Review of Ramit Sethi’s Book: I Will Teach You to be Rich
Written by Cathy
I’ve read Ramit Sethi’s blog of the same name semi-regularly since about September 2008. The one point that I mainly disagree with him over is the outrage over the ‘latte-factor’. In his book, he says he’s not going to tell you to quit drinking lattes. His mantra on the blog is cutting lattes doesn’t matter when there are much bigger expenses to cut.
I agree and disagree. I agree if you have a $35,000/year job with $10,000 in credit card debt, carry a designer bag with an iPhone in it, drive something other than a used Honda or Toyota, and call living frugal cutting out Starbucks, you have a serious issue with reality. (This is his real point, and a good one.)
On the other hand, $3-4 lattes is expensive coffee! A decade ago, Dennis Leary had a standup act called Coffee Flavored Coffee where he complained about the haiku writing Starbucks barista who gave him a menu for different flavors of coffee, and sizes. He exclaimed, “I just want coffee flavored coffee, in a cup!”
That’s me. I just want plain, coffee flavored coffee. A $0.50 cup of coffee with unlimited refills has become my generation’s “movie theaters used to cost $0.25 with popcorn!” story you tell to the young’uns.
(This makes me somewhat of a heretic since I live in Seattle.)
What am I doing again? Oh yeah! Book review. I skimmed over most of chapters 1-6. If you have followed personal finance for any length of time, this is pretty basic 101, white belt type stuff. Great information, yet not boring snoozy economist speak. Quite the opposite:
Listen up, crybabies: This isn’t your grandma’s house and I’m not going to bake you cookies and coddle you. A lot of your financial problems are caused by one person: you. Instead of blaming “the economy” and corporate America for your financial situation, you need to focus on what you can change yourself. pg 7
…Now I will call your ass out when you make mistakes (like one of my readers who wasn’t worried about his cable bill increasing $5/month, yet complained every time the price of gas went up two cents a gallon). But I’m not the nagging parent who tells you not to spend money on lattes. I spend lots of money on eating out and traveling, but I never feel guilty. Instead of taking a simplistic “Don’t spend money on expensive things!!!” view, I believe there’s a more nuanced approach to spending. pg 94
If you are a personal finance pro, you can skip ahead to chapter 7 where the advanced discussion on how to pick a good investment lives.
Chapter 1 and 2 teaches responsible credit card use and using banks to work for you. There’s two simple rules here: never make a late payment; never pay an overdraft fee. You can make yourself rich, or you can make the banks rich. Your choice.
Chapter 3 is an excellent introduction to 401K and Roth IRAs. Everyone knows they should invest in these, but it can be confusing and overwhelming. Many people are paralyzed into inaction. Questions like: “Why would I want to “rollover” my 401K to an IRA?” “Should I pay off my student loans or invest in my employer’s 401K?”
Chapter 4 talks about life balance. Save your money, and only spend your money on things you truly care about. Most of us have to live our lives saving our hard earned money, and thus have to prioritize. Great advice. I live in a modest apartment, cook meals at home, and save 40-50% of my income because I love to travel to exotic places where I can snorkel/dive the coral reefs, climb mountains, eat foreign cuisine and drink fruity cocktails.
I took particular joy in Chapter 5 and 8: Automation. I am a software automation specialist, and a big advocate of automation, whether it is automatically backing up your Wordpress database or personal finance. I wrote about how I automate my finances in Running Finances Like the CFO of My Life. David Bach teaches financial automation in Smart Women Finish Rich (one of my personal favorites), but I like Ramit’s step-by-step with action plan approach here that is very accessible.
I don’t trust media economic experts to give me unbiased information (see Chapter 6). For something as important as my retirement, I need to know why I’m investing in a stock/bond/fund. I turn off programs like “Fast Money” because I wonder, what’s in it for them? I am not a financial expert (see disclaimer at the bottom of this page); I don’t stand a chance of picking a good stock. I shake my head at my friends sadly when they talk about the hottest stock tips from “Fast Money”, then defend their surreptitious decline and continued investments as ‘dollar cost averaging’. Right concept, wrong application.
The real black-belt diamonds for me started in Chapter 7. My asset allocation in my 401K and Roth IRA is pretty conservative. Partially because I don’t know what I’m doing, I will admit. When I first started looking at allocating my contributions, I couldn’t shake the feeling I was gambling. I decided to allocate to index funds and government bonds until I had further information.
Ramit says on page 165 that “Investing is Not About Picking Stocks”. Ding! Ding! Ding! I’m bookmarking this chapter and giving it to my hot stock tip friends when I’m done digesting this book.
I was particularly intrigued by this chapter because I’ve written before that my investments tend towards conservative, capital preservation because of the volatile nature of my profession in Investments and Emergency Funds Dependent on Your Career. That doesn’t mean I am adverse to the idea of something with better capital gains, but I have my money parked in safe bonds until I know what I’m doing, and why I’m doing it.
I liked what he had to say about stocks. I am wary of magical numbers like average 8-12% returns often touted by stock market investors.
At first glance, it seems clear that stocks return the most. So let’s all invest there!!
Not so fast. Remember, higher rewards entail higher risk, so if you’re loaded up on stocks and your portfolio dips 25 percent next year, all of a sudden you’re financially immobile, eating only Triscuits, waiting to see whether your money climbs back up or you die first. Hey, it had to be said. pg 171
I don’t want to die first. I want to have a cabana and a ridiculously hot pool boy. Ok, Ramit. I’m intrigued. Let’s go on.
He gives one of the better advantages and disadvantages on Mutual Funds, Index Funds and Lifecycle Funds that I’ve read. And I’ve read a lot of them. Most of the descriptions are from snoozer economists, and I end up bored, confused, skeptical, or all of the above. I never read the traditional investing outlets and walked away convinced. From Ramit’s breakdown on the fund types, I’m intrigued by lifecycle funds, and am willing to do more research.
Chapter 9 asks you to define what “rich” means to you, then how to tackle the tricky aspects of relationships and money. There is a reason why money is the #1 cause of relationship failure.
Bottom Line:
This is an excellent book for my college graduate cousins, whom are the target demographic of this book. I Will Teach You To Be Rich
“I Will Teach You to be Rich” is chock full of good information, and yet is a fun, easy read. How many books on economics, investment and finance can you say that about? When reading it (and his blog), it reminds me of casual happy hour with my friends where we call each other ‘dumbasses’ (most affectionately) while discussing smart things like politics and finance. If you find that off putting, try The Total Money Makeover
Excellent review!
I love that even though you are beyond those first steps you realize some of your peers may not be. I find the book so valuable because it’s not boring, and I think most people will find some info they didn’t know (unless they are doing such an awesome job like you!).
Thanks, Kelly!
I think as someone who “made it”, I can vouch for the quality of Ramit’s advice. If you follow his plan, you have a solid foundation for getting out of debt, and good skills to stay out of it. There are a number of different approaches, and I agree with him 100% – do what you feel comfortable with, and who cares if it’s the ‘optimal’. The details of what worked for me may not work for everybody, however, the concept is inherently the same – save more, spend less!
I’m on the “next stage” which is optimizing my investments and savings. I thought his chapters on investments were very good, and I’m going to do more research.
My perspective on the latte factor has changed. It’s more like Ramit’s. At a certain point in your life, if you work hard, you earn a lot relative to your time. Convenience and ease start meaning more than they did in the past. I enjoy working intensely, but intense work requires that you build in meaningful strategies for relaxation.
I would rather spend $5 on a latte, and then jump into 2 additional $100 hours than spend my energy making coffee to conserve the $5. Could I do both? Not sustainably. At a certain point, the energy and attention spent on frugality plans and activities has to come from somewhere else.
Hi Barbara! Thanks for stopping by, and for your comment!
Maybe because I live in Seattle and there’s a mass community of coffee lovers, I find that it takes considerably less time to make a pot of coffee than to wait in line to get one!
Most of the coffee lovers in my office have their own coffee press. I have one too, and I never had as good of a cup of coffee at the coffee houses as fresh ground Jamaican Blue Mountain coffee in a french press. Jamaican Blue Mountain coffee is definitely not a cheap ground!
My reasons for visiting the coffee shop these days is more social. A couple of coworkers and I take a moment to walk to the shop to chat outside the office. I don’t feel guilty or fret about $3-5 coffee. There are some things that have value that are greater than monetary. If you find the coffee shop to be a moment of luxury and relaxation in your busy life, then it has value.
I guess where I say I disagree with Ramit is that I got the impression he doesn’t think it will help someone with debt problems to cut out the barista made coffee. I believe that it was part of the formula that worked for me. Making coffee at home was an easy and inexpensive way for me to enjoy coffee everyday, and still enjoy an occasional Saturday morning with a book, espresso, and pastry in a coffee shop.