9 Surprising Lessons That Made Me a Multi-Millionaire

For the last 20 years, I've been helping people take control of their money. And if there's one thing I've learned, it is that we love to lie to ourselves about money. We tell ourselves, I just need to keep a budget or I don't know how to invest. That feels like gambling to me. When ultimately, if we got really honest with ourselves, we would admit that, like anybody else, we are guided by our emotions and by our money psychology. There's nothing wrong with being emotional about money. But what I want to teach you today are nine counterintuitive lessons that I have learned which are going to help you take control of your money. The first lesson is a big one. Being frugal can actually cost you. Did you know that you can actually save too much money? When I say this to people, they look completely puzzled, but it's actually true. Ask yourself this. Do you really want to end up 80 years old with a million, $2,505,000,000 in the bank, yet no skills to actually know how to spend it? Well, I'm going to let you in on a little secret. If you spend your entire life being restrictive about money, worrying about money, and thinking that, ooh, once I have X dollars in the bank, then I'll finally be okay. You will never be okay. I've talked with millionaires on my podcast, even multi millionaires who. Who cannot bring themselves to spend their money. And this is something that is not really talked about because most of the media focuses on how bad things are. Even when an economy is extremely strong like it is right now. Let me tell you my philosophy on money. I believe it's a tragedy to live a smaller life than you have to. If you have money, you can use it on the things you truly love. And that's what I want you to do. Use your money to live a rich life today and. And an even richer life tomorrow. The key here is to figure out what enough is. Now, a lot of people have a random number they pick. They say, a million. I go, where'd you get that from? I don't know. Three million? What does that mean? I don't know. It just feels good. No. First off, if you're going to pick a number, pick a number and then add 15%. Okay. That's because you're going to forget about a bunch of expenses you need. But the truth is that enough is rarely a number. Sure. You need to have enough so that you can take care of yourself and your family. Sure. You need to make sure that you can live off a Certain percentage of it, maybe 3 to 4%. You need to factor in Social Security, all that stuff. But most people don't actually do this. They camouflage their anxiety by saying, I need a number. Once they hit that number, they still worry, they still feel anxious. It doesn't change a thing. So more important is to make sure that you are saving at least 10% a month. Investing 10% a month. At least your fixed costs are below 50 to 60% and you're using the rest of your money for guilt free spending. If you're doing these things, you can start to live that rich life today and know that you will be able to live a richer life tomorrow. In other words, make sure that you are exercising your spending muscle, not just your saving muscle. And that brings me to the second lesson. Spending more sometimes can actually save you more. Now this sounds crazy, but hear me out. One of the best uses of money is to buy back your time. Now a lot of people conceptually agree with me. Yeah, that sounds so good. I want to use my money, buy back my time, and then I go, okay, cool. So how have you done it? Oh, I couldn't pay somebody to go get my groceries for me. They don't know the exact type of cashews that I like. Oh, hiring somebody to do my laundry. No, they don't know how to fold my underwear like I do. I like three folds, not two. What the hell are you talking about? But when it comes down to actually spending money to buy back our time, I've discovered that most of us like the idea of buying back our time more than actually buying back our time. I'm going to share some ways from my own life that I actually use money to buy back time. For example, I get pre made fresh food delivered right to our home. When I travel, I don't sort by price, I sort by direct and shortest time. I make sure that there's a car waiting. And this is just a little weird thing for me. But I hate filling out paperwork when I go to the doctor or dentist. So I have an assistant fill out the paperwork for me ahead of time. I walk in, get the treatment, leave. It gives me a ton of joy. And there are lots of things that other people do. They hire a personal trainer, they hire a nanny, they have a bookkeeper, accountant, they get a cleaner to come to their house once a week or once every two weeks. They have online grocery ordering, they have a personal assistant go through their email, or they hire a home organizer to calm their house down. What's the point? The Point is that you can do these things yourself. If you truly enjoy grocery shopping, fantastic. If you can't afford to have somebody come and clean your house once every month, okay, then that's not in your spending plan. I totally respect that. On the other hand, if you ask yourself, what is my rich life? Would doing laundry fit in there? If not, then maybe it's time to take a look at where you are spending your money and redirect it to get rid of some of the things you don't like. And what this can free you up to do is it can free you up first to just enjoy life. You can literally sit on the couch, read a book, watch tv. You don't always have to be productive. You can also use that time to earn more. If you choose to, you can take one of the programs we have at I Will Teach youh to Be Rich to start a Business. You could negotiate a salary increase, land, a better job, whatever. The real question here is, what is my rich life? Is it actually doing laundry four times a week? Or do I want to spend my time doing more productive, more enjoyable things that are actually a part of my rich life? Now let's talk about a lesson that seems controversial. Sometimes lesson number three. Renting can actually be a better financial decision than buying. So sometimes now people get furious when I simply suggest that for the biggest purchase of your life, you should actually run a buy versus rent calculator. It seems kind of obvious to me if I'm going to drop hundreds of thousands of dollars or more, maybe I should type in a few numbers and calculate it. I don't know. Is that crazy? I guess it is. Because in America, real estate is religion. In fact, we have all these fun little phrases. Don't throw money away on rent. Weird. They don't say that about eating out at a restaurant. Don't pay your landlord's mortgage. That's weird. Do you say that when you grow up, don't pay the sushi owner's mortgage? No. And we even have people saying, hey, why would I rent? There's a two bedroom house for $1,600 to rent, or next door, I can buy it for $1,600. Same two bedroom type of unit. I should build equity. I go, okay, I like equity. But did you factor in a 30 to 50% increase in costs for owning? You need to factor that in when you calculate the opportunity cost of your down payment, the ongoing maintenance, which you will pay as a homeowner, but as a renter, you simply pay what the market Bears also transaction costs of buying and selling. There's so many other factors. Personally, I basically add 50% onto the price of a mortgage to account for these phantom costs. That's just a back of the napkin calculation. You need to do your own because nobody does this. Instead they just write me angry comments and tell me that I'm an out of touch person even though I'm the one running the freaking numbers. Most people don't actually realize the true expense of owning until it's too late. Candidly, most people don't really want to know. They want to buy for 500,000, then 20 years later they want to sell for 800,000 and then they want to go, I made $300,000 of profit. It's like, dude, you actually lost money, you just don't realize it. Remember this. Rent is the maximum you will pay. A mortgage is the minimum you will pay. Now, in some cities, it can make financial sense to rent and to invest the difference. This is especially true in high cost of living cities, although it's becoming increasingly true everywhere. Right now. In my situation, I lived in San Francisco, New York and la. It made no financial sense to buy. I rented. I rented an amazing place and instead of buying, I invested the difference because it would have cost way more to own. That in turn made me way more money than I would have made by owning. Now you can do the same thing. You can invest the difference between buying and renting. You can choose a low cost index fund and actually make more money than sometimes. I'm not telling you to buy, I'm not telling you to rent. I'm simply saying, please run the numbers to decide if buying or renting is a better financial decision for you. And while we're on the topic of housing, the fourth lesson I want to share with you is paying your mortgage ahead of time isn't always the best decision. Now, depending on interest rates, you can actually make more money by paying the minimum on your mortgage and investing the rest. But I got to tell you, this is where money psychology really comes into play. Because some people just hate debt. They see any type of debt, they go, ah, I hate it, I want to pay it off. I go, mmm. Have you actually calculated that if you pay it off early, you're actually going to lose like $280,000? And they just, they physically do not hear me. They go, whatever, I hate debt. For people who truly hate debt, even if you point out the math, they don't care. They just want to be rid of the debt. And I used to argue with them. Look at this spreadsheet. Have you ever looked at the amortization? This is where math and psychology intersect in a fascinating and beautiful way. It might seem irrational for somebody to want to pay off a low interest mortgage. It might seem emotional for them to say, I don't care about the math, I just want to be debt free. But the truth is we all make irrational decisions with our money. We all are emotional with money. Being emotional is part of being human and money is deeply emotional. So while it's true that if you have a low interest mortgage, like say 2.5 or 3%, mathematically speaking, you should pay the minimum on it and invest the difference, I'm okay. If somebody calculates it, they look at the numbers and they go, you know what, I can see that it's going to cost me a lot of money, but I just want to be debt free. It's okay to make decisions that differ from the spreadsheet as long as you understand what the numbers are. The fifth lesson I really want you to hear. A financial advisor can actually cost you hundreds of thousands of dollars without you even knowing it. If any of you out there are paying a percentage to a financial advisor, please pay close attention. A lot of times if you're paying a financial advisor you, you're not even really sure how much you're paying. I recommend you text him or email him right now and ask them, hey, what's our fee structure? How much am I paying you? If they give you anything other than an hourly or per project fee, it's probably a percentage, typically 1%. Now if you don't think 1% sounds like much, let me show you some surprising math. That 1% fee can cost you 28% of your lifetime returns. For many people, that's hundreds of thousands of dollars. Let's say you're 30 years old and you invest $50,000 and you contribute another thousand dollars a month, the numbers are sort of irrelevant. Just look at the percentages. In 35 years, with a low 0.2% management fee, assuming a 7% return, you'd have just over $2 million. Those are conservative assumptions by the way. But if you pay a financial advisor 1% instead of having 2 million in your pocket, you only have 1.7 million. That's almost $400,000 going into your advisors pockets in fees. By the way, if you pay 2%, that's over $750,000 in fees. There's some very important things I want to emphasize here. First off, I have no problem if you choose to hire a financial advisor. I've actually hired an advisor myself to look over my asset allocation and give me some specific feedback. But I paid an hourly fee. Just like when I hire a personal trainer, a highly credentialed personal trainer who gives me specific personalized feedback and they charge me an hourly fee. I don't even mind if it's a high hourly fee, but they would never charge me a percentage of my portfolio. So why should you pay the same thing for for a financial advisor? Now there are a variety of other questions. The people in the financial industry are obsessed discussing the differences between a flat fee and commission based and fiduciary. There's a lot of stuff you want your financial advisor to be a fiduciary. Yes, that means they're looking out for your best interest. But also you do not want to be paying hundreds of thousands of dollars in fees. Particularly because a lot of people can do this on their own. But if you choose to hire one, go ahead and pay an hourly or per project fee. Now you can learn about the basics of personal finance in chapter six and seven of my book I Will Teach youh to Be Rich. And as I discuss in there, you'll also want to look out for the fees that you are paying for your investments. Sometimes people have invested in fees that have A funds, b funds. They have front end loads, back end loads, they have high expense ratios. These are all terms that secretly charge you tons of money. What I do with my money is invest in low cost index funds at places like Vanguard, Fidelity, Schwab. All those places are great. Now if you ever want an expert to look over your numbers, fine, go ahead. Hire a financial advisor. Just make sure they charge a flat fee or an hourly fee, never a percentage of your assets. By the way, if you're looking for someone who charges a flat fee, I recommend you check out Facet, who I'm excited to partner with for this video. With Facet, you can get your own CFP professional to work with and a team of financial experts across investments, taxes, benefits and more. And importantly, it's all done through a flat fee membership, not a percentage of your portfolio. Head over to facet.com ramit to learn more or click the link in the description below. Lesson number six Passion alone does not pay the bills. I know that we're taught. Follow your passion and you'll never have to work a day in your life. Well, I freaking wish that was true you because I love spicy food and I once considered teaching a class called Ramit's 60 days to Habanero. Unfortunately, there's just one problem. Not one person in America wants to pay to learn how to eat spicy food. A lot of you think black pepper is spicy. And for those people, all I want to say is, please unsubscribe from my channel. Just unfollow if you think black pepper or a little jalapeno is spicy. We don't have anything in common. We can't be friends. The point here, besides the fact that your parents really did you wrong when you were a child never teaching you how to eat anything more than pepper, what is the point? What am I even doing on this video right now? Here's the point. Passion alone does not make you money. I'll give you another example. I love to iron, okay? I really do. I'm not joking. I love ironing my shirts. I could pay someone to do it, but it's very leisurely calming for me. So I iron my own clothes. Nobody wants to pay to learn how to iron. Half of America doesn't even own an iron. It's revolting. I see these wrinkles, people going on tv. I'm like, look at that wrinkle. What the hell is going on? Meanwhile, I have my own list of rules for ironing. Iron so crisply that if your face touches the crease, it will cut your face forever. You think that's weird? I thought that's totally normal. But just because I'm passionate about ironing doesn't mean that people want to pay me for it. And honestly, what a relief if you have a passion, whether it be decorating cakes, ironing clothes, mountain biking, grooming your dog, great. If you want to turn that passion into a business, you might be able to. But you don't have to. Because when you start a business trying to earn more money, passion is just one part of it. In fact, one of the ways to look at this is, is that if you start getting good at something, you will often become passionate about it. I'm sharing this because so many of us are paralyzed for years, sometimes decades, trying to find our passion. But I think a much better way to approach it is to take a look at the things you enjoy, the things you're good at, the things other people will pay for, and then start to get really good at serving other people. If you do that, you will become passionate. If you're interested in taking some of the skills you already have and turning that into a profitable business, click the link in the description. I'll help you find your first Profitable business idea for free. Now that I've shown you that passion alone does not equal wealth, let's move on to the seventh lesson. Money can make you happier. Yes, it's true. And personally, I don't want to have to skip 12,000 coffees so that 25,000 years from now I can finally start living my life. Oh cool. I finally have some money in the bank. I'm 93 years old. What should I do today? It's like, what is that really the kind of life you want to live Every single day you wake up and you, you put on your glasses like this, you go, what am I going to say no to today? What kind of life is that? Why not have a different approach? Why not say yes? I need to hit four numbers. My fixed costs, my savings, my investments, and my guilt free spending. And once I'm hitting those, I can go out and enjoy myself. You can use my concept of money dials to decide where you want to spend your money on. A money dial is just an area of your life where you love to spend money on. You can even turn that dial up. Here are 10 common money dials that I see. Eating out is the most common. Travel, health and wellness, convenience, that's my favorite experiences. Freedom, relationships, generosity, social status, and self improvement. By the way, no one ever admits to a wanting social status. They're like, status, that's so stupid. So vapid. Who would ever do that? They say that while they are using an iPhone, driving an F450 and their partner has a beautiful Chanel bag. They're like, status, so stupid. Here's the deal. Look at your own spending. What area of your life does your spending get you excited about? And don't apologize for it. It could be spending more time with your family. You, it could be traveling. It could be time working on your hobbies. I'll give you an example from my life. I like to wake up, open the fridge, and food is there, it's healthy, it's portioned, it's all ready to go. I love it. I'm not going to apologize for it. I love staying at absolutely beautiful hotels. I love that it inspires me. I love the attention to detail and the hospitality. Once you've identified your money dials, then you get to have a really fun set of conversations around what it would look like to turn those money dials up. Now. Maybe you can turn it up today, or maybe you need to set a savings goal so you can turn it up later. But what a fun way to look at money to dream and say what if we could turn up our spending on the things we love? As long as we cut costs mercilessly on the things we don't. Alright, I have two more lessons left to share, but before we get to those, if you're not already subscribed, go ahead and click subscribe for me real quick so I can keep sending you these videos on money spending psychology. Now onto lesson number eight Never make an expensive purchase based on the monthly cost I have talked to so many couples on my podcast who decided they could afford a house or a car based simply on the monthly payments. And the frank truth is that that is how most people make their purchase decisions. And companies love it when you do this because you don't realize that the monthly payment can be adjusted to be anything. If something costs $50,000, I can make your monthly payment be $10 a month. You'll just be paying it for decades. And what's even worse is that low monthly payments can make it seem like you can afford something when in actuality you cannot. This is why so many people feel that they are living modestly, but they can't figure out where all their money's going. Typically they have made bad purchase decisions a long time ago because they only looked at at the monthly cost. Here's what you do instead. When you are making an expensive purchase like a house or a car, you need to stop looking at monthly cost and instead look at total cost of ownership or tco. For example, what you pay for your housing is not just the monthly payment. It's got to include taxes, utilities, maintenance, including that roof repair 10 years from now. And the transaction costs of when you buy and sell sell that house. All of it needs to be factored in. Otherwise you will be hit by surprise after surprise and you'll be playing defense for the next 15 years. When you're buying a car, you need to factor in all the costs. Not just the monthly payment, but the gas, the parking, the parking tickets, insurance and registration. All of it. For example, when I got my first car, my monthly payment was $350, but when I factored everything, everything in it actually cost me over $1,000 a month. That is why you never make an expensive purchase based simply on the monthly cost. And that brings me to my last lesson. Lesson number nine Managing money does not just mean tracking everything. I talk to so many people. They genuinely believe that having a spreadsheet with 80 tabs and 500 rows is going to make them feel like they're in control, but it's not. What they're really doing is playing small. They're focusing on all the wrong things, trying to cut back $5 here and $10 there. And deep down they believe that tracking expenses is the same as managing money. It's not. Managing money is picking high value things to focus on. That would be things like what is our savings rate? Is it 5%? Can we get it to 6.5% this year? Investments? What's our investment rate? Oh, it's 8%. Okay, could we get it to 9%? And by the way, what is our asset allocation? That's high value. In order to do this, you've got to fight for simplicity in your finances. And what I mean by that is really try to keep your finances simple. Typically no more than two credit cards with one checking account, a few different savings accounts that are named like vacation, down payment, etc. And then move on with your day. Complexity is not your friend, but simplicity is Alright, I hope this video gets you to start questioning the typical money advice you hear and helps you on your path to creating a rich life. Now check out this video to watch more.