 29. The average cost of a wedding is about $35,000. So you should figure out how many months there are until your hypothetical marriage and do the math to see how much you need to save every month.
He says that everyone says they want to have a simple wedding. Then as their special day approaches, they fold like a house of cards. So you should just acknowledge that your wedding will be expensive.
I don’t mind if you have an expensive wedding, as long as you can afford it. But here are some of my objections:
By definition, giving people advice is about helping them beat the average. If they wanted to settle for average, they wouldn’t need advice. Everywhere else in the book, Ramit is urging you to take your finances more seriously than the average person.
But when it comes to spending on weddings, he throws up his hands and says that this is a tough battle to win, so why fight it?
A better perspective on weddings would be his general principle from earlier in the book: “Spend extravagantly on the things you love and cut costs mercilessly on the things you don’t.”
If a nice wedding is something you “love” and you can save for it, fine. But I’m guessing most people love their spouse not their wedding and will struggle to afford a $35,000 event, even if they save for it.
An Outrageous Savings Goal
Here’s the table Ramit gives to show you how much you need to save at different ages if you’re a woman:
|Your Age||Months Until Wedding||Monthly Saving Goal|
Um, yikes. If you’re 22 and landed a decent job right out of college, this isn’t too bad. If you’re 25 (and older) and are off to a slow start in your career…good luck.
And of course, this assumes you get married at the average age of 27.
What if You Get Married Earlier?
This is the part where it gets weird because I’m going to give you some advice you don’t think I have any business giving.
You should think about getting married earlier than most people.
I got married late in life (24) and my only regret was waiting so long. Marriage is about two people becoming one. The earlier this transition happens in adult life, the smoother it is. My wife and I have grown together through all the joys and hardships of adult life.
In fact, I would go as far as to say that the American way of “establishing yourself” (or “finding yourself”) on your own and then tacking marriage on as an afterthought is a great recipe for rising divorce and depression.
Which is exactly what we have.
Yes, it might be a coincidence (and I certainly think there are other factors at play), but if I had to bet on it, I would put my money on younger marriages being better for flourishing and creating the closest version of the “good life” you can muster.
Usually when I’m talking personal finance and I mention opportunity cost, I’m talking about investing. The money you spent on a wedding could have been invested and helped set up a more secure future.
But that’s not what I’m talking about here.
In the book All the Money in the World, Laura Vanderkam has a great idea for how you can prioritize your marriage over your wedding. Instead of a big wedding and expensive rings, put the money into a sub-savings account (something Ramit and I are are both huge fans of) dedicated to purchases that will strengthen your marriage.
Here are some examples of uses for the money:
- Date nights
- Cleaning services
- “Thinking of you” gifts
She (brilliantly) points out that most people spend four-figures on wedding flowers, but less than that on flowers for the rest of their lives. But intermittent, surprise purchases are better for your happiness (and your marriage) than a one-time event.
We spent just about $10,000 on our wedding. I would have liked to spend less, but to give Ramit credit, it’s tough. Even getting down to the number we did involved calling many vendors, making many trade-offs, and getting a friend to DJ the reception for free.
Of course, my biggest memories had little to do with the money we spent. I remember showing off my cheap titanium ring to Sarah as we walked back down the aisle. I remember a torrential downpour started a few minutes after we arrived at the reception venue (and a few unlucky guests got soaked). Sarah and I got in line for the buffet because it never occurred to us to have someone bring us food. The DJ played “I’ll Make a Man Out of You” from Mulan and all the men hit the dance floor and we raucously belted it at the top of our lungs.
And to be fair, some of the memories were more closely tied to the money we spent. Several people commented on how beautiful the reception venue was, how delicious the food tasted, and how beautiful and delicious the cake was.
Ramit shares about the decision process that led him to get a prenup. To be fair, he says it’s not right for 99% of people.
The thing about a prenup is that you are basically planning your divorce before the marriage. Ramit says that throughout the process he communicated that he wanted to get married and stay married forever, but it’s hard to escape the fact that the act of seeking a prenup seems to suggest something else.
Of course, in Ramit’s marriage, he was bringing in a disproportional amount of assets. This includes the hugely profitable business that he is very proud of and is probably part of his identity.
But my position is that it’s best to have as much “skin in the game” in marriage as possible. Your marriage is the biggest commitment of your lifetime. It’s fine if your business, and even your identity hang on the success of your marriage.
It’s worth noting that this is another good argument for getting married early. No one has had time to become successful on their own. All assets are accumulated during the marriage, not beforehand.
I am willing to acknowledge that prenups might make sense in .01% percent of cases. For instance, if you are a widower who has accumulated sizable assets but needs them to take care of a special needs child, a prenup is a pretty reasonable option. Before your marriage, your most important commitment is to your child, and you need to protect your child from the risk of a failed second marriage.
But for the most part, I don’t see the value in prenups. Even for the rich.
I love Roth IRA’s and so this isn’t a huge disagreement. Plus, I recognize that it’s way better to just choose an account than to delay investing because you didn’t know if a traditional or Roth IRA was the better move.
But Ramit just sells the Roth without ever taking the time to make the case for the traditional. The second edition mentions the Financial Independence, Retire Early (FIRE) movement. As the Mad FIentist points out, this is a group that actually benefits greatly from starting with a traditional IRA and then converting to a Roth later (more of an advanced technique).
Roth IRA’s are great, and Ramit is right to recommend them. But he short-changed another great investment option.
I know I just spent a good deal of time on the disagreements, but in truth I love this book. I’ve learned a lot from Ramit in general and the this book in particular.
If you read the book and follow my blog, you’ll notice that I shout him out quite frequently and you can see his influence all over the place
For instance, in Earning More The Simple Way (one of the foundational posts on this site). I use these graphics to illustrate how frugality can be subject to diminishing returns, but income generation can lead to exponential gain:
These illustrations where directly inspired by similar illustrations on Ramit’s blog (I think he used stacked column charts, but it’s the same idea).
The book is entertaining, informative, and definitely worth reading. Get the 2018 updated edition if you can. I listened to the audiobook (narrated by Ramit who has impeccable delivery) for the first edition and read the Kindle version for the second edition.