NOTE: I compare a lot to Dave Ramsey’s program here. It is what I grew up knowing, so it’s a good anchor point for me to use. I will have a separate review of Dave Ramsey’s programs, but I wanted to clarify that I do think his programs are great. They have worked for so many people and that definitely says something. However, like any math problem, there is more than one way to solve it. Likewise, there is more than one great personal finance program/book. With that, I hope you enjoy this review!
BOOK REVIEW: “I Will Teach You to be Rich” by Ramit Sethi
Alright friends, I’m going to get right down to the meat: this is my favorite finance book, hands down. Practical, witty – albeit a bit nerdy, and actionable.
Here’s what I loved the most about the book:
1.) Hierarchy of debt payments
The way Ramit Sethi presents the information about how to pay off debts -and in the order in which to do it- is probably the most logical and mathematically-backed payment hierarchy I’ve ever known. Compare this to widely-known and accepted Dave Ramsey “debt snowball” method, which advises to pay off the smallest balance first – to “build confidence.” This is a stutter step that will hurt you.
Sethi breaks down exactly how those others debts can come to get you while you are so focused on paying down that one small balance. Instead, Ramit offers a logical solution: pay off the balances with the highest interest rates first.
So, take our own finances for example (remember the post where I put all our numbers out there?). Here is the hierarchy that follows Dave Ramsey’s smallest-to-largest balance payoff.
Now, while it will feel amazing to pay off that little $2,300 student loan, realistically that doesn’t serve our budget or long-term goals. That loan is at a 4% interest rate and the monthly payment is only $50/month. So, paying it off would only free up $50 a month.
Paying off higher interest rate balances will prevent that interest from compounding too quickly. Paying off debts this way prevents those interest rates from working against you. Now, if I reconfigure my payoff hierarchy in the way Mr. Sethi suggests, this is what it will look like:
Ah, yes. Much better. Let’s slash those scary, high-interest accounts STAT!
2.) Credit – you NEED it!
My biggest pet peeve with Dave Ramsey and similar financial books is the complete disregard towards the use of credit. I know quite a few people who are very anti-credit cards, anti-credit. Their whole philosophy is that “you should be able to pay for it in cash – why would you ever need credit?”
Here’s the thing: Sure, there was a time when that was the case for damn near everything. Housing was affordable. You could actually work and pay your way through college. Things were cheaper and inflation was not what it was today.
Now, things today are not horrible; the point is that things are different. If you want to buy a house in cash, have fun saving for +20 years. (Tangent: No joke, I saw a savings plan that started at 15 years old and went to 30 years old. This was to buy a house in cash. Yeah. Try telling nerdy fifteen-year-old me that she couldn’t buy more books because she was saving for a house in 15 years. Mhhmmm, okay.)
As the daughter of a hard-working, middle-class family, if I was expected to pay for college straight out of pocket, I never would have had the opportunity to go.
The truth is that credit is useful. Especially now. Sethi is hyper-aware of the necessity of credit – good credit – for millennials and covers this thoroughly in his book.
Finally! Someone that gets it! What a breath of fresh air!
3.) Automatic Savings
What if I told you there was a way that you could automatically be working towards reaching your goals? You remember me mentioning in March that I was implementing this?
Yeah, it’s amazing.
I’ll leave this brief and let the book speak for itself. Basically, it’s a foolproof way to achieve your money goals.
4.) Spending is not inherently bad
Okay, so you know that I am critically analytical about our finances. Like, down to the penny. We are recovering spenders, so I monitor our cash flow very closely.
Ramit has an interesting perspective on this, though. Spending is not necessarily bad, so long as it is prioritized.
There are two major concepts he outlines: frugality + spending on only things you love.
There is a difference between being cheap and being frugal.
“Cheap people try to get the lowest price on everything.” vs. “Frugal people try to get the lowest price on most things, but are willing to spend on items they really care about.”
Frugal people cut costs in all areas except the things they love. Mind you, this can’t be everything. Again, this is simple prioritization.
For example, I like nice clothes. I like the flattering fit of good clothing, the weight of the fabric, and the confidence I get from a well-made shirt/jacket/jeans/you-get-the-picture. I always am on the lookout for a great deal on clothing, but I understand that great clothing sometimes comes at a price.
The styles I like sometimes are pricier than lesser expensive options. Because of this, I am okay spending more on these items. This is why I LOVE Stitch Fix. They are beautiful, quality pieces of clothing that are flattering and make me feel amazing. I 100% am okay paying the premium for that clothing.
However, this means that I have to cut corners in other areas. I don’t go shopping a lot. We rarely go out to eat. I sell my old clothes. I carefully save money to guiltlessly spend on the things I love.
This is the essential lesson in the chapter Conscious Spending.
Good stuff, man.
This is one of the lessons that stood out to me the most. Sethi does not waste time telling you to wait to invest like the other guys. In fact, he is URGENT about it – INVEST! Invest NOW!
He provides some great visual examples of breaking down how much you are losing by not investing. These are powerful, motivating numbers that serve as a great kick in the rear. More than that, this section on investing is incredibly insightful with actionable steps.
What type of investments should you look at? IRA vs Roth? Mutual funds or index funds? (hint: the answer to the last one is index funds).
I am 100% clueless on investing – the most I’ve ever known was the mere knowledge that I had a 401k when I worked a corporate job.
Yep, that’s it. Yikes.
Do the future you a favor, read this section! Twice! There is so much educational and valuable information in here.
Overall, this is THE BOOK for millennials. It’s a fresh take on how to manage your finances – written by a millennial FOR millennials. You just can’t beat that and it’s one of the reasons I love it so much
And I’ll say it again.
Should you buy it?
How is this still a question?! Yeah, you should buy it! Go do it now!
What do you think? Have you read “I Will Teach You to be Rich?” Did you love it?
What other financial books have you read that you loved?
Tell me in the comments!