October 30, 2018

The School of Greatness – How to Create a Rich Life with Ramit Sethi

Key Takeaways

• Instead of of being DERISIVE, be CURIOUS
• Everyone has a money dial – a place where they love to spend money
  • Spend on your money dial, but save hard elsewhere – invest the difference
• Stop checking the market – you’re not a day trader. It’s all about the long game.
• The Latter of Personal Finance – This is where your money should go, step by step
  • Take full advantage of company matching for your 401k at work
  • If you have debt, pay it off aggressively
  • If you have money leftover – max out a Roth IRA
  • Then go back and max out your 401k contribution
  • If you still have money, create a non-taxable, non-retirement investment account

Intro

• Benjamin Franklin once said – “An investment in knowledge pays the best interest”
• Ramit Sethi (T: @ramit, IG: @ramit) is the New York Times bestselling author of I Will Teach You To Be Rich
  • Note from Podcast Notes – if you haven’t read this, it’s highly worth the read 
  • He is also the author of Your Move: The Underdog’s Guide to Building Your Business
  • Check out his website
• Check out the Podcast Notes from Ramit’s appearance on The James Altucher Show (Part 1 and Part 2)
• If you’re ever in NYC, go to Kati Roll

“Money is not just money”

• You can use it to create a rich life
  • If you want to fly business class, you can
  • Money amplifies what you really want to do in life
• Everyone teaches you how to save money, but almost no one teaches you how to spend it
• As you earn more, you change your spending habits
  • It’s common for someone who can’t afford business class, to wonder why anyone would ever pay extra for that
  • But people who can afford it, don’t tend to mind the price, for the benefit of increased comfort

The D to C Principle

• When someone says – “I just bought a business class ticket” – Notice your instinctive reaction…
  • “Wow what a show off” or “That’s ridiculous” ” etc. etc.
• 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.”

The Money Dial

• Each of us has one “money dial” that we love spending on
  • This is the thing you love to spend money on, the thing that gives you joy, and could spend endless amount of time optimizing
  • As you earn more money, you turn the dial up
• Ramit’s is convenience
  • He has a personal chef and an assistant
• Wellness is common for people
  • Certain wealthy people will pay for a personal trainer, a dietitian etc.

The Latter of Personal Finance

• This is where your money should go, step by step
  • Take full advantage of company matching for your 401k at work
  • If you have debt, pay it off aggressively
    • Actually know how much you owe, and have a debt payoff date
  • If you have money leftover – max out a Roth IRA
  • Then go back and max out your 401k contribution
  • If you still have money, create a non-taxable, non-retirement investment account

Financial Advice

• Spend on your money dial, but save hard elsewhere – invest the difference
  • What should you be investing in? – Simple low cost target date funds 
• Most businesses don’t last more than 80 years
  • If you’re doing well. Be smart – put $5k (or whatever is appropriate for your level of success) away each month.
• “I am happy to pay my taxes. Only in this country could I have been this successful”
• What should you invest in after you’ve maxed out your 401k, your Roth IRA, your HSA etc.?
  • Create a non-taxable non-retirement account – and just continue to invest. Ramit uses VanguardVanguard. (It’s essentially just a retirement account, without the tax breaks you’d get from a 401k/IRA)
    • “At a certain point, the compounding interest is so insane. You will start to actually earn more from your investments, than you will from your income – even if you’re making $500k/year.”
  • Only then….after this…have fun with 5-10%
    • Ramit did some angle investing
    • Or, invest in crypto
• Stop checking the market – you’re not a day trader. It’s all about the long game.
  • Ramit just lost $75,000 when the market recently dipped
  • DON’T take your money out when the market dips
    • DO Nothing
  • Set up automatic contributions to your investment accounts and don’t touch a thing
  • “It doesn’t matter in the short term, but in the long term we know the market tends to return 7-8%”
• Say you have an extra $500k-$1,00,000 lying around (after you’ve maxed out your IRAs, you have $5k-10k going to your index funds, you’ve dabbled in crypto, did angel investing etc.) what should you do with the extra $1,000,000 per year?
  • First ask yourself – Did you really do everything?
    • Did you consider setting aside a down payment for a home you’ll buy in the future?
    • How about the first year of your kid’s life? What about your parents – have you taken care of them?
  • Invest it in a non-retirement taxable account
    • If you invest $10-20k per month, that money will turn into massive amounts – try using a compound interest calculator
  • Spend more on your money dial
• Real Estate
  • Really question what you’ve been taught
    • Most have been taught real estate is always a good investment – but that’s just not true
  • Most people don’t understand that when you spend the money on a house, you incur thousands in phantom costs (taxes, maintenance etc.)
    • When you factor this in – real estate turns out not to be such a great investment
    • You are NOT throwing money away by renting
  • Even if you bought your home 40 years ago for $200k, and it’s worth $600k today – you’d probably have made much more investing that $200k in the market
  • Really run the numbers using a buy vs. rent calculator

Talking About Money

• “People crave talking about money, because no one else will”
• People would rather talk about their sex lives, than their credit card debt

More on Ramit

• What does greatness mean for Ramit?
  • “Deciding what kind of life I want to live, and creating it, unapologetically, even if it means making different choices than other people.”
• Ramit’s 3 lessons for the world
  • You can create a rich life through planning and unconventional choices
  • You have something to say, and the world needs to hear it
  • You could probably eat spicier food than you think 😉

Random

• Rent is Manhattan is going down
• Ramit has had the same apartment in NYC for 10 years – he plans to buy a house one day
• “So many of us are looking for someone to approve of us, while we are shaking their hand”
• “If you want to live a life of greatness, you need to be comfortable making different choices, than what other people expect”
• You are the average of the 5 people you associate with most
  • Instead of closing the door on old friends (who aren’t as successful), why not open the door to some new, successful people
• “No one is coming to rescue you. Life is not a Disney move, it’s only you. Take control.”