Ramit Sethi’s no-nonsense book, I Will Teach You to Be Rich, became a New York Times best seller in 2009 and spawned an eponymous podcast, newsletter, and range of personal finance courses that have made Sethi very, well, rich. It’s easy to be skeptical of what Sethi is selling, but dig under his bold promises and you’ll find approachable, empathetic advice on saving, spending, and organizing your money. He’s also something of an anti-finance guru in that he eschews jargon and doesn’t lecture people about credit-card points and other minutiae. Instead, he has a talent for breaking down big-picture financial concepts into real-life steps. Which is why I wanted to talk to him right now, at a time when money seems especially complicated (Inflation! Interest rates! Crypto!). Here, we discussed why moments like this can be ideal for taking charge of your finances, and what that process can look like.
It’s a confusing time to be making decisions about money. The economy is all over the place, the pandemic is still happening — it just seems impossible to plan for the future. What’s your advice on how to make sense of this moment, financially?
I get over 2,000 messages a day, from people of different ages and different socioeconomic backgrounds. Over the past two years, I’ve heard from people who have lost jobs, had loved ones die, had to cancel their weddings — people have had a total disruption in their expectations for what they thought life was going to be like. But there has also been this rare opportunity for people to take control of their money. I’ve seen a huge growth in interest in personal finance. Savings rates were at a historic high. People actually saw the value of things like an emergency fund. Especially back in March and April of 2020, they started to realize, “Oh my God, I know I should have saved, but I never actually did it. Now, I understand. What do I do?”
Right. It was a moment of reckoning.
There are several pivotal moments in somebody’s life when they decide to take control of their money — when they’re graduating from college, getting married, having children, getting divorced, getting a new job. There’s a few others. But usually it’s a time with high stakes, where there’s an external force that gets them to take stock. It’s the rare person who just wakes up and goes, “I’m going to sit down and make a long-term plan with a low-cost investing strategy.” That almost never happens. Instead, something external causes us to say, “I’ve got to do this now.”
When that moment happens, what’s the best way to harness it? I think a lot of people try to dive in and then get overwhelmed and give up.
Well, you can read a book. I mean, the majority of people who complain about personal finance, who worry about personal finance, who feel guilty about personal finance, have never read a single book on personal finance. It’s pretty straightforward. A lot of people ask, how do I get confident with my money? The way you get confident is through competence. In order to be competent, you have to learn the basic language of money. This is not complicated stuff. The words are a little unapproachable. If it were me, I would not have called it a 401(k). The reason most people do not engage with their money is simply that money is talked about in a restrictive and unappealing way.
I personally hold a lot of the financial media to account for this. They tell people all the things you can’t do with your money — “No, you can’t buy jeans. No, you can’t go on vacation.” No wonder people are turned off. I want to use money to say yes. I want to tell people that they can spend extravagantly on the things they love if they cut costs mercilessly on the things they don’t. That gets into prioritizing, and designing and crafting what a rich life looks like to you, which is different for every person. As you start to dial in on this concept, it gets exciting and appealing, and it makes you want to read about IRAs and investments.
How do people actually go about determining what they actually want, though? It can be hard to figure that out — financially and otherwise. And it can change.
Most people have never been asked what a rich life looks like to them. And when I ask, I often get the same three answers. The first, by far the most common one is, “I want to do what I want, when I want.” And I say, “Okay, what do you want?” Silence. They never thought beyond it. The second answer is some dollar value, like, “I want to have a million bucks.” I say, “Okay, where did that number come from? What does that let you do?” Silence, because of course a million dollars in Brooklyn is different from a million dollars in Kansas City. It’s different if you’re 30 or 60. Most people don’t know what to make of that. And then the third and most haunting answer is, “I just want to pay my debt off.” That’s tragic because nobody ever woke up and said, “Yeah, my rich is to get to zero.” It’s not inspirational. It doesn’t give you something to work towards.
Instead, I want people to apply a creative vision to their life. I want people to ask themselves questions like, “If I could have the perfect month, what would that look like?” These answers are often quite simple, like, “Oh, I’d like to eat out once a week,” or, “I would really like to go out as a family on Sunday mornings and go to the park.” That’s great. Write it down. Which park? What would you do at the park? People will say, “I want to travel.” Great. Where? What I want them to say is, “I want to go to Bali or Bangkok or New Delhi. I want to fly on this seat on the airplane. This is the dish I want to eat at this restaurant. I want to take these people with me so we can have this experience together.” This generic, “I want to travel and I want to have some free time,” it’s bullshit. A rich life is lived in the details, and that level of specificity is what allows you to inspire yourself and then to build a plan towards it.
How can that allow room for some setbacks, too? Or dealing with things that aren’t exciting, like debt? I know you want to have a specific, realistic plan, but you also want to have enough flexibility that you don’t freak out if you can’t stick to it.
Yeah. A good plan accounts for good times and bad. You still want to have some general goals, but they can be small. When I moved to New York, one of my goals was to be able to take a taxi in August instead of having to go on the subway when it’s a thousand degrees. When I could do that, it felt great. Then, as my investments grew and my income grew, then my goals grew, which is totally natural.
A common mistake people make when they plan is they focus on precision instead of simplicity. I don’t care about how much you’re spending on lattes. What matters is the big picture. You need to know a few basic numbers. How much am I making? How much am I saving? What does my asset allocation look like? That’s a phrase that most people don’t toss around. More people should be talking about asset allocation than inflation. Asset allocation is worth over a million dollars to you. Inflation, you can’t control it, so why are you worrying about it?
Lots of people are like, “But what about if I have student loan debt hanging over my head, or credit-card debt?” And I have two questions for them. First of all, how much debt do you have? Do you know that over 90 percent of people who have debt do not know how much debt they have? I’m not judging them; I totally understand. Why would you want to open that envelope? It’s just bad news. Like everyone, I’ve got some envelopes on my desk I don’t want to open. The second question is, when will your debt be paid off? Over 95 percent of people do not know this. How could they? They don’t even know how much they owe. We all procrastinate on tasks we know we should do, but we don’t want to. Then when we finally get around to it, we go, “Oh my God, that only took me 15 minutes.” The crux is not to say, “You’re bad for not knowing your debt payoff date.” Instead, we need to say, “Why are you procrastinating?”
I often ask people, “What’s the first word that comes into your head when you think about money?” And most people say, “Guilt.” Or shame, safety, or security. And when you ask, “What does that mean?” It might turn out that the person’s dad lost his house during the Great Recession, and so now they always think that whenever they make money, they’re going to lose it. Whoa. Once we unpack that, we can ask, “Okay, well, do you know there are ways of being safe, but also making money?”
I think that we spend way too much time beating ourselves up for these tactical items, like, “Why haven’t I been able to keep a budget?” You don’t need a budget. What you need to do is understand how you think about money, and what your rich life looks like in vivid detail that gets you excited. Then let’s talk about how to use your money to get there.
What else do you wish more people would understand about today’s financial climate? Is there a question you’re sick of?
Oh my God. I get this question so much: “Should I invest in crypto? Should I put 99 percent of my net worth into crypto?” Here’s my response: Stop reading the gambling addicts on Reddit, they’re mostly broke losers. Pick up a good book and learn the basic fundamentals of personal finance. Once you have all the fundamentals dialed in, if you want to take 5 percent of your money and have fun with it, be my guest. But until then, stop with the gambling addictions. You’ve got to have the fundamentals dialed in first.