I Will Teach You to Be Rich

270 Pages·2009·2.85 MB·English

by  Ramit Sethi

Additional Praise for Ramit Sethi and I Will Teach
You to Be Rich
“Ramit Sethi is a rising star in the world of personal finance writing. . . one
singularly attuned to the sensibilities of his generation. . . . His style is part frat
boy and part Silicon Valley geek, with a little bit of San Francisco hipster thrown
in.”
— SAN FRANCISCO CHRONICLE
“The easiest way to get rich is to inherit. This is the second best way—
knowledge and some discipline. If you’re bold enough to do the right thing,
Ramit will show you how. Highly recommended.”
—SETH GODIN, AUTHOR OF TRIBES
“You’ve probably never bought a book on personal finance, but this one could be
the best $13.95 you ever spent. It’ll pay for itself by the end of Chapter 1 (check
out the box on page 24 to see what I mean).”
— PENELOPE TRUNK, AUTHOR OF BRAZEN CAREERIST:
THE NEW RULES FOR SUCCESS
“Most students never learn the basics of money management and get caught up
in the white noise and hype generated by the personal-finance media. Ramit’s
like the guy you wish you knew in college who would sit down with you over a
beer and fill you in on what you really need to know about money—no sales
pitch, just good advice.”
— CHRISTOPHER STEVENSON, CREDIT UNION EXECUTIVES SOCIETY
“Smart, bold, and practical. I Will Teach You to Be Rich is packed with tips that
actually work. This is a great guide to money management for twentysomethings
—and everybody else.”
— J.D. ROTH, EDITOR, GETRICHSLOWLY.ORG
“Ramit demystifies complex concepts with wit and an expert understanding of
finances. Not only is this book informative, it’s fun and includes fresh tips that
will help anyone master their finances.”
— GEORGE HOFHEIMER, CHIEF RESEARCH OFFICER,
FILENE RESEARCH INSTITUTE
I WILL TEACH YOU TO BE RICH
BY RAMIT SETHI
For my parents, Prab and Neelam Sethi, who taught me that being rich is
about more than money
Copyright © 2009 by Ramit Sethi
Design copyright © 2009 by Workman Publishing
All rights reserved. No portion of this book may be reproduced—
mechanically, electronically, or by any other means, including
photocopying—without written permission of the publisher. Published
simultaneously in Canada by Thomas Allen & Son Limited.
Library of Congress Cataloging-in-Publication Data is available.
ISBN 978-0-7611-4748-0
Cover illustrations by Peter Sucheski
Interior illustrations by Nora Krug
Author photo by Scott Jones
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First printing February 2009
10 9 8 7 6 5 4 3 2 1
Acknowledgments
The process of writing this book repeatedly made me wish I were dead. But once
I was done, I felt great, my posture improved, my eyesight got clearer, and the
world seemed great. I imagine this is what giving birth feels like.
I was fortunate to have a great team of people who helped me turn this book
into its final form.
Jeff Kuo is simply the finest researcher I’ve ever worked with. He was
instrumental in helping bring this book together.
I’m grateful to Chris Yeh, who’s not only a brilliant marketer but perhaps the
most frugal man I have ever met. And to Ben Casnocha, a deep thinker who
forced me to dig deeper into everything I wrote.
Noah Kagan and Charlie Hoehn helped me spread the word about this book.
Couldn’t have done it without them.
Several friends helped immensely by reviewing drafts of this book, including
Ben Abadi, Julie Nguyen, Vivek Sankaran, and Jen Tsang.
The folks at Workman were amazing: Margot Herrera, my editor, was
incredibly skilled at helping me organize my thoughts into a coherent book. Plus,
she’s fun: In one of the first chapters, I wrote an over-the-top joke just to see
how fast she’d cut it. She just said, “I think we should keep it. It’s pretty funny.”
What more could I ask for? Cassie Murdoch, the perfect complement to Margot,
is ultra-organized and constantly thinking two steps ahead.
Many thanks to Peter Workman, who is brilliant and eccentric—exactly as
rumored—and to all the people who helped tell the world about this book:
Andrea Bussell, Kristin Matthews, David Schiller, Andrea Fleck, and Justin
Nisbet. Kudos to Janet Parker, Beth Levy, Barbara Peragine, Doug Wolff, David
Matt, and Nora Krug.
Lisa DiMona has now worked with me on two books. You couldn’t ask for a
better agent.
Seth Godin, who took a chance on a college kid with a cocky attitude and a lot
of ambition, got me started in publishing.
BJ Fogg, my mentor and professor, first showed me that you can use
psychology for pro-social uses, not just to get people to buy more stuff.
To my family, Prab and Neelam Sethi, Nagina, Ibrahim, Rachi, Haj, and
Maneesh—thanks for keeping me motivated for the last two years of writing.
Finally, to my readers. I hope this book helps you on your way to being rich.
Contents
INTRODUCTION
Would You Rather Be Sexy or Rich?
Why do people get fat after college? The eerily similar guilt about spending and
not working out • Counterintuitive but true: We need less personal-finance
information • Common excuses for not managing money • Stop debating
minutiae and get something done • The key messages of I Will Teach You to Be
Rich • “Rich” isn’t just about money: What does it mean to you?
CHAPTER 1
Optimize Your Credit Cards
How to beat the credit card companies at their own game
Why Indian people love negotiating • How credit can help you be rich • Picking
the best credit card for airline miles, cash back, and rewards • Getting a card
when you have no income • The six commandments of credit cards • How to
negotiate with your credit card company to get fees waived and receive lower
rates • Why you should always buy electronics, travel, and furniture on your
credit card • What not to do with your cards • The burden of student loans •
When credit cards go bad • Five steps to ridding yourself of debt • Week One:
Action Steps
CHAPTER 2
Beat the Banks
Open high-interest, low-hassle accounts and negotiate fees like an Indian
Why old people are afraid of online banks—even though they offer the best new
accounts you can get • How banks rake it in • Why you really need a separate
savings account • Opening high-interest, no-fee accounts • Five marketing tactics
banks use to trick you • My personal favorite accounts • Negotiate out of fees
with your current bank (use my script) • Week Two: Action Steps
CHAPTER 3
Get Ready to Invest
Open your 401(k) and Roth IRA—even with just $50
Why your friends probably haven’t invested a cent yet • Investing is the single
best way to get rich • The ladder of personal finance • Everything you need to
know about your 401(k) • The importance of crushing your debt • Why everyone
should have a Roth IRA • Week Three: Action Steps
CHAPTER 4
Conscious Spending
How to save hundreds per month (and still buy what you love)
Spend less—without making a detailed, irritating budget • The difference
between cheap and frugal • Conscious spending: how my friend spends $21,000
per year going out—guilt-free • Using psychology against yourself to save • The
four buckets: fixed costs, savings, investments, and guilt-free spending money •
The envelope system for not overspending • How to make more money •
Handling unexpected expenses • Week Four: Action Steps
CHAPTER 5
Save While Sleeping
Making your accounts work together—automatically
The power of defaults: Give yourself fewer choices • How to spend only three
hours a month managing your money • Where does your next $100 go? • Setting
up a bill-pay and transfer system that works for you • Consultants and
freelancers: What about irregular income? • Week Five: Action Steps
CHAPTER 6
The Myth of Financial Expertise
Why professional wine tasters and stock pickers are clueless—and how you can
beat them
We’ve been tricked by “expertise”—why financial “experts” can’t even match
the market • You can’t time the market • How experts hide their poor
performance • You don’t need a financial adviser • Pundits worth reading • Most
mutual fund managers fail to beat the market • Why I love index funds
CHAPTER 7
Investing Isn’t Only for Rich People
Spend the afternoon picking a simple portfolio that will make you rich
What’s your investor profile? • The beauty of automatic investing • Asset
allocation: more important than the “best stock of the year!” • Convenience or
control? You choose • The many flavors of stocks and bonds • Creating your
own portfolio: How to handpick your investments • Investing the easy way:
lifecycle funds • Feeding your 401(k) and Roth IRA • The Swensen model of
asset allocation • Week Six: Action Steps
CHAPTER 8
Easy Maintenance
You’ve done the hard work: Here’s how to maintain (and optimize) your
financial infrastructure
Feed your system—the more you put in, the more you’ll get out • Ignore the
noise • The tricky part of managing your own portfolio: rebalancing your
investments • Don’t let fear of taxes guide your investment decisions • When to
sell • For high achievers: a ten-year plan • Giving back—an important part of
being rich
CHAPTER 9
A Rich Life
The finances of relationships, weddings, buying a car, and your first house
Student loans—Pay them down or invest? • Don’t let your parents manage your
money • Role reversal: How to help when it’s your parents who are in debt • The