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  • Ramit Sethi's I Will Teach You to be Rich is a wildly popular personal finance book,

  • and for good reason.

  • These are the key points you need to know to be on your way to financial freedom and

  • leading a rich life.

  • Dr. Jubbal, MedSchoolInsiders.com.

  • Since my last year of medical school, I began a deep dive in personal finance and investing.

  • I only wish I did so sooner, and that's why we're covering I Will Teach You to Be

  • Richso you can get a jump start on your own financial wellbeing.

  • As with all of my book summaries, which you can find on my book summary playlist, I'll

  • be covering the author's main points, but also adding some of my own commentary.

  • There's a lot that I cannot cover in a brief video, so if you'd like to read the entire

  • book, you can find a link in the description.

  • For many domains in life, whether weight loss or finance, people focus on the smaller details

  • and obsess over 1 percent here and 2 percent there, missing the bigger picture of setting

  • a solid foundation.

  • In weight loss, people focus on the minutiae of avoiding carbs or the benefits of apple

  • cider vinegar rather than the bigger picture of caloric intake versus caloric expenditure.

  • Similarly, with finances, people get caught up with what the experts are predicting or

  • what's the hottest stock, rather than the basics like automatic saving and investing

  • into index funds.

  • By debating these minor points, people are absolved of responsibility in needing to actually

  • do anything.

  • As Ramit says, “Just as you don't have to be a certified nutritionist to lose weight

  • or an automotive engineer to drive a car, you don't have to know everything about

  • personal finance to be rich.

  • I'll repeat myself: You don't have to be an expert to get rich.”

  • As I've said before on this channel, facts are more important than your feelings, and

  • Ramit shares a similar sentiment.

  • If you feel bad or shameful about your piss poor money management, our job isn't to

  • make you feel better, but rather to tell you the truth so you can actually get a handle

  • on your situation.

  • I love that he ruthlessly cuts at the rising victim culture.

  • You know the typethey're all around.

  • Rather than actually working on fixing their situation, they find it easier to be cynical

  • and blame others for their problems.

  • And if you point out how to help them or the logical fallacies in their self-victimizing

  • argument, they won't have it.

  • They don't want results, they want an excuse not to take action.

  • At the end of the day, it's entirely up to you.

  • You can be a victim and complain about politics or the economy or boomers, or take control

  • of your life.

  • Or as Ramit says,

  • Listen up, crybabies: This isn't your grandma's house and I'm not going to bake

  • you cookies and coddle you.

  • A lot of your financial problems are caused by one person: you.

  • Instead of blaming circumstances and corporate America for your financial situation, you

  • need to focus on what you can change yourself.”

  • Some people think credit cards are inherently evilbut remember, black and white thinking

  • is rarely correct.

  • Sure, credit card companies can make a lot of money at your expense, but that's only

  • if you let them.

  • If you use credit cards properly, they actually offer massive benefits, from cash back or

  • points for travel, to warranty extension, fraud protection, and even helping you automatically

  • track and categorize your spending.

  • The key is that you need to pay them off in full every month.

  • If you don't, you're a sucker paying 14% or more in interest.

  • If you have a balance on your cards right now, work aggressively in paying it off as

  • soon as possible.

  • You can even call the company to negotiate a lower APR.

  • Ramit has a script of how to do so in the book.

  • Credit cards are about more than just these perks, though.

  • They're also a fundamental way to build good credit, meaning a high FICO score, which

  • essentially tells lenders how risky it would be to lend money to you.

  • Strong credit can save you boat loads of money in the future by helping you secure better

  • loans on your future purchaseswhether that be a car, a home, or even refinancing

  • your student loans.

  • Here are some guidelines to credit card usage: Pay your credit card regularlynot only

  • to avoid interest, but also to build your credit score.

  • Try to get fees on your card waived.

  • For an annual fee on a premium credit card, you may want to downgrade with a product change

  • to a no-fee credit card.

  • Keep cards for as long as possible, as a longer history of credit improves your score.

  • For this reason, set up automatic payments or subscriptions services on old credit cards

  • you no longer regularly use.

  • Otherwise, they may be shut down due to inactivity.

  • Improve your credit utilization ratio.

  • That means either spending less on your card, or getting more credit.

  • But only get more credit if you're debt free.

  • There are two additional methods of more advanced credit card usage: zero percent transfers

  • and credit card churning.

  • The zero percent transfer game is when you open up a credit card that has an introductory

  • 0% APR for balance transfers or cash advances.

  • People take this money for 6 months, or however long the terms are, stick it in a high yield

  • savings account, and then plan to return the money that they borrowed and pocket the interest.

  • This is a silly game with a poor risk profile.

  • Very minimal upside, but a potential for substantial downside.

  • As Ramit says, “this is a distraction that gets you only short-term results.

  • You're much better off building a personal finance infrastructure that focuses on long-term

  • growth, not on getting a few bucks here or there.”

  • I agree with Ramit on zero percent transfers, but I disagree with him on the topic of credit

  • card churning.

  • He writes it off as something that's too risky and too complex to be worthwhile.

  • And I actually completely understand why he stated this in his book and I don't blame

  • himafter all, he's writing to a broad audience.

  • If not carefully executed, credit card churning can leave someone in a much worse off financial

  • situation.

  • But the upside is also much greater when executed properly.

  • I've spoken about how credit card churning has saved me tens of thousands of dollars

  • on my credit card churning playlist on my personal channel.

  • For the average consumer who likely has credit card debt, Ramit's advice makes a lot of

  • sense, and is a great place to start.

  • But if you're more financially savvy and have the basics down, there's much more

  • to credit card optimization than included in this book.

  • Next, at which institutions should you put your hard earned money?

  • Ramit has no issue calling out bad players like Wells Fargo, and highlights companies

  • and banks he's enjoyed working with, including Schwab for his checking account and Vanguard

  • for his investments.

  • I actually use the exact same.

  • You'll see users on Reddit arguing over which savings account is best because of a

  • few basis points.

  • If you have $5,000 saved in your bank as an emergency fund and you get a 1.5% versus a

  • 2% rate, that's the difference between $75 and $100 per year.

  • A $25 difference over 12 months.

  • As Ramit says, “turn your attention from the micro to the macro.

  • Stop focusing on picking up pennies and instead focus on the Big Wins to craft your Rich Life.”

  • Or maybe you're on the other end of the spectrum, and you only have $300 saved up.

  • The interest it spits off each year is negligible.

  • The interest amount is important hereit's about building the right habits, particularly

  • when the amounts are small, so that as your income grows, you already have useful habits

  • and systems in place.

  • When people talk about investing, it elicits a wide range of emotions.

  • Some people are afraid of the stock market because of fears of losing that money, when

  • in reality holding onto it as cash is a surefire way to lose value through inflation.

  • Ultimately, wealth and financial freedom doesn't come from a high income, but rather from how

  • much you've saved and invested over time.

  • There are doctors living paycheck to paycheck because they never learned to save, despite

  • making well into the six figures.

  • Here are the key points from the chapter: * Before investing into taxable accounts,

  • first maximize your tax-advantaged accounts, meaning your retirement accounts.

  • This primarily means your 401k and IRA.

  • * Understand that Roth contributions to retirement accounts are post-tax, and Traditional contributions

  • to retirement accounts are pre-tax.

  • Post-tax means you've already paid tax on the money, and it will grow and can be withdrawn

  • in retirement without any additional taxes.

  • Pre-tax means you've contributing the money without paying any taxes on that part of your

  • income.

  • It will grow without being taxed, but when you withdraw the money in the future, your

  • taxes are deferred to that point in time.

  • If you're young and have a lower income, Roth contributions are preferred.

  • If you have a high income and tax bracket, go with Traditional contributions.

  • * After maxing out your 401k and IRA, max out your Health Savings Account, or HSA.

  • During orientation week at medical school, we got a talk from a supposed financial expert.

  • All I remember from the talk is that buying $3 lattes every day from Starbucks adds up

  • quick so don't do it.

  • While this may make sense when you're a broke student living on loans, too many self

  • proclaimed financial experts focus on cost cutting in these minor ways.

  • The problem is, there's a floor as to how much money you can save.

  • After a certain point, your quality of life and happiness begins to suffer.

  • On the other hand, you can always make more money and save more money.

  • The blanket advice in financial circles to not spend any money is actually a limiting

  • paradigm.

  • We were taught to generically apply the principle of 'Don't spend money on that!'

  • to everything, meaning we try half-heartedly to cut back, fail, then guiltily berate ourselvesand

  • continue overspending on things we don't even care about

  • Everybody talks about how to save money, but nobody teaches you how to spend.”

  • Most people spend too much and don't save enough.

  • On the other end of the spectrum are the personal finance aficionados who cannot stop saving,

  • creating their own prison of frugality.

  • From the financial independence subreddit, one person writes, “Looking back at the

  • past few years of my life and at my bank account, I would gladly give away a hefty chunk of

  • it and work longer if it meant I could have experienced more of the world and found more

  • passions.

  • I built my savings, but I never built my life.”

  • To address both overspending and underspending, Ramit suggests Conscious Spending, whereby

  • you aggressively save and cut costs in the domains in your life that that aren't a

  • priority, but you let loose and spend heavily in the areas that make you happy.

  • Just be careful with this principle as it relates to your hobby.

  • As a car enthusiast, cars are something that can become incredibly expensive.

  • However, if you're a candle enthusiast, the upper limit on how much you could spend

  • on candles is much lower.

  • To be more conscious with your spending, Ramit suggests canceling subscriptions and approaching

  • these expenses a la carte.

  • For example, rather than cable, just buy the channels you enjoy.

  • This makes you more aware of your spending, but it requires more manual inputit works

  • against automation.

  • It's a trade off.

  • Mindful spending also requires you're aware of where you money goes.

  • Mint.com is a great tool that automatically syncs with your credit cards and banks to

  • categorize your spending and trends.

  • That and Personal Capital are the two tools I've used to be mindful of how I spend,

  • but You Need a Budget is also a popular choice, although it requires manual entry.

  • Ramit emphasizes the importance of automation and doing the up front work so that your system

  • takes care of things moving forward, with minimal intervention from you.

  • Sound familiar?

  • Your checking account should be like your email inbox.

  • All money first comes to your checking account, and from there it'll be automatically allocated.

  • Credit card auto-payments, for example, should pay your cards in full and draw from your

  • checking account, but you need to be sure you never overdraft.

  • With every paycheck, a certain amount of money should go towards your savings and investing.

  • By automating this, you never have to remember to save, it just happens in the background.

  • By keeping this up over the long term, you can work towards financial independence, whereby

  • your investments kick off enough money that you don't even need to work anymore.

  • We call that FIREfinancial independence, retirement early.

  • When it comes to investing, where should you put your money?

  • Ramit follows the same philosophy put forth by Warren Buffet and Jack Boglelow cost

  • index funds.

  • Actively managed mutual funds, after accounting for fees and expenses, rarely ever outperform

  • the market.

  • For this reason, passive index fund investing is widely accepted as the best means of investing

  • for us regular folk.

  • These funds simply mirror various indexes of the stock market, like the S&P 500, and

  • don't try to beat it.

  • And the expense ratios on these funds are tiny.

  • For example, VTSAX has an expense ratio of 0.04%, whereas actively managed funds are

  • closer to 1 or even 2%.

  • While this sounds small, realize your annual returns are generally only 6-10%, so the 1%

  • adds up quick, and can reduce your returns by 30% in the long term.

  • That's the impact of the compounding effect working against you.

  • Automatic investing may not seem as sexy as trading in hedge funds and biotech stocks,

  • but it works a lot better.

  • Again, would you rather be sexy or rich?”

  • You may be tempted to pick individual stocks.

  • After all, what if you had picked Amazon years ago?

  • Hindsight is 20/20.

  • This is a losing proposition, as chances are you aren't a professional investor, and

  • even they get this wrong all the time.

  • And if you're tempted to buy some hot stock pushed by the financial pundits, understand

  • that they also cannot predict the future and they are wrong all the time.

  • In terms of what to invest in, that brings up the question of asset allocation.

  • There are two things you need to know:

  • First, as Nobel Prize laureate Harry Markowitz famously said, “diversification is the only

  • free lunchin investing.

  • Diversification allows you to maintain similar returns while capping your downside risk.

  • This is yet another reason broad index funds are better than picking individual stocks.

  • Second, when you're younger and have a longer time horizon until you retire, you can afford

  • to take on greater risk with your investments.

  • Stocks are associated with higher risk but higher returns.

  • Bonds, on the other hand, are lower risk but also lower return.

  • When you're in your twenties and thirties, going all-stock is fine, but as you get older,