I recently finished reading "I Will Teach You To Be Rich" By Ramit Sethi. This is a great "beginner's guide for Millennials to manage their money". It's not that older people can't get a lot out of this book as well, but Ramit is clearly targeting younger people in the narration of this book.
The point Ramit drives home in this book is that personal finance does not to be too complicated. Understanding the basics of credit, retirement accounts and investing is all that is required. That and automating as much of your financial life as possible. All of which are things I discuss often.
In fact, many of Ramit's views on money match what I teach using the 30-Day Blueprint method.
Let's review some of the important topics discussed in the book.
One thing I hear discussed quite a bit online is that "they should teach personal finance in school". The lack of financial education is usually pointed to as a reason why many people's finances are in such a tough spot. That is something I agree with, which is why I created an online personal finance school.
However, as Ramit rightfully points out your finances are your responsibility, no one else's. There is tons of great information about personal finance easily available. It is up to you to seek it out
If you must blame someone, blame yourself.
Your credit score is important
You've probably heard people say that your credit score is important. Ramit hammers home why it's important with an example.
He uses the example of a 30-year, $200,000 mortgage. Someone with a bad credit score (below 640) could pay $70,000 more in interest over that 30-years than someone with a good credit score (750-850).
I will go one further than Ramit to show you the cost of having bad credit.
The person with bad credit pays $70,000 more in interest over 30 years.
That works out to be $2,333 per year.
If the person with good credit invested that $2,333 every year and earned a 6% annual return after 30 years they would have $200,000.
In this example, the person with bad credit paid literally twice as much as the person with good credit.
So, yes. Having a good credit score is important.
How can you improve your credit score?
Make your loan payments on time.
Don't use all of the credit available to you. If you have all of your credit cards maxed out you are seen as having "high utilization" of credit, which hurts your score.
Don't apply for new credit too often. If you are constantly applying for new loans that will hurt your credit score.
Rinse and repeat for long enough and your credit score will begin to increase.
Open an investment account even if you only have $50 to begin investing
Ramit talks about the importance of taking advantage of workplace retirement accounts like 401k. As I teach in the 30-Day Blueprint, having access to a defined benefit pension or a defined contribution retirement plan like a 401k can make saving for retirement a breeze.
After you have maxed out your workplace retirement plan, Ramit advocates you open personal retirement savings accounts such as a Roth IRA. Even if you only have $50 per month to start, he says it can make a difference over time.
In fact, I have argued in the past that investing even $25 per month can make a huge difference for two reasons.
You get the benefit of compounding returns.
It gets you off the sidelines and you learn how to manage your investments.
Ramit talks about the concept of “conscious spending”. Some people aimlessly spend money without thinking about it while others pinch every penny and stress over every latte they buy.
Conscious spending means to be mindful but not obsessive with your spending. Conscious spending combined with automating your finances provides a healthy middle ground and relaxed attitude towards money.
Again I am in complete lockstep with Ramit on this concept. In the 30 Day Blueprint I work with my students to automate the following;
Emergency Fund savings
Once you have automated all of your financial goals and bill payments, how you spend your money should be up to you. With the one caveat that I believe you should try and spend as much money on things you value and as little as possible on "stuff".
Ignore investing experts
On the topic of investing, I agree with Ramit on the concept that you don't need to be Warren Buffet to manage your investments.
Don't waste your time trying to pick stocks or pay for actively managed mutual funds. It's never been easier to either use a "Robo-advisor" or become a DIY investor by putting your money into low-cost index funds.
The overall message that this book delivers is that managing your finances and building wealth is your responsibility. Luckily personal finance can be simplified to the point that just about anyone can effectively manage their money.
First, automate as much of your financial life as possible. Bill payments, debt payments, savings, investing. Even automate things like vacations if you can.
Next, don't make silly mistakes that can impact your credit and ability to get out of debt. Automating your debt repayment can help ensure you don't miss payments which can have a massive negative impact on your credit score.
Start investing. Even if you don't think you're ready and even if you don't have a lot of money.
Finally, once you have all of your financial goals automated, go out and live your life and try not to stress too much about money. Once you have a plan in place and you automate the plan, you don't have much to worry about.
Pick up a copy of Ramit's book, "I Will Teach You To Be Rich" here.
If you want to financial game plan built around your goals, check out the 30-Day Blueprint here.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.