I have been taking this course from Ramit Sethi on Advanced Personal Finance and thought I’d take a moment to share what I learned from the course and how I have incorporated it in my life. I can’t tell you whether or not to take the course and this isn’t a recommendation to do or not do the course but I can tell you that the course is primarily geared towards Americans (you can apply what you’ve learned to any country that you’re currently in but the specific tactics that Ramit discusses is American-based) and one of the great things about the course is the community around it – you’re able to get answers to questions that you might have that aren’t directly addressed in the course through other course students.
First, let me define what a rich life is, as I understand it from reading and taking Ramit’s courses and materials. A rich life is one where you can spend lavishly on the things that you enjoy, while cutting ruthlessly on the expenses that you do not care about. Looking at some of my friends and co-workers, I can see that almost all of them have some version of their rich life that an average person might balk at. I for instance, have purchased over a thousand dollars of badminton equipment (rackets, shoes, bag, birdies, etc.). To people that do not play badminton or only play badminton occasionally, this looks like a crazy expense but I can tell you that it pales in comparison to others in the badminton community that pay much more money for memberships, the newest rackets every year, changing badminton shoes every few months, etc. How do you get to the rich life, no matter what kind of income you may be generating?
Establish the fundamentals of your finance
Again, no matter what your income is, you have to get the fundamentals right:
- Spend less than you make.
- Pay off debt if you have any. If you do not have debt, invest 10% of whatever you get right away into a savings or investment account and live off of the other 90% if you can.
- Increase your savings as much as you can.
- Invest in index funds with low management expense ratios (low fees)
If you can get your fundamentals right and automate it so that you do not have to think about doing it (for example, directly withdrawing 10% of your paycheque from your bank account into a savings or investment account every month), you are in a really great shape for the future.
Understand your money beliefs
Ramit calls these ‘money scripts’ and these are beliefs that you have about money that may or may not be true. They are often influenced upon you through your parents or relatives or by other events in your life. For example, one money script that I have in my life was to buy property rather than spend the money renting. Now there’s a great debate on renting vs. buying but I now know that it’s not a simple conclusion that buying is always better than renting – there are a lot of other factors to consider including how long you will stay at the property, the cost of maintenance and upkeep on the property, the type of lifestyle you have, where you work, and much more that can swing the pendulum one way or the other.
Understand your money dials
Ramit advocates understanding how to use money to help you live a rich life. One of the topics in his course is understanding what your money dial is – that is, what are the things that you like spending money on that give you exponential rewards or happiness. Things such as take out food or someone to clean your place (i.e., convenience). Maybe you like taking weekend trips or long vacations to exotic locales (i.e., travel). Or you’re like me and like to spend money on books and courses (i.e., self improvement). Identifying these dials can help you figure out how you would like to spend your money (see the next tip).
Spend lavishly, cut ruthlessly
Okay, you have identified what your dials are but how do you figure out what specific things you want to spend your money on? Like all things in life, you can conduct small ‘spending experiments’. Take $100 or whatever amount of money that is meaningful to you and stow it away into a savings account every month(similar to how you save money for the future – you have it all set up right?). And then, every month, spend that $100 on things that you want to try. Maybe you spend the money for a cleaner to come by your house every month and give your house a deep clean. Or maybe you use the money to upgrade your vacation flights to business class. Maybe you spend that money on the fancy underwear you have heard a lot about but felt that it was way too expensive for you. After you spend the money, notice how you feel. If you don’t feel like you got a great experience or anything positive out of it, that’s okay, move on to another experiment.
Knowing these things – here’s a few questions for you as you embark on your rich life:
- What are some of your money scripts or beliefs that you have that may be preventing you from ‘upgrading’ your finances?
- What are some things that you spend money on without guilt and what are some other things that are not important (that you can cut back on)? For example, I like coffee and tea but do not spend money on coffee or tea every single day I’m at work.
- What are some things you can conduct small shopping experiments on?