Ramit Sethi: Automating Finances, Negotiating Prenups, Disagreeing with Tim – The Tim Ferriss Show

Check out The Tim Ferriss Show Episode Page & Show Notes

Key Takeaways

  • Buying a house is not always > renting. Make sure you run the numbers.
  • Test your assumptions
    • Try to be aware of what rules or biases you’re following that you arrived at through logic/reasoning versus having just absorbed them from your surroundings
  • Examine your beliefs for what Ramit calls “invisible scripts”:
    • These are beliefs that are so deeply held in our culture that we don’t even realize they’re beliefs
  • There’s a limit to how much you can save, there’s no limit to how much you can earn
  • “Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t”
  • “In life, you don’t get what you deserve, you get what you negotiate” – Tim
    • If you ever have a late fee (like with a credit card or even a bank overdraft fee), use the scripts in Ramit’s book to negotiate having them removed (or read them here)
  • Aim to save/invest 20-30% of your income
  • Create sub-savings accounts within your savings account (Capital One 360 allows you to do this) for saving for things like engagement rings, weddings, vacation, etc.
  • On prenups:
    • Most people don’t need one because they come into a marriage with relatively similar assets
      • It starts to make sense when you own things like a house, have a large inheritance, or own a business/intellectual property
    • If you do decide to proceed with one, Ramit stresses – put the numbers aside, and talk carefully about what money means to each of you
      • “If you go in with a spreadsheet you want to discuss, you’ve taken a wrong turn. I should have talked more about meaning, fears, and hopes about money as opposed to the numbers.”
  • “For every major purchase in your life and every major decision, spend the time. Most of us should spend less time on most decisions and A LOT more time on a few key decisions.”
  • Ramit’s Rules For Life
    • If you ever see a book you’re even remotely interested in, buy it
    • Have a year of cash available (or at least build up to it)
    • Save up for the predictable expenses
    • Have a couple of areas in life where you have no budget whatsoever
    • Eat mostly the same thing every single day
    • Agree in advance which chores each person in the relationship will do
  • Use your calendar
    • “Everything important in life should be opt-out rather than opt-in …just put it on the calendar” 
      • Whether it’s going to the gym, reading, or calling your mom – have it scheduled
  • Both Tim & his girlfriend and Ramit & his wife have regularly scheduled times to talk about their relationships on their calendars
    • If it’s not in the calendar, it’s not real

Books Mentioned

Intro

I Will Teach You to Be Rich

  • It originally came out in March 2009 (around the downturn of the recession)
  • The book digs deep into long-term/low-cost investing, as well as automating your finances
  • Ramit really regrets including specific interest rates in the original version
    • Back in 2009, some banks were paying 5% interest rates for their savings accounts (now they’re paying <1%)

Real Estate is Religion – Renting vs. Buying a House

  • Ramit has lived in the same Manhattan apartment for 10 years
    • “I could buy a place in Manhattan tomorrow with cash, but I don’t want to – it doesn’t make sense for me financially”
    • Ramit loves the convenience of having an apartment – he personally never has to fix anything
  • “If you’re going to buy a house, you want to plan on being there at least 7-10 years minimum so you can eat the cost of the transaction fees”
  • “In America, we’ve been told so many times that real estate is the best investment and in my opinion, that’s just not true a lot of the time”
    • It’s not always a bad investment, but you HAVE to run the numbers

Spending Money to Improve the Quality of Your Life

  • Once you do the basics (saving and investing a certain %) then you can get into the nuances and start breaking some rules (like buying things that might not make sense for the sake of convenience)
    • What’s Ramit done?
      • Hired a personal trainer
      • Fly business class
  • If the way someone spends their money sounds crazy, really dig into it
    • Instead of of being DERISIVE, be CURIOUS
      • “Why would this person buy a business class ticket? Maybe there’s a good reason behind it? He/She must know something I don’t, and I want to understand why.”
      • For some people , the  comfort of $9,000  business class ticket might be totally worth it
  • How about Tim?
    • He used to only fly economy class, even when he was flying to speaking engagements (he’d just pocket the difference if the company/group paid him the necessary cash for a business or first class ticket)
      • He’s since learned his lesson

Invisible Scripts

  • “If people could take one thing from this conversation, it’d be to test your assumptions and try to be aware of what rules or biases you’re following that you arrived at through logic/reasoning versus having just absorbed them from your surroundings” – Tim
  • Invisible scripts are beliefs that are so deeply held in our culture that we don’t even realize they’re beliefs, we just think they’re axioms. We think they’re self-evident truths.
    • A few examples:
      • Ramit and Tim grew up with the idea that you should never pay for things you could do yourself
      • Go to school, get a good job, and retire – don’t deviate 
      • “Why pay more when you can pay less?”
        • Dan Kennedy (a famous marketing consultant), author of No B.S. Marketing to the Affluent, flipped this – “Why pay less when you can pay more?”
          • An example – If you’re planning an anniversary dinner, go all out and don’t try to save 50%, make it something you won’t forget
          • Tim is a fan of Dan’s other book- How to Make Millions with Your Ideas

Frugality

  • Frugality has it’s place 
    • There’s a famous saying – “A fool and his money are soon separated” 
    • “No matter how much money you have, you can spend it all” – Tim
    • But remember – “There’s a limit to how much you can save, there’s no limit to how much you can earn”
  • “Why don’t any of these so called financial experts talk about how to earn more money? The answer is – they don’t know how, that’s not their job, they’re writers.”
  • What are a few frugal things Ramit does?
    • He runs his entire business on a 7-year-old MacBook Air
    • He hardly ever eats out

The Money Dial

  • “Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t”
  • Your money dial is the area of life you LOVE to spend money on
  • Tim’s money dial – travel and food (either eating out or cooking at home)
    • If Tim were to 10-100x the amount he spends on travel, he says he’d have a “fixer” on-call wherever he was traveling to effectively fix anything that went wrong/attend to any need/want 
  • Ramit’s money dial – convenience
    • He has a personal trainer and chef
    • His calendar is top notch (all prepared by his personal assistant)
      • All he has to do it open it up, and they’ll be links to whatever he needs to work on during the allotted slot
    • He has a travel protocol, mainly handled by his assistant
      • His plants are watered while he’s away, his email is handled, etc. (essentially all the details he attends to while he’s working at home, are now attended to by someone else)
      • The protocol (all in a Google doc.) is about 25 pages long, containing many of Ramit’s travel preferences:
        • For example – If flight > X hours, book Ramit a business class ticket
        • Another example – When he travels for a longer period of time, he has food from Whole Foods delivered to his hotel (note that this isn’t that expensive! – you can use something like Instacart)
  • Related – A few of Tim’s own travel preferences:
    • He never wants to stay in any rooms near ice machines or elevators

Lifestyle Upgrades That Don’t Cost A Lot of Money

  • Tim used to have Instacart deliver ice to his house in San Francisco for his ice baths – they only charged ~$5
  • Go out to a restaurant (not on the weekend – do it between Monday and Thursday) for an early dinner and order all sorts of stuff to try, then tip 40% – do this 3 days in a row
    • You’ll forever be a VIP at the restaurant

The Power of Asking

  • Before going out to eat or for special dining experiences, send a note ahead of time asking for a kitchen tour
    • Chefs LOVE to teach and they’ll more then likely really enjoy chatting with you/showing you around
    • (but don’t do it unless you’re interested)
  • Related – “Cultivating the muscle for asking for things is so incredible” – Tim’
    • To strengthen the “ask muscle” try doing the Noah Kagan coffee challenge – all you have to do it ask for 10% off your coffee next time you order one (it’s a lot more difficult than you think!)
    • Tim adds – “In life, you don’t get what you deserve, you get what you negotiate”
  • If you ever have a late fee (like with a credit card or even a bank overdraft fee), use the scripts in Ramit’s book to negotiate having them removed (or read them here)
    • If you do it right, ~80% of the time they’ll be removed

Ramit’s Automated Finances

  • Ramit aims to save/invest 20-30% of his income – “If you’re doing that, the rest of your life is generally in control”
    • Note that he doesn’t have kids, so this is towards the higher end
    • Where do his investments go?
      • Most money goes into a target date fund (with Vanguard) (these return about 8% year over year on average)
        • How do these funds work?
          • It’s a fund based on your target retirement year (for example – there’s a Vanguard 2060 Fund, which you’d use if you planned to retire in ~2060)
          • While you’re younger, the investments are more aggressive, but as you get closer to the target retirement year, the fund makes them more conservative
      • Ramit also invests in a few index funds
    • Digging into the savings details:
      • Ramit has sub-savings account within his savings account (Capital One 360 allows you to do this)
        • Sub-savings accounts you might include: a wedding fund, engagement ring fund, house down payment fund, Christmas gift fund, vacation fund, etc.
        • Ramit used to have a “stupid mistakes” sub account for things like parking and speeding tickets
  • The rest of his money goes to fixed expenses (like rent) and a Roth IRA (also with Vanguard)
  • A smaller percentage gets added to a guilt-free spending checking account

Holla, “We want prenup! We want prenup!” (Yeah!)

  • What is it?
    • It sets the terms of what you are coming into a marriage with (like assets or a business) and what should be done with those assets should the marriage end
  • “If you Google, ‘how to sign a prenup,’ you’re going to find a lot of really generic and borderline bad advice”
    • A lot of the advice focuses on how not to make your partner angry at the fact that you want one
  • Ramit has a prenup with his wife
    • He first sat down with her prior to getting engaged to discuss it
      • Here’s what he said – “Look, you and I grew very similarly,.. Because of certain decisions I’ve made and because of my business and because of a lot of luck, I’ve been put in this fortunate position where I’ve accumulated a certain amount of assets. It’s really important to me that we talk about what that means before we get married and that we sign an agreement in the worse case of something bad happening.”
    • Then they each got lawyers (this is normal)
      • The person who has more assets will often pay all the legal fees
  • “Most people don’t need a prenup because most people come into a marriage with relatively similar assets”
    • It starts to make sense when you own things like a house, have a large inheritance, or own a business/intellectual property
  • “In every other part of life, top performers plan ahead – they plan for good and they plan for bad, but it’s just in this one situation of life that society tells everyone, ‘No that’s wrong – you shouldn’t plan at all for the worst.'”
    • Tim brings up a good point – every time you get on an airplane, they give you a safety briefing
  • What do prenups look like?
    • You lay out all the assets that each person has
    • Then you decide what happens to those assets in the case of the marriage ending 
      • There are many ways to do this – “No two prenups are alike”
    • There are additional things that also need to be decided:
      • If you’re living in a house with kids and the marriage ends, who leaves and how soon?
      • Is there a cap on how much can be paid out?
    • The money earned while you’re together is generally community property

Ramit’s Prenup Process

  • Ramit describes the actual processing of nailing the agreement down as very stressful
    • “I thought I made a very fair offer bending over backwards, that was my perspective…my wife’s perspective was very different”
  • Due to the stress, his wife and him went to see a therapist (which they found on Yelp) to get to the bottom of their beliefs about money
    • “We had a conversation like we never had before”
    • At the end of it – “We still were having the lawyers go back and forth but we were now connecting more with each other financially”
  • He learned:
    • “I should of talked about money with my wife WAY earlier”
    • “I should have stopped being Mr. Spreadsheet Dude and actually listened, put the numbers aside, and talked about what money meant to us”
      • “If you go in with a spreadsheet you want to discuss, you’ve taken a wrong turn. I should have talked more about meaning, fears, and hopes about money as opposed to the numbers.”
      • The numbers come LAST – “Once you get meaning aligned, the numbers work themselves out”
    • “We should have gone to see a therapist a lot earlier and not let it stretch out as long as the process did”
    • “Always remember the north star”:
      • The north star IS NOT getting an extra $1
      • It IS the marriage
    • “My point in retrospect was not to win this negotiation, it was to win our marriage, meaning both of us get there together as a team”
    • If you make a disproportionate amount of the money, you will find yourself making, perhaps necessary, sacrifices

A Question from Tim – Why get married at all?

  • (Tim currently has a girlfriend) 
    • His biggest argument – it’s just adding a contract/an agreement with the state that doesn’t necessarily need to be there
  • Ramit had a few reasons:
    • He and his wife both wanted to (and their families encouraged them)
  • Some advice – “For every major purchase in your life and every major decision, spend the time. Most of us should spend less time on most decisions and A LOT more time on a few key decisions”

Ramit’s Rules For Life

  • If you ever see a book you’re even remotely interested in, buy it
  • Have a year of cash available (or at least build up to it)
  • Save up for the predictable expenses
  • if you see anything on the menu that looks good, order it
  • Have a couple of areas in life where you have no budget whatsoever
  • Eat mostly the same thing every single day
  • Agree in advance which chores each person in the relationship will do
    • Example:
      • Ramit always takes out the trash
      • Tim loves cooking, but hates cleaning up
      • Tim has no problem paying for things if he can avoid decisions (so he let his girlfriend do all the planning for their recent Burning Man trip)

What does Ramit disagree with Tim about?

  • Morning routines
    • “I think they’re overrated”
    • “The best morning routine is decided the day before, the week before, even the year before”
    • “The first thing I do is get on Instagram while I’m in bed…it’s the worst possible thing but I like it”
    • Tim responds:
      • “Morning routines are one example of removing decisions”
      • It also serves as a “boot up sequence” 
      • “But I also know equally or far more successful people who don’t have a morning routine”
  • Tools – “You give Andre Agassi a wooden racket he’d still kick my ass”
    • Tim responds – Tools are byproducts of principles and strategies
      • “You need to know the technique and the principles behind it, then you can choose your tools”
      • “It’s easy to become a tool fetishist without understanding what you’re doing”
      • It’s also very easy to procrastinate by searching for incrementally better and better tools

Retirement

  • “You may not think you ever want to retire, but when you look at what everyone, when they reach a certain age, does… if everyone does something, it might be true, so plan for it”
    • Similarly – even if you think you’ll never buy a house, start saving for a down payment (you never know)
  • Your life won’t change that much and now you’ll now start doing all this cool stuff
    • “If you haven’t been doing it up until age 60, you’re not going to magically do it the day after you turn 60”

Relationships Check-Ins

  • Both Tim & his girlfriend and Ramit & his wife have regularly scheduled times to talk about their relationships scheduled on their calendars
    • If it’s not in the calendar, it’s not real
  • What do these sessions look like for Tim & his girlfriend?
    • “Once a week, or once every two weeks, we sit down and she has a chance to talk to me when I am prepared to talk about things that are going to make me uncomfortable”
    • It usually takes about an hour and they typically do it in the afternoon/evening on a weekend
    • The format:
      • What I think I’m doing well”
        • They start by each saying what they think they’re personally doing well/better 
      • “What I think I could do better”
        • Each talks about where they “dropped the ball”/or could focus more 
      • “What I think you’re doing well”
        • Next – they each discuss what the other person is doing that’s good for the relationship
      • “What I’d love to see more of”
        • Lastly – each of them discusses what the other person could being doing better
      • One of them writes down meeting notes, after which they email to the other person
        • Tim has an Evernote file where he saves them all
    • One note:
      • They’ll often skip a week if things are going well
  • Ramit adds:
    • “I think that may be something where the ritual itself is more important than the actual content”

Use the Calendar

  • What else does Tim schedule calendar wise ahead of time?
    • Trips to visit his and his girlfriend’s family
    • Date nights
    • Trips with his girlfriend
  • “By making that decision and putting it in the calendar, you preserve your brain power and emotional resistance for other stuff that’s less predictable” – Tim
    • “Everything important in life should be opt out rather than opt in …just put it on the calendar” – Ramit
      • Whether it’s going to the gym, reading, or calling your mom – have it scheduled
      • “This prevents you from being buffeted by the winds left and right and just going wherever the world takes you – YOU decide, don’t let the world decide for you”

Additional Notes

  • Ramit’s parents are from India – they emigrated to the U.S. in the 70s
    • They had an arranged marriage only 7 days after meeting
  • Ramit’s dad once refused to buy a car because the dealer wouldn’t throw in free floor mats
  • One of the testimonials for Ramit’s book was written by Burton Malkiel, author of  A Random Walk Down Wall Street
  • Check out this guest post written by Ramit posted on Tim’s blog – How to Negotiate Like an Indian – 7 Rules
  • Both Ramit and Tim use Tripit
  • Ramit recommends Gretchen Rubin’s book Outer Order, Inner Calm
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