Managing Your Money Is Easier Than You Think
Lessons from Ramit Sethi’s ‘I Will Teach You To Be Rich’
Money. Everyone wants more of it but not everyone knows how to manage it. I include myself in that statement.
For years, I had no idea how to manage my finances. Investing in the stock market, pension funds, savings account, they were all alien to me. Trying to understand it all was like trying to decipher hieroglyphics.
At one point, when I was at university, all of my money was in my current account. I had no savings account, nothing invested and no pension either. This probably isn’t unusual when you’re at university, most of the time you’re either preoccupied with studies or having a good time, but it’s indicative of how little some of us know about managing our finances.
It wasn’t until I was a few years out of university and after travelling for several years, that I began to get a handle on my finances. It was a slow process but one that has reaped rewards in recent years.
One book that helped me along the way was I Will Teach You To Be Rich by Ramit Sethi. It’s a catchy title, but don’t be fooled by its clickbaity nature, this book is packed full of useful info.
This article isn’t going to claim that you'll turn into Warren Buffet, or that buying the book is a surefire path to riches. What matters is how you process the information and use it in your own life.
Ramit’s book helped to clarify many things I didn’t understand about money, which allowed me to put in place processes that have made my financial position more secure than ever.
These takeaways from the book will help you take control of your finances and make your money work for you instead of the other way around.
Automate as much as you can
One of the most tedious parts of managing your money is actually managing it. The main reason I didn’t take more of an active part in my finances when I was younger was that I didn’t have a clue what to do.
There were too many options, I could move my money from here to there. Set up accounts that offered me a set interest rate, a concept I didn’t fully understand at the time. Then, I’d have to check in each month to move my money from one account to another. It was time-consuming and annoying.
It was easier to just forget about my money and bury my head in the sand. Something I did too much of and which resulted in my financial position getting worse, not better.
One of the main points that Ramit makes in his book is that you should automate as much of your finances as you can. It takes a bit of work, but once everything is set up, the input on your end is minimal.
You should set monthly debits from your current account to your various other accounts. Using myself as an example, every month a set amount comes out of my current account and goes into my savings, pension and stock account.
Because of this, I know that on a certain date, there will always be money moving into these accounts. Instead of doing the task myself, it frees up my time to work on other stuff. All I have to do is spend five minutes checking everything is in order once a month, purchase a few stocks and I’m good to go.
If you find managing your money stressful or tedious, this is the best tip that you can practice. It will save you so much time and make your life all the easier.
Spend on what you enjoy, pull back on what you don’t
An aspect of money management that many of us fail in is how much we spend. Maybe you spend too much on coffee every day, or you splurge on one-off purchases that leave you out of pocket. Whatever it is, we all have purchases that leave us feeling guilty afterwards.
Ramit’s advice in this regard, stopped me in its track when I first read it. His advice is counter-intuitive to what you might have read elsewhere. But once you think about it, the simplicity of it is beautiful.
He suggests that we spend freely on the things we enjoy, and cut back on those we don’t. It’s a brilliant piece of financial advice that avoids the simplistic notion of saving at all costs and applies nuance to the matter.
One of the issues with frugality is that we tend to think it applies to everything. Instead of cutting back on certain things, you cut back on all your spending and make yourself miserable as a result. This isn’t sustainable in the long run.
A better approach is the one Ramit adopts. When I followed this advice, I cut back my spending on alcohol and takeaway coffee, while still spending on things that I enjoy such as travel and books.
This way it doesn’t feel like I’m punishing myself just to save a bit of money. I can still enjoy the things that bring me happiness and satisfaction while saving money on the activities that I don’t necessarily enjoy.
The advice is simple: spend on what you enjoy, save on what you don’t.
Invest in index funds
One of the things that put me off investing in the stock market for years was that I had no idea how to get started or what to do. Back in my early twenties, the barrier to entry was tougher than it is today. The ubiquity of apps such as Robinhood and Freetrade make it easier than ever to invest.
Nowadays, the problem isn’t how to invest, it’s what to invest in. When you’re starting out the options you have are vast and terrifying in equal measure. Do I buy some shares in Tesla, or should I invest in Costco instead?
These were the questions I asked myself when I started. While investing in individual stocks is fine, if you don’t know what you’re doing, you can lose a lot of money in a short space of time.
The safest way to invest when you’re a newbie is with index funds. Instead of investing in a single stock, you’re investing in a fund that is comprised of multiple stocks. This reduces your risk because if a company goes bust, the fund replaces them with another. Whereas, if you invested in them individually, you’d lose your money.
You’re not going to see spectacular gains by investing in index funds, but if you add a little more every month, the power of compound interest will work in your favour over time.
Save, save, save
One of my biggest regrets is that I didn’t take my finances seriously when I was younger. I had saved up a lot of money from working before I went to university, that I’d built up a decent chunk of money.
The problem was that it was just sitting in my current account, doing nothing. I had a bit of money in my savings account but that was it. The interest gained on that every year was negligible.
After travelling around Australia and New Zealand for a few years, I came back home worse off and still with no clue about what to do. Although I had a great time, and there’s very little I’d change about those years, if I was more financially savvy back then, I’d be much better off today.
Thankfully, I’ve learned from my mistakes and today my money is not just stuck in my current account. I have a few savings account, my stock portfolio and my pension. My money is spread about earning interest instead of sitting idle in my account.
Ramit’s book is about teaching people to become rich, well there are only two ways to do that. Either you earn more, or you save more. Option 1 is the ideal scenario, but if you can’t do that then option 2 is a good alternative. The golden scenario is when you can combine the two to earn more and save more.
Interest rates aren’t what they were, but if you’re not saving money, you’re missing out on compound interest that will reap dividends as the year's progress.
Start saving today and your future self will thank you in 20 to 40 years. When your money is working for you, it puts you on a sounder financial footing.
Developing a saving habit is a key component in your arsenal.
Ramit’s book isn’t the bible of financial management. Some people will like it, others will find it too simplistic. However, if you’re just getting started in the world of finance, you won’t find many better books that breakdown how to manage your money.
The advice is simple, straightforward and easy to implement. It helped me make sense of a lot of things that confused me for several years while introducing me to concepts I’d never heard of before.
The book doesn’t promise to make you a millionaire, it doesn’t offer cheat codes, or tell you what stocks you need to buy. It offers simple and sensible advice that even the most financially illiterate person can understand.
Heed his advice, and you and your bank balance will be all the better for it.