Wednesday, April 22, 2009

Book Review: I Will Teach You to be Rich

I don't really remember how I came across I Will Teach You to be Rich by Ramit Sethi. Generally I do not invest money in money management books because not one of the books ever tells you to save money by not buying money management books; in the case of this book, however, I think the $10 or so dollars is well worth the investment.

One of the main things that I like about this book is that Ramit is speaking my language -- we are around the same age and we appear to have many of the same outlooks on life. I like the fact that Ramit is unfiltered in his writing and, in watching some of the video clips of him online, he writes exactly as he talks.

If you follow the book from beginning to end, Ramit has you on a 6 week plan to get you headed in the correct direction to be rich. The first portion of the book dealt with credit cards and I'm lucky enough not to have any credit card issues, but I still read the section and here's the big take-away: you need to do everything possible to eliminate your credit card debt. This principle, of course, should be common sense, but Ramit explains why it is so dramatically important to not carry debt on your credit cards. There are also some good tips on choosing cards, evaluating annual fees vs. benefits, etc.

The real meat of the book and the part that I found most interesting and useful was Ramit's system for automating accounts. Although I had a system in place, it was not nearly as automated as it could have been and I was keeping money in places that were not earning me enough interest. I highly recommend the book for the automation section alone as it will truly open your eyes about how easy it is to use readily available technology to optimize your savings. Additionally, by looking more comprehensively at my accounts, I realized that I was not earning the most possible interest on my savings and have been making adjustments to move money around to keep it liquid, but also earn the maximum interest possible. Here's a great take-away for calculating your return that Ramit calls "The Rule of 72": take 72 and divide it by your interest rate and you'll gate the number of years that it will take to double your principal (pretty sad with most savings accounts offering 1% or less these days).

Ramit's investment strategies are interesting in that he does spend some time showing you how to create an investment strategy and how to reblanace your investments, but I was more impressed with his discussion on lifecycle funds. From a true "fire and forget" retirement savings plan, lifecycle funds automatically rebalance and become more conservative as they get closer to your target retirement date; no action is required on your part except to put money into the fund. Additionally, although I had heard the term "dollar-cost averaging" before, I did not totally understand it until I read this book -- essentially it means investing consistent amounts of money over time instead of all of your money at once to take advantage of market fluctuation.

A lot of what Ramit presents is based on this theory: "I would rather act and get it 85 percent right than do nothing. Think about it: 85 percent of the way is far better than zero percent." He's not necessarily advocating a 100 percent solution, which is what makes so much of his knowledge so useful. In fact, he advocates setting up your finances so that you can have money set aside to do the things that you love. Funny enough, after reading his book, I looked at my monthly expenses and chopped $36 off of my tv expenses, $20 off of dog food, and $30 off of haircuts -- $86 per month is a big deal (and I'm turning around and investing $25 a month of it back into Kiva because that feels like a good charitable vector to me).

I also enjoyed this quote about taxes because I've had some silly conversations with people in the past about income and tax effects: "Listen to me: You pay taxes only if you make money. If you're paying 30 percent in taxes on something, it means you made 70 percent elsewhere, so do not freak out about taxes." Probably the best tax advice that you can get.

Ok, one final quote that doesn't have a lot to do with the overall theme of the book, but I clipped it on the Kindle so that I could look back at it and laugh: "GOD, IF I HEAR THIS ONE MORE TIME, I AM GOING TO JUMP UP AND BEAT SOMEONE WITH AN ONION. (That way it's unclear why they're crying.)" The book's certainly not dry and unexciting.

Kindle version available.


No comments: