This is Controversial... But It Will Make You Rich

Look, let's be honest. A lot of financial advice is not going to make you rich. And sometimes it's obvious, like when Robert Kiyosaki tells you that cans of tuna are going to be the best investment you can possibly make. But often it's not so clear. And that's when it becomes dangerous. So here are controversial takes that will challenge a lot of what you thought you knew about money. Number one, you don't need to stop buying five dollar coffees to get rich. You've all seen Kevin o', Leary, tired old boomer, preaching the same old advice with walking around in his $6,000 custom suit telling everyday Americans that they need to stop buying coffee in order to become wealthy. When he himself knows very well that's not how he became wealthy. His net worth is over $400 million. You really think he got there by cutting back on a oat milk latte? The truth is, you're not gonna nickel and dime your way to wealth. Okay? $5 over the grand scheme has no material effect on your wealth. What's much more important is, is to focus on the $30,000 questions instead of the $3 questions. Things like, what's my savings rate? What's my investment rate? What's my asset allocation? What's my debt payoff date? Focus on those questions instead of being dragged into the three or five dollars weeds. Number two, you don't need to keep a budget. I don't. Many people don't. Why do you all torture yourselves so much? What is it, that puritanical work ethic in America? I need to be working all the time, otherwise I'm not successful. And even if the thing I'm doing won't ever work, I. I still need to keep telling myself that I need to do it. What the hell's wrong with you? I don't keep a budget. My money's fine. You probably don't need to keep a budget either. What you do need to do is start automating your money. Making sure you understand what your rich life is. Making sure you know your four key numbers. Fixed cost, savings rate, investment rate, guilt free spending. But if you don't know any of those things, then I can see why you're tempted to beat yourself up over and over. We really need to keep a budget. I go for what? What's a budget going to do? You're going to have to collect all these numbers from all over your entire financial infrastructure from the last six months, which of course you don't even know. Then you're going to sit there and stare at them. You're going to try to make them fit into some spreadsheet. Okay, you spent 369 on peppers. Is that a lot? Is that a little? Do you know anything? Does it tell you what kind of lifestyle you're going to lead? No, it's just a spreadsheet. Please zoom out. Use my conscious spending plan here. I'll put the link right here. It's free. All you need to do is focus on a few key categories. And now you have your rich life. You can set money aside for savings, you can set money aside for the beautiful trip you want to take. All your money's automatically going where it needs to go. And best of all, that leaves 20 to 35% for you to spend your money guilt free. Move on with your life. Number three, credit card points. A lot of you have let credit card points take over your lives. I'm sorry, it has to be said. First of all, I don't mind if you are spending a bunch of money and you run a calculation online to decide if it's worth paying 3, 4, 500 bucks a year for some premium card or even a hundred bucks. But there's a couple of problems. Number one, you wouldn't believe how many people I speak to in credit card debt who keep spending on their credit cards. And when I ask them why, they go, so I can keep getting points. That's not how works. If you're in credit card debt, forget about the points which are worth like $0.01. Tear up that credit card and pay that debt off. Second, it becomes very addictive to a certain type of person. They end up chasing points and points and points. And when you ask them what are you using all these points for? They just stare at you. They go, it's all about Marriott Platinum. I don't give a f about Marriott Platinum. They spend more time optimizing their credit card points than they do actually taking a vacation. If you want to get the free hotel upgrade, I don't mind. I've used points. It helps pay for flights. Fine, if you're already spending money, you might as well get some points. But don't let the tail wag the dog. Credit card points are not the ultimate goal of money. Living a rich life is. Personally, I only use two cards on the personal side, a cashback card and a travel card. In my financial life, I fight for simplicity so that I don't have to have six different cards for groceries and gas and this and that. Just simple and move on with your life. Number four, there is no reason to pay a financial advisor a percentage of your portfolio. Do me a favor. Text your parents right now and just ask them, hey, do you have a financial advisor? If so, do you know how much they're charging you? Most of your parents who have a financial advisor have no idea how much they're being charged. Like, Chet's so nice. Chet sent me a magnet last year for the fridge. It's so nice. Most financial advisor are charging a percentage of assets under management. That's AUM. And a typical number you'll see is 1%. 1% doesn't sound like a lot. 1% for somebody to keep an eye on my money and monitor the market. Well, let me tell you what that actually means. If you pay 1%, then over the course of a long lifetime, that 1% means you will pay 28% of your returns and in fees. Do you understand what that means? If you make a million dollars over the course of your life from your investments, take $280,000 and just hand it over in fees. That is shocking most people. Yeah. You watching this? You're like, how can that be? How can 1% equal 28%? Because 1% is compounded every single year. If you don't believe me, go online, search for investment expense calculator, and just plug in the numbers. You will see that 1% means you're paying about 28% in lifetime fees. 2%, which is really high, means you will pay over half of your returns in fees. Now, I don't have anything against hiring a financial advisor. I've actually hired one myself. I paid him an hourly fee, and I was happy to pay. Most people can probably manage their own finances on their own. Most people have simple financial lives. But there are certain situations and times where people might want a second set of eyes. Maybe it's when. When you're about to calculate when you should take your Social Security withdrawals. Maybe you are planning to save for your children's education. There are a few reasons with a large portfolio, fine. If you want a second set of eyes, you want to get a financial advisor. I'm all for it. However, pay them a flat fee or pay them hourly. There is no reason to pay a percentage of your portfolio. Number five, investing is actually pretty simple. Why do we fall for all this complexity? Thinking that we need to know what PE ratios are? Thinking that we need to watch all these TV shows every single day? That's not how it works. Investing is more like watching paint dry. You put your money in, you let it sit there for decades and you become very wealthy. It's only when people try to get clever, when they try to time the market or beat the market, that they tend to lose out. When I was in high school, I applied to over 65 different scholarships. And the first scholarship check I got, they wrote it to me, not to the school. They sent me the check. I was like 17 years old and I was like, cool tech boom, 1999. I took that money, I invested it in the stock market because I thought that's what everybody does, right? And I lost half that money immediately. That was a very, very cheap lesson that I learned. I learned that by picking individual stocks. That's not real investing, okay? Real investing is low cost, long term investing, things like index funds. Second, I learned that you've got to have a long time horizon, okay? Meaning I'm not trying to get my money out tomorrow. And third, leave it alone. Investments are meant for the long term. They're not meant for next month or next year. Number six, a house might not be the best investment. A lot of people still parrot what their parents told them. Buy a house, it's the best investment. I love something physical that I can hold in touch. I'm like, all right, if mommy and daddy told you that, fine. But will you just do me one favor? Will you please run a simple buy versus rent calculation before you spend a million dollars on the biggest purchase of your life? And then people get furious at me. Ramit, how dare you suggest that the American dream of buying a house may not be the best investment of all? Yeah, I'll suggest it because I actually understand the math. Listen, you need to first off calculate if it's better to buy versus rent. If you. In my case, I've lived in very high cost of living cities, and it makes financial sense to rent instead of buy. I've actually made more money renting over 20 years than I would have by owning. Why? Because I took the money that I would have paid for to own, which is like more than double what rent costs, and I invested it. That's thousands of dollars every single month for 20 years. That turned into way more money than any house would have been. But for most people, it's not as clear. Most people don't live in San Francisco, Louisiana, New York. But as of now, in the top 50 metros in America, it is more expensive to own than to rent. So before you buy, before you make any major decision, even a car, you got to run the numbers. Buying a house can make a lot of sense in certain cities, buying a house can also be the right decision for you, even if it's not the best financial decision. There are lots of different reasons to buy, but. But please, I'm begging you, please run the numbers before you buy a house, because it might not be the best financial decision or lifestyle decision for you. Number seven, paying your kids college fees when you can't afford it. I get the same message from parents every single week. They're usually 38 to 42 years old. They write me in a sort of frantic message and they go, just had a baby. I want to open up a 529. What's the right account? And I go, hold on, hold on. Congratulations. But first, tell me about your finances. And they always say the same thing. Well, you know, not in particularly good shape. You know, we started late, but I definitely want to open up a 529. What they are really saying is I lost the game of investing for myself, but I'm not going to let the same thing happen for my son or daughter. I have to tell you that as painful as it is, that is not the right way to. To think about your money. Remember that your children have time, you have far less. Okay, so what I first want you to do is take an honest inventory of where you are. Do you have money for your retirement? If you're maxed out, fully funded, if you know when your debt payoff date is, if you know exactly when you can retire and how much income you're going to have from your safe withdrawal rate at your retirement age, and you're good, fantastic. You have earned the right to put money aside for your kids. But if you don't know all those things, you're not ready. And in fact, you probably need to prioritize yourself first before your kids. Now, I understand you want to take care of your kids. I get that. But there are lots of ways to do that. That does not necessarily mean you need to take all the money you've got and put it aside for a 529 or other investment fund for your kids. First off, save for yourself. Your kids can take loans you can't later in life. Second, there are lots of other ways of creating generational wealth and helping your kids. One of them is simply teaching them how money works. But in order for you to teach them, you need to know yourself. So start with yourself first, then your kids come next. Number eight, we criminalize the poor and idolize the rich in America. In 2020, Nike made almost $3 billion. You know how much income tax, they paid zero. In fact, they got a $109 million tax rebate. Meanwhile, all their employees, hard working people, are paying their income taxes and doing their part to support all the social services and infrastructure in this country. And what's shocking is that most of us never think about this. In fact, instead of focusing on companies getting these incredible tax advantages, we focus on the poor and we stigmatize them. Think about what just happened. The Supreme Court ruling that just recently happened, it cleared the way for cities to enforce bans on homeless people sleeping outside in public places. We have criminalized being poor just because they don't have enough money. We've now made it a crime instead. We didn't guarantee them a right to have a roof over their head. We didn't put in place infrastructure so that they can go and get jobs. We didn't even make it easy for them to take a shower. No. What did we do instead? We said, you're now a criminal for merely being impoverished and you're going to jail. We get upset that our tax money is being wasted on people who are poor. But just with the flip of a coin, we could have been in that very situation ourselves. Meanwhile, we ignore corporations, politicians, and the ultra wealthy who are the ones taking far more than a little bit of tax money in social services. I don't like it. And I think that poverty, social mobility is something that we don't talk about enough when it comes to personal finance. All right, I hope you learned something from this video. Get you to start questioning what's going on with the current landscape. Make sure you click that subscribe button and turn on notifications. 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