10 Popular Money “Rules” That Are Completely Wrong

You don't need to skip your $5 lattes if you want to get rich. This kind of advice is everywhere, and a lot of times it's from rich people who are shaming you. If you wanted to save $1 million, you would have to skip over 180,000 daily cups of coffee. No problem, guys. It'll only take you 498 years to save that million dollars. These are what I call $3 questions. I would rather have you focus on $30,000 questions. That can put hundreds, thousands, even millions of dollars back in your pocket. In this video, I'm going to go over 10 ridiculous pieces of personal finance advice. You can just take it, ignore it all. Number 10 is especially controversial because it's like a religion in America. But if you're not careful, it could end up costing you hundreds of thousands of dollars with no end in sight. Number 1, sweating the small stuff. Now, I've already talked about your $5 coffee, but this also includes avocado toast, brown bagging your lunch every single day, clipping coupons, or anything that emphasizes extreme frugality. If you want to cut back on expenses, I don't mind. I cut back on expenses myself, but I recommend the CEO approach. That stands for cut costs, earn more, and optimize your spending. Let me show you how I do it. For cutting costs, I take a look at my top 2 to 3 discretionary expenses. Usually that's things like eating out. Aim to cut those by 20 to 50% over the next 6 months, but do it gradually. If you try to do it overnight, you're almost always going to revert back to your old ways. It's basically impossible to undo years and years of behavior overnight. Let's say you're eating out 5 nights a week, you freaking Chipotle gobbler. Try cutting back to 4 nights a week to start. Now that might sound silly. Ramit, why don't I just go to 1? I'll tell you why you don't go to 1, 'cause you're gonna freaking fail. Stick with me. Your way hasn't worked. Why don't we do it my way? Try cutting back to 4 nights a week to start. The month after that, you might go down to 3 and then 2. Before you know it, you've cut 50% from that category and you have done it sustainably. If you do this with yet another discretionary expense, you can cut another 20 to 50%, and suddenly you have a lot of extra savings every single month. You can reallocate that. To savings, investing, even guilt-free spending on something you actually care about. Then you can focus on the next part, which is to earn more. There's a limit to how much you can cut back, but there's no limit to how much you can earn. And a good place for a lot of people to start this is in salary negotiation. Now, I cover this in my book. I have lots of free material on this. In fact, I have a video, You're Underpaid. Here's the script to fix it. But if you're doing great work, the chances are Your boss might increase your salary, but they're not just going to do it if you sit around, breathe oxygen. Hey, I'm so good at Excel. Where's my money? That's not how it works. You need to negotiate. You need to learn the skill. By the way, if you negotiate just once, that can be worth millions of dollars over the course of your lifetime. Let me show you. Let's say you're 25 and you negotiate a $5,000 raise. If you invest that extra $5,000 every single year, assuming a 7% real return, By age 65, you would have just over $1 million, and that's not even accounting for future raises based on a higher salary. So a short negotiation conversation can pay off many times over. There are other ways to earn more money. You can try freelancing with the skills you already have. After you're earning more, then you can go on to the O part of the CEO strategy. This is where you call your internet company. You ask if they have any promotions coming on. You call up your credit card company if you have debt. You try to negotiate a lower APR on that debt. Or if you don't have debt, you make sure you maximize the perks that your card comes with. Again, all of this covered in my book, I Will Teach You to Be Rich, in great detail. Forget the small stuff. Focus on the CEO approach. Personal finance is not about trying harder. It is way more focused on psychology and behavior. For example, if you want to save more money, it takes a lot of willpower every day to agonize over every single tiny purchase that you will make. Oh, I don't know, should I buy this coffee? You're such a bad person. Bad, bad. Why are you into this puritanical bullshit? If you want the coffee, get the coffee. I'd rather you focus on your freaking amortization for your mortgage. You don't even know what those words mean. I'm going to teach you. That's why you're on this channel. That's why you click subscribe right now so you can focus on the big stuff, not this bullshit. Now you can automate your money to simplify and actually automatically save more without even trying. My conscious spending plan can help you get started and it's free. It's easy to follow. It's way more effective than a freaking budget with 9,000 rows tell you nothing. You don't need to download an app. You don't need to create a fancy spreadsheet. Here's how it works. First, you have your fixed costs, your rent, mortgage, utilities, any extra debt. Ideally, you want this to be around 50 to 60% of your take-home pay. Let me stop you right there. I know you're about to go, oh, it sounds like a lot of numbers, so complicated, fucking math. Do you know what percentage of your net income your fixed costs are. If you don't, it's going to be very hard for you to build serious wealth because you're basically operating blind. And meanwhile, you're tracking the price of pickles, which is totally irrelevant. But you don't know these 4 key numbers. Stick with me. Your fixed costs should be below 60% of your take-home pay. If you are in an expensive city, it's probably going to be closer to 60% unless you're earning a lot of money. The next category is investments. I recommend 10% of your pay goes towards this. Now, if you're already maxing out your employer match at work with a 401(k), you could look into starting something like a Roth IRA. Or if your income is too high for that, you can open up a taxable brokerage account. The third category is savings. Don't try to save. I don't try to breathe oxygen. I just do it. I don't try to save. I just do it. 5 to 10% of your take-home pay should be automatically transferred into a high-yield savings account every month. That way you don't even have to think about it. This is what people mean when they say pay yourself first. By the way, if you want to save more, you might bump that to 15%. You can actually automate it so the money gets transferred the minute your paycheck hits your account. It's almost like you never even had it, but all of a sudden you're saving hundreds, sometimes thousands per month. Finally, listen closely. You have 20 to 35% of your take-home pay left over for guilt-free spending. I know what you're thinking. That's a lot of money, Ramit. Yes. And you still handled your fixed costs. You still saved, you still invested, and you still have money left over to eat out, go out, travel, do whatever you want. This category, guilt-free spending, is where you can spend on the things you love. Everything else in your system is under control. You can spend on the things you want guilt-free. Clothes, drinks, food, whatever. If you love going out to eat, you want to try new restaurants, maybe you can actually spend more going out. Or if you're into health and fitness, maybe you hire a nutritionist or personal trainer. Point is, you can do it guilt-free. Now, the next piece of advice is one that I frequently get in my comments from someone typically earning about $60,000 to $70,000, and they are giving me tax advice. First of all, can I just dispel one of the biggest myths in America that if you raise taxes on the wealthy, they will leave? Are you guys delusional? Do you not have two eyes? Wealthy people tend to live in areas with high taxes. We love it. Why? Because these areas are more densely populated. There are more services, more businesses, more talent to recruit for our businesses. And there are a lot of higher-paying jobs as well. Importantly, wealthy people tend to be older. Older people have social networks in place. And so if taxes go up a little bit, you think they want to move away, leave their factories, leave their families, leave everything they know? All so they can save $100,000? That is not meaningful to wealthy people. Plus, taxes are historically low for wealthy people. Now, it is true that there are a lot of people moving from expensive states to lower-cost states. Yeah, housing is really expensive, especially in states like California, Washington State, New York. Housing is a major problem. That is why I am a Yimby. I'm somebody who wants to build tons more housing so that we can lower those housing prices for everybody. But we are talking about the wealthy moving to lower tax states because their taxes went up a little bit. That rarely happens. A lot of the data is documented in one of my favorite books, The Myth of Millionaire Tax Flight. Get this book and read it. And on a personal note, I love paying my taxes. When I have a massive tax bill, you know what that means? I was very successful financially speaking, and that means my taxes can go to things like social services for the poor, public schools, and and so much more. Do they go to every single thing I want? No, that's not the way countries work. Focus on automating your investing and savings. Focus on earning more. Focus on voting for the values that you agree with. And if you run a business, this part is for you. A lot of business owners treat taxes like a fire drill. April hits, suddenly they're scrambling for receipts and calling their accountant, hoping they didn't miss something. That's not how successful business owners operate, and it's definitely not how I run my business. I believe in being proactive and planning ahead so things are calm, not chaotic. That's why I like Gelt. They're a modern CPA firm that works with business owners year-round, not just during tax season, so you can legally minimize your tax bill and keep more of what you earn. One of my colleagues uses Gelt and saves far more than he spends on tax prep. Here's what makes Gelt different: a proactive tax plan tied to your goals, cash flow, and P&L. Guidance on credits, deductions, and entity setups to optimize your structures, and a clean, modern platform that keeps everything organized and on track. And right now, before December 31st, is when the smartest business owners make small strategic moves around compensation, retirement, and major purchases that can save thousands at tax time. So if you run a business, now is the time to take action. Visit joingelt.com/Ramit to schedule your consultation and skip the waitlist. Exclusive for my audience. You can scan the QR code on screen or click the link in the description below. That's joingelt.com/Ramit. All right, let's get back to the list. If I hear another person telling me to wake up, do morning affirmations, get in a cold plunge, then a sauna, then drink 68 gallons of water, then journal for 2.5 hours, I'm going to lose it. You know what's funny? I don't do any of those things and I'm doing pretty okay. You're watching my video right now, aren't you? I'm not going to bullshit you like so many of these morning influencers. Hey, everybody, if you follow my entire morning routine for 6.5 hours, by the way, I don't actually have a job, then you could be as successful as me. What the fuck? Ray Dalio, the billionaire founder of Bridgewater, is known for doing meditation every morning and once more at night. Everybody goes, Ray Dalio. He says meditation is the key to being a billionaire. Oh really? Did everybody ignore his Wikipedia page where it mentions just casually he went to Harvard Business School? This guy's been academically killing it since he was 5 years old, and you think meditating for 3 minutes is going to bring you up to being a billionaire? What the fuck is wrong with you? I think we need to bring a little intellectual rigor to America, and I'm not just talking about money, by the way, but we'll get into the political side of this. Another time. If morning meditation or going on a walk at 7:00 AM is part of your rich life, God bless. Go ahead, be my guy. I want you to do it, but please don't think it's going to help your personal finances. Instead, build a rich life plan. What do you want your rich life to look like? Be specific. Let's say it involves travel. Let's say you want to go to Europe. Get specific. Are you backpacking? Are you staying in hostels or are you taking a first class flight? Are you staying for 7 days, 15 days, Neither of these is better or worse. It's your rich life. The point is to get specific and then to work backwards to figure out how much it will cost and then think about how you're going to do it. Let me give you an example. Let's say your trip that you want to take costs $5,000. You know, from your conscious spending plan, you can set aside $300 a month to save for it. Okay, great. At that rate, you can take your trip within a year and a half. Guys, we don't need to do morning affirmations for this shit. Oh, Ramit Sethi, you are worthy. I know I'm worthy. I'm freaking talking to you right now. What I need is to use math and a plan to live my rich life. Do your rich life plan. Ignore the vague mindfulness tips. I need to meditate right now. Meditate on why I'm doing these freaking videos. If I followed my passion, I'll be sitting here eating habanero salsa on camera, one of those mukbang things all day sweating, okay? Until I became morbidly obese. Off of salsa. You never saw that happen. That would be me. Meanwhile, to take a break when it got too hot, I would just be ironing clothes all day. These are the things I'm passionate about. Is it going to make me a single dollar? No. And that is why we need to get real. A lot of people have this illusion that if they just follow their passion, the money will follow. Y'all remember this Steve Jobs commencement address where he talked about passion and things like that? That was my commencement address. I was sitting in the audience for that. That was at Stanford. And in my opinion, a lot of people took the wrong message away from that speech. What he said was, "Focus on the things that are important, and looking back, you will see how the dots connect, but you cannot predict a lot of them going forward." The takeaway for you is that passion alone is not a strategy for making money. In fact, passion is a result of skill and mastery. My friend Cal Newport has done a lot of research on this. He talks about passion often. One of the things he found is that passion for something often develops once you get good at it. So again, if I think about what I'm passionate about, drinking coffee, do you think that I would have a successful business on it? Maybe. Probably not. Certainly not for things like irony. Passion alone is not good enough. Let's reframe. You need to get good at something that is valuable to others. Me drinking Mountain Dew is not valuable to other people. Also, Mountain Dew is fucking disgusting. Commit to spending years studying and learning from the best. And if it is valuable to others, then you have a very good shot at earning a lot of money. For example, when I started speaking in front of people, I was not good. In fact, let me show you a quick clip of one of my early YouTube videos. You need to stop drinking those lattes. They add up to a lot of money. Yeah, that's me at my first personal finance talk in college that people actually attended. I remember watching people's eyes glaze over. And in my head, I was like, "What the fuck? You're not fascinated by the difference between corporate and municipal bonds? What's wrong with you?" Over time, I learned how to tell stories, how to ask better questions. I went out of my way to get professional media training. I learned how to appear on camera, and I spoke in front of larger and larger groups. I got better because I made it a point to develop my skills. And it became fun, and as a result, I became more passionate about it. So don't just follow your passion. Instead, commit to mastering something worthwhile. To start, try buying a couple of books on something that you're interested in. A $10 book is someone's life work. They are sharing insights that took them years to learn, and you can get it for $10 and read it in one sitting. Amazing. In fact, I have a book buying rule modestly called Ramit's Book Buying Rule. If you're even remotely interested in buying a book, just buy it. I promise you will get something out of it. I dare you to try to shame me for a financial decision I make. Try it. Go ahead. Ramit Sethi, how dare you spend so much money on this sweater? That's outrageous. That's ridiculous. Do I give a fuck what some rando tells me I should or should not spend my money on? Can I afford it? Yes. Do I love it? Yes. What else do I need to know? I don't need to justify my life to you. And that's the kind of energy I want you to have when it comes to this shame-driven advice. It's often disguised as tough love. We've all heard Dave Ramsey saying you should eat rice and beans and that there's no excuse to use a credit card. Maybe in 1968. Or Kevin O'Leary from Shark Tank saying clothes are a waste of money. Guy wears custom suits. I just have a personal pet peeve against people who are worth over $100 million going around and lecturing everyday Americans on all the things they shouldn't do with their money. Fuck off. All of this is just shame-driven advice. I find it to be very counterproductive and quite unhelpful. And a lot of it is just not true. I spend a lot of money on clothes. I love it. I use credit cards for everything because there's advantages like purchase protection and concierge and rewards points. As long as you pay them in full, a credit card, especially a free credit card, is better than cash. What I want you to do is focus on the conscious spending plan and ignore this shame-driven advice. If you're finding it hard to get out of this negative money spiral, this self-talk that has been embedded in you since probably childhood, then check out my money coaching program in the description below. When you are part of money coaching, you get a shortcut and you don't have to listen to a bunch of people lecturing you on all the things you shouldn't do with your money. Instead, you get a step-by-step system to get your money going. You get ongoing answers from me and a community you can turn to for motivation and accountability. You can check it out in the description below. The next piece of advice you can ignore completely. This is one of those things that you may have heard wealthy people doing. It's when they invest in early-stage startups while they are still private and growing with the hopes that they will go public one day or get acquired and generate a big payday for early investors. Like you may have heard of people angel investing in Amazon, Google, Tesla, that kind of thing. Let me dispel the myth as someone who has done angel investing. First of all, You do have to be accredited to make these investments. That means $1 million net worth excluding your primary residence or an income of $200,000 a year, $300K for married people. This is just a bit of a filter so that everyday people do not get taken advantage of. People love to hear stories about Google and Amazon being started in someone's garage. The truth is that most startups never get off the ground, and I have angel invested in 10, 15 companies. Most of them went to zero. Some of them went a little bit sideways. One or two got acquired. And even when I looked at the return I got, I basically could have done similar returns with just the S&P 500. And there's a lot of risk in these angel investments. You hear about companies like Amazon, Google. What you don't hear about are the 99+ percent of startup companies that simply go out of business. That is why I have a personal policy now. I don't angel invest anymore. I take my money and I primarily put it in index funds. Now, please remember, the everyday person does not do angel investing. They cannot afford to put $25,000, $50,000, $500,000 or more in these startup companies. But a lot of people want to. That's why there are all these companies doing fractional angel investing, etc. Guys, They are trying to get your money. The everyday person cannot and should not do angel investing. My suggestion for the vast majority of people is to stick to low-cost index funds. Focus on your asset allocation. Think about whether you want to do index funds themselves or target date funds, which automatically adjust your allocation for you. Fidelity, Vanguard, Schwab, they all have great options. I highly encourage you to get started, even if you just have $50 a month. The next piece of advice you can ignore is also about investing. What was it a few years ago? SPACs, NFTs. What's it gonna be tomorrow? Something else. You will know because everybody's gonna be telling you about it. Your barber, the guy who's driving your Uber, everybody. The truth is these opportunities are far more like gambling than investing. For example, you remember when SPACs were big? Everyone was getting in on them. Alex Rodriguez announced his SPAC saying it was only the beginning. Well, he was sure right about that. It's now down 99%., and there's a legal battle going on about that. I don't participate in trend chasing. I might lose a little bit because I don't pick the right thing and go up with the right trend, but I would rather focus on low-cost, long-term investing over many, many decades. Real wealth is built with time and consistency, and frankly, investing should be boring, like watching paint dry. Now, if you are already hitting your investment and savings goals, If you've got extra money and you want to invest 5% of your portfolio in something fun, a freaking meme stock, whatever, go for it. But don't be surprised if you lose money. Moving on. You can ignore anyone who tells you this. Number 9: You can't get rich from a 9 to 5. Maybe you can't, but I know a lot of people who are extremely wealthy from their 9 to 5. The very same people saying this then go on TikTok wearing shorts and an ill-fitting Under Armour polo shirt and they start sketching out some fucking scammy IUL or some type of infinite banking. Can you all stop listening to this stuff? It's insane. Hey everybody, the way that I got wealthy, I bought one real estate thing and then I bought 3 and then I bought 7 and then you're going bankrupt. All right. It's just going to happen. Just give it a few years. The truth is most wealth was built through jobs. Lots of wealthy people have jobs. Doctors, lawyers, software engineers. These are all high-paying careers. Many people make over $250,000 a year. One of the reasons that I talk about high-paying jobs in some of my work is that many people simply have no idea these jobs exist. The important thing to realize is there is more than one way to build serious wealth. Not everybody wants to run a business. That's fine. You have the opportunity to build serious wealth working a normal 9-to-5 job if you are selective. Please remember, even people who make much less than lawyers and doctors can build wealth. I encourage you to negotiate your raise, upgrade your skills, set up systems to build wealth over the long term, and choose your career carefully. Okay, we've made it to number 10. A lot of people already mad at me for this, but let's get right into it. Oh, God. America's number one religion. You can just ignore anyone who says buy a house. It's the American dream. Homeownership is truly one of the weirdest religions in this country. In America, we have a few core assumptions. Number 1, house prices always go up. Number 2, renting is throwing your money away. And on and on and on. It's all these pithy little phrases that actually are not true. Most importantly, when it comes to the biggest purchase of your life, people do not factor in the phantom cost of homeownership. They see a 2-bedroom house for $2,000 and a 2-bedroom house with a mortgage for the same price. They go, hey, I might as well build equity. Americans' favorite word: equity. What they don't factor in when they buy is that those hidden costs can add 30% to 50% to a monthly mortgage. So when somebody says they bought a house for $300K and later sold it for $500K, that doesn't really mean they made a $200,000 profit once you factor in all these costs. If you rent, the landlord is the one taking care of the roof, the property taxes, any appliances that need to be upgraded. And please remember, I know what you're about to say in the comments. You're all gearing up. I could see it. Look, this is the windup. Oh, Ramit Sethi said something wrong. I need to correct him. No, you need to get corrected. You're about to tell me the landlord already factors all of their costs into the rent. Oh, really? So the landlord can just take all of their costs and then add a healthy profit margin and magically pass it on to you? That's it? Just simple as that? Wrong. Sometimes landlords can can cover their costs with rent. Sometimes they cannot. Many times landlords don't even know what their true costs are. The truth is your rent is simply what the market will bear. And you have to remember this if you are renting. Rent is often the monthly maximum you will pay for housing. A mortgage is the minimum you will pay. Please note, I'm not opposed to home ownership. My wife and I will probably buy at some point in our life. But this is the biggest purchase of your life. I want you to run the numbers. To make sure you can afford it. And you may find that renting is often a better deal. In my personal situation, I'm a millionaire. I can easily afford a house in a very nice neighborhood, but my wife and I choose to rent. It is a better deal for us financially and from a lifestyle perspective right now. Now, if you want to dive into the action steps I covered in this video in more detail and get my personal help, check out my money coaching program. In the link below. And then watch this next.