David thinks I'm wrong
My buddy David wrote me to tell me he thinks my advice about developing good habits from early is wrong (original article: Good Habits Early On--> Rich). Take a look at his note below and let me know what you think!
Ramit,I'm actually going to disagree with your investment advice given Thursday about using checking + savings accounts. I think it's almost entirely wrong, but I love you for making me think about it. :)
The penalty for a poor person getting his account balances confused and underfunding his checking account is Very Substantial. Your bank either won't honor it, in which case you get a $25-50 Bounced Check Fee from the vendor (and a Very Poor Reputation, possibly with drastic effects on your credit, if this was paying off debt), or your bank will shaft you a $30-50 Overdraft Protection Fee. Either way, these penalties are substantial percentages of your net worth.
And your point, in bold, about habit is wrong [Your habits won't magically change when you have a million dollars, so you have to get them right now]; at the point you have a cool million plus in the bank, you get a financial advisor at your bank. You join the "private bank" and have someone who's 24/7 making sure that your money is Doing The Right Thing. You do not have to click on this and that to make sure that your accounts are balanced.
https://www.privatebank.citibank.com/pbgportal/framework/security/login.jsp
instead of
https://web.da-us.citibank.com/cgi-bin/citifi/portal/l/l.do?BV_UseBVCookie=yesAnd so forth; it's really fascinating - nearly every major bank has a whole different SYSTEM for wealthy clients. Crazy. Several even have whole secure programs that you use instead of a browser to access your accounts.
All-in-all, this returns to my brutal pragmatism. People's time is worth money, as is avoidance of risk in the face of little reward. I would personally advise people to adopt money management solutions that are only as complicated as they have time to manage properly. If that means putting everything in the checking account, so be it. Given the ridiculous interest rates seen in consumer savings accounts (Wells Fargo offers a 0.7% rate), it's hardly worth people's time to balance this properly.
Your advice about IRAs is far more apt, IMHO.
Yours,
David
What do you think? Email me with your thoughts: ramit@stanford.edu
