Ramit Sethi on Personal Finance

“And then there’s courage as well. There’s courage to say ‘Maybe I haven’t learned the skills of money, but I’m gonna start today.’” – Ramit Sethi

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Ramit Sethi (@ramit) is an entrepreneur and an expert in personal finance. He is also the author of I Will Teach You to Be Rich: No Guilt. No Excuses. No BS. Just a 6-Week Program That Works. He talks with Mark today about how to manage personal finance.

Learn how:

• Time is of the essence: through compounding, money saved earlier can be the most valuable
• Investing is neither exclusive to the stock market, nor is it “gambling” with your money
• Focusing on the “Big Wins” over worrying about having an extra coffee

Listen to this episode to hear more about how you will be able to manage your money more effectively

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Transcript

Hey folks. Welcome back to the Unbeatable Mind podcast. This is your host Mark Divine.

Thanks so much for joining me today, where we’re going to forge Unbeatable Minds together by building self-mastery and service to humanity. My guest today Ramit Sethi, I’ve spoken to before like four or five years ago and Ramit is an interesting fellow. Like, he’s got a very diverse perspective on life and a few unique expertises.

And one of them is to help people really kind of dominate their finances. Get on top of the financial freedom train as opposed to being trapped in slavery, right? Like which is the current problem for a lot of people.

I’m going to introduce him a little bit more in a second. I’m super excited for this, also at a personal level, just because I’ve got a lot of questions.

But a lot of people are in turmoil right now and I’m sure Ramit and I will talk about this. But going from COVID and then the lockdown and all the fear and fear mongering’s behind that. And then all of a sudden all the racial injustice and insensitivity… or all the conflict around that. And people are wondering what the heck is going on?

And if I could just offer that one of the ways to deal with the stress is to breathe into it and disengage from it. So develop and stay on your breathing practice every day, because that’ll help bleed off the stress and allow you to maintain a balanced body.

But then also consider that you can have a balanced mind and perspective as well. So it never helps to get caught up in fear and then to fight fear with fear.

It actually 20x’s the fear, right? If you engage negative energy with that same level of consciousness energy, then it magnifies it.

So consider the perspective of courage and acceptance, forgiveness and love. And that’ll help disengage from the fear which will free up your mind to think from a higher perspective. So there’s a lot of clashing going on and a lot of people not listening. And a lot of people shooting others down for their opinion, which everyone has a right to.

And it’s all because everyone’s clashing from the perspective of fear feeding the fear wolf. So at Unbeatable Mind, we really encourage you to constantly feed the courage wolf. Which means to get in your heart, get out of your head. Fear resides in your head.

This definitely plays into financial planning, right Ramit? I mean, fear-based decision-making when it comes to financial planning leads to selling the drop, right? And stuff like that there’s so many ways that fear just destroys financial health.

Ramit: Yeah, I think with money two of the words you used really stood out to me – courage and fear. And those are not words commonly associated with money, but I think each of us – if you’re watching, if you’re listening we can all think of a time when we were afraid of money. And one of the simplest examples is just looking at our bills at the end of the month and saying “I guess I spent that much.”

And another fear is “I’m never going to be able to afford to do that thing.”

And the final sign of fear is really a sense of resignation “that’s it, I can’t do it.”

Mark: Right, that’s like surrender. “I give up”

Ramit: Yeah. And then and then there’s courage as well. There’s courage to say “maybe I haven’t learned the skills of money, but I’m going to start today.” There’s courage to admit that maybe you haven’t made the best decisions in the past, but that’s okay we all start from a different place. I’m gonna embrace it today.

There’s also the courage to say, “You know what? I love to spend money on this or that. I love to buy nice clothes, I love to travel, I love to donate charitably.” Whatever the case may be…

And to really be unapologetic about it. That is very rare…

Mark: Unapologetic, not transactional – don’t do it for the tax write-off or to look good to your partner or the social structures around you. But do it from your heart. I agree with that.

Now Ramit, you started your website and your kind of first business, which became a best-selling book – in college, right?

Ramit: Yeah.

Mark: And I love it. Every time I read it “I Will Teach You to be Rich,” it reminds me of Napoleon Hill and his book “Think and Grow Rich.” And why so many people miss the brilliance of that because in today’s day and age that sounds like a “gotcha” title – and I think probably the reason that he wrote it is back in the 20s yeah people wanted to be rich. Now it’s like “ooh,” you know.

Ramit: Yeah, well first of all thank you for the comparison. I mean that is a classic and it’s a terrific book. And I also want to admit that the title of my book “I Will Teach You to be Rich” – sounds like a huge scam. I know it, you know it, we all know it. Sounds crazy…

And yet, when you start reading it you realize that of course money is an important part of a rich life. But it’s a small, but important part. We could be a multi-millionaire, but if we don’t actually know what to use that money for then we’re not rich. We could be making five hundred thousand dollars. Not rich.

There’s so many ways that we can live a rich life using money, but also adding other parts to our life and that’s what I look for.

Mark: That’s right. I think it helps like words sometimes get debased in society, but rich… when you look at it and you stand out a little bit – like, we’re talking about richness like fullness, wholeness and you use the term like “boy, that was a rich experience,” you’re not talking about money.

You’re talking about the wholeness of the experience. And so I don’t know the exact etymology of the term rich, but I think it’s really just society just encrusting and layering onto it poor belief systems around what money really is. And to me money is just a representation of value and service delivered.

Ramit: That’s right.

Mark: And that’s great, but then… so sometimes it’s the value and service that your grandfather delivered and it’s been handed down… you just kind of forget that the money had to be made somehow, somewhere…

Ramit: That’s right. That’s absolutely right. And to learn what that money means to me, we also learn that it’s different what it means to you.

So, I’m going to give a couple of examples here. When I was in my early 20s, a rich life was to be able to go to a restaurant and order an appetizer. That was rich, because growing up, I had two immigrant parents… we never ever ordered appetizers.

Then it became a little bit bigger… “Okay, I can hop in a taxi instead of having to take the subway on a sweaty day going to a meeting.” And of course, as my business grew, as I got more experienced with money, it grew even more, you know “I want to take a six week trip every year.” Okay great “I want to donate more.” Great.

But I think for each of us, it’s different. For some people it’s “I want to never have to think about the cost of sending my son or daughter to a private tutor. Or some kind of coach.”

It’s different for everyone, and the more you dial in your rich life, the more it will be different from everyone else’s. And that’s exactly how it should be.

Mark: Right. How much do you think – I kind of feel like I know the answer to this, but I’m curious – how much do you think richness and wealth is really just an energetic attitude. Like, abundance versus scarcity. Do you really think like that whether someone feels rich or not is going to determine their financial success in life?

Ramit: No, I think that it contributes to it, absolutely. I think attitude certainly matters. But there are plenty of very positive people with great energy who don’t have either the opportunity or make the decisions that will enable them to accumulate specifically financial wealth.

With that said there are plenty of people who are not millionaires, who are living a very rich life. I will say though that when I read emails every day I have an email list of hundreds of thousands of people and I email them and I ask them to write back to me. So I read every email, every DM that comes in through Instagram.

And you can tell who’s not going to make it.

Mark: Interesting.

Ramit: You can’t necessarily tell who will, because there’s luck involved and there’s time involved…

But you can tell. For example, if someone says “all rich people are evil” – it’s going to be very, very difficult to overcome those deeply embedded…

Mark: Right, they’re projecting a negative association with money into the world there.

Ramit: Right. It can be changed, but it’s very difficult to change that core belief. Think about it we get those beliefs from being five years old sitting around the dinner table and hearing our mom or dad say something like “we don’t talk about money in this household.”

And so 35 years later you realize you’re avoidant with money because of something mom said way back then. So that’s what I want to open up the conversation about.

Mark: And to be fair. It’s really important — I’m just making this up, but I doubt you started this business for this reason – but financial, anything around finances, relationship communication, and health – those three things are the big, big triggers for people in life that cause major, major turmoil.

So by helping people understand the belief systems that are holding them back, or getting in the way, or keeping them stuck is actually a form of emotional development. In money.

So you can use money as a form of emotional or even spiritual development.

Ramit: Yeah. That’s exactly why… first of all, that’s why I really enjoyed our conversation last time because it connected on a level deeper than dollars. It was much deeper than that.

And I think money is a great way to slip in true self-development. See everybody has money… everybody doesn’t really know how to use money correctly. We’re not taught about things like the Rule of 72, and asset allocation – all these things that seem very confusing.

But if you learn it – what I find is that my students who read “I Will Teach You to be Rich,” they go on to take the same success and it drips into their fitness, it drips into their careers, into their relationships… and that is very rewarding.

Mark: Right, and it removes a major source of friction, which leads to more freedom, which leads to more time to explore say spiritual pursuits or physical fitness.

Yeah, yeah. Money really does play an outsized role I think in people’s lives. And of course that’s the way our economy is structured, right? If we were just bartering, we probably wouldn’t worry about it so much and maybe we’re going to be that way when the government collapses.

(laughing) I’m just putting it out there. It’s not looking good.

At any rate you mentioned that you were a son of Indian parents who immigrated here. What were their beliefs about money? And maybe like, how was that influenced by the Indian culture?

Ramit: Huge, huge influences that I have inherited and learned from. Some of them I still agree with, some of them I’ve changed my views on.

I remember growing up my dad worked and my mom stayed home with four kids and I remember so many small things.

I remember that when we went to the grocery store, we would never buy pre-cut vegetables. Because it was too expensive. So it was always sort of optimizing for what was the cheapest. And yet the food tasted amazing. We didn’t necessarily have to get the most fancy organic chicken, but the food was amazing.

I remember that we ate out maybe once a month maybe once every six weeks. It would usually be at a pizza place where we had a coupon. And it was like a special occasion. It was really special.

I also remember that our vacations were basically to drive down to southern California and visit family. That was what we did for vacation.

So what I learned from that was frugality. I learned that you can stretch a dollar. Later as an adult I asked my parents like “how did you pay for all of us to be involved in sports?” We were playing all kinds of sports.

And I learned all these things I had no idea about. My mom had called up the local soccer league and had told them, “I have three kids of age in the soccer league. It’s too expensive for us to pay all these fees, what can you do?”

And they told her “if you come and chalk the field before the game, we’ll waive the fees.” I didn’t even know this until my 20s. My mom was going out there chalking the field, so that we didn’t have to pay the fees.

From that I learned there’s always a way. There’s always a way. And then I would say I learned some things that I don’t necessarily agree with anymore.

I remember once we were walking in some kind of gym, and there were some people sitting behind a desk and the glass door. They were the personal trainers. And I said, “Who are those people?”

And I was told “they’re just there to take your money.” As if a trainer or anyone who charges a premium price is sort of trying to get one over you.

And now I don’t agree with that at all. I think you do get what you pay for, in many parts of life. And sometimes it’s absolutely worth paying for the best. And I actually have a personal trainer, and I’m so glad that I do.

So I think I’ve changed my views on some, but I’ve been profoundly affected – mostly positively.

Mark: You tell a story about your father in your book, and his negotiating skills. And how that influenced you. Let’s talk a little bit about his way.

Ramit: We love negotiating. And we grew up in a culture – even here in America, but certainly in India – where negotiation is not seen as an adversarial thing. Here in America, we hate it, we hate it.

Mark: We hate it. Except for certain pocket cultures like certain places in New York City, there’s some haggling going on.

Ramit: Exactly. But to us it’s just a matter of doing business. Now what I learned is you can negotiate respectfully. Negotiation is a dance you’re never entitled to get a lower price, but you can certainly ask.

And when you’re negotiating – especially thinking about a shopkeeper in the markets of India – they are way smarter than you are. You are never going to get one over that shopkeeper who’s probably – his family’s been working there for generations.

I also learned you want to negotiate appropriately. If you go to a three-star restaurant, you’re not going to negotiate the price. That makes no sense.

But if you’re at a flea market it could make perfect. Sense so it’s all about the context. It’s also about just asking what you want for. So much in life is just getting clear what you want for and asking for it.

Mark: I agree.

I guess the question I have is what spurred you to start the website and kind of go down that path in college? Where’d that come from?

Ramit: It is weird for a 20-something guy to start writing about money and personal finance. So there was something that caused me to do it, which was my parents had told me that I needed to get scholarships to go to college. Because of course, we value education a lot, but they didn’t have the money for us.

So I’m a systems guy. I like to build systems that I can replicate. And I built a system to apply to about 65 scholarships. And I ended up getting my way paid through undergrad and grad school.

And my parents were thrilled. I took the first scholarship check which they wrote to me as a 17, 18 year old kid – and this is at the height of the 1999 tech boom – and I invested it in the stock market. And I thought “that’s what everybody does. I’m a genius.”

And I promptly lost half that money. And I was humbled. And I realized I didn’t really know anything about it.

So I started learning about investments. I started reading all the books watching the shows.

And at the same time I was studying persuasion and psychology in college. Really the academics.

And after getting deep in it, what I realized is that so much of what we learn about money is hype. It’s designed to sell ads. It’s showing traders trading on these 20 screens on their desk, but really the core fundamentals to growing your wealth are simple, boring, and just based on pure consistency.

And now it reminds me so much of the physical fitness world… you can turn on any Instagram and you’ll see a million different supplements, and all these weird workouts. But ultimately what matters is showing up, having a program, following it every day. And if you don’t feel good you still show up and do what you can.

Money, fitness. So many similarities. So that’s what got me started.

Mark: Yeah, cool. So what are those four fundamental principles?

Ramit: The first thing that is really important for people is to know that you… a lot of people say “I don’t have enough money to start investing.” And it’s actually the reverse that’s true. The way that you grow your wealth is to get started investing. So that’s number one.

The second is you don’t…

Mark: Wait… hold on there… so get into that a little bit deeper. What does that mean practically? Just try to earn a little bit more, so you can save? Instead of just saying take away ten percent when you already can’t make ends meet?

Ramit: Yeah. Okay, that’s a good question. So let’s start with somebody who’s like “okay, that must be nice, but where am I supposed to find the money to invest?”

The usual advice that people get with money is to cut back on lattés, and to take these three dollar expenses and just spend all your energy focusing on that.

I don’t believe in that. I believe in focusing on the big wins. So there are usually a few areas of your life that you can cut back on – I call it the CEO strategy – cut back, earn more or optimize your spending.

Mark: Okay.

Ramit: I actually think right now is a good time to talk about this, because a lot of people are under some pretty severe financial strain. So maybe we can speak to them.

And then there are folks who have money and they don’t know what to do with it. We can speak to them.

Mark: Perfect.

Ramit: So if you’re under some financial strain – maybe you lost a job, maybe you took a pay cut – the obvious first thing to do is to really cut back on any of your any discretionary expenses that you possibly can. I’m not going to belabor this point, because most people know what they can cut back on. Their food expenses, and etc.

I think a bigger opportunity for people is skip to that CEO strategy – the “O”. There’s a lot of companies you’re already transacting with that will actually give you quite a bit of money back if you make a phone call. This goes back to my parents and what they taught me.

So there’s five areas I want to share with people – these are five companies you can call up today – and sometimes that you will actually get a thousand dollars on the call itself – let me tell you what I mean. Your cable company, your cell phone company, your credit card company, if you owe any credit card debt, your student loan company, if you have a student loan. And finally your landlord.

You call them up and if you’re under financial stress you can say “hey, COVID-19 is making it difficult for me. I’d like to see what options you can offer me.”

So my readers have done this. A lot of them have sent me their notes from their calls. Some of them are getting 60-70 bucks a month refunded or waived, right off the bat. Like, with their cell phone. That’s 700 to 800 bucks a year just from one phone call.

Mark: Permanently? Temporarily? Have to pay it back?

Ramit: It depends… no, you shouldn’t have to pay it back. Your landlord is one where… that’s your biggest expense, typically. And so those are a little varied. Sometimes landlords are saying “okay, I’m gonna cut your rent by x percent.” Some of them are saying “I’m giving you a two-month pause on your payments.” You may have to pay it back.

Some are just waving it entirely. It just depends on your relationship with your landlord.

But things like your cell phone company, they have the discretion especially if you speak to their “retention department” to give you huge discounts. And that money is just money saved right off the bat.

Mark: Interesting. It brought up… I remember um when COVID happened, the mortgage companies were being pressured for restructuring, but at least the one that I’ve dealt with – which is Wells Fargo – they were leading with basically something like “yeah, we’ll give you two months. But you’re going to have to pay it back.”

Which is the hardest option. Because where are you going to get the money in two months from now? And now I got to pay three months of mortgage?

But they didn’t tell you that if you just said “no. What else can you do for me?” They would have provided a second option.

And then the final option was like just forgive it, right?

Ramit: Mark, can I tell you something? I just have to tell you, I hate Wells Fargo. They’re the worst. If anyone listening is on Wells Fargo or Bank of America – get out of those banks. There’s so many better banks.

I name names in my book. I name the good and the bad. And those are two of the worst.

Mark: Yeah, I lost a lot of trust when I read that or heard that…

So we’re talking about still… was it the first principle which is using the CEO approach – earn more, optimize your expenses, and what was the “C”?

Ramit: Cut costs.

Mark: Cut costs.

So what’s the second major thing that we can look at in that strategy?

Ramit: The next one here is that you don’t have to be the smartest person in the room to get rich. When most of us think about investing – and I ask people “what’s the first word that comes to mind when you think about investing.” Mark what would you say? First word?

Mark: Um, discipline.

Ramit: (laughing) Okay, that is not the answer that I was hoping for. Thanks for ruining my exercise, mark.

Mark: (laughing) Sorry, buddy.

Ramit: All right, mark was the wrong person to ask. For most people who are not mark, what they say is that almost always the same word which is “gamble.” So it feels like gambling to them.

Now that is an emotional response, it’s a fear-based response because they don’t understand historically how investing works. I don’t blame them, but I do want them to take responsibility for learning.

Mark: Do you think that’s because most people conflate investing to the stock market? Like that’s the only place to invest?

Ramit: Yeah. And also they when they think about the stock market – which is actually a great place to invest -they typically think of some trader with 50 screens – and black and green letters on their screen – and they don’t understand that investing is not meant to be a TNT drama. It’s not supposed to be exciting it’s automatic…

Yeah, you log in and check your accounts once every six months and that’s it.

Mark: Yeah, and ultimately you’re investing in people who are trying to build businesses. And hopefully your broker or whoever your financial advisor is understands how to do that. Or you just go with an ETF or something.

Ramit: Yeah, exactly. So you don’t have to be a genius and what’s interesting is, when people turn into their 40s if you ask them what are your biggest concerns – usually money is either number one or number two.

And it’s unbelievable that almost nobody in this country has spent one weekend reading a book about money. It’s like we spend 40 years of our life worried about something. It’s gnawing at us in the back of our head, but we don’t actually spend a weekend learning how it works.

Mark: It’s crazy. What are the stats on the state of both cash flow and retirement in this country? I know it’s pretty abysmal… I remember reading some of the stuff with COVID happening – like what percentage of families can’t come up with a $500 crisis payment if something happens. And how many people have like less than x amount for retirement.

Ramit: Yeah. The stats in general are really bad.

Interestingly, right now, savings rates are really high. But that’s just temporary. We shouldn’t get misled by that.

In general, Americans have a low savings rate. We typically spend more than we make. We don’t really understand how to build wealth. Most people think that… they actually say “I need to save more. I need to try harder.” As if it’s a willpower issue.

In reality, saving is good – you should save some money, put an emergency fund aside do those things -but real wealth is accumulated through investing and just to give people an example um this is like basic historical stuff, but if you put your money in a savings account you might make one percent on your money.

And to tell you what that means, you’re basically losing money every year that your money is in a savings account. Because of something called “inflation.” So it’s good to have some savings – you definitely should – but you’re not making any money from it.

But, on the other hand, if you think about the typical investments… the typical S&P 500 fund that makes you seven to eight percent on average per year. So what that tells you is your money is actually growing seven to eight times faster. And that is how someone who’s in their 20s, or 30s, or 40s making even a modest income can actually grow their money, so that one day you’re making more from your investments than you’re making from your salary. And that is a magical moment.

Mark: That is. So most people spend more than they have, that’s why they can’t come up with emergency funds, that’s why something like a layoff or furlough is a disaster…

Ramit: Yeah.

Mark: And the state of retirement is really tough. I want to talk about this for a bit, because now interest rates are like near zero. May go negative and the retirement plans for the typical baby boomer was built upon this idea that we were gonna have… remember the idea that we were gonna have seven percent return on investment for like ever?

Ramit: Yeah.

Mark: And now it’s what? It’s like zero for some structured investments.

And so this has really, really put the hurt on people who are close to retirement. And I think you’re speaking in your books to younger generations, or people just starting out and they have some timeline right they’ve got 20, 30, 40 years to invest and anybody can become a millionaire and get rich with that kind of time.

But if you’re 65, and suddenly the effective rate of return has dropped to .5 percent or 1 percent on your structured payout of whatever it was going to be, what do you say about that?

Ramit: Yeah, so typically when I first started writing my book it was for people in their 20s. That was the first edition. 20s and early 30s.

I’ve really expanded it. There are a lot of readers now who are 30, 40 even in their 50s.

But you’re absolutely right. If you’re 65, and you’re retiring now and you have a fixed income… definitely tough.

So let me explain. This is going to be a little bit more advanced, if you’re basically brand new to money, but here’s what it means. If you have a pie chart, on that pie chart of your portfolio you’re going to have some in equities – which is basically stocks – and you’re going to have some in fixed income – which is basically bonds.

Stocks are a little riskier, they return higher on average… bonds the opposite, they’re more conservative.

What you find is that if you’re 65, you actually have a long time to live. So what used to be the case is people would move their entire portfolio into bonds. And as you pointed out, they’d be earning basically nothing.

But what is now known – historically known, and we have good data to show – is that you’re gonna have a pretty long life expectancy. Especially if you’re healthy – if you’re listening to this podcast – then you’re gonna need to be a little bit more risk seeking for the remainder of your life.

So that actually provides a good antidote to the zero percent returns. Because you’re still going to be getting those equity returns. So there is a way to kind of model this out and actually the good news…

Mark: But if someone needs the income, how do they deal with that? They’ll be drawing down their portfolio, which is…

Ramit: That’s a great question. Yes.

Again, there is a model on this – there’s something called a “safe withdrawal rate.” And you can model out how much percentage you should take so that you will still have money for the rest of your life.

But I think just to simplify all this – if you haven’t saved or invested a lot of money and you’re 65, it’s a tough situation. There’s no getting around that.

At that point you’re looking at cutting your lifestyle expenses. You’re looking at depending on social security. And for a lot of people, they thought retirement would be this kind of glamorous time to travel.

But if you don’t make it a priority, it will not happen. Meaning, if you don’t start trying to manage your money in your 30s or your 40s, it becomes increasingly difficult to do it.

Mark: Yeah, I believe that.

Retirement

32:21

Mark: What do you consider to be like a comfortable nest egg that can sustain someone for retirement? I know it’s based upon values and where they live and all that, but like what are you trying to get your clients to and your peeps?

Ramit: So what I tell them is… first of all, if they’re younger they’re not thinking about retirement right now. And I actually intentionally don’t start by talking about retirement, because if you’re 35, it’s a huge turnoff to think about it.

Mark: Yeah, seems like too far in the future.

Ramit: Yeah, but once they get a little bit more advanced, they start thinking that far ahead. They’ve covered their basics.

What I tell them is to think about what their basic expenses will be when they’re 65. And I tell them “don’t skimp. Because you have time to save and invest for it. So don’t plan a life of just eating ramen noodles every day.”

“Really think about the kind of life you want to lead. And then whatever your portfolio is, you should basically safely be able to withdraw four percent of that every year. And you will have a safe withdrawal.”

Again, there’s a whole bunch of research around this.

For a lot of people – if you’re starting out in your 30s – if you’re following the “I will teach you to be rich” plan – this is no problem at all a lot of them end up with more – they actually have a different problem – they have more money than they know what to do with. Which is a very different problem than when you’re starting out “hey, where do I find 100 bucks a month to put away?”

Mark: So do you have them kind of identify a net monthly cash flow that they’re going to want to live? Or that they anticipate needing? And then they build toward that?

Ramit: Yeah, but it’s extremely rare that someone who’s in their 30s will do this. Typically you only see people… they wait until the very end to start doing this. People don’t do this until they’re about 60, 65… and by that point, as you know, it’s very difficult to do.

Mark: It’s difficult, yeah. The time value of money is so important.

So we talked about the CEO and optimizing and that part – we talked about you don’t have to be the smartest person in the room to get rich. So what’s the third big kind of theme?

Ramit: Time.

Mark: Time, yeah. Which we just basically just covered.

Ramit: I just want to give one last example of this, because this is so good. It’s so counterintuitive.

Okay, I’m going to give two examples… so we have person a, who starts investing and they invest every month from the age of 20 to 30.

And they stop. They just stop investing and they let that money sit.

Mark: How much do they invest?

Ramit: Let’s say a hundred bucks a month. For 10 years, and then the money just sits there and grows.

We have person b who waits until they’re 30 and they’re like “hey, I’m going to read this book. I’m going to start…” and they invest same amount 100 bucks a month from the age of 30 to the age of 60.

So one person invested for 10 years, one person invested for 30 years. Who has more money?

Mark: Yeah, well, I think it’s obvious just by the way you framed the whole thing.

Ramit: Yeah.

Mark: So that’s how powerful the time value of money is. This guy stops after 10 years, but he’s got 30 years for that money to appreciate. That beats the person who waited and missed those 10 years.

Ramit: Exactly.

Mark: Even if they keep putting money in. Wow.

Ramit: Yeah, it’s extremely counter intuitive. Compound interest is almost difficult for the human mind to consider, because the way it grows is just not linear. Like when you think about it.

Mark: It’s like that double a penny every day for 30 days… that’s such a mind bender, because you’re like “well, where’s this going?” One, two, four, eight… and then all of a sudden like at day 17 it’s like boom yeah 600 thousand, and then you’re into the millions.

Ramit: I’ll give you an example. I just got an email from a 13 year old girl and she said she read my book and she’s really excited to open up Roth IRA. Now I don’t get emails like this from 13 year-olds that often.

So I wrote her back and I said “this is amazing. Would you ask your parents if they will allow you to come on a video, because I’d love to chat with you? And understand what… how did you get interested?”

So I got on a video call – her mom was there – and we kind of went through how much money she will have when she’s 30, 40, 50, 60. If she’s investing as a 13 year-old – and she has a part-time job, she works with her parents. And let’s just say she’s putting 50 bucks a month aside.

She will be a multi-multi-millionaire with no problem at all. So for everyone listening – it’s nice if you started investing at 13. Most of us didn’t – I didn’t myself – but what is the key takeaway?

The key takeaway is every year you wait it becomes increasingly difficult to get the numbers that you want to get. So it’s not meant to make anybody feel bad. Instead it’s actually meant for all of us to say “hey, let’s create a little urgency. Let’s put something on our calendar for next week. Let’s get started on this, it’s not that hard. And once we set it up, it’s automatic. And we only have to check into it every few months.” That’s all it takes.

Mark: Interesting. How much impact do the interest rates or rate of return have on that nest egg as it grows? Like if you said the 13 year old… I imagine you’re imputing some sort of annual rate of return an average annual return.

Let’s say it’s going to be six percent, but it’s not, it’s only three percent. Like how much impact does that have?

Ramit: Massive, massive. Huge, huge, huge. So, two things really… well, three things matter… time matters okay? We talked about compounding.

Your return rate matters, and your fees matter. This is something nobody really thinks about.

Mark: A lot of those fees hidden in mutual funds just chip away at the actual rate of return, right? And this is one of the biggest scams for ordinary Americans.

So my mom was a teacher for a long time – she was a part of the California teachers union – and I looked at her fees that she was paying. It was borderline criminal what they were charging her. And the way that they obscured it – there’s no way a school teacher could be expected to understand. And as a guy who has read about this and spent the last 20 years learning about this – I can see those fees and how they’re hidden – but no ordinary American can be expected to read through what has been engineered to be confusing.

It actually infuriates me, because they’re bullying on mom and pop.

So let me give you an example of how big of an effect these fees can be. Again this is totally counterintuitive. Let’s say that you’re paying one percent to a financial advisor or your mutual fund. One percent doesn’t sound like a lot.

Let’s say that you make a hundred thousand dollars over the course of your investing. How much do you think you will have paid in fees? Just that one percent fee how much do you think in dollars that that was worth?

Mark: Wow, that’s an interesting question. You’re right, because it doesn’t seem like much. Well one percent of a hundred thousand dollars is only a thousand bucks a thousand bucks right yeah and like let’s say maybe we did it… maybe it’s 2 000 because there’s some trick in the math. Maybe.

The answer is $28 000. In other words…

Mark: You would have had 130 grand but you only got 100.

Ramit: Yeah, or you would have had 100 grand, and you only have 80 grand. Or actually 70 grand.

So this is totally counterintuitive. Again nobody would ever suspect a one percent fee… like, maybe you pay somebody to mow your lawn. Oh that’s fine, “I pay them, why don’t I pay somebody to manage my money?”

If you want to pay that’s fine, but you pay the person mowing your lawn an hourly fee. You don’t pay them a percentage of your salary…

Mark: (laughing) Don’t pay them by the blade of grass. So wait a minute, I have a money manager – he takes a fee. Are you suggesting that I should just invest on my own through some sort of mechanism? Some sort of process, like you call it?

Ramit: Yeah, how does he charge you?

Mark: Percentage of the money. Percentage of the portfolio, yeah.

Ramit: Yeah, it’s a bad sign.

Mark: Making a note here. I’m sorry if your money manager is listening. He’s going to really not like me. Because I’m sure you’re a very good client to him. I’ll tell you this, so one of my friends, he’s a similar entrepreneur like both of us. And he texted me one day he’s like “hey, can you take a look at my financial advisor? I’m not sure if they’re charging me the wrong way, but I just want to know what you think.”

I said “send over the paperwork.” So I read it all over. They were charging him a fee. And I texted him back and I said “okay. Do you want me to tell you what I would do? Or do you want me to confirm you are doing the right thing?” Basically, I just wanted to ask him, because I knew I was about to give him bad news.

He said, “Just tell me the truth, man.”

So I said “listen. With your earnings, you will pay this firm hundreds of thousands of dollars in fees. And if you kept it, you could turn that into much more.”

He was like “what do I do?”

I was like “send them this email and ask them how they’re charging you, and then get out.”

So he did it. And as predicted the advisors did not like it. And they tried all kinds of tactics – they got emotional, they got angry, they did the guilt-trip.

But he was just very calm, cool and collected. And he had the courage to take control of his own money. So it’s totally up to you, but there are some uses – especially with complex portfolios – to get an advisor. But good ones will be number one) a fiduciary. Okay, that’s a technical word that you can ask him “are you a fiduciary?”

And number two) they’ll charge by the hour or by the project.

Mark: Interesting. Okay. So let’s say someone with the initials md is listening to this and he’s like “hey, john. I’m taking my money out.”

What next? What do I do with it?

Ramit: Okay, okay. This is great. So first of all you should know that – as I mentioned – fees matter, okay? So although you’re probably going to go through a bit of an emotional experience, because…

Mark: (laughing) I’m doing it right now.

Ramit: And I’m sure this person who’s working with you is a nice guy or a nice woman. They’re all nice…

Mark: He’s great, he’s awesome.

Ramit: Yeah, but, you know, you can be nice and you can take a friend out to a nice steak dinner. But not necessarily pay him tens of thousands of dollars in fees.

So what do you do then? So you move your money – it is your money, so you can move it wherever you like. And you move it to a low-cost brokerage account. And there are lots of great…

Mark: Like Charles Schwab or what about Robin Hood, which has no fees?

Ramit: I would not recommend Robin Hood – one reason being that they encourage trading. And investing is not trading. Trading it’s like playing a video game…

Mark: That’s more like gambling.

Ramit: Yes, exactly. And for me my investments are meant to generate wealth, not to entertain me. So that’s the difference. Schwab is great. Fidelity is great. I use Vanguard. I have most of my money at Vanguard.

All of those are very competitive and they have extreme low cost fees. I’ll give you an example. We talked about a one percent fee that some mutual funds and advisors charge. Vanguard’s funds are usually around 0.1 percent – so way, way lower. Some are even 0.05 or even free.

So you can call them up or you can do it online. You transfer your money over. And then you can allocate it or basically design what your pie chart looks like. Now this can start to get complicated, so in chapter seven of my book, I kind of show people how exactly to do it. But the easiest way… for anyone listening, the easiest way to start investing is in something called a “target date fund.”

And it’s as drop dead simple as you could possibly imagine. All you need to do is tell them your age and they have a fund that’s right for you.

How can it know? How can it be right? Because if I’m 37, it’s going to assume I’m not retiring until 65. So it has some percentage in equities, some in bonds…

And then over time it changes, it becomes more conservative. So that, as I get closer to retirement I’m less exposed. That’s the way that it works.

Mark: And what kind of returns are we seeing these days from different allocations like that?

Ramit: Okay, that’s a good question. So in general these tend to mirror the market, although depending on if you’re 65 you should be getting lower returns than a 20 year-old.

Mark: Right. Because you’re assuming less risk.

Ramit: Exactly. And that’s what you should do.

But in general what we know is that the market the S&P 500 tends to return about seven to eight percent over the year. On average. Some years it can go up 20. Some years it could go down 15. But on average.

These in general tend to mirror that. They can be a little higher or lower but they’re in the range.

Mark: Okay. So then let’s say you plop your money in there, and then what do you recommend for like just an automatic kind of dollar cost averaging? Just take x percent out of your paycheck and ignore it?

Ramit: Yes. Yeah, so just a quick example here I have a video somewhere called “Ramit’s 12-minute guide to automating accounts.” Or it’s in the book.

Imagine that your checking account is like your email inbox. So your money comes there and then it gets filtered out to the places that you want it to go.

So a lot of people don’t think about it in this system’s way… they just have their money here. And then every so often they’re like “I should probably send some money to savings.”

We don’t want to do that. It’s almost like going to the gym. You want to have it on the calendar, you want to go at the same time – it’s not a choice, it just happens.

Mark: It just happens.

Ramit: And so same with money. Every month my money automatically goes to different accounts. It even goes to a sub-savings account for a vacation and for a down payment and all these different things that I want to do.

And then at the end I’m left with this guilt-free money, I could spend it on whatever I want.

Mark: That’s cool. And just that peace of mind… you don’t have to worry about it. So yeah and so now we’re automatically putting money in. That’s giving us some confidence. It’s discipline.

We’re not to pay big fees to a broker, because they’re not going to outperform, correct? And so then we want to look at how do we increase the amount of money that we can put in. So the way to do that is to either spend less, or earn more.

Ramit: Yes. Okay, I want to talk about the earning more – but I just want to say for everyone listening if you just caught what mark said, you are now more advanced than 80 percent of people with money. Just what you just said mark, about your fees are lower, you’re not going to have you’re not going to pay anyone to outperform. And you’re going to automate it, it’s not willpower. And now let’s focus on earning more. That is the crux of it.

Mark: That’s the overarching philosophy. Yeah, I get that. It’s so simple, but not easy, right?

Ramit: And there’s a lot beneath it, but once you hear it starts to make sense…

Mark: Yeah, it feels right.

Ramit: And now you start to realize “man, there’s a lot of people who are incentivized to tell me otherwise. There’s a lot of people who want to sell me stuff. They want to make me trade too frequently. They want to tell me that they can beat the market.” And on and on and on.

Mark: Yeah, let’s put on top of that tax law, right? And so that’s what always discombobulated me because you got 401ks and the SEPs and the IRAs and the Roths and you can get literally sucked into the quicksand of detail – just because of a tax strategy.

But I imagine it’s still important isn’t it to have savings go into a tax deferred account?

Ramit: It is. So when people think about taxes – it’s funny the way that people react to taxes. We have these phrases like “tax shelters.”

But in reality, a 401k can be your tax shelter. It is a legal way for you to minimize your taxes and you should absolutely use it.

Mark: You still pay the taxes it just deferred, right? You save in the 401k for 30 years, you just pay the tax when you start drawing it out.

Ramit: Yes, so that’s different. On a Roth which is different than a 401k you’ll pay the tax now, but you won’t pay the tax on your earnings.

So what’s the implication for everyone listening? If you’re that person who started investing at age 20. Or 30, or 40, or 50 for that matter. And your money’s growing. And it’s growing a lot it’s growing maybe seven percent a year.

And you pull it out, it went from 50k to a million – which is possible over time – guess what? You only pay taxes on 50k. So there’s a lot that people can do. I totally agree it becomes confusing all these different words, and they become… 401k – who picked that name?

Mark: Right it’s the tax code like code number 401, paragraph k or something like that.

Ramit: It’s like you couldn’t pick a worse name if you wanted to incentivize people to use it. But I created something called the “ladder of investing.” And it just shows you “this is where you put your money first. And then next. And if you still have money go into the next account.”

And there’s some surprising things. Like a lot of people don’t know your HSA – if you have a health savings account that can actually be an amazing way to invest your money. So a lot of these things are covered in the book.

Mark: With the HSA, if you don’t use it, do you get to keep it?

Ramit: You do get to keep it.

Mark: As a retirement thing. And can you take it out and not use it for medical in the future?

Ramit: You can, but you will pay a penalty. But you can take it for medical uses and you can invest it just like any other money in a Vanguard fund or a bunch of different types of funds. And just let that money grow.

That tends to be really good for young people who are healthy. If you have an HMO, or if you have some different stuff, you may not have eligibility for this.

But again these are just one of a lot of different types of techniques that most people don’t know about. And that alone could be worth a hundred thousand dollars to somebody listening right now.

Mark: Interesting.

Okay, so we still have like a fourth major theme: because we talked about time, value, money — you don’t have to be the smartest person in the room – and then like the strategy and tactics of the CEO to minimize expenses, optimize your investment… what’s the fourth major theme.

Ramit: Okay, so after we get all this, we want to talk about earning more which we were just about to get into…

Mark: See Segway…

Ramit: It’s beautiful.

Mark: Especially now with COVID with all the people, independent contractors —I think a lot of restaurants are just gonna be unable to make it with all the rules. It’s a perfect time to start a business isn’t it? I think.

Ramit: You know, I’m glad you say that, because a lot of people the first reaction is “it’s the worst time in history to start a business.” And yet you can look at it as the worst or you can look at it as an amazing opportunity.

And so I want to start off from the financial side by saying, there’s a limit to how much you can cut. But there’s no limit to how much you can earn.

This is a profoundly different way to think about money. Most of us have been taught — lattés and don’t buy jeans, don’t go on vacation. No, no, no.

But I actually think money can be about yes. Yes, I want to earn more. Yes I want to buy a thousand dollar coat or I want to take my children to this amazing place they’ll never forget. Now let me find out how to earn enough to do it.

Mark: Yeah, I love that.

Ramit: So there’s a couple things that I encourage people to do with earning. And I’ll just give you some general big buckets, and then we can dive in.

So the first one is I often talk about salary negotiation, how to do it. And that comes from what I learned from my parents, and there’s videos where I show people on YouTube… just look it up, you can see exactly what to say, even the body language.

I would say that right now is a bit of a tough time with salary negotiation.

Mark: Yeah, I was just going to say that. Tough conversation to have. But it still might be worth having right? Because there’s a lot of companies that are actually doing fairly well in this environment, right? And they’re appreciative of you sticking around, and working your ass off, and working remotely. And so it might be actually a good time to have that conversation for the right company.

I wouldn’t do it if you’ve been shut down. (laughing)

Ramit: (laughing) They’ve furloughed half the staff and you’re like “let’s talk about my salary.”

Well, I think we probably both believe that there’s always room for the best. There’s always room in whatever field for the best.

And I know that some of my students have successfully negotiated their salaries in the last couple of months – but I also want to be honest – it’s not common. So that’s a tool. You may want to be judicious in how you use it.

The other one and one of the biggest opportunities everybody has is to start a business. So this is huge. And when we used to think about starting a business it was tons of inventory, get a big fancy office and heavy website investment…

Mark: The barriers to entry have collapsed. And you can start a one-man, one-person, one-woman operation fairly simply.

Ramit: Yeah it’s amazing.

Mark: And you could start it as a side hustle. As a part-time thing. I mean, the environment for entrepreneurship or independent contractor or to share your creativity with the world is unparalleled.

Ramit: It’s unbelievable. I want to share a couple of examples, so I have this program “earnable” and people come and they learn how to find an idea and then how to turn it into a business.

Have you ever heard of those wine and paint classes — people used to go on dates and they drink wine and paint stuff? So during coronavirus, one of my students switched it and made it online – made it virtual – and she does a painting class through zoom. It’s a group call.

She made her first hundred bucks just doing that. There’s personal stylists. There’s people teaching children different subjects.

Mark: Oh yeah, the whole education, tutoring — most of the traditional teachers have zero clue how to do online education. So if you’re savvy with digital tech and you love to teach something – man, there’s going to be 20, 30, 40 new business models arising. Both for solopreneurs and big companies.

Ramit: I’m so glad you’re talking about this too because a lot of times I believe that most of us have something inside of us – we have a skill right now that somebody would pay for.

Mark: Definitely.

Ramit: And the thing is sometimes it’s not obvious so here’s a little exercise that everyone listening can do right now. You could text your friends and you can say “hey, I’m listening to this podcast with mark and Ramit. And just do me a favor if you would. I’m looking for three things that you think I’m good at. Like what would you come to me and tell me ’I go to Ramit because I want blank?’”

And people are nervous to ask their friends this. A lot of people have done this and they’re like “oh, I didn’t think they would say anything.” And their friends… they’ll say “you know how to organize your apartment – you’re so great with style – you are amazing at keeping your niece occupied and showing her all these things.”

Each of those could be a six figure business. So all of us have something a skill inside of us that the market would pay for. We just have to learn the process of finding it. Whether it’s through our “earnable” program or on your own. And then we need to take it to the market.

Mark: Yeah. Looking at it from the other perspective, instead of like an individual’s creativity, but what the market needs, or is asking for, or is trending toward – what are some of the biggest opportunity areas that you see right now?

Ramit: Education is huge. And we’ve seen it in our own business. Like we have 20 or so different programs on money, business, career and psychology. We’ve seen it.

Fitness. Especially virtual fitness. Massive. So zoom classes to do yoga, bodybuilding, etc. Those are huge.

Also pure entertainment is one that is overlooked. And this is an example – I recently took a sangria making class. And like it was just a blast. They had everybody dress up in outfits.

I later found out that the folks who are running that are making – mark, guess how much they’re making per month. You will never guess. Just guess.

Mark: By doing sangria class? Do they do other classes?

Ramit: Just sangria making classes.

Mark: Oh gosh. I don’t know. Probably, ten thousand a month.

Ramit: That’s a good guess, but do you want me to tell you the number?

Mark: Sure.

Ramit: It’s over one hundred thousand dollars per month.

Mark: Wow.

Ramit: It is insane.

Mark: And did they just recently start this up?

Ramit: They used to do it physically in a classroom. But now they do it… and they’ve become so sophisticated, they have different teams running them at the same time, so they can scale it.

So again, we don’t need to necessarily be targeting a hundred thousand dollars a month when we start. For a lot of people, just to make a thousand dollars extra is life-changing…

Mark: Right, because we started this by saying “start a side hustle or a small side business so that you can invest more.” But if it’s your passion and you’re fulfilling a need, then be open to it taking off and becoming your main thing.

Ramit: Yeah, yeah. I spoke to an artist yesterday – she’s one of my students. And I love talking to artists, because I think sometimes creatives get the wrong ideas about money. That it’s bad and that their art can’t make money.

And I just love sharing artist’s stories where they are creating great art, and also being financially successful.

She started off charging twenty dollars for small custom pieces of art, and she didn’t even know if anyone would pay. She then saw demand. People said they loved it. She started charging more her last piece she charged 2 800 bucks for.

And I asked her “what do you do with the money? What does it mean to you?”

And she just said – she had the most beautiful simple answer – she said, “When I take my kids out to eat somewhere, I don’t have to worry about how much it costs to spend on the food.”

I just love that. Sometimes money can be so simple for what you use it for.

Mark: Yeah, I love that. I mean, it takes the friction out and you can serve more with more money. So money is not evil at all. It’s a good thing.

Okay. That’s fascinating.

Government Support

1:03:18

Mark: Let me talk about people who are trapped in like government support programs. I mean, we have this huge welfare state, and it seems to be growing – and there’s a big move to even grow it more, through like universal basic income or something like that.

And the experiences that I’ve had it with it through my father-in-law and my mother-in-law and a few other people that I know – it’s super useful, valuable, helpful… it’s a godsend when you hit a crisis.

But if you come to rely on it, you get stuck, right? It’s very hard to grow out of it. Because they take it away when you earn more.

And I read an article the other day said the marginal tax on people on government subsistence programs if they’re relying 100 percent on that state federal and whatnot is like 70 percent. What that means is like if I’ve got five four thousand or five thousand dollars a month in some sort of hodgepodge of different subsistence – it could be welfare, could be child support, could be food stamps… I don’t know… it could be rent control.

So if I go out and start a side hustle and I make an extra thousand dollars, guess what? That means that extra thousand puts me over the threshold, and I lose my rent subsidy. Or I lose the food stamps. And I lose three thousand dollars, if I make an extra thousand.

And so people get absolutely trapped. And so what do we say to these people? How do we get them out of that trap?

Ramit: You know, I’m really glad you brought this up, because I’m in the world of self-development. I’m in the world of let’s focus on what we can control with individual responsibility.

But, I also believe there are systemic problems out there. That are structural, and we can’t deny it and this is a perfect example…

Mark: It’s playing into what’s happening right now in the world…

Ramit: Absolutely.

Mark: And people are conflating poverty and wealth inequality with this race issue and everything’s getting all muddled up.

But the point is a lot of it has been facilitated by these government programs that have trapped populations in poverty. Or in the poverty mindset, or in this victim place.

Ramit: I think that you can – I’ll just speak for myself. I encourage people to focus on what we can control, but I also acknowledge that there are some serious systemic issues. And if you have systems that are basically telling someone “hey, you started a business and you’re going to be punished for that,” then that is trapping someone. In a situation where it becomes very difficult to come out from.

Until recently, I only focused on the individual. I actually even went online and said “I’m not going to really talk about politics.”

But without getting into those politics here, I recently changed my perspective, and I started speaking out quite a bit.

So I think that you can do both. You can be individually responsible, but you can also acknowledge some serious systemic issues that have really caused some pernicious effects.

Mark: Yeah, I agree. Yeah, let’s hope that a conversation can open up about it that is sensible and respectful

Ramit: I agree.

Mark: So that’ll be interesting.

What do you think about Libra, digital central bank currencies, Bitcoin… should Bitcoin be in someone’s portfolio? I mean let’s go there.

Ramit: Okay, okay. (laughing) This is great. I love your questions. I love it.

So this is what I believe – I think that once you have a diversified portfolio – you’ve got that portfolio as I discussed. It is diversified. It’s right for you and your age and your risk profile. If you want to take five or ten percent of that and have some fun with it – you want to invest in Bitcoin, you want to invest in an individual stock. Hey, you want to even trade a little bit here and there, just because it’s fun, be my guest.

The problem is that most Bitcoin investors – and I use that term very charitably – they don’t even know what a diversified portfolio is. Okay? You ask them “what does the rest of your portfolio look like?” And they go “what? Thanks grandpa, we don’t do diversification anymore. That’s for old fuddy-duddies like you.”

I’m like “did you ever read a single book about money? But by that point the conversation’s over.

So the Bitcoin people and I don’t really get along, but that’s because I prefer investments to make money, not to gamble.

Mark: Right. Bitcoin is so volatile. But yeah that’s interesting.

But aren’t some of the big institutions moving toward having an allocation of five percent or so in Bitcoin? Just as a diversification strategy?

Ramit: Some are. But you have to remember that their incentives are different than the individual investor. So what Goldman Sachs or JP Morgan does is different, for different reasons…

First off, they have to be involved in any burgeoning currency or anything, because they have to be everywhere. They’re like Procter and Gamble, they need to be advertising everywhere.

The second thing is they make fees in different ways than individuals make money. So we should always remember their incentives.

And with that said – I think it’s true. There has been more adoption, but if you ask people “what is Bitcoin functionally used for? What is the use case for it?” Before it was “uh, Bitcoin’s gonna solve the world. It’s going to do this and that.” And “oh I need to walk my dog. Maybe I should get Bitcoin.” There still hasn’t been a widespread adoption through a single use case.

Now, I would love to be proved wrong. I think that crypto technology is amazing and I write this in my book. But if you want to use it as a five percent allocation of your diversified portfolio, because you want to have fun, you think it’s cool, you want to support the technology, great.

But if you have 78 percent of your portfolio in Bitcoin, you’re a lunatic.

Mark: Yeah, wow. I agree. Although at the same time, it is fascinating and the blockchain tech — fintech in particular – will have a powerful transformative effect on the whole financial industry.

And what would you say to someone who says, “Ramit, the government just printed two trillion dollars -or the Federal Reserve did – I don’t really know who’s behind that – but regardless there’s two trillion dollars or more coming into the money supply. And there’s a point in time where the government’s going to lose control over the fiat money and it’s going to be inflationary – maybe even hyperinflationary – and it’s going to destroy my wealth”

Ramit: I think that that is an absolutely a fair criticism. I mean the government has printed unbelievable amounts, and they signaled that they’re going to continue doing it. I have to say – this is just my personal belief, I’m not an economist – and also I think what we’ve learned over the last 10 to 15 years is that basically nobody knows anything about macro-econ…

Mark: Right. It’s chaos theory now. There’s no economics theory left.

Ramit: Exactly. I will say this – I will say that when an economy is collapsing like the US was… when people are losing their jobs, losing the ability to get medicine, government has to step in. It absolutely has to stop the bleeding.

With that said, there will be consequences. There absolutely will be long-term consequences.

So, do I think it was right to stop the bleeding and print money? Yeah, I do. I think that we needed to save people’s lives, first of all. I think that you worry about the economy second.

But I also think that at the same time we can acknowledge that there will be massive long-term consequences. And usually – especially the younger you are – they will not be good.

Mark: Right. And so how do we protect against that? How do we protect our portfolios? What strategy can we use to hedge against that?

Ramit: The best thing that individuals can do is to save and invest aggressively. Meaning more than you are doing now. Let’s say for example that your taxes go up – as it’s very possible they will depending on what socio-economic group you’re in.

Okay. You’re not going to fight the government on the tax rate. The government always wins on that one. So the best thing that you as an individual can do, is make sure that you are saving and investing enough. And you are also maxing out all of your tax advantaged accounts.

Now you can also try to apply pressure through different ways. You can vote, and you should, but odds are that you’re not gonna defeat what the government decides to do. What elected officials decide to do.

So the best thing you can do in this case focus on what you can control. Save and invest aggressively.

Mark: I’m going to ask this next question, because there’s a listener with the initials md that was curious about it and just asked me – at what level of income does it make sense to move from California with 13 or 14 effective percent tax rate to Nevada or Texas or Wyoming?

Ramit: Okay, okay… what a great question from listener md…

Mark: Listener md…

Ramit: Okay, so let me tell you… I have two schools of thought on this – I will tell you mine and then I’ll tell you some of my friends.

So my school of thought, I live in New York, I’ve lived in California before…

Mark: Both the highest tax rate in the country…

Ramit: Yeah. And my school of thinking is I earn enough so that I can live wherever I want to live. And of course, I’m maxing out all my tax advantage accounts. But I’m happy to pay the tax for wherever I’m living, because I’m thankful that I grew up in a country where I can earn the living I do and I can pay so that someone else who needs it more can benefit. That’s my personal belief.

Mark: That’s been mine by the way too. And I love living in California and blah-blah-blah. But there’s no question there’s sometimes I go like “wow, I don’t know if I can handle that… this much.” If they come back and layer some more taxes on top, there might be a tipping point.

Ramit: Yeah, and that’s what some of my friends who have lived in California and some the most popular place that uh some of them have gone seems to be Austin, Texas…

Mark: Yeah, same here. I hear that all the time.

Ramit: Yeah and so some of them have made the decision — listen, I respect it. I think we all have a calculus in life – where do we want to live? Financial? Etc.

But when I talk to my friends it’s interesting. It’s very different viewpoints. Some say “I live in California” or “I live in whatever state, and I just love it. I have the friends, my family’s there, I love surfing…” whatever it may be.

And others look at it as they want to start with their finances first. It actually seems to them that they can’t fathom why they should pay maybe tens of thousands of dollars more, to live in a particular city. They could just as well live somewhere else in their house and they’re happy. So two schools of thought.

Mark: Right. Interesting.

Taxes. Man, they sure complicate things.

Ramit: Yeah, and I’m glad you said that also, because for people listening there’s a phrase that is not talked about enough outside the financial industry. Which is don’t let the tail wag the dog, don’t let the tax tail wag the dog.

And what that means is, don’t make investment decisions, because of taxes…

Mark: Yes. Such an important point.

Ramit: Yeah, a lot of people… like, for example they’ll buy a house because of the tax deduction. But that’s a really, really, really poor reason to buy a house. So we want to make investment decisions that are good first of all and then we can manage the tax implications of that separate.

Mark: Right.

Now I have a portfolio that includes a portfolio of stocks and bonds, real estate, some investments in some small startups, some digital currencies and of course my business. I consider that to be part of my investment strategy. And most of my money actually goes into the business. I’m sure it does for you too.

Ramit: Yep.

Mark: So that’s the way I’ve looked at kind of like that multiple streams of income, multiple streams or avenues for investment. What’s your take on real estate? Do you promote that as a viable path to wealth?

Ramit: Wow. This is a great question. So I think that if you choose to add real estate to your portfolio, it can definitely be a great part of a diversified portfolio. Especially if you are buying a place and renting it out, so you understand cash flow and things like that. That can be awesome.

I do think that one of the biggest myths in America is that buying our primary residence is the best investment we can make.

Mark: Yeah. I’ve heard that is a myth. And I’m still kind of struggling with that, right? Because it seems like from a piece of mind standpoint… but if you don’t ever plan to sell it, then you’re just sitting on your… you’ve just poured all of your capital into a place that you’re just going to turn you over to your kids. And you can’t draw down, unless you do a reverse mortgage.

Ramit: That’s right. So let’s talk about this because this is another one of those things that is super counter-intuitive. And also people get really mad when they’re presented with an argument that’s not what they’ve heard.

So growing up in America, all of us are exposed to these messages that say “don’t throw money away on rent. Don’t pay someone else’s mortgage. They’re not building more land. Do it for the tax deduction…” and on and on and on.

These words seep into our brains and at a certain point in our country real estate becomes religion. We start to throw these random aphorisms around, without actually running the numbers or understanding what goes into it.

So if you want to buy a house – this is my simple argument in one sentence – if you are going to buy a house, it’s the biggest financial purchase of your life so make sure you run the numbers.

And I’ll tell you what I mean by that. I live in Manhattan. I could buy a place tomorrow. I’ve run the numbers. It makes zero financial sense for me to buy.

So what does that mean? Aren’t you throwing money away on rent?

No if you rent a place, and if I were to rent two equivalent places – let’s just say they each cost three thousand bucks a month – three thousand dollars on rent that is the maximum I will pay any month three thousand. Because if the fridge breaks – I’m calling the landlord.

If my mortgage is 3 000 that’s actually the minimum that I will pay. If the fridge breaks, I got to fix it. The roof breaks, taxes… and on and on and on.

So you can basically add 20 to 50 percent on to that. Now, if I’m renting and I take that money and invest it instead, what we know from research is that the market will tend to beat real estate as an asset class. It’ll actually crush it.

Which is super counter-intuitive. And the two camps don’t talk. The real estate people don’t really know much about seven to eight percent returns. And the index investors they don’t really like the real estate people for a variety of other reasons.

I can go into all this… but the key is, run the numbers. You can do a buy versus rent calculator. You should talk to homeowners and ask them what are the other expenses that you didn’t think about when you were buying?

And you should be prepared that if you want to buy a house it could be a great investment, but it might just be a big expense. And that could be okay, if you want to get it for your kids, or school district, or just to decorate… but make sure you get informed.

Mark: Well said. Interesting.

You have a company called “Growthlab.” What does that do?

Ramit: “Growthlab” is our sister site to “I will teach you to be rich.” And on that site we talk about how to start a business. We talk about how to find an idea, how to how much to charge, all of those things…

Mark: Okay. So yeah, you’re covering a lot of territory there.

Ramit: Yeah, business, money, career, psychology… I think they all go together.

Mark: They do. We started this whole discussion with that kind of idea. It’s really about an attitude and mindset and we’re mindset trainers… we don’t get into the tactics like of things. It’s more about how do you develop a good mindset and that kind of thing.

To close this off people today are operating out of fear. And there’s no amount of fear-based thinking that’s going to improve your financial decisions, right? So, how do you – I mean people hear me answer this question all the time – but how do you teach people – recommend people – to stop fear-based thinking? And to move into a different territory, so they can make rational, disciplined, positive decisions about their financial futures?

Ramit: That is the goal. I think that what I tell my students is first of all if you’re feeling scared there’s probably a reason for it. So, I’m not going to tell someone to stop being afraid. I want them to acknowledge it. I want them to accept reality, make a plan, and then move.

And so for a lot of people if you were just laid off or you’re at risk of being laid off – that’s a real legitimate fear. So let’s accept that. It could happen. It could happen as soon as next week.

All right, let’s make a plan. Let’s talk about what’s going to happen if this income goes away. What can I cut? What can I cull? What can I earn?

And then let’s move. Let’s not wait until our back is against the wall.

So once you start playing defense and you’ve covered your bases enough to know that you’re going to have a roof over your head, that your family is going to be safe… you’ve made that plan, you’ve executed on it…

Then you can start shifting to playing offense. Saying how can I grow? How can I start a business? I’ve got two hours extra in the day I’m gonna start thinking about what my next six months are gonna look like.

But I think – as you were mentioning – it’s difficult for people to look ahead when they’ve got an acute fear lurking right there. So take care of that first.

Mark: Fight, flight or freeze just locks people into inaction. Yeah, you got to get through that.

Awesome. This has been such a great conversation. I love talking to you. So much fun.

So you’ve got a website and the book and the program iwillteachyoutoberich.com. That’s the longest URL ever.

And then growthlab.com and earn… what was it?

Ramit: “Earnable,” so if you want to learn how to start a business and earn more iwt.com/earn that will take you right there and we’ll teach you how to do it.

Mark: Okay. And where can people find you on social media and stuff?

Ramit: I’m on Instagram, @Ramit. And I’m also on Twitter @Ramit and YouTube Ramit Sethi.

Mark: Awesome. Anything else you’d like to say to the listeners?

Ramit: I just want to say everyone listening, they’re lucky to be listening to you. Because I really treasured our last conversation, and this has been just a blast.

Mark: It has been a lot of fun. Thanks for saying that.

Well I appreciate you. The listener with the initials md, he appreciates you. (laughing) And he’s got some work to do. You’re awesome.

Ramit: Thanks very much, Mark.

Mark: All right, you take care.

All right everyone. Man, Ramit Sethi… what an amazing guy. Very interesting conversation. So valuable.

I’m gonna get the book… I haven’t read the book – I wish I had read it before this, because I would have had even more piercing questions. It was awesome.

So I’m gonna get the book myself and learn because this is… like especially the part about taking care of it yourself and avoiding those fees… man.

At any rate, it’s important stuff because we said financial freedom can be yours. And fear of money can be debilitating. So let’s move toward freedom. I think that’s a basic human drive toward freedom. And I appreciate you listening to Unbeatable Mind podcast. Hope to see you or hear you or be heard next time.

So this is Divine checking out.

Hooyah.