Posts Tagged ‘I Will Teach You To Be Rich’

Are You Cheap or Frugal? Yes, There’s A Difference

Posted By damien on August 24th, 2009

frugalOne more bite-size idea from Ramit Sethi, in one of my top personal finance books, I Will Teach You To Be Rich:

Think of the word frugal.  What comes to mind?

For me, I think of a scrooge, penny-pincher who hates to spend money.  A person who is a real pain to deal with when it comes to financial transactions, because he/she wants the lowest price and will do anything, will negotiate forever, until they get it.  Put simply, the word frugal does not have positive connotations for me.

Or, at least it didn’t, until uncle Ramit exposed my benighted ignorance and showed me the enlightened path.  He taught me that what I was defining as frugal, was actually cheap. The following is an excerpt from a chart in his book:

CHEAP PEOPLE VS. FRUGAL PEOPLE

CheapFrugal
Cheap people care about the cost of something.Frugal people care about the value of something.
Cheap people try to get the lowest price on everything.Frugal people try to get the lowest price on most things, but are willing to spend on items they really care about.
Cheap people make you uncomfortable because of the way they treat others.Frugal people make you feel uncomfortable because you realize you could be doing better with your money.
Cheap people are unreasonable and cannot understand why they can’t get something for free. Sometimes this is an act but sometimes it’s not.Frugal people will try as hard as cheap people to get a deal, but they understand that it’s a dance, and in the end, they know they don’t intrinsically deserve a special deal.

See the difference?  Cheap people are lame.  Frugal people are wise.

Frugality isn’t about cutting your spending on everything.  That approach wouldn’t last two days.  Frugality, quite simply, is choosing the things you love enough to spend extravagantly on—and then cutting costs mercilessly on the things you don’t love.

Amen, my Indian friend.  Thanks for setting me straight.

Posted in Building Wealth, Selp Improvement
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Dollar-Cost Averaging: Fancy Name, Simple Investment Strategy

Posted By damien on August 20th, 2009

graphIt’s time for another round of investment advice from uncle Ramit at I Will Teach You To Be Rich.  This investment approach, dollar-cost averaging, is one of those simple strategies with a fancy name.  In fact, if you are making regular contributions to a retirement account (401k or IRA) you are dollar-cost averaging.

Well then, what is it? Here’s Ramit with an explanation:

Dollar-cost averaging is a fancy phrase that refers to investing regular amounts over time, rather than invest all your money into a fund at once.  This is the essence of Automatic Investing, which lets you consistently invest in a fund so you don’t have to guess when a market is up or down.

Pretty simple, huh?  Say you have $10,000 to invest.  Instead of buying $10,000 of a fund all at once, you split it into $1,000 contributions each month for 10 months.

But why should you practice dollar-cost averaging?  Why not stick all your money into a fund at once and be done with it?  The short answer is to reduce risk by diversifying your money over time.  But I’ll let Ramit explain:

Imagine if you invest $10,000 tomorrow and the stock drops 20 percent.  At $8,000, it will need to increase 25 percent (not 20%) to get back to $10,000.  By investing over time, you hedge against any drops in price—and if your fund does drop, you’ll pick up shares at a discount price.  In other words, by investing over a regular period of time, you don’t try to time the market.  Instead, you use time to your advantage.

I’m sure many of you with investment accounts already practice dollar-cost averaging.  Go ahead, pat yourself on the back, because you’re a WINNER!  Plus, now you have a great way to make yourself look smart at dinner parties.  Just mention, with a slight  yawn, how you were recently dollar-cost averaging your investments and are pleased with their performance.

So, if the principle is so simple, why does it have such a fancy name?  The answer, it would seem, is so that self-aggrandizing, so-called financial experts can lend more of an aura of complexity and mystery to their craft.  Make sure to mention your disdain for the “experts” at your dinner parties as well.  And that’s my rant for the day.

Posted in Building Wealth
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Personal Finance 101: You Need to Read These 3 Books

Posted By damien on August 13th, 2009

readingWith the summer drawing to a close, regretfully I will have to read more textbooks (senior year of college!) and fewer personal finance ones. In order to remember the ones I read that were worth the time, I compiled this list.

Personal finance boils down to a few tried-and-true principles, so many say the same things, jut in different ways. If you read these 3, you’ll get the best of the best, and avoid all the fluff and copycats.

The Total Money Makeover

The principles in this book should be the foundation for everyone’s personal finance plan. The teachings in this book form the base for my money philosophy. Dave Ramsey is the expert on helping people get out of debt and create an emergency fund.

Read it first and follow Dave’s baby steps. He will show you why what you believe about money has been keeping you from achieving your potential. This book will change your relationship with money and get your money working for you instead of the other way around.

After you have gotten out of debt and established 3-6 months worth of savings, move on to the next book.

I Will Teach You To Be Rich

Ramit Sethi is the freshest voice on personal finance. Whereas Dave Ramsey has the principles of personal finance, Ramit has the techniques for the 21st century. His teachings on automating your finances have saved me hours per week in handling bills and investing.

His investment strategy, getting the best results with the least amount of effort, is the best investment plan for the everyday person that I have ever read. He got me off my butt, opening my Roth IRA and setting up automatic monthly deposits when countless other books couldn’t.

The Millionaire Next Door

Just what does the average millionaire look like? Dress like? Think like? This book will dispel all the myths we are fed by the media about the lifestyles of the rich. Once you understand how the average millionaire spends and saves his/her money, you can begin to implement their philosophies yourself and speed up the time it takes you to join them.

Where The Total Money Makeover changes the way you think about debt, this book will change the way you think about wealth. Read the previous two books first, as they will give you the specific tactics to form and implement your personal finance strategy. Then read this one to understand the psychology of becoming wealthy.

Get To It!

These three books will give you everything you need to get out of debt, become wealthy and improve your relationship with money. This all the substance you need for a lifetime of financial security. And, should you choose to read anything after, it will just be icing on the cake!

Posted in Building Wealth, Selp Improvement
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Overcome America’s Fixation with Experts: Ignore Them and Become One

Posted By damien on July 30th, 2009

trust meCurrently reading I Will Teach You To Be Rich by Ramit Sethi.  I know the title sounds gimmicky, like it was written by a used car salesman, but Ramit is LEGIT.  I haven’t been so excited while reading a book in a long time.  Ramit’s book is based on his blog of the same name, where he teaches 20-somethings about personal finance.  His money automation and investment strategies line up with my own, and I’ll write more on these later.

This post will focus on a topic that both Ramit and others like Tim Ferriss talk about: the myth of the expert.  America loves experts, we want someone to trust, someone to explain things to us so we don’t have to think for ourselves.  But many experts are full of bull and Ramit has a great story to illustrate:

In 2001, Frederich Brochet, a researcher at the University of Bordeaux, ran a study that sent shock waves through the wine industry.  Determined to understand how wine drinkers decided which wines they liked, he invited fifty-seven recognized experts to evaluate two wines, one red, one white.

After tasting the two wines, the experts described the red wine as intense, deep, and spicy—words commonly used to describe red wines.  The white was described in equally standard terms: lively, fresh, and floral.  But what none of these experts picked up on was that the two wines were exactly the same wine.  Even more damning, the wines were actually both white wine—the “red wine” had been colored with food coloring.

Wow, I don’t know anything about wine, but if a self-professed expert can’t deliver results, then he/she loses my respect.  And that’s what being an expert comes down to: delivering expert-level results.  Ramit says that financial experts have not been delivering results in America.  His targets for derision are the “talking heads” in the financial media and investment fund managers:

The media feeds off every little market fluctuation.  On one day, the pundits are spreading gloom and doom about a multi-hundred-point loss in the market.  Then, three days later, the front page is filled with images of hope and unicorns as the market climbs 500 points.  It’s riveting to watch, but step back and ask yourself, “Am I learning anything from this?”

[Fund] managers chase the latest hot stock, confident in their abilities to spot something that millions of others have not.  What’s more, they also demand extraordinary compensation.  Get this: In 2006, the average Goldman Sachs employee made $622,000.  That’s not a typo—it’s the average amount Goldman employees made with a salary and bonuses.  Despite this astronomical compensation, fund managers from all companies still fail to beat the market 75 percent of the time.

Ramit showed me that I don’t need these experts to invest my money for me.  Put simply, fund managers cannot consistently beat the market.  So, you can invest with a managed fund, get a decent return, and lose any advantage over an index fund with the 1-2% (or higher) expense ratio.  Or, choose the less sexy road, invest in a non-managed index fund, get a decent return, and keep your money with lower expense ratios.  I choose to avoid the self-proclaimed experts and be master of my own fate.

Get Ramit’s book because he’s an expert that delivers results; he’ll show you how to become financially secure.

Bonus: How to Become an Expert

I have already written about Tim Ferriss’s productivity and time-management tactics; another big idea in his book is how to become a (perceived) expert in your field very quickly.  Here are a few of his tips:

  1. Read 3 top selling books on your topic (Then record what you’ve learned, maybe in a blog?)
  2. Join 2 or 3 related trade organizations (Search online for your field + organization, club, or group.)
  3. Give one free 3 hour seminar at the closest well-known university (Record it, you could use it later.)
  4. Give 2 free seminars at branches of two well-known big companies such as AT&T or IBM (Reference your seminar at the university to get your foot in the door.)
  5. Offer to write 1 or 2 articles for trade organizations (Maybe by re-purposing material from step 2.)

So, in conclusion, Americans love experts, but some are frauds.  Ignore the fakes and become one that delivers results.

Posted in Business, Selp Improvement
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