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I just finished reading I Will Teach You To Be Rich, by Ramit Sethi. This book will give you a lot of advice on how to improve your finances. It may not make you a millionaire. But it is a great book, full of helpful recommendations on how to improve your finances!
This book has been great to read. One of the best read from the personal finance books I have read so far. Like the last book I read, I have been able to buy it for a few dollars on Kindle. If you want to be lucky, look at my techniques to find cheap Kindle ebooks. It is really nice and light to read. It is not too dense and still contains quite a lot of information.
The I Will Teach You To Be Rich book
This book will introduce you to its specific strategy for becoming rich. The strategy is based on several things. First, you will need to optimize your credit cards. Then, you will need to design a plan for your budget. This is your conscious spending plan. And then, you will need to automate your plan. This is the most important part of the book. The author encourages you to automate your money from one account to another. Investing is also covered in details in this book.
What is really special about the book is the tone of the author. It is really a light style. For instance, look at this sentence:
Listen up, crybabies: This is not your grandma’s house and I am not going to bake you cookies and coddle you. A lot of your financial problems are caused by one person: you
This is not a style I am used to and this is the first personal finance book that is using such a style. But this makes the book enjoyable and very fast to read.
The book starts with advice on how to optimize your credit cards. The idea is to make sure you get the best credit score possible. This is done with having a very large credit but no debt! Once this is done, you should make sure you have the best possible bank accounts. For this, you want high-interest and no-fees.
The author will give a nice explanation of exactly which accounts you should have. Once you got your bank accounts, it is time to get investment accounts. For this, the author recommends a 401(k) and a Roth IRA. And if you are able, also a broker investment account. The most important point is that you should invest. Even little money can have great returns if you invest it in a smart way.
The next step is to make a strong budget. Define exactly how much you want to spend on each group each month. This also includes deciding how much you want to invest each month. If you have long-term goals, like a big wedding, a car or a house, you should also plan for them. Once your budget and your accounts are ready, it is time to automate your plan. This means linking your accounts together and automating transfers. After this, the author will give definite advice on how to invest in the stock market. And finally, you will also have some advice on how to manage the big expenses (cars, houses, and weddings).
Real Estate is an overrated investment
real estate is the most overrated investment
renting is actually s mart decision for many people
Interestingly, the author is not as fond as other people about real estate. A lot of people are tricking themselves into believing that their own houses are a good investment. Once you take everything into account, it is probably not. Do not take me wrong, it can be good to buy a house. It can be one of your goals.
But it may not be as strong a financial investment as you think. In many places, the returns after inflation are actually zero. And you are most likely never going to sell your house. Or if you sell, you are just going to buy a bigger house. And there is a large opportunity cost. Because you are not investing the down payment.
Just be aware of this when you buy a house. I think this is great to mention in the book. Because too many people are encouraging people to buy a house for the wrong reasons.
Automate your money
The most important part of I Will Teach You To Be Rich is the way the author recommends you to automate your money flow. This is probably the foundation of the book.
The idea is simple:
- A percentage of your salary directly goes to your 401(k)
- The rest of your salary goes into your checking account
- A percentage of your checking account goes directly into your Roth IRA
- Your checking account automatically pays your credit card
- Your checking account automatically pays your bills
- Money moves from your checking account into your different savings accounts. This will fill your different goals.
This follows the pay yourself first strategy. You cannot forget to invest or save money each month. All your bills are paid automatically. You can set it and forget. While I do not automate a lot of things in my accounts, I think it can be useful for many people. It is a simple strategy that will probably work.
What I liked
I Will Teach You To Be Rich was really nice to read. The style is very enjoyable. It is an easy book to read. What is really great about the book is that it does not contain any BS. It is full of real advice. There are actual examples. You can read the book, apply the recommendations and improve your budget directly. It is really helpful. Most of the books are more abstract than this one.
Moreover, the money flow automation framework is really well-thought. If you are struggling with your budget, this could be a way to improve. It shows you how to save for long-term goals. It also forces you to invest. This is really important. And the advice of investment is pretty sound, with low-cost index funds.
What I did not like
There are a few things on which I do not agree with I Will Teach You To Be Rich.
First of all, the foundation of this book is to automate your finances. I personally think that too much money automation is a mistake. You should be careful of not automating too much. This will make you complacent and lazy!
Statistically speaking, being in debt is normal
It is not a good reason to be in debt. The authors actually encourage you to take on debt for major expenses. I agree that optimizing your credit score can be interesting if you want a mortgage later. But you should avoid taking on debt. For me, buying a car with credit is just dumb.
If you do not have much cash to put down, a used car is more attractive because the down payment is typically lower
No! If you do not have enough money for a car, simply do not buy it! Do not use credit to buy a car. Save until you can afford the car you want. I think it is never a good idea to use credit for a car. At least the author encourages you to avoid leasing and to not stretch your budget for a car.
To illustrate how to allocate and diversify your portfolio, we are going to use David Swensen’s recommendation as a model
The basic advice of Ramit is to use lifecycle index funds. These funds will rebalance for you and the allocation to bonds will slowly increase over the years. This is great advice. If you design your portfolio, Ramit suggests you follow David Swensen’s recommendation. It is too complicated and will simply confuse the readers. This portfolio is based on 6 asset classes. A more simple three-fund portfolio would have been better as an example. I do not say it is a bad portfolio. It proved to work great over the years. But for beginners, a three-fund portfolio is more suited.
anything lower than 0.75 percent [fees] is okay
I think 0.75% fee is already way too high. You should try to focus on funds that have below 0.3% fee. It is possible that this advice is a bit dated since the book came up in 2009 and the fees may have been higher. But now, you should focus on even lower fees than this.
Finally, for me, the percentages indicated for saving are too low. The author recommends saving something like 15%-20% of income. It is a very good start, but one should aim for higher savings. Keep this in mind. But of course, as ever, it will depend on your goals.
In summary, I Will Teach You To Be Rich is a really nice book. The style is very nice to read and enjoyable. It is funny and full of real-life advice. It is based on automating your money flow between your different accounts. By setting some saving goals and automating your savings, you will reach your goals faster. I would definitely recommend this book if you are struggling with your finances. Or also if you are interested in how to automate your accounts.
What do you think of I Will Teach You to Be Rich? Do you have any other personal finance book to recommend to me?