You’re Following the Wrong Money Advice (and It’s Costing You Millions)

You have been lied to about money for your entire life. And the worst part, the people who lied to you actually thought they were helping you. Parents, teachers, even the so-called financial experts on TV. Now, I have heard the same outdated advice about money for over 20 years now. Buy a house. It's the best investment. Cut back on coffee and you'll be rich. Credit cards will ruin your life. In this video, I'm going to expose the 7 biggest money lies that I see costing you hundreds of thousands of dollars in future wealth. And I'll share what actually works to live your rich life. No more feeling stuck. No more feeling stressed or broke, even when you're doing everything right. So let's dive in now. Money Lie #1: If you don't buy a house, you're throwing money away on rent. How many of us have heard this phrase? Maybe from your parents at Thanksgiving, maybe from your uncle who bought a house in 1987 for $80,000. This is what they'll tell you. Rent is throwing money away. You're just paying your landlord's mortgage. At least when you buy, you're building equity. These phrases are so deeply embedded in American culture that they're practically law. Guys, renting is not throwing money away. You know what is throwing money away? The interest that you never actually accounted for. I'm going to show you the actual shocking numbers right now. When you take out a 30-year mortgage, how long do you think you'll be paying more in interest than the actual cost of your house. For the first 20 years of your 30-year mortgage, you will be paying more in interest than towards the actual principal of the house. So while people are talking about building equity, what they're actually doing is pretty much primarily paying the bank. You know what I would rather do? I'd rather take that money and invest it and make more for myself. And you can do exactly the same. What I just showed you demonstrates that when people say they are throwing their money away on rent, you could more accurately say homeowners are throwing their money away on interest. Have you ever thought about that? Try saying that to your friends next time they tell you you're throwing your money away on rent. Just literally go to them. You know what? I'd rather not throw my money away on interest. They will be so confused because they don't understand the math. They've never actually looked at a simple amortization table. They have a childlike understanding of money. They literally think buy a house, build equity. But there's so much more beneath the surface. And there are other reasons to consider renting. When you pay rent, you're paying for value, a roof over your head, flexibility to move for a better job. And if something breaks at 2 a.m., you're paying for someone else to deal with it. Now, there's also a cost-benefit to renting over buying. Because in many cities across America, it is actually cheaper to rent than to own. In fact, that is true in 100% of the top 50 US metro cities right now. This is why I have been renting by choice for the last 20 years, and I've actually made more money renting than owning. Let me say that again because most people can't believe it. I have made more money renting renting in better locations, renting better properties than I would have by owning. Meanwhile, homeowners are dealing with surprise repairs, annual property taxes, and often spending part of their weekends at Home Depot. Now, I'm not against buying a house. I just want you to carefully run the numbers. My wife and I will buy a house someday. I'm sure when we do, it's gonna be a horrible financial decision, but there are other reasons besides numbers to make major financial decisions. Remember this. Rent is the maximum you will pay each month. Your mortgage is the minimum. Money lie number 2: you need to track every penny. Financial experts love to tell you to create a budget, which they themselves don't even keep, and break down your categorization of spending into 47 different categories. Log it, color code it, and God forbid you do not track how much you spent on gummy bears last month. And you know what? People try. They really do. They set aside time. They spend hours categorizing transactions for about 2 weeks, and then they stop. Life happens. You forget to log a few purchases. You fall behind and you give up feeling like a failure because you can't even stick to a budget. But what if the budget is the wrong strategy altogether? Budgets get it backwards. You don't need more control. You don't need more tracking. You don't need more time managing your money. You actually need less. The people who are most successful with money are not sitting there every night updating their spreadsheets. That is playing small. The most successful people set up a system once, automate it, and then get on with their lives. And I personally do not have a budget. I haven't had one in over 20 years. You know what I do instead? I use a conscious spending plan. Here's how it works. You break your money into 4 simple categories. Set it up once and then move on with your life. Here they are. Fixed costs, 50 to 60% of take-home pay. This includes things like rent or mortgage, utilities, debt payments, insurance, car payments, groceries, the things you need to keep the lights on. Next, investments, 5 to 10%, although the higher the better. This is where real wealth is created. So set these up to automatically transfer before you even see it. Next, savings, 5 to 10%, although the more the better. This includes your emergency fund. Maybe saving for a down payment, a vacation fund. And I recommend you schedule this to happen automatically so you don't even have to think about it. And finally, my favorite category, guilt-free spending, 20 to 35% of your take-home pay. And this includes things like eating out, delivery, travel, clothes, entertainment. You don't need to worry about tracking the price of pickles because you've already hit your other 3 key numbers. You can spend whatever is left guilt-free. That's it. 4 numbers and you are golden. Now, I've looked at thousands of people's finances on my podcast, newsletter, and throughout my work. You know what I see? People often spend their time tracking their groceries and every little expense, but they actually have no idea how much they are overspending on the big numbers. They're obsessing over whether they spent $4.50 or $5.25 on coffee, but they have no idea that it is their car payment and mortgage that are financially destroying them. Stop asking $3 questions, please. I am begging you. Start asking $30,000 questions like, are my fixed costs under 60%? Am I investing at least 10%? Do I have a 6 to 12 month emergency fund? These are the numbers that actually matter. You could spend your entire freaking life tracking the price of pretzels and it makes no difference. So set up your conscious spending plan. Sometimes people spend so much time focusing on what is in front of them, like the price of coffee, that they neglect the important things that could totally derail their rich life. For example, have you ever heard anyone whose personal information got leaked? Like, try it right now. Go to Google, search for your name and add your city. You can probably see your name, email, phone number, home address, even your family members show up on random sites. It's actually shocking to see how much of your life is out there for anyone to find. This is not an accident. There are data brokers and people search websites that quietly collect this information and sell it to anyone with a credit card. And when your information is out there, you are more exposed to spam calls and phishing attempts and scams, even identity theft, which can undo years of your work building up your finances. It's also incredibly annoying to be getting tons and tons of random phone calls. That is why I use DeleteMe, this video's sponsor. DeleteMe is a hands-free subscription service that goes out and removes your personal information from hundreds of data broker websites. It's basically a system that protects your privacy so you don't have to spend hours trying to track this stuff down manually yourself. And I understand this because I have books and a Netflix show. I don't want all of my information floating around out there, so I personally bought DeleteMe for myself. And even for my parents, because I know parents are more vulnerable to phishing and scam attempts. Delete.me has been the leading expert in personally identifiable information removal for over 15 years. It just recently got named by Wirecutter as the number one data removal service. When I log into my Delete.me dashboard, I can see which sites had personal information, what information the agents found, and confirmation that it's been removed. It's like watching dozens of little fires get put out without you lifting a finger. If you want your personal information removed from the web, go to joindelete.me.com/ramit and use code Ramit at checkout for 20% off a plan for you or your entire family. The link is also in the description below. All right, now let's get back to money lies keeping people broke. Money lie number 3. Stop spending money on coffee. Have you ever heard a financial expert tell you something like this? If you just stop buying lattes every day and save that $5, in 30 years you'll have $100,000. What the hell kind of advice is this? I find this trope so tired, so old, so lazy, as if young people are just sitting around splurging on $5 coffees and that is why they cannot buy historically expensive housing. What it really does is it is a lazy way for typically older people to look down at younger people and say, "You're so irresponsible." It's just lazy. And the biggest result is more people walking around feeling guilty every time they buy a coffee. This is what I call the frugality trap. The idea that if you just deprive yourself enough, just restrict yourself enough, just feel bad enough, somehow you'll become successful. Wow, now that I think about it, it sounds quite similar to a lot of the religion in America. Let me be blunt. Cutting out coffee is not going to make you rich. I'm rich, and the reason I'm rich has zero to do with coffee. It has much more to do with automatic investing, automatic saving, building a high salary, and in fact, if you go way back, being lucky enough to be born to two educated parents. You know what cutting out coffee will do every single day as you feel guilty about it, even though you really want it? It'll just make you feel miserable. Be honest. Are you really going to take the $5 every single morning that you restricted yourself from spending coffee on and then turn around and invest it? Of course not. You're going to try it for 3 days, you're going to feel like shit, you're going to feel guilty, and then you're going to go, this fucking sucks, I'm such a bad person, I'm going to buy my coffee anyway. It's literally the worst of all worlds. Let's say you spend $200 a month eating out and buying coffee. Let's say you cut all of it out, you meal prep every Sunday, you bring your lunch to work every day for 30 years. Okay, amazing. You would save maybe $72,000 over your lifetime. But do you know what else would save you $72,000? Or in fact, way more? Negotiating one salary increase or buying one car that is $10,000 cheaper or refinancing your mortgage at the right time. These are one-time decisions that can save you massive amounts of money. And you can literally set that savings to be automatically invested and grow it even more. But nobody likes to talk about that when they go on TV or they go in some magazine because they're not as easy to make you feel ashamed about. You should feel ashamed for that coffee in your hand. That is the reason that you cannot buy a house. Like, what are you talking about? How can that be the core message of the personal finance industry? If you love your morning coffee ritual, get the coffee. If you like trying new restaurants, go ahead. For most of my life, I drove a 2005 Honda Accord. I don't care about cars. So I saved tens of thousands of dollars there and I redirected it to things I actually loved, like taking my wife on a 6-week honeymoon. Stop agonizing over whether you should get freaking potstickers for your appetizers. Focus on big wins like lowering your investment fees, which will save you hundreds of thousands of dollars over your life. And then once you've saved that money, set it aside, invest it, spend it on the things you love. Money lie number 4: Avoid credit cards. I don't know about you guys, but I don't like to treat my viewers as stupid. I like to treat you like adults. And I believe that if we talk about how to use credit cards responsibly, even how to get perks out of them, you will do the right thing. And sometimes mistakes happen. Sometimes you will go into credit card debt. You will fix it. You will get out of credit card debt. And instead of trying to avoid things because they're scary, that you will become strong enough to deal with what life throws at you. Let me explain. Credit card companies do want you to carry a balance. They do charge very high interest rates like 27%. They do make billions of dollars off of people who don't pay their bills in full. But this money lie— just avoid credit cards because they're evil— is too black and white, in my opinion. Credit cards do not have to be dangerous. They don't have to trap you in debt. This is like saying riding a bike is too dangerous because somebody fell off and they had a spinal injury. So you should not ever ride a bike or go bowling or get in a car or go skiing or any of it. No, we want to handle those things responsibly. We do not want to try to avoid scary things in life. We want to get strong enough that we can deal with all of them. And in fact, credit cards are actually one of the most powerful financial tools you can use. If you pay them off in full every month and if you use the conscious spending system that we discussed earlier. Now, I've spent millions of dollars on credit cards for my business personally. And do you know how much interest I've paid? Zero. Well, I think I did have a couple of months where I had a late fee and I was fucking pissed. Of course, I get them removed as much as possible. There are a couple of times where I had to pay the interest charge. I was like, this is embarrassing. But in general, for over 20 years, credit cards have paid me. Thousands of dollars in cash back, many, many credit card points that I've used to travel around the world. And these benefits are so powerful that many people don't even know about how big they can be. I'll give you an example. I recently used points to fly from the US to India and then to Italy and then back home. That was $60,000 worth of business class flights for my wife and for me, completely free. We also get automatic warranty doubling. Did you know about this? If you buy an iPhone and it breaks after Apple's warranty expires, your credit card will cover it for an additional year. Purchase protection. If you buy something and it gets stolen or damaged within 90 days, many cards will replace it, sometimes even if it gets lost. But more importantly than these perks, credit cards help you build credit. And a good credit score comes in handy a few times in life. The important times when you are buying a house or a car. That is when good credit is worth tens of thousands of dollars in lower interest rates. So please reject the false choice between going into credit card debt or avoiding credit cards altogether. I don't want you to avoid things in life. I want you to become strong enough to handle all of them. I use credit cards for almost everything, but I also have my credit card set to automatically pay off the full balance every single month. If you don't carry a balance, You never pay interest. The credit card companies actually have a name for customers like me. Deadbeats. Because we don't make them any money. Good. I want you to be a deadbeat, at least for credit card companies. Now, if you are currently in credit card debt, you took a wrong turn somewhere, my friend, but you're going to fix it. Your first priority is to pay that off aggressively. And once you are out of debt, in my opinion, I would not encourage you to cut those cards up. Instead, I would encourage you to learn to use them correctly. Figure out where you went wrong and then fix it. By the way, this video just touches on the surface of building your rich life. For those of you who want to take this a step further, you want to build a complete financial system for your rich life, you can join me and my team in our money coaching program. You will see exactly how to get started and how to make huge changes within 48 hours to take total control of your money. You can check that out using the QR code here or I'm gonna link it in the description below. That is my money coaching program. I will see you inside. Money lie number 5, investing means you need to pick the next hot stock. Have you ever felt FOMO from hearing about your stupid high school friend's crazy investment returns? You know, this guy could barely remember to breathe every day, and yet he suddenly bought Bitcoin in 2016, and now he's sitting there telling you, oh, look at me, I got my fucking Lambo. And you're like, I hate my life. How is this possible? I made 200% on this one investment. Crypto's crazy, bro. Or the market's about to crash. You need to move to cash like I did. Now, there's a common misconception that picking that one winning investment is going to solve all of our money problems. And if we are just smart enough, we can predict the future and buy at exactly the perfect time. But if there's one thing I know about the investment world, there's a lot of liars in it. See, when your cousin tells you about how he made $5,000 on some crypto altcoin, He's not going to mention the 10 other coins he bought that went to zero or the thousands of other people who lost everything chasing the same dream. This is classic gambler shit. Gamblers only talk about when they win. They never talk about when they lost. And most of them don't want to add up all the expenses involved in doing these trades and gambling, because if they actually took an honest accounting of how much they've spent and how much they've made, they would realize a lot of them could have made just as much or more by buying a simple index fund and getting on with their life. So here is the simple investment strategy that has earned me many millions of dollars. Consistent long-term investing in low-cost index funds. That's it. No hot stock tips. You don't even have to pick stocks. I personally don't invest in crypto, although if you want to as part of a well-diversified portfolio, go ahead. No crypto in my portfolio. No market timing, just boring, automatic, diversified investing over decades. Now, over any meaningful time period, the stock market has gained money and quite a significant amount. The average return is about 10%, or once you subtract out inflation, roughly 7 to 8%. That means your money doubles roughly every 7 years or so, at least at the nominal level. But here's the catch. You actually have to stay invested. You cannot panic and sell when the market drops. You can't try to time when you get in or out. There's actually a famous study by Putnam Investments that looked at 15 years of market returns, and they found something shocking. If you missed just the 10 best days of investing during that 15-year time period, your return dropped to 2.96%. That's basically matching inflation. That means you lost a ton of money. Here's the point. You can't predict which days are going to be good or bad. Oh, and what if you missed out on the 30 best days? Your returns actually go negative. You will lose money. Do you see the point I am making? They buy at the wrong time. They sell at the wrong time. It actually costs them hundreds of thousands of dollars over their lifetime. You know what? You don't even have to play this game. Instead, just keep investing. You don't need to worry about buying and selling. Focus on time in the market, not timing the market. Now, I know it's not as sexy. You got people moving around. I'm buying, I'm selling. I've read this thing on CNBC. But 30 years from now, when your cousin has blown up his account 3 times, meanwhile you have millions of dollars, you will be the one living your rich life. In many ways, investing needs to be slow, calm. Now, before we move on to money lie number 6, I I have noticed 51% of you watching this video right now are not subscribed to this channel. I want you to hit that subscribe button, turn on notifications so I can keep showing you how to apply money to your rich life. Okay, now let's talk about money lie number 6. You need a financial advisor to manage your money. Do you feel like you want to just outsource your money so that someone else can be in charge of it and watch what's going on in the market and tell you if anything is wrong? This is tempting. But for most people, it is the wrong decision. Let me explain, because you probably outsource getting your oil changed. You might outsource having your backyard lawn mowed. We outsource certain things in life, but when it comes to our money, most of us have no idea how much it would actually cost us. Now, financial advisors love phrases like wealth management and portfolio optimization. Often the goal is to make investing feel like some mysterious art that only experts can master. And then often they charge you 1% of your assets every single year. Now, it's just 1%. A lot of people think, oh, that's not bad for someone to be monitoring what's going on. Let me ask you, does that sound like a little bit or a lot to you? To me, a 1% fee is astronomical. It means that you are quietly losing hundreds of thousands of dollars in fees. And I want to show you the math to show you how devastating that small 1% fee actually is. Let's say that you started investing with $25,000 at age 30. Let's say that you invest $500 a month. Okay. Just keep it consistent with a 1% advisor fee over 30 years at a 7% return, you would end up with about $653,000. Okay. But what if instead of paying a 1% fee, you put that same amount into a low-cost index fund that charged you 0.1%?, you would end up with $795,000. That advisor just cost you $142,000. Now, it might feel like you need an advisor, and there are certain people for whom an advisor makes sense. You have a complex situation. Maybe you have stepchildren. Maybe you want to do full-scale financial planning, estate planning. Okay. Or you have a large portfolio. There are certain tax consequences. You want them to interface with your accountant. Okay, but lots of people have a very simple financial setup. And here's what you need to succeed on your own. First, contribute to your 401(k) to get the employer match. Second, max out your Roth IRA. Third, invest in a low-cost index fund or target date fund. Target date funds only within retirement accounts, not your taxable account. Finally, automate all of this with your conscious spending plan. Now you can set this up yourself in a few hours using my book, or you can join my money coaching program. Now, again, I'm not saying all financial advisors are bad. I myself have hired a financial advisor to give me a second set of eyes on my asset allocation, but I would never pay a percentage ever. Do you all pay a percentage of your net worth for someone to mow your lawn? No. Do you pay a percentage of your portfolio to your personal trainer who offers comprehensive training on an ongoing basis that is personalized for you? Of course not. You pay them $100 or $150 per session. So why, oh why, would we pay a percentage of assets under management to a financial advisor? It makes no sense. I am philosophically against it. Money lie number 7: To earn more, follow your passion. You all need to stop talking about passion so much. Just take that word, say it, put it in your head. Passion. Passion. Get the fuck out of here. We're not going to talk about that for the next 30 days. Too many of us quit stable jobs to pursue our dreams. We start passion projects that never make money, and we sit around waiting for inspiration to strike. In the meantime, your bank accounts dwindle, and when it doesn't work out, you blame yourself. "I guess I just haven't found my true passion yet. Oh, where is it?" A lot of us think that we have to wait to find passion and then it will lead us to money. In fact, the opposite is often true. You don't start out passionate about something. You start out, get good at something, and then become passionate. Like, a lot of people will say, I'm passionate about photography, so I'm going to be a photographer. Okay, great. But are you passionate about marketing yourself, dealing with difficult clients, editing photos at 11 PM on a Friday night? How about the business side of taking photos? Because that's what actually determines if you will make money. Maybe you're great at organizing things. You could become a professional organizer and charge $150 an hour. Maybe you're good with numbers. You could do bookkeeping for small businesses. And you know what makes you passionate about that? Getting paid a lot of money to help small businesses succeed, then being able to take that money and go on a freaking awesome vacation. Or do you understand social media? Maybe you can be paid thousands of dollars to manage a company's accounts. I have paid social media people to do that for our social media. And here's the beautiful part. Once you're earning good money, that gives you freedom to explore your passions. You can build a rich life that works for you. Take a cooking class, travel, work on creative projects without worrying about whether they will pay the bills. So my suggestion is stop waiting for passion to strike like lightning. Instead, ask yourself, what am I good at? What could I get better at? What would people pay me for? Answer those questions, build those skills, and the money will come. And once that money comes, you know what follows? Freedom, options, and a rich life that you are passionate about. About. I want to take you deeper into one of my favorite financial misconceptions, so check out this video next where I dig into the fascinating culture of the early retirement movement.