Brutally Honest Financial Advice to Fix Your Sh*t

Alright, here's the thing. I like helping people with their money, but sometimes I need to just tell it to you straight and break it down for you so that you actually listen. Today, I'm going to give you 12 brutally honest lessons about money that I really think you need to hear. Number one, the perfect morning routine is not going to make you rich. Do you all understand that? There's a cottage industry of people telling you all the things you should do every morning, but it becomes increasingly specific and increasingly more performative. Drink a glass of water. No, you need to infuse it with mint, but also cantaloupe, because that was discovered in an ancient ritual that was performed in caves. Guys, let's get real. Do you know how many of these things I do every single morning? In fact, let me tell you all the things I do wrong. Number one. I wake up, I scroll Instagram and Twitter for at least an hour. Then I watch Netflix in the morning. No, I don't meditate, I don't write in a gratitude journal, and I certainly don't drink 80,000 gallons of water. You decide your rich life, including morning routine. And the real point here is to be intentional with your time. If you love waking up without an alarm clock, figure out how you can go to sleep at an hour that makes that a reality. If you want to make breakfast for your kids every morning, how can you set things up the night before? If you like to have a leisurely morning where you watch two hours of tv, you think to yourself, what can I do to make that happen? I love the idea of you crafting a meaningful morning routine for your personal rich life. I do not love the cargo cult fanaticism about random tactics. That's because the best morning routine is not about the amount of water or what time you journal. It's not about that. The best morning routine is decided the day before, the week before, and the year before by mastering the fundamentals. Number two. Please, for the love of God, stop worrying about taxes. Taxes are tribal. They're one of the most politically heated topics of all. And when it comes to taxes, I've learned that people really, really don't like being told that what they've believed for the last 25 years is wrong. So when I share a few of these thoughts about taxes, I know a bunch of you are going to say, unfollowing. Please do me a favor. Unfollow. Click it right now. Let me tell you the truth, Number one. People think getting a tax refund is bad. In reality, it's Great. Most people think that getting a tax refund is bad because they use this old chestnut, oh, why would I give an interest free loan to the government? Well, guess what? Data shows you would have spent that money. Data actually shows that tax refunds tend to get saved or used to pay off debt, but increases in your paycheck on a weekly or monthly basis tend to get spent. So there's nothing wrong with a tax refund. You, yeah, you lose a tiny bit of interest, but you're actually probably going to use it to pay off debt or save money. Good job. Tax truth number two. The US Is not the most highest taxed nation in the world. Not even close. Tax truth number three, People actually think it's better not to make money than to make more money for tax reasons. Again, please, for the love of God, learn what a marginal tax rate is. If you simply Google that phrase, marginal tax brackets, you you will understand something that most of your friends do not understand. Let me just put it plainly. If you start earning more money and you move up tax brackets, the marginal amount or the money in the higher tax bracket is taxed at a higher rate, not the entire amount you earn. So all of you who have a little high school buddy who told you one day over drinks, oh, I decided not to take the raise because I actually would have paid more in taxes, you can now look at him and say, you're a dumb. Tax truth number four. People get really angry about how their taxes are spent, but they actually have no idea where the money goes. You hear people on Twitter all the time. We spend a ton of money on foreign aid. The reality is that out of every hundred dollars in federal taxes you spend, about 1% goes to foreign aid, which is dramatically lower than most people think. Tax truth number five. People think rich people just use random loopholes to never pay taxes. I know about these loopholes. There are a few legit ones like tax efficiencies in your investment accounts, maxing out your tax advantage accounts, and a few more, but not nearly as many as you think. In general, those loopholes are few and far between, and they're largely available to the super rich who earn millions or better yet, billions via capital gains, not ordinary salaries or even high salaries of lawyers and bankers. Tax truth number six, your politics cloud your rational judgment on taxes. Your personal psychology, along with your sources of information, play a huge role in your beliefs about taxes. Now, whenever taxes come up, you're going to hear a lot of nonsense. My personal opinion, I'm happy to pay my taxes. I'M successful because of so many parts of infrastructure in this country. I'm thrilled that I can make the kind of money I can in America, and I'm happy to pay my taxes to support the common good. Analyze your taxes critically and make your own decisions. Number three, you're not that special. You ever hear this phrase, personal finance is personal? I'm not a fan of that phrase. Too often it's used to justify hyper individuality, as if your situation is unique. I don't think so. I've talked to a lot of people. A better phrase. Most people are mostly the same. See, everyone likes to think their situation is unique. But most people can actually improve their finances by following a basic set of principles. Those are the ones I write about in my book I Will Teach youh to Be Rich. Follow the basics, and once you master those, you earn the right to be different. Number four, Inflation is not the problem. When someone talking to me making $78,000 a year has $96,000 in debt and says, what am I supposed to do? Inflation is killing me. Then I find out they drive an F450 so they can tow three pieces of wood. I go, what is inflation? They go, I don't know. Things are so expensive. The grocery store is killing me. I go, really? That's so interesting. Do you track your spending at the grocery store? No. Then how the do you know inflation is going up? Is it perhaps that you've surrounded yourself with a bunch of news that tells you inflation always goes up? Hmm. I wonder. What I typically find with people who spend hours talking about inflation is that, number one, they're spending too much money. They don't even track it. Number two, they their savings and investment rates are extremely low. They don't even know what a savings rate is. And number three, they have surrounded themselves with news sources that tell them the economy is going horribly. Sometimes inflation goes up, sometimes inflation goes down. You cannot control it. What you can control is your income and your spending. Focus on that. Leave the macroeconomics to somebody else. Number five, the way you feel about money is highly uncorrelated to the amount in your bank account. Do you know how many millionaires I've talked to who always worry about money? What you quickly discover is that these feelings of financial scarcity have very little to do with the amount in their bank and much more to do with themselves and how they view money. By the way, many of you don't know how much money is actually coming out of your bank account every year. You're afraid to rent a movie for your kids on Amazon prime for four bucks. Yet you're unknowingly paying thousands of dollars to your financial advisor. Look at this. I recently got a DM from someone on Instagram saying, ramit, I have this financial advisor. I'm not sure if they're right for me. Can you help me figure it out? I said, hey, why don't you join my money coaching program and I can help you. It's like $69 a month. I have a monthly group call. I do Q and a with my members. And he said, I'm not sure if I can afford that now. I find this extremely fascinating. I don't mind if this person joins my money coaching program. That's not the point. But the thing is, this guy is almost certainly unknowingly paying thousands of dollars per year to his financial advisor over his lifetime. He will likely pay hundreds of thousands of dollars to his financial advisor if he's paying a U. M or assets under management. But he would rather blindly pay a percentage than actually write a small check. This is so common. If you have a financial advisor and you're not sure what you're paying them, send them a text, send them an email. Go ahead and look up your quarterly activity statements. You will probably see right along with the activity, like transfers, dividends, etc. Something like advisory fee. Now, they don't send you a bill. They don't ask you to write a check. It just comes right out of your account as a percentage of your assets and you don't even realize it. It's designed this way so you don't even notice it. This video sponsor Facet, a financial planning service that offers a flat fee membership, is taking a stand. To change that, they give you flexible access to a team of financial planners, CFP professionals and a team of professionals including retirement planning, tax strategy, estate planning, and more. Check out their new membership options@fassit.com ramit or click the link in the description below. Number 6. No, you probably can't afford that truck. Of the people I talk to in financial trouble, it usually comes down to two things. Number one, how much they spend on housing, and number two, their freaking truck. I talked to Brad and Becca who own a $50,000 truck, and to put it very plainly, if you make $115,000, you cannot afford a $50,000 truck. I asked Brad if he needs his truck for work. He goes, no, we use it to pull our rv. Of course, you spend a bunch of money on an rv which then forces you to spend more money to buy something that can pull it. Then I asked Brad, how did you decide how much you can afford? And he told me, monthly payments. Guys, these are very revealing clues about being unsavvy with money. First off, buying something you can't afford. I don't care if it's your rich life, okay? Just because you twirl around three times and say, rich life, rich life, doesn't mean you can afford it. Okay? Number two, deciding how much you can afford based on monthly payments or how much is in your checking account. That is not how you decide if you can afford something. And number three, letting the tail wag the dog, meaning you buy something expensive, which you then need to pay for something else expensive to service it. Can I just tell you straight up, to decide if you can afford something, you need to use actual numbers. Your feelings are are not a valid answer for how you can decide if you can afford something. I asked people on Twitter one time, how do you decide if you can afford a $2,000 mattress? And you know what they said to me? They literally said, sleep is the most important thing in the world. I go, that is not an answer to my question about affordability. When I ask you a question about affordability, your answer better have a number in it. Let me try it right now. Everybody listen, I'm talking to you. Yes. You watching this? How do you decide if you can afford a $2,000 mattress and an $80,000 truck or a $650,000 house? Give me your answer and it better freaking include a number. Don't tell me about your back. Bunch of commenters going, ramit Sethi, you never experienced back pain. I understand back pain. I work out all the time. What I don't understand is answering my affordability question with a feeling. That is not an answer. Number two, do not confuse desire with affordability. Just because you want something doesn't mean you can afford it. Hey, everybody, I want to fly I off a building doesn't mean I can do it. Hey, everybody, I want a private jet that I can fly 18 people to Europe. Just because I want it doesn't mean I can afford it. Same thing for anything you're considering. You better run your numbers. Am I supposed to be being nice in this video? Number seven, no, your handbag is not an investment. I've never heard one person admit that their money dial is status. But I've heard lots of people buy Teslas, Chanel bags and houses where the math simply does not pencil out. Now listen, the solution is not to stop buying these. It's to be honest about what's important to you and to run the numbers before you buy. Do you know how many people love to say certain things they buy are an investment? Let me tell you what they say. Handbags. Personal trainer is an investment. Face cream is an investment. Expensive apartment is an investment in my mental health. My sheets are an investment in my sleep. Hey, guys, when I stay in a Ritz Carlton, that's an investment. Because I can set the AC at 64 degrees and therefore the hair on my arm doesn't stand up. And therefore I close a multimillion dollar deal. Do you see how absurd that sounds? None of those are investments. I have a personal trainer. That's not an investment. That's a luxury. A handbag that costs 2,000, $3,000, that's a luxury. It's okay to buy luxuries. If you can afford it and you want it, buy it. But please don't try to justify a luxury purchase as an investment. An investment has a very specific definition. It is something that can produce a financial roi. Otherwise, we end up justifying every little thing. Hey, this pen is an investment because I wrote something that once made me 200,000. This is not an freaking investment. That's a pen I bought from Japan because I love it. And now I'll never find that pen again. Number eight, some of you really need to learn how home renovations work. I just like to send a gentle hello to everyone because I recently learned from a lot of Twitter commenters that according to them, home renovations are always profitable and also they build equity. As a result, I decided to spend $250,000 renovating my bathroom, which is surely a good investment. Do you freaks understand that just because you renovate something, it does not mean you're going to make more money? Do you further understand that most home renovations lose money? Yes. I'm going to say it again because, like, it's like I just told you, the sky is green. Most home renovations lose money. Just because you say the word equity does not mean you can afford it. And by the way, I'm not even getting into the insanity of taking out a loan to renovate. That makes no sense whatsoever. But anyway, here's my point. Just because somebody tells you renovating is a great investment, it's not. Please, please, please Google one thing about home renovation ROI before you drop $65,000 on your bathroom. Number nine, why are you so obsessed with generational wealth if you have $40,000 of debt? I don't really Understand why you're talking about generational wealth. Just because this phrase spread on TikTok over the last two years and a bunch of whole life insurance salesmen wearing shorts and writing on a whiteboard are telling you you need to think about generational wealth does not mean that is the first or even the tenth thing you should be thinking about. If you have credit card debt, why are you thinking about generational wealth? Pay off the debt first. If you have credit card debt, if you can't afford your housing, if your investment rate is lower than 3%, it makes no sense to talk about generational wealth. That's like Skinny Ramit, age 22, walking into Gold's Gym in Venice and saying, hey, y', all, I'm thinking, should I go for my first squad at 4:15 or 5:05? What do y' all think? They're like, maybe you shouldn't be thinking about this. Maybe you should just, like, get on the treadmill and lift a couple weights. What do you say? Generational wealth spreads because it is something that people. People idolize the rich for doing. We love the idea of providing generational wealth to our children for a couple of reasons. One, yes, everybody loves to help their kids. I have no problem with that. Number two, it's something that the rich do. So it's a coded way of us saying I'm rich without having to say it. And third, it provides a shield for us to politically correctly say, I want to make a ton of money. Not because I want to rent a yacht in Greece, not because I want to buy fine Italian cashmere. But no, no, no, selfless me. I want to provide generational wealth. Okay, listen. Generational wealth comes in lots of forms. It's not just about writing a fat check to your kids. It's about talking to your kids about money. You can pass generational wealth on without giving them a single dollar. That's what my parents did. They passed on generational wealth to my siblings and to me. They did not give us a huge check, but they taught us how to save, how to prioritize, how to invest. My dad helped me open up an IRA when I was a teenager. That's generational wealth. Or if you have money and you've maxed out all your accounts, you put your 529, all that stuff. Sure. But remember, the point of generational wealth is not simply to accumulate a ton of money and then hand it off to the next generation. You can give your children a healthy relationship with money by. But that means you've got to Be having regular, positive, proactive conversations about money all the time. And there's just one catch to that. In order to teach your children about money, you have to know about your own financial values first. Number 10, you will lose if you try to time the market. This is what trying to time the market looks like. It's a big no, no, and it's going to cost this person hundreds of thousands of dollars. If you read the investment literature, it will show you that what matters is time in the market, not timing the market. Timing the market means you try to guess when it's a good time to buy and you guess when it's a good time to sell. Well, it turns out that people are absolutely horrible at that. And most people, after they read a single investment book, they go, oh, yeah, timing the market, that's really bad. You know, Ramit, I really want to invest. And this is where they go, dot, dot, dot. They go, ramit, I know that you shouldn't time the market. And I go, oh God. Everything after this comma is going to be about timing the market. And then they go, but it seems like things are really expensive right now. You invest every single month. Doesn't matter if the market's up, doesn't matter if the market's down. You set it up automatically so that every single month you're investing. That way, you are not trying to guess if the market is good, good or bad. And the truth is, you'll never guess correctly. Even the highest paid portfolio managers are horrible at timing the market. What makes you think you or I would be any better? Don't try to time the market. Set it up automatically. Be humble enough to know that you're not good at timing the market. Set your money up to be properly, automatically invested and then move on with your life. Number 11, stop focusing on the wrong things. How many people are obsessed with the right app? What type of superfood are you eating? Should I put this expense in this category or that category? All these tiny $3 questions. I really wish that we had a culture focusing more on fundamentals. Show up consistency, pick the right principles, live them every single day. If you fall off one day, it's okay, get right back on tomorrow. These are things that matter. A lot of times when it comes to money, we focus on $3 questions. Should I buy the medium sized fries or the small fries? Should I buy a coffee today or on Tuesday? A better approach is to focus on the $30,000 questions. Do I have automatic savings set up? What's my savings and investment Rate? Can I increase it by 1% if I'm in a partnership? Are we on the same page about money? These are $30,000 questions, the things that actually move the needle. Focus on the $30,000 questions, not on the $3 questions. Number 12, stop getting your advice from gambling addicts on the Internet. You would think I wouldn't have to tell you this, but from the number of people in Meme stock forums, it seems like I guess I do. If you're following people who tell you you can make a million dollars overnight, you're probably getting scammed. It's not that hard to realize that most of the people in these forums have one simple desire, and it is to get rich quick. How many Aesop's Fables do we need to read before we realize that's probably not a good approach? Deep down, what a lot of these guys want is, number one, to get rich quick, number two, to have a sense of community, and number three, they want to have status. Now, if you want to have that, it probably means you need to be patient. You need to master the fundamentals. You need to build a system. All things that gambling addicts are terrible at. Whatever. If you want to take all your money and put it on a single stock, God bless you. You're definitely going broke. We all know that. It's just a matter of time. Investment is supposed to be boring and highly profitable. Of course, the very people I'm talking to are not watching this video. They're on Reddit right now in one of these Meme stock forums trying to pump and dump a bunch of garbage. So they're never going to watch this. But if it's your brother. Husband. If it's your husband, I feel really sorry for you. If it's anyone you know, good luck. Well, if you wanted me to bake you chocolate chip cookies and give you a big old hug, that was probably the wrong video to watch. On the other hand, if you wanted 12 lessons, you really need to hear, hopefully that reached you. Do me a favor. Comment below. Tell me which of those lessons resonated with you most today. Now check out this video to learn more.