254. My $0 to $100k Playbook (full beginners guide)

Calling couples from LA. I want to talk to you on the upcoming season of Money for Couples. I am excited to be recording episodes in person, live in studio. So if you are struggling with debt, retirement, supporting aging family members, overspending, or talking to your partner about money, apply to the podcast right now. I've done some podcast episodes in person before. Honestly, I love them. So if you are LA-based and you essentially want a free 3-hour coaching session with me, you can apply right now at iwt.com/apply. Again, to be on the podcast, it's iwt.com/apply. Hey, it's Ramit Sethi coming to you live from Japan. My wife and I are living our rich life here in Tokyo right now. And today I wanted to give you something from behind the scenes of my money coaching program. So please enjoy this exclusive program that I recorded for my members called How to Map Your Way to $100K. And if you enjoy this, you can find much more, including live events at iwt.com/moneycoaching. Welcome everybody. I'm Ramit Sethi, and we have a very, very fun topic. We are going to talk about your money map to $100K. We are going to talk specifics. I'm going to give you some numbers. I'm going to give you a new way of looking at money. I actually really like when you get specific, when you tell me not just how much money you want, but why. What does it mean to you? I remember early on in my early 20s, being able to get in a taxi and not have to stand in the heat of a subway in New York was a rich life to me. What is that, $10, $15? But it felt incredibly amazing. I think that having num— numerical goals is really powerful, but I think it's even more powerful to have a very specific vision. Like, I could feel that sweat on the back of my back and just, ugh, I don't want that. I want to sit with the air blowing on me in an August summer day in New York City. That feels rich. So that's the kind of thing that we're talking about. I like the vision, but I also want to talk about some freaking big numbers. What do y'all think? I'm not gonna sit around here singing kumbaya to all of you. We're gonna be talking specifics. Let me show you what we're covering tonight. Let's just get into it, huh? Nobody wants to do a joint affirmation with me? Ramit Sethi, it's going to be okay. We're not doing that. All right, here we go. Welcome to your money map to $100K. I love this topic, especially because we get to start off with one of my favorite things of all. Your delusions. Tell me if this sounds familiar. If I just earned more, I would be rich. How many people here have said that? Well, you're wrong. I mean, it would be nice, that's for sure. But there's a common delusion that if I just earned $500 more, $5,000 more, $500,000 more, that finally I would feel good about my money. It's very common, right? A lot of people going like, what's the problem? The problem is that that's not how it really works. And most people chase this idea of a specific number, but it doesn't actually change the way they feel about money. And I think this is important to note because if you think that you are going to feel better about money and your money problems are just going to disappear just by having a little bit more of it. You're actually doomed. You're going to be working your entire life towards a goal that's not actually real. So I want to just disabuse you of that right now. And in fact, I want to tell you that the problem is not just how much you earn, although earning does matter a lot. One thing the personal finance world doesn't really tell you is that many money problems are actually solved by just increasing your income. Not all, but many. But let me show you why this myth is so dangerous. Let's take a look. First of all, as I said, earning more does not magically solve your money problems. Next up, when you earn more, There are a lot more opportunities to spend money. And finally, if you don't have the right systems at $50K, you definitely won't at $500K. What do y'all think of that? In fact, can you tell me an answer to number 2? Can you think of an example where as you started to earn more money, there were actually more opportunities to spend it? You know what I, my message to you is I'm not going to sit here and tell you, uh, the more you earn, you should not spend any of it. Just lock it all away. You've heard people in the finance world tell you that, right? It's called avoiding lifestyle creep. If you double your income, don't increase your spending one cent. No, thank you. That's not my philosophy. I actually think as you earn more, you should spend more. That's the point. The point isn't to simply earn more, bust your butt, work really hard, and not do anything with it except invest and wait till you're 92 years old. That's not the point. But you should also probably increase your investments and savings. All right? So I want you to understand, not simply black or white. Oh my gosh, spending is bad. We're not gonna do that. No, I want you to have a healthy relationship with money. In my experience, the vast majority of people, especially in America, have an unhealthy relationship with money. I'll give you some examples. For example, they think that spending is bad and not spending money is good. That's the equivalent of saying like chocolate cake is bad, not eating chocolate cake is good. Do you understand that when taken to its logical extreme, what that happens in the food world. That's not a healthy relationship with money or with food. We can't simply classify certain things as good or bad, especially when we don't even know why. Life is full of opportunities for chocolate cake. I had a publisher lunch today. You think I'm going to sit there, oh, I'm not going to eat this because it's so bad. No. I had a little bit of everything. I trusted myself. I know what's right for me, and I was able to say yes and no to certain things. That is the ease with which I want you to be able to handle money. Somebody says, hey, can you fly to Vegas? We're going to have a birthday party. Maybe you can, maybe not. You know your numbers. You can confidently say, I'd love to be there. I can't wait. Or, you know what, I'd love to be there, but unfortunately I can't afford it, but I'd love to send a gift. It's not this super toxic relationship with money. And I want— part of what we're going to cover today is improving your relationship, not only through the psychology, but through the numbers as well. So $100,000. What words come to mind when you think of having $100,000 of net worth? If you see the number 100,000 and your first response is not enough or something negative about yourself, you're probably not gonna get there. You're probably gonna self-sabotage yourself because it is very difficult to achieve something big if you hate the destination. For me, What does $100K mean? $100K means you can say, maybe I can't work overtime this weekend, even though the boss asked me to. I'm just gonna be firm. It means you can splurge on a birthday gift. It means that you have a fat emergency fund in case something bad happens, such as a layoff or elderly person in your family becoming ill. Whatever the case, whatever emergency, you can breathe. This is a first taste of financial freedom. And I think it's really powerful. That's really what we're building towards tonight. And I want to talk a little bit about the, the, the details underneath this number. So let's talk about how compound interest works. Okay. The first $100K is challenging, but it gets easier over time, especially when you have that number. It's on your side. It's like, kind of like you have this amazing tool in your tool belt. And why is that the case? Has anyone actually looked at the math of compounding? What, y'all don't do this for fun on Friday nights? No. How about for the first time ever, we talk about the math behind the thing that you spend like 10 hours a day worrying about? How about that? How about we take a look at some actual numbers instead of just worrying for the next 55 years, but never actually opening a single personal finance book? How about that? I don't even— you don't even need to read the book tonight. Okay? But let me show you some math. I actually love this compound interest. So here's the principle I'm going to show you, and we're going to go through it methodically. I'm going to take you step by step because I want you to understand this. And whether it's $100K, $1 million, $5 million, the same principles apply. So adapt this for your own needs. Watch this. Early on, when you are on your journey to $100K, all of your growth comes from you putting the money in. To investments. Like literally, you got it from your paycheck, you invested it. That's— you invested $500, now you have $500. You're doing the heavy lifting. But over time, it's this compound interest that lifts your investments and carries them like the wind. It's a really beautiful thing. And I want to actually illustrate the math. You'll get to $100K a lot faster than you think. And the math here is quite counterintuitive. It's not a magic trick, it's just math. Let's take a look. So let's say that you contribute $600 per month. Okay. And let's say that you receive a 7% annual return, which is, I consider that a conservative return. It's pretty straightforward. We're already accounting for inflation. And that's sort of a typical what we can expect over time. In the S&P 500. Now watch what happens each year as this compounds. It's quite interesting. Let's look at year 1. All right. So take a look at this chart. Year 1, we have a total balance at the end of about $7,400. That kind of intuitively makes sense. You put $600 a month in there, multiply by 10, that's, you know, $6,000. And then you have another like $1,200 or so with a little bit of interest. So you put $7,201 in, that's the principal, and you made $235.62 in interest. All right. So first of all, are you excited by that interest amount? Yeah, I'm not either. It sucks. $235. Half of you could find that in your couch cushions right now. Let's be honest. Okay. We don't, we don't need to pretend to be excited by this amount, but I, but I am interested in the trajectory. Out of $7,400, I manually, or I contributed $7,200 of that, the vast majority. Let's take a look what happens as time goes on. Here we are in year 5. Now your balance is approximately $43,000. Now look at this. I have contributed $36,000 myself, but the interest is almost $7,000. It's nice, right? So $7,000 over 5 years. That's cool. But like, if we really break it down, 7, let's just say it's just to make the math easy, $5,000 over 5 years. That's about, you know, $1,000 bucks or just to simplify, it's about $100 bucks a month in interest. Ah, it's fine. It's not going to change my life, but what do you notice? The trajectory. Is really starting to kick in. Shall we keep going? Because the math becomes extremely powerful. Watch this. Year 10, we now have $103,000. $72,000 I contributed, $31,000 in interest. Almost half of the value— or let me put it another way, interest is now representing half of what I contributed. This is kind of interesting. Year 10, keep in mind I have not increased my contributions Whatsoever. It's the same amount going in. In fact, I'm not even doing this manually. It's all happening automatic. I'm not even thinking about this. Let's keep going. This is where it gets really interesting. Pay close attention. In fact, lean forward to your freaking screen so you can see this. Look at this. Year 19. Holy— I contributed $136,000 automatically. I didn't even notice the money was going. But now the interest is $147,000. The interest is now bigger than the amount that I contributed. Do you understand what What the hell is going on here right now? What do I notice about this? I noticed that by this point in year 19, my investment returns now eclipse how much I have contributed myself. Do you understand? That means that the money that I started investing, which started with a paltry $235 of returns, is now $147,000 and it's still growing. Growing. At a certain point, you make more from your investments than you make in your entire salary. And that is an amazing, amazing point to be in. So here we are at year 30. Now the amount I've contributed is $216,000, but the total investment return that I've accumulated, $515,000 for a total of $731,000. What do you notice about that curve? Look at the blue curve. It's kind of linear. It's steady. But look at that green curve. It's going up and up. It's almost vertical. As an example, I think the number is Warren Buffett made 99% of his wealth after the age of 70. That is stunning. Now I know what's happening in your, uh, a lot of people in your head going, I don't have 30 years. Oh my gosh. Or somebody said you need to double that for retirement though. Y'all are very good at coming up with reasons this won't work for you, huh? You really had a lot of practice telling yourself all the reasons that things won't work. In my business, I can't help somebody who actually doesn't want help. They come in here, they have 10 excuses why something won't work, or, yeah, okay, that's nice to have $731,000, but that's not enough. They can't even absorb the lesson. That's not who I'm speaking to. I'm speaking to people who are going, holy That's amazing. I didn't realize how powerful compound interest really is. A lot of folks wondering, must be nice to contribute $600 a month. Must be nice. What do you say when people say must be nice to you about something that you've accomplished? How do you respond to that? I go, it is. Yeah, it is. Guess what? I've been investing since I was 14 years old. It is nice. Now, most people do not start investing at the age of 14, but you could start at 25 or 30 or 40 or 45 or even 50. We can keep going. The point is, it must be nice. Yeah, it is nice to build compound interest and to let it grow. And that is what I, that's that kind of energy that I want you to have, which is, yeah, it is nice. It's nice that I bet on myself and I learned the skills of investing. That's what we're trying to get to. Now, these 3 words are gonna set you back a long time unless you learn to flip it. Must be nice. Oh, I can't do $600 a month. Can I do $400? I can't do $400 a month. Can I do $150? Great. Let me get started there. That's the way I want you to think about this. Now, I will tell you that most people truly never run their numbers. They just hope that it works out. We don't run our numbers when it comes to the major purchases in our life. Buying a house is the primary example. Almost nobody runs the numbers before making that purchase. Almost nobody runs the numbers before buying a car. Uh, almost nobody runs the numbers when they pay a financial advisor, and on and on. They do agonize over the price of cheesecake and pickles, two totally irrelevant numbers that have No material difference on your finances at all, but we actually ignore the, the biggest numbers in our finances of all. I don't like it. I'd rather focus on 5 to 10 big wins, get 'em right, and then never have to worry about how much a russet potato costs. What do y'all say? Or do y'all want to spend the rest of your life tracking 47,000 different SKUs in a spreadsheet that can barely contain itself? Here's my philosophy. If what you're doing isn't working, why don't we do it my way? How about that? Let's go that way. We're gonna run some numbers. I'm gonna show you the exact date that you are going to have $100K. You ready? You can also adjust it to be $250K, $500K, $1 million, whatever. I'm gonna show you the day that you're gonna actually have $100K in net worth, and then you're gonna see what happens when you make small changes, like a little bit more per month or eliminating a little bit of debt. So for our initial deposit, let's say. That it's $1. Okay. And this box is for what you have in investments right now. So if you have $1,000 or zero, that's also fine. Next up, we're going to change the 5 years to however many years until you are 65. So if you're 40, it's going to be 25 years. Okay. Next up for expected rate of return, what are we going to put? You know the answer, 7. That already accounts for inflation. Compound frequency. That's fine. We can leave that. And let's assume that— enter how much you are investing every single month. So I'm going to use $600, but I want you to be honest. If you are contributing zero, that's okay. Just put zero. We'll fix that. Okay. Scroll over the lines and find out. What year you have $100,000. In this example, you can see year 2035, I have $100,000. Sometimes it is the simplest thing that lets you see you can take control of your money. This is math. This is math. And you can actually control these numbers. Look at your date. Really look at it. This is your map to $100,000. Most people will go their entire lives not knowing this date or this number. It's not a fantasy anymore. It's actually just math. And now that you have this timeline, you can actually control it. You can speed it up, you can slow it down. How about I show you how to do some of this stuff? Here we have the same 30-year period. On the left side, if we, uh, on the first row, if we contribute $600, by the end of that 30 years, we'll have $731,000. That's just $600 automatically every single month. You're not even logging in. It just happens for you automatically. You won't even know the money's gone. But let's say you increase that just by $100, $100 a month. You wouldn't even know it. You wouldn't miss it. You would have over $120,000 more at the end of that time period. Just $100 a month, which you wouldn't even notice is gone. Let's say you increase that to $1,000 a month. You'd have $1.2 million, almost double just from going from $600 to $1,000. And if you went to $1,500, that's $1.8 million over 30 years. Time makes a big difference. Y'all know you're losing tons of money every single day that you are not investing. Some of you are losing $20, $50 a $100, $200 a day, maybe more. It's just lit on fire. You don't know it because you go, how can I lose money that I never had? That's lost money. You could have had it if you put this thing into effect, but you didn't. You sat around, you let the voice in the back of your head, you read Dave Ramsey. You didn't do the things you needed to do to invest aggressively and in an automated fashion. You spent your time calculating the price in ounces of snap peas. What a waste. On the other hand, now that we know these numbers, we can realize there's a much bigger game to play here than most of us ever realized. We started talking about $100K. Now we're looking at almost $2 million right here on screen. Time matters. Automation matters, but your freaking mindset also matters. No EORs allowed, but people who are optimistic, who are confident, the folks that say, that's why we're here. Wow, this is amazing. You have a very good chance at making this happen. This is the system that I designed that's gonna get you faster progress. 6 steps. These are not particularly complex. These are not secrets, but they work and they work in sequence and they work if you take them seriously. I'm gonna show you all of 'em. I want to give you a caution, which is that most people are optimizing or focused on the wrong things. You know, I joke around about people, uh, focusing on the price of freaking Kraft cheese, but it's actually not a joke. Most of the ways that people spend their time, their focus when it comes to money are not looking at things like this. These are the big, big wins, and this is the kind of stuff I want to talk to you about. All right, you're going to do it differently. Let me walk you through the steps here. Step 1 is critical. If you skip this one, nothing else is going to work. Step 1, you have to kill high-interest debt. I use the word kill on purpose. This step alone will put you ahead of many people that you know. High-interest debt I would define as anything over 8%, 7% or 8%, but certainly any credit card debt, anything above 10%, for sure high-interest debt. As an example, let's look at what debt is costing you. $10,000 of credit card debt at 27% versus a 7% investment over the same period of time, 1 year and 9 months. Debt sets you back in time and money. Investments grow steadily. 23% credit card interest debt is going to destroy your wealth faster than you can patch it up or outearn it. This is like wearing a 200-pound weighted vest while going for a run. It's just impossible to get ahead. It's just incredibly difficult to be wearing that. So the key here is to attack that debt aggressively. And once you pay it off, you suddenly free up all that money, which can now be rerouted largely towards investments. You can bump those contributions up. Now, how many people here have high-interest debt? Personal loans count, student loans count, credit card debt always counts. All of it. I will tell you that one thing I've noticed about people in debt is they like to do everything except pay off their debt. They do the 0% balance transfer games. Such a waste of time. They do all kinds of gimmicks. Should I do this? What if I do that? Transfer this, do that. Why don't you actually just create a debt payoff plan and then automatically pay that money every single month? Stop messing around. Pay that debt off. That's why I say pay it off aggressively. The same way that you just calculated exactly when you have $100K and $500K, you can do the exact same thing with a debt payoff calculator. In fact, you can search debt payoff calculator Ramit and you will be taken to our debt payoff calculator. A lot of people in debt will do anything except face reality. So they play games and gimmicks. They rearrange chairs on the deck of the Titanic, but they don't realize the only thing that matters is paying off your debt. Stop the games, pay off the debt. Then we can move on to the next step, shall we? Step 2, the CEO system. You are the CEO of your money. If you were a CEO of a company, how would you engage with your money? Would you log into your Bank of America app every single day? No. First of all, if you found out someone was using a Bank of America, you would fire them. Second, you certainly would not be logging in every day because why, why would you do that? That means you're a micromanager. Stop. Instead, your, your job is to make a few very important decisions, the most important decisions of your financial life, to make sure that things are structured correctly. And then You have a limited amount of daily involvement with them. That's what the CEO structure's about. There's 3 parts: cut, earn, and optimize. Let's go through each of them. C for cut costs. Cut costs mercilessly on the things you don't care about, but spend extravagantly on the things you do. Now, if your first reaction is to say, what if I care about everything, Ramit? Just stop typing right now. I already heard it a million times. It's not funny. It actually is a sign of intellectual laziness. Instead, I want to talk about the cutting cost part because I know you all have heard it. That's all personal finance is about in America. Oh, stop spending money on aluminum foil. You're such a bad person. Bad. Our religious overtones. So bad. Stop it. Cutting costs. There's a really good approach to do this, which is a lot more focused. If you use my conscious spending plan, all right, then you will already have a section called guilt-free spending. This is things like travel, eating out, et cetera. For most people, eating out is their biggest guilt-free expense. They do it regularly. My suggestion to you is you take your top 2 biggest guilt-free expenses, discretionary expenses, and you target cutting them down by 50% each over the course of 6 months. So for easy math, let's say you're spending $1,000 a month eating out. Your goal is to go next month, $950, then $900, $850, then back up to $900 cuz you forgot, you made a mistake, whatever, all the way down to $500 a month and you're gold. Do the same thing with another one. Suddenly you now have hundreds of dollars of extra cash every single month. This is a very powerful way to operate. You do not have to optimize the price or cut the cost of ketchup cuz that's irrelevant and pointless and it will be too hard to try to cut 5% on everything. You cut 50% on 2 things, and now you've generated hundreds of dollars right there. The strategy is covered in more detail in I Will Teach You to Be Rich, but that is how you do it. That's quite powerful, don't you think? To be able to just focus on 2 things, really get dialed in. If you have a spouse, bring them along with the journey, and that's it. Take that money and we'll talk about what to do with it, but you could redirect it to investments. Boom. E, earn more. Yes, earning more is a skill. It's really important that we, that we think about it like that. Just having a higher income alone is not going to make you rich, but it's sure going to help because instead of contributing $600 a month for investments, you might be able to contribute $1,000 or $2,000 or $5,000. That's a very, very powerful place to be. Earning more is a, it's not just luck. It's actually a skill that you can develop. I'm also not talking about filling out surveys for $3 an hour. That's not my point. I'm talking about things like negotiating a raise. I'm talking about things like starting a side business, which we cover in Earn 1K. That's helped a bunch of people earn $1,000 a month or, and much more. Now, when you combine earning more with the cutting costs, you're attacking the problem from both ends. It's quite powerful, quite powerful. And now the third part, which is optimize your spending. Let's talk about optimizing for a second. So there's a few things you can do. I actually just optimized something the other day. I did this through chat. I literally chatted with American Express and got 100,000 free points for sticking with the card. You can optimize by calling up a lot of your subscriptions. Think about your cable. Think about your cell phone. They often have offers. This is a great time to be able to do that. And I think we're going to actually give some word-for-word scripts in our money coaching program on exactly who to call, what to say. Sometimes you can just email them. That's optimizing your existing expenses. But there's also more when it comes to that. It's, it's not just that, it's also the systems that you design. For example, how many people here say something like this? I should really try to save more money. I, I spend too much. You're actually attacking this problem in completely the wrong way. That's like me saying I should really try to brush my teeth more. I just don't. I, I, I should just try. I know it's bad. You have the totally wrong approach. I should just try to hug my family more, but I don't. You know that you shouldn't be trying to save money at all. It should actually be completely automatic. You shouldn't even be thinking about it. I think about this hair on my freaking left toe more than I do about saving money, and yet I do save a lot of money. Why is that? Because as CEO, I set up an automatic savings transfer and I set it up years ago and it just goes. Why am I gonna sit there and think about it and try? Y'all need to stop trying stuff that's not working and actually use a system to make it happen. That's effective CEO management of your money. Same thing with investing and also same thing with these laborious budgeting apps that you are using, stop it with the freaking daily logins. Not only is it not helping you get ahead, you're actually playing small. You are actually limiting your field of vision to this tiny little app with these tiny little numbers, and you're, you've created a, a chessboard on which you can win, but the chessboard is just this tiny piece. It's literally an app. This is the stuff that I think about. The big picture, the millions of dollars, the compound interest, the decades, not the freaking checking account. Do I have $200 or $207 in it? That's the wrong question to be asking. You have a systems problem if you are logging in every day. But more importantly, don't just cut it off. You need to have the systems backing up this stuff. I'll show you some systems. So here's a system excerpted from my book, Chapter 5 of I Will Teach You to Be Rich, where I go into detail. And here you can see that the salary you get paid, money is automatically taken out to your 401(k). The rest of the money goes to your checking account. That money is then automatically— some money is transferred to your Roth IRA. Some money is also transferred to your savings account, in which you have a breakdown of sub-savings goals like a wedding, a down payment, emergency fund, that kind of thing. Your credit card bill automatically is paid every single month from your checking account. That covers things like your streaming services, your gym, etc. and any miscellaneous bills that can't be paid through a credit card, like a utility bill or something like that, that can be drawn straight from your checking account. What do you notice? This is how a CEO thinks. We are not logging in every day. We set it up once it runs. We could check it every 6 months. We can make adjustments as needed, but we are adjusting this. We're not adjusting, uh, the price of brown rice at Safeway. This is the way I want you to be thinking. This is going to help you get to $100K, $500K, $1 million, and far beyond. Step 3, build your moat. You all need a moat. I went to Warren Buffett's event in Omaha a few years ago, and he said something that I'll never forget. He said, um, we have set up Berkshire so we will never run out of money. And that's just— that's it. He was just that confident. He said, we're never going to run out of money the way we've set it up. And I thought to myself, first of all, that's very inspiring. That's like pretty amazing. But why can't we do the same thing for individuals? What if we actually made it a priority to create a moat around ourselves that would protect us from some of the things that come our way? Somebody getting sick, somebody losing a job, unexpected medical expense. What would that look like? Let's take a look. These are some of the things that really catch people off guard. In my experience, your financial moat is 6 to 12 months of an emergency fund that specifically, that covers living expenses. It doesn't cover eating pizza 5 times a week. It doesn't cover any of your guilt-free spending or savings or investments. It's just your fixed costs. That's why part of your system should be to use the conscious spending plan because you have all your expenses laid out. If disaster hits, you literally just look at it and you know exactly which expenses to cut. You've already thought about what to do in the worst case. While you were at the best case. Okay. 6 to 12 months. I recommend 12 months right now because in my opinion, the economy is not in a great place. Now, you're not going to get that tomorrow. That often takes years to accumulate, but I don't mind if people set up a savings goal for their emergency fund to be 12 months of fixed costs. You will know, same as you do with your investments, you will know the exact month and year that you're going to have that thing filled up. Just keep it in a high-yield savings account and get on with your life. Now, once you get Beyond 12 months, in my opinion, there are better places for that money. Next up, investing. That's how you make actual wealth. Hold on. This is so important. I need to show you my big old head. Listen, you all see my conscious spending plan. You've seen pictures of it. You've seen me talk about on the podcast, right? There's 4 categories: fixed costs, savings, investments, and guilt-free spending. People will spend their entire lives agonizing over one category, guilt-free spending. Oh my God, I don't know if I should get the Diet Coke. I've been so bad. I'm a bad person. I'm bad. Stop talking about your freaking Diet Pepsi. Nobody cares. It's irrelevant. The— there is one box where serious wealth is created. You know what that box is? It's the investment box. Y'all should spend less time optimizing your Rice-A-Roni. And more time optimizing what percentage of my net income and gross income am I contributing to my investments. Wasting your life focusing on tiny little things over here and there when real wealth is created in investments. You want to talk about it? Why am I getting mad? I'm trying to help you. I don't know why I'm getting so mad. I'm just thinking of all the people who spend their entire lives, you know, oh, I don't know, these popsicles are cheaper at Costco. We should go there. Sunday, so good. Oh, the traffic though. Why are you spending your time on this instead of spending half as much time? It should actually be more on investments. That is where the hundreds of thousands and millions of dollars are accumulated. All right. Investing. It's where the real wealth is created. You're never going to get to $1,500,000, $1 million, $2 million putting money in a savings account and trying harder. That's a losing battle. Let's invest and grow this thing. All right. So where should you invest? This is a very common question. There are lots of options. You can invest in individual stocks, individual bonds. You can invest in crypto. You can invest all kinds of stuff. I like index funds or target date funds. Target date funds are actually my favorite investments. What I tell my friends and family, it's like literally you pick the year that you are going to be retiring, which for most people is 65. And let's just say it's, uh, 2070. You find a fund that matches that year, a target date fund. So it'd be like Vanguard 2070, Fidelity 2070, Schwab 2070. These are very low-cost target date funds. They are automatically diversified and they automatically become more conservative as you get older. I just love these investments. They are simple. It's one investment and all you gotta do is put as much money as possible into them. That's it. It's set it and forget it. It's so easy. Okay. There's a lot more to cover on that, but this is like 80% of it. More in chapter 3 and 7 of I Will Teach You to Be Rich. Step 5, build the right environment. You know, we used to have a, like a fitness program at I Will Teach You to Be Rich. We were actually testing it and it would help people lose weight or build muscle and it was quite fascinating that people joined, they had to pay, and they had goals. I want to lose 20 pounds, or I want to put on a few pounds of muscle. And we really went deep with them. We had a full-time trainer. We went deep on their macros and all kinds of stuff, psychology. And some people really wanted to change, but they had a pantry full of crackers and chips. And they told me that it was like doing battle every single time they sat down to eat. Has anyone here had that experience? Sitting down, looking at food, it feels like you are literally battling that food to not eat the quote bad stuff. If I had had my way, if money was not a concern, you know what I would've told him? I would've said move. Move. If it is a top priority in your life to change this, you have to move. Because not only do you have muscle memory in your pantry, you reach in there, you don't have to look. You know, there's a whole bag of Doritos. You have an entire social milieu, a social network around you that encourages the type of lifestyle that you are trying to escape. It's kind of similar advice that's often given to alcoholics, which is like, if you're in recovery, you have to find a new group of people to be around. Now, most people cannot simply get up and move. It doesn't work. But I remember when I was in my late 20s, I wanted to meet more people. I wanted to live a bigger life. I wanted to get more fit. And I realized that the number one thing I could do was not to try harder, was not to beat myself up. It was simply to move to Manhattan. Boom. Move there. The environment forced me to achieve all of the things I wanted to achieve. What do you notice about what I'm telling you right now? I'm talking about fitness, but it's actually about a rich life. The idea is you cannot simply try harder. It's actually about needing to change your environment. What is the environment that you are currently in that is making it hard for you to reach $100K? The point is that there are a lot of invisible tentacles holding you to a place that's going to make it difficult for you to succeed unless you actually recognize those and change it. So I have a few suggestions for you. Step 1, stop asking broke people for advice. I see this every day on Reddit. People going into Reddit asking on like basically forums where people have no money. Hey everybody, I just made $20,000 from an inheritance. What should I do with it? And like, put it in a savings account because you don't know what's going to happen with the country. It's going to be a disaster. So you don't want to invest it at all. You can't trust anything in any way. Investing is like gambling. It's like, why would you ask these broke people what to do with money? The answer is they actually don't know any better. They don't know anyone else. They just have a few buddies on Reddit, and that's what they did wrong. Stop scrolling TikTok for financial tips. You will often see what gets optimized the most for the algorithm, not necessarily what's the best advice. I see the worst stuff on there all the time. It's so crazy. I've done a TikTok reaction video on YouTube if anybody's interested. Just search Ramit TikTok reactions. It's quite interesting. Find role models who normalize wealth building. That's what we have in our community. That's what I have in my money coaching group. I want you to surround yourself with hundreds or thousands of people who actually are like, yeah, it's cool to invest. Of course, we're going to talk about spending extravagantly on the things we love. We're also going to talk about our asset allocation and what's our debt payoff strategy. And finally, subscribe to people who tell you the truth. I've told you a lot of things that are quite truthful tonight, haven't I? What is something I've told you that was maybe a little uncomfortable to hear, but you know it is the truth? Shall we continue now? Step 6, play offense, not defense. So here's what you can do right now. You can delete your budgeting apps from your phone. I'm serious. I actually think it's keeping you small. I think it's one of those things that distracts you and makes you feel as if you're making progress. But if you're honest, has that budgeting app actually helped you build any serious amount of wealth? Or has it kept you chained to tracking every little expense rather than focusing on the actual big picture where true wealth is created? Next, you can consider not scrutinizing every single dollar that crosses your bank account. That's playing defense. Oh no. Did somebody spend an extra $2.39 that was not properly categorized? Did you just lose out on $1.9 million because you actually didn't invest automatically? How about that? I'd love to talk about that. Offense means deciding what's important to you and then laying the groundwork, using the systems to make it happen. And finally, here's one more offensive move that you can do. You can do it actually right now. You can implement the 1% December rule. It's quite powerful and it's very simple. Let's say that you are currently, for easy math, you're investing 10% of your income right now. Amazing. Great job. Every December, you increase that number by 1%. That's it. From 10 to 11%, 11 to 12%, 12 to 13%. That's it. You can stop at 20 or 25 if you want, but that's it. Once a year, a 1% increase. And the beauty of this is twofold. First, that 1% is so small, you're not even gonna notice the difference. You literally will not notice it. But second, as you earn more, you're automatically going to raise the total amount you contribute, especially because of this 1% December rule. So if you get a $10,000 raise, you're going to be automatically investing even more. This single decision alone can make you hundreds of thousands of dollars over your lifetime. This single decision alone can be worth more than all the amount you spend on coffee over your entire life. And you only have to do it once a year. Offense means simplicity. The more successful you get with your money, the more you have to fight for simplicity. What do I mean by that? I mean just having a couple of credit cards, just having a couple of bank accounts, not having 25 different credit cards so you can squeeze out an extra $11 from gas refunds and 5%. But I don't care about any of that stuff. Just simple. I have an extremely simple financial system. It could be way more complex, but I fight for simplicity. You all have to remember, you, it is normal. The financial world wants you to open up more accounts and transfer all this stuff and do all these apps. Why? I have no financial apps on my phone. Why would I? I don't need it. If I have one once in a while, I download it for a second. I use what I need and then it's goodbye. I don't need it. So I really want to emphasize, Simplicity. And once you have that set up, it's gonna feel so good. So moving along now, 4 traps to avoid. I have seen a lot of people implement things but still fail, and these traps quietly can destroy your momentum. So let's walk through 4 traps to avoid. Trap 1, get rich quick BS. Now the, you know, you see this all the time. You see, and it's like a lot of fads. A few years ago, what was it? Buying Airbnbs. A few years before that, it was all, there's all kinds of stuff. I don't like the, the culture that glorifies you have to work 90 hours a week. I also don't like the culture that glorifies the idea that you can make a million dollars overnight. Maybe. I mean, just like you could win the lottery, but that's not a strategy. I prefer long-term consistent investing. That is going to be for sure. I want to engineer success. I don't want to try to get in the in the way of a lottery ticket. So real wealth is almost always built through systems that take time. Just accept that. Once you accept that, then you can really start to make it work. Next up, toxic frugality culture. Oh boy. Walking 8 miles to save $3 on gas or watermelon is not a rich life. It's actually quite ridiculous. Living way beneath your means to the point where you are only fixated on a certain number 13 years from now. But once you get there, you don't even know what to do with your life. And in fact, all of your skills at spending money have atrophied, and now you are actually psychologically incapacitated. So you have to only focus on, will I have enough? Will I have enough? I need more. I need more. We don't want that. Okay? You don't want a life of self-imposed deprivation. You want a rich life. Remember, rich life does not mean you have to spend $5,000 a night at a hotel. It's what's important to you. Sometimes the most Sometimes rich things in life are actually free, and sometimes they're actually very expensive. Both are okay. Next up, trap 3: I missed my chance. How many people here feel like I missed my chance? I saw it in the first 5 minutes. Somebody commenting right as I was in the middle of making a point. Somebody like, how does this work if I'm 70 years old? How? Start now. That's the answer. Y'all, you need to accept reality. If you didn't start until late, then you need to start right now and you need to get it dialed in. Because you're going to need to be a lot more aggressive than somebody who's starting at age 22. There is no other answer. That's life. That's what you came here to hear is the truth. I always promise to tell you the truth. That's the truth. There's nobody coming to rescue anybody. There's no secret amount of money that's going to fall out of the sky. I hope you get some inheritance or something, but you sort of know what life is like. And so it's better to start now and focus on what you can control. I have lots of opportunities for you to start learning how to earn more, all that stuff. But nothing changes until you go, oh my gosh, nobody's coming to save me except myself. Okay. Um, trap number 4, the optimization spiral. That's folks who switch bank accounts because my Capital One savings account dropped by 0.3% and I can get a better one over here. But they never stop to realize, why am I doing this? First of all, how much is it actually getting me? And second, am I just endlessly focused on things that optimize the tiny local minima or maxima. That's like, ooh, I can make an extra $7 if I transfer these points over here and there and there and there and there. But they're actually missing the big picture, not only accumulating and saving hundreds of thousands or millions of dollars, but actually like enjoying it. Like, do I really want to be spending time doing like 50 different mile transfer things so that I can get a free flight to Toledo? Maybe, but I think a good way to think about it is what would people think? What would my kids or my family think if they saw me doing this? Like if they saw you sitting there and looking at your investment portfolio and being like, you know, I think we've done a nice job next year. Let's increase our contributions 1%. They'd probably be really proud of you. Probably want to learn. If they saw you spending 9 hours to save $211 from some baggage fee on United, I don't really think, uh, that's a great lesson to be sharing. Something for you to think about. Get your systems right, know your numbers, but then remember you gotta leave the systems alone. Just like leaving a Thanksgiving turkey alone. You gotta live your rich life. A rich life is lived outside of the spreadsheet. All right. So let's take a look. Now you have a target, you have a date, you have a system, and now support and accountability. Now, with all that said, y'all sent me a bunch of questions. Is it okay if I answer some of your questions? Because I know you put 'em here. We have a question from Anonymous. I am investing aggressively because I'm behind on my 401(k), yet I have over I have $50K in debt. Should I cut back on my 401(k) and pay more on my debt? So mathematically, this depends on your interest rate. If your debt is at a 2% interest rate and we kind of conservatively know that we can make like roughly 7% by investing, roughly, then I would just stretch that debt payoff out for as long as possible and I would put more towards the 401(k). My guess is your debt is probably somewhere between 6 to 8%. So if I were you, you know, you, you, you could go either way, but if it's me, I'm doing 50/50 or I'm putting a little bit towards both. I'm also really dramatically looking at my expenses and trying to find an extra, even $100 a month can rapidly shave years off of that $50,000 debt amount, even $100 a month. So I'm looking for $100, $200, $300. I'm going to earn more money as well and putting it aggressively towards that debt. And of course, once that debt is paid off, I'm gonna shift most or all of that towards investing. That's how you do it. Next up, can we invest even a little if we have a lot of debt? Yes. I just gave you an example of that. Yes. You should not wait to start investing. That is a critical, crucial mistake. You know why? You saw it in the compound interest charts. If you wait even 5 years, it can cost you hundreds of thousands of dollars. So start investing now, even if it's $20 or $50 a month. And then of course, over time, ramp that up. All right, next up, if our Roth IRAs are in Primerica— oh God— when I move it to Vanguard, Fidelity, or Schwab, will I have taxes or penalties to pay? In general, no. You will have some fees, some account closing fee probably. But first of all, let me say I hate Primerica. They are horrible. But you can do something called an in-kind transfer. That's I-N-K-I-N-D. That means they're not going to sell your investments. They're just going to transfer them over. And Vanguard, Fidelity, or Schwab can help you do this. They have the paperwork to make it happen. How do I avoid taxes eroding my wealth? I don't really think of it that way. I think that you should maximize your opportunities with tax-advantaged accounts, things like a 401(k), IRA, even HSA. But after that, get on with your life. I'm very happy to pay my taxes. I know that it goes to helping poor people and middle-class people. And, um, it's a never-ending game of, um, trying to minimize or avoid taxes. Like, one of my pet peeves is people who are very, very wealthy, and then they, uh, like, move to a place that they don't actually want to live in just so they can save a little bit of money on taxes. I'm like, what's the point of being rich? You know what I mean? Like, why would— and it's because they have fixated on this idea that they need to reduce the amount they pay in taxes. The goal is not to pay the least amount in taxes. You want to pay the least amount in taxes? Drink 18 glasses of water and then hold your breath for 7 minutes and you'll never have to pay a single tax again in your life. That's not the point. The point is to live a rich life. So that's my approach to you when it comes to taxes. I recently received a settlement of $16K. Oh, this is too much information. What is happening here? I recently received a settlement of $16K. $3K went to max out my Roth IRA. I have $15K sitting in savings. I could allocate $7K for the 2026 Roth IRA, but I'm terrified when my savings account hits below $10K. Let me say to you that me giving you the information here is actually not going to solve it because it's not normal to use words like terrified when it comes to money. That actually tells me that you have an unhealthy relationship with money. I actually want you to join money coaching. And I want you to start in the money psychology section because you could let the money sit there for a while. Okay? You're in no rush to do anything with it. Just let it sit there. But I want you to actually focus on improving your relationship with money first. That is going to make a bigger difference than allocating $5K here or $7K there. Amir says, when I see people talking about FIRE, I don't understand how it works. Does that mean that the profit from the investments is used to live my life? But that means I need to withdraw money on a monthly basis, which will reduce the investment. Isn't it kind of a loop? Well, let me explain. Does anyone know how your retirement works? Like, once you retire, you stop earning money, but you still have all these expenses. Where's the money come from? Y'all spend your entire life thinking about retirement. Retirement. Oh my God, am I going to have it? You don't even know how it works. This is, this is exactly why I started money coaching, because I need you to understand the mechanics of these important things in life. It's okay if you don't know. It's actually not really explained clearly. As you invest, whether through your 401(k) or an IRA or whatever, you will have a certain amount of money. Let's just say for easy math, you will have $100. Easy math. Okay. You can withdraw some of that money every single year. and the amount will actually generally stay the same depending on how much you withdraw. That's because it continues growing over time. You can also withdraw a little bit more. Maybe you have like $10 million in an account and you don't need to only withdraw $40K a year. You can withdraw a lot more and it will still keep growing, or you run it down. It doesn't matter. But you, there are a few things to know. You want to time it so you don't run out of money. You really do not want to be 93 years old in America running out of money. That's a terrible place to be. You also want to factor in things like Social Security. But in general, as your portfolio starts to grow, you can actually withdraw amounts from it and it will still grow. Like Oprah, I forget the size of her portfolio. Let's just say she's worth $1 billion. She bought a house for something like $35 million in Montecito, right? She could have just taken that from her investments and she would have made that money back. In a matter of weeks. That's how crazy it can be. Now, you may not be Oprah, but you can apply the same thing to buying dinner or paying your housing costs, things like that. So that is how it works conceptually. And that's also why you should invest aggressively now, because in retirement you can have more to live on. All right, cool. That was a good question. I like that. I appreciate that. Um, Anthony has a common question that many people do. Anybody here have irregular income? You make more one month, less another month, and all this feels quite tricky to you? Yes. Okay. A lot of people like, yes, this freaking guy's going to give me my answer. Okay, I'm going to give you the answer. All right, listen, I'm going to give you the answer, and then you should get in money coaching because we have a lot of people like this. And there's quite a simple solution for all of this. Okay, so Anthony's question is, I run my own small business. My monthly income fluctuates from $13,000 one month to $5,000 the next month to $900. How do I plan and build a system when there isn't a fixed income coming in? Okay, so this is what you do. You want, first of all, you want to pick a safe average of income that you can make every single month. So in your case, it's going to be higher than $900. It's going to be lower than $13,000. Just for easy math, let's say it's $5,000 a month. You can consistently guarantee you're going to make $5,000 per month. Sometimes it's higher, sometimes it's lower, but you can make that. You are going to base your entire conscious spending plan around that number. You're going to build the entire thing around there. In months that you make more than that amount, you are going to put the money in a buffer account. It's basically another savings account. It's not your emergency fund. It's your buffer savings account. And so if one month you make, um, $9,000, Well, you built your whole financial system on $5,000, so you have $4,000 extra. You're gonna move that over to your buffer account, and in months where you make less, you're gonna draw from that buffer account. Your goal is to get that buffer account to be 6 months of expenses. Again, this is in addition to your emergency fund, so it's gonna take a while to do it, but it's okay. And what happens now that you have that amount is it, it's basically allowing you to simulate a W-2 income. So for so many people, there are like, how many people here have been for years wondering how to make this whole freaking thing work? Because you have an irregular income. A lot of people, right? A lot of you guys. That's how you do it. Boom. You can, you now have line of sight on how to simulate a nice stable income. And if you have a horrible month or even 2 months, you're cool. You're covered. Everybody who said I have irregular income, get in money coaching right now. Thank you for being here and committing to your own rich life. Thank you for going through the calculator and the examples and realizing that you are much closer to $100K and even more than you ever thought possible. That's incredible. Listen up. If you want my help with your specific money questions, there are only two ways to get it. First, you can apply to be on this podcast at iwt.com/apply. Or second, you can join my money coaching program instantly at iwt.com/moneycoaching. In that program, you get access to live virtual events, monthly group coaching calls, live Q&As, and an amazing huge community of other people like you. Check it out at iwt.com/moneycoaching.