Posts Tagged ‘Ramit Sethi’

The Secret “Automate Your Finances” Love Child!

Posted By damien on May 5th, 2011

Intro after long hiatus inaugurated by Dr. Dre:

Ya’ll know me still the same ol’ G
But I been low key
Hated on by most these bloggers
With no cheese, no deals and no Gs

Yeah, so, I’ve been absent from Bite Size Idea for awhile. The drive to write ebbs and flows.

While, now it’s ebbing.

Or perhaps flowing.

I probably shouldn’t use sayings that I don’t understand. Anyways, I’m in the mood to write.

Automate Your Finances!

One thing that’s been on my mind is all this talk about “automating your finances”. Automating your finances has become a buzzword (rather, buzzphrase) much like “synergy” or “networking” or “belieber“.

In a nutshell, automating your finances means setting up your various financial accounts (checking, savings, investing, etc) to automatically move money from one account to the other on a scheduled basis.

For example, one way to automate your finances is by setting up your IRA account to debit your checking account for a given amount the day after your paycheck hits the checking account.

One of my favorite personal finance bloggers, Ramit Sethi, has an epic post about financial automation, complete with a video! (Try not to get lost in his eyebrows, that’s just the way he is. Look past them and to the message he’s trying to deliver.)

Ramit is a big proponent of automating all of your finances. And he’s got some great reasons:

(INSERT REASONS HERE)

  1. Emotions and behavior have a huge impact on financial decisions. Most of our tendencies have negative consequences for our finances. By automating, you get out of your money’s way and let it go where it needs to.
  2. We’re lazy. When we have to manually write a check or authorize a transaction for our IRA, the chances of it actually getting done are about as good as Mariah Carey’s acting abilities.

Unautomate Your Finances!

Then, on the other end of the spectrum is another writer I admire, Baker, at Man vs Debt. He has an ebook called Unautomate Your Finances (not an affiliate link).

For 100% honesty, I must say that I haven’t read Baker’s ebook, but I’m familiar with the theories.

(INSERT THEORIES HERE)

  1. The big problem with automation is that you don’t know how much you end up spending on stuff. If your cell phone bill is set to auto-debit your checking account or credit card, you could be running up fees and overages, then paying for them and have no idea.
  2. The providers to whom you’ve given your auto-payment info could use it for evil. I listen to a consumer advocate’s (Clark Howard) radio show occasionally and he gets calls all the time from people complaining that one of their service providers has used their credit card info improperly.

With Our Powers Combined…

So who’s right? Both. Who’s wrong? Why does someone have to be wrong? Can’t we all just get along? A melding of the two approaches will give us optimal results.

What would it look like if Ramit and Baker had a love child? Probably something like this. How can we combine their powers for ultimate financial domination?

Here’s the short answer:

AUTOMATE YOUR SAVING AND INVESTING

AND UN-AUTOMATE YOUR BILLS

This approach gives us the best of both worlds: we trick ourselves into saving by taking choice out of the equation, since the money has moved to our savings/investing accounts before we could put our hands on it.

And we give due attention to bills because paying them is a manual process.

Just so you know, we practice what we preach in our family. Our IRAs and savings are set up to auto-debit from our checking accounts each month. Our internet, cell phone, utility, etc bills we pay manually each month.

How have you automated your finances? What has worked for you?

Posted in Building Wealth
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5 Personal Finance Writers to Avoid If You Want to Stay Broke and Ignorant

Posted By damien on August 24th, 2010

Personal finance writers

Here at BSI, the goal is to give you big ideas in bite-sized portions. To break down complicated concepts into manageable chunks. And personal finance is definitely complicated.

Or is it?

The self-proclaimed “experts” in such areas as investing and retirement planning prefer to keep their subjects as murky and technical as possible, so that you need their help. Your continued dependence keeps the repo men away from your stockbroker’s Mercedes.

(Have you seen Operation Repo? It’s over the top!)

If you can cut through all the noise and self-promotion, the realm of personal finance can be boiled down to a few key principles:

In order to stay up-to-date on financial topics, I read a wide range of source material. Personal finance books are my favorite way to learn the foundations of money management, defeating debt and investing. I have recommended several here.

But the problem with books is that they can quickly become outdated. (Especially personal finance books, since legislators cry “Financial reform now!” seemingly every quarter.) To stay up-to-date on personal finance issues, I read several blogs.

And I must say, there are some very good financial writers out there. For your curiosity and enlightenment, listed below are my top five favorite personal finance bloggers. Included are links to their blogs so that you can share in the fun. Just be sure to continue reading here!

J.D. at GetRichSlowly.org

J.D. Roth could be called the granddaddy of personal finance bloggers. He started writing after getting deep into debt and reading lots of books on personal finance. He wanted a place to record what he’d learned and track his progress.

His blog has been around for so long now that he employs a few staff writers who cover subjects in addition to personal finance.

Trent at TheSimpleDollar.com

Trent Hamm began writing about personal finance after his self-described “financial armageddon”. His blog is a mix of general money advice mixed with personal experiences.

One of my favorite aspects of his writing is the personal, warm tone–he deals with his and others’ real, everyday situations.

Ramit at IWillTeachYouToBeRich.com

Ramit Sethi is my favorite Indian, and yes, I do know a few. His writing has a special way of connecting with 20-somethings. He gets us to stop reading and take action in our financial lives.

His book (of the same name as the blog) set me on the path to automated, simple money management. Ramit’s specialty is in showing how to leverage technology to improve finances.

??? at MintLife

I have no idea who writes here, probably several people. This is an awesome blog from the makers of a stellar money management service. They keep you up-to-date on the latest legislative changes that affect your money.

Read the blog and sign up for the free money management service.

David at MoneyNing.com

Another great entry in the personal finance genre, MoneyNing covers topics from money management to frugal living to investing. David writes in a personable style that let’s you know that yes, he’s a real person and yes, he cares about your financial well-being.

Now that you know the secret to my money knowledge, do something about it! Visit these blogs. Read their most popular posts.

Who knows, it may just improve your life!

Posted in Building Wealth, Dumping Debt
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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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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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