The book “I will teach you to be rich” contains a straightforward and even a little daring approach to the sound management of money, savings, expenses, and investments.
You do not need to be an expert in order to become rich, you just need to have a plan and know a few chips. Networks will tell you about the benefits of saving money as soon as possible, to invest them later and make them work for you.
Named by Fortune Magazine as “the next generation financial guru,” Ramit Sethi, a personal finance consultant, writer, speaker, and entrepreneur, is known for his straightforward approach to the topic and sound advice.
This book is available as:
Learn How to Start Saving Money, Investing It, and Becoming Rich
Why are so many people afraid to learn the technology of accumulating and investing money? In fact, everything is quite simple. We need a financial plan that allows you to move towards your goal in small steps. It is also important to understand how credit cards and pension funds work, as well as being able to automate money management and focus on the patient and wise investing.
The book “I will teach you to be rich” will help to understand all this. It describes the basic principles of investing in simple language and also gives key tips that would be nice to introduce into the school curriculum.
From this book you will learn:
- How to spend 20% of income without remorse and without harm to savings;
- What is the difference between 401k and Roth IRA pension funds (US pension schemes – approx. Transl.); and
- How to set up an accumulation and investment system that works without your direct participation.
You Have No One to Blame for Having Money Problems
You probably feel guilty sometimes because you don’t know how to save money, or perhaps you think that now it’s too late to do something. Drop these thoughts! Stop making excuses!
The first thing you need to know is not to be distracted by the information that the media are trying to feed you.
Now there is a huge amount of information on finances everywhere, and this can be a paralyzing factor. Plus, most of this information is boring and unrealistic to implement, such as “you need to reduce the number of cups of coffee” that are not applicable to the life of a modern adult.
When it comes to investing, young people have a reason to point their finger at the media and blame others for giving them the wrong advice. But there is no better way to change your financial situation than to take responsibility for decisions.
Justifications like “our financial system does not teach money management” are not true. Many colleges and universities have financial disciplines, just students skip them.
Fear of losing money is another popular excuse for doing nothing. But it’s better to lose money at a young age when you don’t have much to lose! Then, when you have more money, you will better understand how to keep it. Keep in mind when you keep money in your bank account, inflation will bite off small pieces from them – and you will lose them anyway!
Another excuse is “I can’t afford to save $ 100 every month.” In fact, the amount is not so important. Even if you save for a dollar a day, a significant amount will increase over time.
We all remember the financial crisis of 2008, when many lost their money simply because of stupidity, buying something at a high price, and then selling at a low price. Of course, it was easier to blame the government and banks than spend a little time on developing financial literacy.
You need to be able to take responsibility for your own problems and begin to solve them. Now that you know this, how do you become rich?
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Be Smart About Using Credit Cards
Understanding how you can use the power of credit cards will be your first step towards saving money and creating wealth.
We often make large purchases on credit, and people with good credit histories are able to save a decent amount of money. Loans can be in the form of consumer loans, mortgages and credit cards – all this gives you the opportunity to make big purchases when you do not have money at your disposal.
It is important to remember two important aspects of using the credit system: credit history – records of your current and closed loans, and credit rating (or credit scoring) – a number between 300 and 850 (a numerical credit rating system is used in the USA – approx. trans.) – both of these aspects enable potential lenders to make decisions on granting you a loan and assess possible risks.
If you have a good credit history, you will look attractive to lenders, which means that they will be able to provide you with good interest rates on loans.
It is easy to understand that positive credit history will save you hundreds of thousands of dollars in interest payments.
For example, in 2009, the annual interest rating in the United States showed that people with a good credit history (750-850) paid $ 359,867 along with interest for a 30-year mortgage of $ 200,000. And people with poor credit history (620-639) were forced to pay $ 430,427, including interest. The difference was more than 70 thousand dollars!
The Most Useful Credit Tool is a Credit Card.
Here are a couple of tips for successfully using these cards:
Get rid of debt: cut back on your expenses and pay it off! Timely repayments of credit card debts add a decent amount of points to your credit history, so arrange automatic credit card payments to avoid delays.
Next, you should contact the creditor company and ask them to charge you interest and card servicing fees, as well as lower the interest rate on the loan. Surprisingly, many companies are ready to go for it!
Look for as many benefits as you can get from your company. For example, the concierge of the creditor company of the author helped him get tickets for a concert at the Los Angeles Philharmonic when it seemed that not a single ticket was left!
Choose a bank and deposit with the highest interest rate
Do you think zero duties and high-interest rates are incompatible?
Not at all!
Most often, the best interest rates are offered by online banks. Their costs are minimal, they do not need to spend money on affiliates or marketing. Therefore, their level of service is higher. In addition, their interest rates are also several times higher than in ordinary banks.
Let’s say you put 25 thousand dollars in a bank. This will bring you $ 750 in annual income at a rate of 3 percent in an online bank. Now compare this amount with a regular bank at a rate of 0.5 percent, and you will receive a meager 125 dollars. Now imagine that you are depositing in the bank not 25 thousand, but 50. You will receive $ 1,500 through an online bank and only 250 in a regular bank!
The next step will be to choose a suitable deposit option. In addition to the savings deposit, you must also have a checking account.
A checking account is needed for frequent operations, and a savings account is for such purposes as vacation or important life events.
You have several options: both accounts can be in the same bank (option for the lazy); a bank account at a local bank, and a savings account at an online bank (the best choice); or several different accounts – the best option for those who are not afraid of difficulties and want to optimize their savings for different purposes.
Or you can keep in your bank account an amount that covers your expenses for the next month and a half, and send the rest to a savings account.
If you do not want to have multiple accounts, simply select one bank account with a local bank and a savings account with a high-interest rate online bank.
Open an Investment Account, Even if You Have Only 50 Dollars to Start
Counting your pennies and putting a little on a savings account is cool, but this is only the first step. In order for the money to really start working for you, you need to invest.
Many companies in the United States offer their employees to open a funded retirement account in 401 (k).
This can be configured in the form of sending automatic payments from the employer to the employee’s account so that the latter will accumulate money in the account.
Such a system has many advantages, for example – this money is not taxed, and due to the fact that the employer does everything, no special efforts are required.
In addition to an account with 401 (k), you can open an account with Roth IRA – another type of savings pension account (in the USA – approx. Transl.). While 401 (k) is sponsored by the employer, the savings in Roth IRA are built on your own money.
Money on Roth IRA, unlike 401 (k), can be invested in any assets, for example, in stocks or on stock exchanges. In addition, since the savings in Roth IRA are net of taxes, a person does not have to pay taxes on his savings after retirement.
Find Out How Much Money You Usually Spend, Then Learn How to Allocate Money by Expense.
Remember the last time you felt guilty buying something, but still made a purchase? Next time it will be easier for you because now you will learn how to spend money consciously. Consciously spending money means reducing the amount of money for those expenses that are not especially important for you, and spending more on what really matters to you.
You need to develop and implement a Conscious Cost Plan. Namely: you should automatically save and invest a certain amount every month, and the rest you can spend on anything you want, without any remorse.
The distribution of costs as a percentage may look like this:
- 60 percent on fixed expenses (housing, loans, meals)
- 10 percent – retirement savings (401 (k), Roth IRA)
- 10 percent – set aside in reserve (for holidays, gifts, as well as for unforeseen expenses)
- You can spend 20 percent on everything you want.
To implement this approach, you need to think about what is important to you. For example, a friend of the author named Jim moved to a smaller apartment after being promoted. Why? The size of the housing did not mean much to him, but he loved to go camping, so he decided to save more money on his hobby.
Next, you need to learn how to regulate your expenses. You can try the envelope system, in which you save a certain amount for each of the four items of expenditure listed above, and put this money in envelopes – that is, when the envelope becomes empty, then you can’t spend a penny in this direction anymore.
“Envelopes”, by the way, do not have to be envelopes – they can be separately opened bank accounts with debit cards. This is what one of the author’s friends did: he opened such an account and put a certain amount of money for entertainment on the card every month, and as soon as the money was over, evening parties also stopped.
Such a drastic change in behavior can take some time, so you don’t need to, for example, decide to save $ 495 a week if you’re used to spending 500 before. Choose one or two main problem areas and work on them, rather than trying to cut 5 percent of several aspects of life.
Fee for credit card overruns, for example, can be up to $ 1,000 per year. The repayment of this item of expenditure will provide a noticeable difference.
Automate Invoice Payments So You Don’t Have to Think About Them
Paying bills is an uncomfortable and annoying process. If you are not turned on total money management – create an automatic system that will make payments for you.
Take your plan, which we created in the previous section, and make it automatic, using the capabilities of your bank or other tools.
First of all, contact the bank to set up a system of automatic transfers and payments.
For example, set up an automatic transfer of fixed amounts to your retirement account.
You can use the remaining money for other expenses. In addition, put in your calendar a reminder that you can not exceed the established spending limits. It would also be a good idea to keep about a thousand dollars on one of the reserves.
If your expenses go according to plan, great! If you exceed the limit, your task in the next 15 days is to close this difference.
Another great idea is to organize an Automatic Cash Flow, linking all your bank accounts and creating a system of automatic money transfers. These transactions can be organized as follows:
From your salary, there should be deductions to the pension account and to the current account, and from it already – a certain amount to the savings account, to a credit card, to fixed expenses and to free expenses.
But how to link all accounts together?
Just automate all payments:
Suppose you get paid on the first day of every month. On the second day, set up automatic sending of a part of your salary to account 401 (k), and let the rest be sent to your current account. On the fifth day, set up automatic sending of money to a savings account, and on the seventh, pay bills, credit card debts, and other expenses.
Do not pay attention to experts – invest in the easiest way
If you start asking experts where to invest, they will start telling you about stocks. But there is a much simpler way.
Do not believe the experts. None of them can predict exactly how the market will behave in the future.
In 2001, a study was conducted in which it was found that wine experts cannot distinguish one wine from another – with financial experts almost the same thing, they should not always be trusted. They cannot predict the future. And no matter what they say, they are often mistaken.
Daniel Solin, author of The Smartest Investment Book You’ll Ever Read, described a study that found that 47 out of 50 consulting firms recommended that investors invest in stocks until the bankruptcy date of these most companies!
Therefore, do not pay attention to the expertise of other people and instead try the easiest way to invest.
Draw a pyramid for investing, in which each level contains a certain type of asset. At the lower level – stocks, bonds, and cash; in the middle – index and mutual funds, and at the upper level – the so-called. “Life cycle funds” (a mutual fund that adapts the structure of investments to change with age investor needs and preferences – approx. perev.).
Investing becomes more and more difficult with lowering the level of the pyramid, so it is logical that the simplest approach is automated life cycle funds, also known as “age funds”. What you will invest in will depend on how old you are.
For example, if you are 25 years old, the Vanguard Target Retirement 2050 fund will offer you to invest 90 percent in stocks and 10 percent in bonds, but if you are 55 years old, then the interest will be different – 63 and 37, respectively.
Thus, when you are over twenty, most of your assets will be held by stocks – because at this age you can still afford to take some risks. But over time, the scheme becomes more balanced.
What is noteworthy – when choosing this scheme, you do not have to look for a bunch of funds to invest and save your money. You can choose only one, and it will adapt your investment to your needs and requirements.
The Final Words
The accumulation and investment of money is not a thing that only financial experts are aware about. And also it should not be a headache.
Financial management can be quite simple. The use of bank accounts without commissions, automatic savings, and payment of bills, as well as investing small amounts.
This will allow you to stop worrying about money and provide an opportunity to build up your reserves.
Be wary of unexpected gifts. The next time you receive an unexpected monetary gain or a gift in an envelope set aside 50% of it, and spend the rest as you want. In this case, you will not develop the habit of spending more than you can afford.
Do not let other people teach you how to save and spend money. You do not need to infringe on yourself and save on all the necessary things. Choose what is really important to you, and decide for yourself whether it’s worth it to fork out or save. For example, if owning a collection of cool sneakers is more important to you than weekly lunches in a restaurant – save on lunches and buy these sneakers!
Why You Should Read “I Will Teach You to Be Rich”
- To start getting more money
- To get the most out of what has been invested in your education.
- To become wealthy. Financially, physically, and emotionally.
This book is available as: