Advice for anyone confused about money right now – The Cut | Vette Leader

Photo Illustration: by The Cut; Photo: Chris Newhard

Ramit Sethi’s factual book, I will teach you to be richbecame a New Yorker Times Best Seller in 2009 and spawned an eponymous one podcast, Newsletterand area of Personal Finance Courses who made Sethi very, well, rich. It’s easy to be skeptical about what Sethi is selling, but dig beneath his bold promises and you’ll find accessible, insightful advice on saving, spending, and organizing your money. He’s also something of an anti-financial guru, as he eschews jargon and doesn’t lecture people about credit card points and other trivia. Instead, he has a knack for breaking down broad financial concepts into real-world steps. That’s why I wanted to speak to him right now, at a time when money seems particularly complicated (inflation! Interest charges! Crypto!). Here we’ve discussed why such moments can be ideal to take charge of your finances and what that process can look like.

It’s a confusing time to make decisions about money. The economy is devastated everywhere, the pandemic is still happening – it just seems impossible to plan for the future. What is your advice on how to use this moment financially wisely?

I get over 2,000 messages a day from people of different ages and socio-economic backgrounds. In the last two years I’ve heard from people who have lost their jobs, loved ones have died, their weddings have had to be canceled – people’s expectations of how they imagined life has been completely shattered. But there was also this rare opportunity for people to take control of their money. I’ve noticed a tremendously growing interest in personal finance. Savings rates reached an all-time high. People actually saw the value in things like an emergency fund. In March and April 2020 in particular, they realized: “Oh my god, I know I should have saved, but I never really did. Now I understand. What can I do?”

Right. It was a moment of reckoning.

There are several defining moments in a person’s life when they decide to take control of their money – when they graduate from college, get married, have children, get divorced, get a new job. There are a few others. But usually it’s a high-stakes time when there’s an outside force compelling them to take stock. It’s the rare person who just wakes up and says, “I’m going to sit down and make a long-term plan with a low-cost investment strategy.” That almost never happens. Instead, something external causes us to say, “I have to do this now.”

When that moment happens, what’s the best way to use it? I think a lot of people try to dive in and then get overwhelmed and give up.

Well, you can read a book. I mean, the majority of people who complain about personal finance, who worry about personal finance, who feel guilty about personal finance, have never read a single personal finance book. It’s pretty easy. Many people ask: How do I become more confident with my money? Confidence comes from competence. To be competent, one must learn the basic language of money. This isn’t complicated stuff. The words are a little unapproachable. If it were me, I wouldn’t have called it a 401(k). The reason most people don’t engage with their money is simply because money is talked about in a restrictive and unattractive way.

I personally hold many financial media responsible for this. You tell people all the things you do tip do with your money – “No, you can’t buy jeans. No, you can’t go on vacation.” No wonder people are turned off. I want to use money to say yes. I want to tell people that they can spend extravagantly on the things they love if they mercilessly lower the cost of the things they don’t. That leads to prioritizing and designing and shaping what an abundant life looks like for you, which is different for each person. As you begin to dial into this concept, it becomes exciting and engaging, and makes you want to read about IRAs and investing.

But how do people actually go about finding out what they really want? It can be difficult to figure out — financially and otherwise. And it can change.

Most people have never been asked what a rich life looks like for them. And when I ask, I often get the same three answers. The first, by far the most common, is, “I want to do what I want, when I want.” And I say, “Okay, what do you want?” Be silent. Beyond that, they never thought. The second answer is a dollar value, such as “I want a million dollars.” I’m like, “Okay, where’s that number coming from? What makes you do that?” Silence, because of course a million dollars in Brooklyn is different than a million dollars in Kansas City. It’s different when you’re 30 or 60. Most people don’t know what to make of it. And then the third and most emphatic answer is, “I just want to pay off my debt.” That’s tragic, because no one has ever woken up and said, “Yes, I want my wealth to go to zero.” It’s uninspiring. It gives you nothing to work towards.

Instead, I want people to apply a creative vision to their lives. I want people to ask themselves questions like, “If I could have the perfect month, what would it be like?” These answers are often very simple, like, “Oh, I’d like to eat out once a week” or ” I would really like to go out with the family on a Sunday morning and go to the park.” That’s great. Write it down. Which park? What would you do in the park? People will say, “I want to travel.” Big. Where? I want them to say, ‘I want to go to Bali or Bangkok or New Delhi. I want to fly in this seat on the plane. This is the dish I want to eat in this restaurant. I want to take those people with me so we can have that experience together.” That generic “I want to travel and have some free time” is bullshit. A rich life is lived in the details, and that level of specificity allows you to inspire yourself and then create a plan for it.

How can this also allow setbacks? Or dealing with things that aren’t exciting, like debt? I know you want a concrete, realistic plan, but you also want enough flexibility so you don’t freak out if you can’t stick to it.

Yes. A good plan takes good times and bad times into account. You still want to have some general goals, but they can be small. When I moved to New York, one of my goals was to be able to take a cab in August instead of having to take the subway in 1000 degrees. When I could do that, it felt great. Then, as my investments and income grew, my goals grew, which is completely natural.

A common mistake people make when planning is that they focus on precision rather than simplicity. I don’t care how much you spend on lattes. What counts is the big picture. You need to know a few basic numbers. How much do I earn? How much do I save? What is my asset allocation? That’s a phrase most people don’t toss around with. More people should be talking about asset allocation than inflation. The asset allocation is worth over a million dollars to you. You can’t control inflation, so why worry about it?

A lot of people say, “But what if I have student loan debt or credit card debt getting over my head?” And I have two questions for them. First of all, how much is your debt? Did you know that over 90 percent of people who are in debt don’t know how much they owe? I don’t judge them; I understand completely. Why do you want to open this envelope? It’s only bad news. Like everyone, I have a few envelopes on my desk that I don’t want to open. The second question is when will your debt be paid off? Over 95 percent of people don’t know that. How could they? They don’t even know how much they owe. We all procrastinate on tasks we know we should do but don’t want to. Then, when we finally get to it, we’re like, “Oh my god, that only took 15 minutes.” The whole point isn’t to be like, “You’re bad because you don’t know the payoff date of your debt.” Instead, we have to say, “Why are you hesitating?”

I often ask people, “What’s the first word that comes to mind when you think of money?” And most people say, “guilt.” Or shame, safety or security. And if you ask, “What does that mean?” It might turn out that the person’s father lost his house during the Great Recession, and that’s why now they always think that if they make money, they will lose it. Wow. Once we’ve got that out of the box, we can ask, “Okay, do you know there are ways to be safe but also make money?”

I think we spend way too much time beating each other up for these tactical points like, “Why couldn’t I hit a budget?” You don’t need a budget. What you need to do is understand how you feel about money and what your rich life looks like in vivid details that excite you. Then let’s talk about how to use your money to get there.

What else would you wish more people would understand about today’s financial climate? Is there a question you are fed up with?

Oh dear God. I get this question so often: “Should I invest in crypto? Should I invest 99 percent of my net worth in crypto?” Here’s my answer: stop reading the gambling addicts on Reddit, they’re mostly broke losers. Grab a good book and learn the fundamentals of personal finance. Once you dial in all the basics, if you want to take 5 percent of your money and have fun with it, be my guest. But until then, stop gambling. You need to get the basics down first.

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