In this article, I will be reviewing the book summary of I will teach you to be rich by Ramit Sethi.
The author is a graduate of Stanford University. He studied Psychology from there.
At that time, he had made some bad investments. This made him realize the importance of money, and he understood the core of it.
He explained how money worked and thus helped others understand how to make it work for everyone.
Some people keep advising him of the same strategy that everyone tells about investments, but no one follows such advice as it never works in the real world.
That is one of the prime reasons the author has written this book as he wants to help maximum people. He knows that everyone has the opportunity to improve their money habits.
This book has claimed more than 20000 success stories.
As I said earlier, this book will help you understand where your money is going and how money can work for you.
This is a six-week program that will help to create a bulletproof financial system. This will help to divert your money in the right direction in less than 30 minutes per month. I will give you a detailed summary of all six weeks.
- Week 1: Optimising your credit cards
- Week 2: Beating the Banks
- Week 3: Cover investing
- Week 4: Conscious Spending
- Week 5: Focus on Savings
- Week 6: Myths and ideas about investing
Week 1: Credit card Optimization:
The first step towards financial freedom is your good credit score. Most Adults have one or two credit cards, but they don’t know how to use them. I use it properly. It can help save us thousands of dollars in the long run.
Credit reports and Ratings:
In the credit report, we will get details related to our accounts, Current and recent transactions, and also it provides about your credit history.
All these details are shared with lenders when you apply for any loans.
The credit score is different. It is in the range of 300-850 +. It helps the lenders to get an idea before approving any loan to debtors. The better the score more the chance of getting loans.
Use them Right
- A credit card can be handy if you use it wisely.
- There is a great importance of paying your bills in full and on time. Never delay these payments; else, you have to pay heavy interest.
- Paying interest is something you should avoid at all costs.
Again reiterating building a good credit score should be the first step in attaining financial freedom.
So for week 1, the most important things should be.
- Request your credit report and score.
- You need to understand that what it means for credit.
- If you have a credit card, please check if it is a no-fee card; if it is not, please call your bank and get a zero fees card.
- Always put automatic payments sp that they should not be missed.
- Always paid in full, and it should be done every month.
- If you have taken any loan, then plan to repay it as quickly as possible so that you can enjoy the rewards asap.
Week 2: Banks
Well, it’s essential to choose the right bank if you are focusing on getting financial freedom. The bank plays a pretty important role. Your focus should be that you don’t pay any unnecessary fees.
Most of the people have got a cheque account. This is a typical standard account where there is a regular flow of money coming in and out. We are using it as an email box. If all your money comes into this account, you have to set aside savings or investments.
For a cheque account, I always prefer that you get interested, and you don’t have to pay any fees to be it monthly, quarterly yearly transactional fees.
Open a savings account for short-term to mid-term savings. You can keep your money for a timeline ranging from 1 month to 5 years in this account.
Use this account as vacations and house deposits.
Week 2 tips:
Again reiterating we have to open a cheque account with no fees as such.
If your current account has monthly or yearly fees, please talk to your bank and get it waived.
Look out for a minimum amount of fees and transactional fees.
Open a saving account with high interest.
Ensure that we have one and a half months worth of expenses in your cheque account. Transfer all remaining money into your saving accounts
Week 3- Investing
We have seen that people of the age group 20-30 didn’t like the concept of investing. Investing can be an overwhelming subject. Many people tend to avoid it altogether. We all need to understand the importance of funding; it will help you make investments once you know.
After 2007-8 global financial investment, people stopped investment because of fear and uncertainty. Still, wise people increase their investment, mainly because they know investing is a smart move, especially in such a situation.
You initiate the most significant money-making vehicle by opening an investment account, i.e., the stock market.
Five simple steps to follow to begin the process of investing:
- The best investment is getting a 100% return, which we get in every paycheque.
- Pay off your credit card asap; once you do it, the only left can be used to invest.
- It would help if you planned to pay the credit card debt.
- You have to open a new investment plan which can be used for your future, such as a retirement plan.
- Your aim should be to contribute maximum in post-tax income.
- If you are left with some money, then please invest in a saving scheme.
- After investing everything, whatever money is left, it should be put in a nonretirement fund that will help you plan something for your own business.
Week 4: Conscious Spending
One of the pieces of advice you always get is to make a budget for everything, but we all know that we don’t have time to write about every penny that has been spent daily. The best way should spend cautiously.
Spending cautiously is easy; you have to prioritize saving and investment accounts whenever you get the money.
After you have invested, only then can you spend guilt-free.
The best way to spend money is to decide where you want to spend money. You have to use a frugal approach and not a cheap approach.
Frugality is always preferred over other means as you can save money on most of your purchases and you have the freedom to spend more money in few areas.
Consider your priorities. If you want to go and see movies every week, please don’t buy popcorns and coke. The decision will be yours whether you are willing to make sacrifices and where you want to splurge.
Week 4-TOP TIPS
Please decrease your expenses and figure out where you spend your money whenever you get your next cheque.
Divide your cheque into:
- Fixed cost
- Long term investments
- Saving goals
- Guilt-free spending
Keep an eye on the fixed cost. Are you getting the best deal on insurance? Try to save by getting the best discounts.
Thing and strategies what your conscious spending plan will look like, where to save and where to spend?
Please stick to your plan and update it every week. Whenever you receive receipts, enter them into your project to ensure that things are going in the right direction.
The importance of ensuring your system is critical and needs to be maintained for the long term.
Week 5: Save
The next stage is automating the three steps:
Our aim should be to divert salary or income automatically into the appropriate accounts. Once you make this system, you will save a lot of future time. This means all your bills and payments are paid automatically without your intervention. The complete process goes like this:
- Once a week/Fortnight/month, you will receive your income.
- Your workplace should deduct a portion of your savings.
- The remainder will go straight into your cheque account.
- Automate a bit of this to go to saving and investments.
- Have your credit card bill paid automatically via debit card?
- Whatever is left can be considered guilt-free spending.
Week 5 top tips
- Aim to link all your accounts
- Login information in one safe and secure place.
- Spend time setting up your automatic money flow.
- Set up individual automatic payments
Week 6- Financial expertise myths:
Most people are scared of fund managers and advisors. But if looked at carefully, most people are capable of making their investments.
You don’t need to pay people to do your investing for you.
Fund managers don’t have magic wands to foresee what will be the future of the market.
Fund managers generally fail with more than 75% of the investments. They charge the fee in an unnecessary mutual fund. It helps the fund manager to pay salary and other expenses.
I would suggest everyone invest in an index fund as they incur fewer fees with more returns. That’s why the author means ignoring market pandit future predictions.
Generally, in the short term, a fund manager will perform well, but they will never beat the market in a long time.
This can be calculated by involving expenses and mathematical probabilities while choosing any stock.
Now the next question is that whether investing is for rich people or everyone. The answer to that is no. We can have a low Maintainance investment portfolio.
We need diversification in our investments; we need to invest in different stocks, Mutual funds, index funds, bonds, etc.
You can also take some risks if you are young, as it is more likely to rebound from a considerable loss. As you grow old in life, you start to become more conservative and take less risk.
Where should you invest?
Index funds are less expensive than mutual funds.
Invest in few different funds. You have to invest more time and research while selecting various index funds. Also, you need to rebalance your funds regularly almost every year.
One of the other options is life cycle funds. It considers your age. It automatically diversifies your investments. Life cycle funds are funds of funds. For example, in one life cycle funds, we can have :
- small cap
- International funds
It also owns many types of funds such as stocks MFS and bonds etc.
Week 6 top tips
- Decide on your investing style before you get started
- Life cycle funds are simple and require little inputs from you
- Index funds are a perfect option for diversifying your portfolio.
- Spend time investigating your investments
- Do plenty of research and understand what you are investing in
- After deciding to buy that fund immediately.
- Start dedicating some money to your investment account
- once you reach your goal, you can make your purchases
Spend your money cautiously so that whatever you save can help you in saving and investments. You don’t need to log in to your investment account regularly. This only causes stress. You have set up an automatic system for a reason. Check your investment once a month and wait for your money to grow. Don’t sell your investment too soon else; you will never be able to build that corpus that will make you financially accessible.
There can be only three reasons for selling your investment.
- You need money for an emergency.
- You made a terrible investment.
- Achieved your specific goal.
This was all about this book. I hope you have liked it. Please subscribe to my blog so that you can get notifications once I publish a new article every week.