I Will Teach You to be Rich

January 2nd, 2015

I Will Teach You to be Rich by Ramit Sethi front cover

Most of Ramit Sethi's I Will Teach You To Be Rich, a personal finance book for 20-somethings, is structured as a six-week program. Each of the first half-dozen chapters ends with a set of "action steps" designed to

  • improve your credit history
  • set up bank and investment accounts
  • automate the redirection of funds between these accounts etc.
  • gain a basic understanding of investments and the financial markets

The aim of this approach is to give time to live your life without worrying about money matters.

To get rich, you have to get started

You’ll have to do a little work to get it all set up and running, and the act of getting off the couch and doing something is the crux of Sethi’s 85 Percent Solution and one of the major takeaways from the book. You don’t have to become an expert; doing just 85 percent will be enough to ensure your financial security in the long run. Besides, as Ramit puts it, “[financial] experts are useless."

The idea of a set-it-and-(mostly)-forget-it system of automated money transfers, debt repayments, and investments should sit well with the book’s target audience. Also, Sethi rightly stresses the importance of starting as early as possible. The power of compounding interest needs time to work, so the sooner you get started, the less money you have to part with each month, be it for investments or for saving up for large purchases.

Conscious spending

While Sethi does want you to forget about skimping on lattes and “focus on big wins” — hunting out the best deals on a car, a down payment on a house, or indeed a wedding photographer (!) — he recommends you create what he calls a Conscious Spending Plan. Using this, you can categorize where different parts of our income should go — to fixed costs, long-term investments, short- and mid-term savings, or guilt-free spending money. By further sub-categorizing expenditures using online services such as mint.com, the mere act of illustrating to yourself where your money goes will help you make bite-sized changes to your spending.

The gamification of credit

And indeed, it isn’t about how much you make, but how much you spend. We don’t have a credit score system in my home country of Denmark, so the chapter on managing your credit cards and the debt attached to them was a very fascinating read to me. The US system of giving people a high score to aspire to, and making going into more debt a prime factor in achieving that score, just rubs me the wrong way.

On one hand, considering Sethi wants to rid young Americans of their money worries and simplify their financials, I feel he should be advising them to get out of debt completely instead of massaging their credit score, gaming the system to receive better interest rates on items that they don’t necessarily need. On the other hand, a higher credit score could save people a lot of money on larger purchases. The point remains that Sethi doesn’t really push home the fact that the best way to avoid debt is to not establish it in the first place.

Sethi’s advice on preparing for salary negotiations will prove worthwhile and educative to anyone regardless of age. Oddly, though, he writes that “negotiating is 90 percent about mind-set and 10 percent about tactics,” a statement which loses much of its impact over the many subsequent pages of advice on tactics and techniques.

While I Will Teach You To Be Rich is targeted towards young Americans — Sethi himself was in his mid-twenties when the book was released in 2009 — the book provides a valuable primer for anyone wanting to get out of debt, secure their eventual retirement, and dabble their feet in the ebb and flow of the investment markets.