About the Episode 🎙️
In this episode of The Diary Of A CEO, Steven Bartlett interviews financial expert and New York Times bestselling author Ramit Sethi. They discuss how to achieve a rich life by understanding the psychology of money, debunking common myths, and developing a personalized financial strategy. Sethi emphasizes intentional spending, automating investments, and aligning financial decisions with one's values and life goals.
Key Takeaways 💡
- (00:31) Many people believe that earning more money will solve their financial problems, but statistics show that even those earning $100,000+ can still live paycheck to paycheck, indicating a deeper issue with spending habits and financial understanding.
- (04:53) Understanding the language of money involves knowing key financial numbers such as the percentage of income saved and invested, and having clarity on financial goals, which is similar to understanding the rules of the road for driving.
- (06:01) Tracking four key numbers—fixed costs (50-60% of take-home pay), savings (5-10%), investments (5-10%), and guilt-free spending (20-35%)—provides insight into spending habits, priorities, and areas of misalignment with one's stated rich life.
- (09:02) Less than 1% of people have a clear vision of their rich life, which involves detailing specific desires and goals, such as travel destinations and experiences, and this clarity is essential for crafting a financial plan that aligns with personal values.
- (13:13) Buying a house can be a good or bad financial decision, and it's important to run the numbers, considering factors like maintenance, inflation, opportunity costs, and phantom costs, rather than blindly following the popular narrative that homeownership is always the best investment.
- (22:51) Investing in the S&P 500 has historically provided returns that match or slightly exceed inflation over about 100 years, making it a potentially better and simpler investment than buying a house, as real estate investments require deeper analysis of various costs.
- (26:32) A simple way to start investing is by using a target date fund, which is a single, diversified fund chosen based on the year you plan to retire, and these funds automatically adjust their asset allocation to become more conservative as you age.
- (31:35) To build wealth, it is important to set up an automatic transfer of 5-10% of your take-home pay into an investment account, and avoid treating it like a checking account, which requires setting up separate savings accounts for specific goals and automating bill payments.
- (35:15) The returns of the stock market have historically been around 10-11% (or 7-8% after inflation), and using a compound interest calculator can demonstrate the significant growth potential of consistent investing over time, even with modest monthly contributions.
- (42:58) To achieve financial wealth, start investing as early as possible, invest aggressively every month, and keep costs low, as even a 1% fee can significantly reduce returns over time.
- (47:48) To increase income, personal trainers should consider strategies such as asking for referrals, offering meal planning services, partnering with food delivery services, and creating group sessions, which can significantly boost revenue and profit.
- (51:03) Individuals should consider placing their skill sets in the most lucrative market where they are scarce, which may involve moving to different industries or geographic locations to maximize their earning potential.
- (59:38) When considering crypto investments, it's important to limit the risk to a small percentage (1-5%) of a well-diversified portfolio, and avoid the temptation of chasing high returns without proper risk management.
- (01:04:27) Ramit's 10 money rules include having one year of emergency funds, saving 10% and investing 20% of gross annual income, paying cash for large expenses, and never questioning spending on books, appetizers, health, or charity.
- (01:07:51) Additional money rules include flying business class on flights over four hours, buying the best and keeping it as long as possible, having no limit on spending on health or education, and earning enough to work only with people you respect and like.
- (01:13:01) The final money rules are prioritizing time outside the spreadsheets and marrying the right person, as marriage is a consequential financial and relational decision that affects various aspects of life.
- (01:14:50) Couples should proactively discuss money, especially during key moments like vacations, engagements, and having children, and understanding each other's financial values and childhood experiences with money is crucial for a healthy financial relationship.
- (01:19:11) Prenups are important for protecting assets and should be discussed openly and honestly, and therapy can be helpful in navigating disagreements and understanding each other's perspectives on money.
- (01:27:23) Successful, rich people are often good at multiple things, show up on time, and are socially skilled, while those unlikely to achieve financial success are often surrounded by negative influences, are impulsive, and lack a personal vision of a rich life.
- (01:31:28) The biggest misconception about Ramit is that he dictates a specific rich life, but his goal is to encourage intentionality in building a personalized rich life, and this involves self-awareness and designing a life that aligns with one's values and goals.