Forget the New York Times--here's the site I'm bragging to all my friends about:
http://www.stripperweb.com/forum/showthread.php?p=953452 (probably NSFW = not safe for work)
Search that page (ctrl-f) for "iwillteach"
If you're visiting from today's New York Times article, welcome.
I'm a recent Stanford grad and this is a blog on personal finance and personal entrepreneurship for college students, recent college grads, and everyone else. (Featured in the Wall Street Journal, Boston Globe, Guardian UK, etc.)
This blog is me ranting about a few things and trying to get the points across. Getting started is more important than being the smartest person in the room. Making mistakes is ok. Action is more important than reading 50 blogs. Ordinary actions get ordinary results. And there's a difference between being sexy and being Rich.
Some popular articles you may want to check out from the last 2 years of archives:
Introductory Articles
Why do you want to be rich?
The Best Decision vs. The Financially Smart One
Cheap versus frugal
A big fear I have of this site
2006 Makeover, Step #4: Open your retirement accounts
Investing
An analysis of 1000+ IWillTeachYouToBeRich survey responses-- and some new decisions (Best feedback ever)
Dumb: "Don't invest; you can't beat the pros"
All about stocks and bonds
All about mutual funds
Read Warren Buffet's letters
Personal Entrepreneurship
Set smaller goals: impress friends, get girls, lose weight
Barriers are your enemy
I Hate Indian Network Marketers So Much
We love to debate minutiae
Your College is Not a Technical School
On greed and speed
The Myth of the Great Idea
Miscellaneous
Here are 50 books I recommend
What are we doing on this site?
I bought a tie (I love this post because of how angry the comments are)
Cost vs. value: Why I bought a new car (Sorry guys, but I stand by what I wrote)
Probably one of the best comments this site has ever gotten
Boy am I stupid
Saving
Conscious spending: How my friend spends $21,000/year on going out
Here's how I set up my financial accounts
Letting your parents manage your money is dumb
The Power of Compounding
Time is NOT money--at least, not yours
Cook at home, you lazy bastard
You can also check out my table of contents, RSS feed, and newsletter. And you can always email me. Thanks for reading.
Part 1 of this story
Part 2
Part 3
Part 4
Part 5
Yesterday, "John" finally emailed me. I'm not really sure what to even say, so I'll just paste some of the email conversation.
Yeah I did trade the car for a different one. The price was about 10% more than the original car deal. What happened was I went down there on Monday, saying I wanted to return it, because of the ridiculous APR and I didn’t really like the car… they said I had no grace period and was the owner, and the only thing they could do for me was trade it for something else. So my new plan was to get a car for 10k to minimize finance charges(they wouldn’t finance anything less they say) but they were jerking me around so much every time I asked about seeing the car they would say it was sold or tell me it would cost at least 5-6k more than what it was listed on the website, with “bank fees” or something ridiculous. They were obviously ONLY going to get me into a car of equal or greater value. They realized they had all the power and weren’t enthused about helping get out of the car that A: I didn’t really want, B: couldn’t afford. So I could have paid 15k on a 9 thousand dollar car, or I could get a car that I liked, that was actually worth what it was being sold to me for.I could have said “no, get me out of this car deal or I will leave the car here and ignore the payments”, but I knew I would be paying for my poor credit sooner or later, so I decided to get into a car I liked, and then pursue refinancing.
We went back and forth a little bit, and then he replied with refreshing honesty:
The bottom line is that I don’t see myself as the innocent victim of the crooked dealership like Vincent does. I should have made absolutely clear about the grace period, and I shouldn’t have been considering such an expensive car at a high interest rate in the first place. I am the victim of my own ignorance and my impulsive actions.At this point I am looking to make the best of a bad situation, and build my credit in the process.
We all make bad choices sometimes, so while it's fun to point out what poor decision-making went into this process, I also felt sorry for him. My friend Josh at the Credit Union National Association had put out the word for help and, within an hour, he had gotten me in touch with the Colorado State Employees Credit Union.
Here's the cool part: One of their employees, Melissa Sexe, sent me an email and offered to chat with John to see what options he had. Can you imagine Wells Fargo taking note of this and volunteering to help? This is one of the reasons I love credit unions.
I sent Melissa's info to John (here's why I did it that way, not the other way around). So now it's on John. Let's see what happens.
PS--Thanks to Melissa at the Colorado State Employees Credit Union and Josh at the Credit Union National Association. Even if they can't help John, I think it speaks enormously highly of them that they offered to try to help so quickly.
Part 1 of this story
Part 2
Part 3
Part 4
A few minutes after I called my friend at the Credit Union National Association to help out (see Part 3), I got this email from John's friend. The writing is spectacular. Also, jesus! Can you believe this?
"First of all, many of those people who commented have very good things to say, I especially like the car dealership finance manager. Pretty balanced opinion. Bad news though. Once again I do not know the details.John went to the dealership and they got him to buy a more expensive car, with an APR that’s "a couple pts lower" but no real difference. He needed me to drive him back to [hometown] I guess that’s where the car was located. When he came out with a key and got into a loaded 2004 BMW 325i, I about shit myself. Casually (this is the only way I could do it without losing my cool) I asked for the details. How much, how long, why, what drugs have you been taking? His rational was "If I am going to get a car it might as well be one I like". I rephrased in my mind "You mean if you are going to get suckered into a deal, you feel less stupid if you are driving a pimpmobile".
It seems like the perfect out, for a spineless idiot. Save face with the dealership guys who make your penis feel small AND get to drive a nicer car. Might as well since you can't undo the first screwup. There is no real admittance of a mistake, no real will to bite the bullet. (I say this because I am quite frankly pissed)
To be honest I am really frustrated, mad, and feel kind of dumb. I went though the figures with him, I showed him that he would be paying interest for the first 8 months of this year because of his shitty %. We talked about how something more affordable was really in his best interests and how it was bullshit that he got suckered into that deal. I kept him totally up to date with your web blog and everything. He strung me along like he agreed.
It could be that I had no place in becoming so invested in my friend’s problem. This is all I know. Some people refuse to be helped. Whether that is because looking inside themselves, figuring out what’s wrong, and owning up to their mistakes is too hard, I can't say.
You said you were going to look into something for John, please don't bother, you would be wasting your time."
Wow.
[Update]: The story continues as we speak. I'll post Part 6 (the final one?) tomorrow morning.
Part 1 of this story
Part 2
Part 3
After I heard about "John" getting a poor car loan (we're still not sure why, although it might have something to do with his poor credit and being very dumb), I started feeling sorry for him. This is despite the fact that his very-nice friend kept trying to help him, but John kept trying to blow it off and pretend nothing was wrong.
Anyway, I called up a friend of mine at the Credit Union National Association and asked him to see what he could do. I'm a big fan of credit unions, and in fact I spoke at their national conference last month. So I thought this would be a great opportunity to introduce credit unions into this troubled situation and to iwillteachyoutoberich readers. (Credit unions often offer far better loan rates for young people, as well as a bunch of better services than banks. Basically, they're not-for-profit and are member-owned, which means their financial services are often far more competitive than Big Mean Banks. I'll write more about them later.)
Anyway, my friend at the National Association of Credit Unions cheerfully agreed to look into it, and he started making some calls.
That's when I got the next email, which made me want to invite Hulk Hogan to sit in a little red wagon and ride over my frail body repeatedly. It's coming up in the next post.
See Part 1 and Part 2 of the car debacle.
Here's another email from the iwillteachyoutoberich reader, a friend of "John."
"My decisions concerning this ordeal revolves around one fact, that the car dealership made it clear when explaining the contract that John had 24 hours to return it with no penalties and 3 days (business ones) to bring it back with limited penalties….In fact John was so sure of this that when he was taking to me on the phone during the time of sale his rebuttal to my "Dear God do not buy that thing tonight" was "I can take it back if I don't like it". I wouldn't try and nail the dealership for trying to squeeze the financial blood out of my turnip of a friend, but for the fact that they lied to his face.For whatever reason, John is willing to live with this and deal further with these car salesmen. He will most likely trade it in for a cheaper car and refinance with a co signer. I on the other hand would freak out that they lied to me and do exactly what one comment said. Fax a statement to the dealership with my intentions drive the car to the lot, leave it and mail them the keys certified mail. I wouldn't pay a dime, and in the mean time I am sure there must be some legal recourse against lying, I would seek that out. My credit might die but I am 20 with little credit history anyway.
Biggest thing, will not negotiate or do business with people to have deceived me. Could be an ego thing, not sure. I actually think I may have learned more out of this ordeal than John did."
At this point, I started feeling sorry for John, so I decided to try to help him. I'll post what I did in a few minutes.
In Part 1 of this true story, which just happened, an iwillteachyoutoberich reader wrote about his friend, John (not his real name), who got a 17% car loan and didn't realize how much he would actually be paying.
The reader wrote me asking for advice, which I turned over to the readers on this site, and you provided over 40 excellent comments.
Unfortunately, John was so embarrassed he didn't want to do anything about it -- he just wanted to crawl back in a hole and pretend it didn't happen. As he says, "don't make such an ordeal of it...its embarassing enough."
Here's a chat transcript between the two of them:
Iwillteachyoutoberich reader: Let me ask my father what he can do.
John: thats crazy. some laywer guy made a t-shirt that you liked so you read his web site
John: no
[Note: He's talking about my dysentery shirt, available in multiple sizes, colors, and men's women's styles! But I'm not a lawyer.]
Iwillteachyoutoberich reader: One second.
John: don't do it
Iwillteachyoutoberich reader: No I am doing it.
Iwillteachyoutoberich reader: He knows many a lawyer
John: don't make such an ordeal of it
John: its embarassing enough
John: i will call one i swear. haha
Iwillteachyoutoberich reader: No, pride be dammed. Its time to get this solved. I would want you to do the same for me.
Iwillteachyoutoberich reader: No some financial guy made a t-shirt that I like so I read his website... its different.
Stay tuned for the next two three segments of this. They're even more unbelievable.
I want to do a bunch of new stuff for iwillteachyoutoberich this year--some that I've announced, some that I haven't--and I'm looking to bring on a few experts to help. If you're interested in contributing to this site (and helping me spread the word about personal finance and personal entrepreneurship), take a look below. I'm looking for...
A book researcher. I'm working on the I Will Teach You To Be Rich book, and I'm looking for a book researcher that can find answers based on unusually broad questions. For example:
When I was in college, I worked with Seth Godin on Free Prize Inside, which became a New York Times and Wall Street Journal bestseller. I learned how to talk my way into companies and interview anyone I wanted. And that was how I started my own publishing career. Now I'm no Seth Godin, but I promise you'll learn a ton and you'll be able to shape what the I Will Teach You To Be Rich book will look like.
Requirements: Initiative (i.e., don't just answer the questions I send you, make your own suggestions for the book). Strong analytical ability. Can work from anywhere.
To apply: Email me, tell me why you're the best researcher, and include past projects you've completed. If there's more than one extraordinary candidate, I may work with two.
A video/podcasting expert. This year, I'm going to be experimenting with using video and audio to talk about some personal-finance concepts. Unfortunately, I am absolutely horrible with both of these things. So if you're an expert in video and/or podcasting--and if you can distill complex ideas into bite-size nuggets like these 12 videos--please email me with your portfolio (you should have experience producing short online videos and podcasts).
A blog engineer. This blog has grown a lot since it was first started, and it's creaking under its own weight. I'm looking for an engineer who has experience with Wordpress and MoveableType. More importantly, you should have experience with usability, optimization, and testing (examples here and here).
Imagine what we could do with more skills onboard. If you like what I write about and you want to learn how to effectively spread ideas using audio, video, book publishing, blogs, and podcasts, please get in touch. I promise we'll experiment and find some unorthodox secrets for spreading the word about personal finance and personal entrepreneurship. I can't wait to see how we're going to kick ass this year. So if you want to join a team that's growing and build something successful that you can point to immediately, let's talk.
College students / professionals welcome. I just want to work with the best people. If you have any questions, just email me.
From the New York Times:
According to the Census Bureau’s 2007 Statistical Abstract of the United States, most college freshmen in 1970 said their primary goal was to develop a meaningful life philosophy. In 2005, by contrast, most freshmen said their primary goal was to be comfortably rich.
Well, on one hand that makes me disgusted, but it's sure good for traffic!!! Ugh.
Related: Why Do You Want to be Rich?
Update: I stand corrected, sort of. Elizabeth writes: "I don't know if you went back to the actual census statistics (PDF) but this was an unfair comparison by the NYT. Or maybe the NYT just didn't bother to look at the original data and only took what the census bureau had given them in their press release . If this was the case that was lazy fact-checking by the journalists. We should be considering why there was such a jump in the 70s to 80s and not 70's til now-- as nothing really changed from then until now.
My apologies for not digging into the data myself, but she's right: It appears there was a huge change from wanting to develop a "meaningful life philosophy" to wanting to be rich from the 70s to the 80s--and it's remained relatively stagnant since then. Also, this is why I love the people who read iwillteachyoutoberich.
Like I wrote earlier, I'm planning to share more of the blogs/sites/books I read about personal finance and personal entrepreneurship this year. But I'm sure that you read a bunch of stuff that I don't even know about.
So what online sources do you read for news on personal finance and personal entrepreneurship? Add a comment below and we can all learn about some great new sources online.
Tip: Here's my list of public bookmarks along with my comments:
http://del.icio.us/ramitsethi
My parents celebrated their 31st anniversary yesterday.
I thought about that for a while and a few things came to mind. "They made the ultimate investment!" "What a long-term horizon!" And other dorky things. But I think my mom put it better than I ever could have when I asked her how she did it. "You just don't give yourself any choices," she said. "You're in it forever and you know that going in."
Maybe when we talk about long-term investments and asset allocation and time horizons, we should step back and get the perspective of what it really means to be Rich. And despite all the magazines and all the TV shows and pundits that give us ideas of what we "should" be doing, sometimes the very best ideas come from right around us.
Happy anniversary, Mom and Dad.
For no apparent reason, today appears to be the day where I post a million things about food. I don't really know why, but I did skip breakfast.
Above is an interesting image about how food prices have changed from 1985-2000. As you can see, "good" food prices increased, while junk food prices went down. It's no surprise that we see links between obesity and poverty (PDF with nice data).
Anyway, the reason I'm posting about this stuff today is that I've noticed how similar food and personal finance are.
Food: We know we should be eating better, but we don't. We don't keep track of what we eat and have no idea how many calories we're actually eating. (We think we do but we're completely wrong.) Our friends have pet theories about what's good to eat, but it's rarely informed by data and it's mostly minuatie ("you should eat nuts 18 minutes before sleeping!"). We say we're going to cook at home more, but never find time to. We spend too much on food.
What's interesting is that I feel completely comfortable managing my personal finances, but the food issue--a close parallel, I think--is really intimidating. Realizing this has really opened my eyes to how hard it is to get started on a goal, whether it's personal finance or eating better.
Many of you how how much I hate dumb people (e.g., here, here, here, here, here, here, here, etc), including pundits who try to predict things but quietly fade away when the results come in, and hand-wavy arguments that people use to rationalize not getting started (like here).
Anyway, this year I'm going to make 5 very modest resolutions. New Year resolutions are always weird to me. Isn't it odd how we treat the new year like it's a complete rebirth, which often leads to unreasonably ambitious resolutions that never seem to happen? And we ignore that this pattern has been repeated for the last 20-something years? Now, I'm all for ambition and anything that will help us be more productive and happy, but one of the core tenets of iwillteachyoutoberich is recognizing the difference between being sexy and being Rich.
It would be sexy to say "I'M GOING TO MAKE A BILLION DOLLARS THIS YEAR!!!!!!!" or "THE CURRENCY INFLATIONARY CRISIS, COMBINED WITH INTERNATIONAL SPECIALIZATION AND IMMIGRATION, HAS MADE ME BEARISH ON THE STOCK MARKET, SO INSTEAD OF INVESTING I INTEND TO HOLD MY ASSETS IN CASH AND PERHAPS GOLD." Really? Instead, I'd probably just say "I'm going to set up an automatic transfer of $500 from my bank to my investing account on the 1st of every month" or "I'm going to read one book per month on personal finance." Not as sexy, but with a long-term horizon, I think it works.
As Paul Saffo recently wrote,
As this portentous year draws to a close, many are tempted to forecast a coming new utopia -- or unimaginable new hells. Both outcomes are unlikely. Instead, humankind will do what it has always done, namely muddle its way forward.
Okay, that's definitely cynical, but the message still comes through: Instead of grandstanding, small, simple steps work for me. So after some thought, here are my modest resolutions:
That's it! Happy 2007.
If you're a new reader, welcome. Here's a quick guide to get started on this site (including popular articles).
If you still haven't bought your Christmas gifts, you can get an instant download of my ebook, Ramit's 2007 Guide to Kicking Ass.
Thanks and Happy Holidays.
Angela writes:
I guessed that this was a credit card offer and opened it anyway. As I scanned down and saw the APR, I assumed it was a misprint, so I calculated it myself. Its not a misprint, they really are charging that much. And the collection arrangements sound interesting too.
Sigh. Yet another example of targeting poor people and stupid people. And yet this post will still get comments from people saying, "WHO ARE WE TO JUDGE?!?!?!?" and "If a company can charge it and people can pay, what's the harm!?!?" I don't know, I have this thing against disproportionately targeting people who don't know any better and of prolonging financial difficulties for a short-term gain.
And stay tuned for another image later today that will make you a little queasy, but one that I actually think is entirely ethical. Unlike this garbage.
I get a lot of emails wondering what books I read, so I decided to make a list of them.
Here are 50 of my favorite books in personal finance, social psychology, entrepreneurship, and design. Each one has been pretty influential to me. Check them out.
Note: This damn Amazon thing was the easiest way out there, but it still doesn't work perfectly. If the box below doesn't show up properly, here's a full link: http://astore.amazon.com/iwillteachyou-20.
The full link again to the list: http://astore.amazon.com/iwillteachyou-20.
And if you're wondering what I want to read, here's my Amazon wishlist.
I saw this on King St. in SF while driving a little while ago:
What pictures do you have of funny/weird/interesting personal-finance things? Maybe a hairdresser with $200 haircuts, or a homeless man trying to find $1 to eat, or the bill when you last went out with your friends?
Send them to me and I'll feature them next week (anonymously, if you want).
I get emails like this every week:
Dear Mr. Sethi ,Your web-page is very soothing to look at, but not so easy to read it. May be you can re-visit your font style.
What a cute, fobby email. So after getting 83295235 emails about iwillteachyoutoberich.com being too long and hard to read, I'm close to unveiling archives so this damn blog doesn't show 300+ entries on one page (oops).
Richard Wu, who saw one of my desperate requests for help, has been helping build a tweaked iwillteachyoutoberich. It includes archives (so the page isn't so long), bigger fonts so you don't go blind, easier navigation between posts, a different URL structure, and some other small improvements.
Here's a preview:
http://iwillteachyoutoberich.com/blog/ (note: this is just a preview, it doesn't have my current blog posts, etc).
What do you think? If you see bugs or problems, please leave a comment on this post. We'll fix anything you spot and then migrate over sometime in the next few days.
If you like what I've written about in the past, come back on Tuesday. I have something special I've been working on.
Have a good weekend.
I just came home and realized that I have like a billion new readers from some links on some popular sites.
So, welcome.
If this is your first time visiting iwillteachyoutoberich.com, no, it's not a scam. I'm a recent Stanford grad and this is a blog on personal finance and personal entrepreneurship for college students, recent college grads, and everyone else. (Featured in the Wall Street Journal, Boston Globe, Guardian UK, etc.)
This blog is me ranting about a few things and trying to get the points across. Getting started is more important than being the smartest person in the room. Making mistakes is ok. Action is more important than reading 50 blogs. Ordinary actions get ordinary results. And there's a difference between being sexy and being Rich.
Some popular articles you may want to check out from the last 2 years of archives:
Introductory Articles
Why do you want to be rich?
The Best Decision vs. The Financially Smart One
Cheap versus frugal
A big fear I have of this site
2006 Makeover, Step #4: Open your retirement accounts
Investing
An analysis of 1000+ IWillTeachYouToBeRich survey responses-- and some new decisions (Best feedback ever)
Dumb: "Don't invest; you can't beat the pros"
All about stocks and bonds
All about mutual funds
Read Warren Buffet's letters
Personal Entrepreneurship
Barriers are your enemy
I Hate Indian Network Marketers So Much
We love to debate minutiae
Your College is Not a Technical School
On greed and speed
The Myth of the Great Idea
Miscellaneous
What are we doing on this site?
I bought a tie (I love this post because of how angry the comments are)
Cost vs. value: Why I bought a new car (Sorry guys, but I stand by what I wrote)
Probably one of the best comments this site has ever gotten
Boy am I stupid
Saving
Here's how I set up my financial accounts
Letting your parents manage your money is dumb
The Power of Compounding
Time is NOT money--at least, not yours
Cook at home, you lazy bastard
You can also check out my table of contents, RSS feed, and newsletter. Thanks for reading.
I'll be speaking on a panel about PBwiki this Wednesday at Stanford. If anyone's around and wants to meet up afterwards, let me know.
Full panelist list:
Paul Bragiel, Meetro CEO, leading proximity-based social networking site
Michal Faber, 3S Generator founder, build BiznesNet, Poland's largest business networking site
Konstantin Guericke, LinkedIn VP Marketing, world leader in business networking
Dr. Greg. J. Badros, Google Director, Engineering, Adsense -- one of the biggest ad platforms in the world
Ramit Sethi, PBwiki co-founder and VP Marketing, leading consumer wiki platform with 140,000+ wikis
Wojciech Sobczuk, Grono founder and architect, Poland's largest social networking portal, 1m+ users
Marcin Malinowski, Onet director, Business Incubator, Poland's largest portal, acquired for $400m
Greg Welch, Intel director, Strategy and Industry Initiatives, focusing on Web 2.0Moderator: Dr. Charles Petrie, Stanford Consulting Professor, specializing in collective work and AI
This isn't about personal finance or entrepreneurship, but...oh well.
Here's our official PBwiki response to the Peanut Butter manifesto that's been floating around: In defense of peanut butter.
Hey, it's a light blogging day.
I'm thrilled to announce that I've signed a book deal with Workman Publishing for the I Will Teach You To Be Rich book.
Yes! First, I have to say thanks to everyone who reads iwillteachyoutoberich. Every time I get a comment or an email, I hope you know how happy I am. It's the reason I plaster my email address everywhere.
My agent, Lisa DiMona of Lark Productions, is the most positive person I've ever worked with--and she can close deals. Thanks, Lisa! I also look forward to working with Susan Bolotin, my editor at Workman, to make this book something you'll love. And yes--there will be lots of new stuff.
Finally, thanks to my parents, who always told me, "Why don't you write that up? How about submitting it to the newspaper? What's the worst that could happen?"
More details to come later. But for now, thanks!!
I'm pissed off.
See, I live by a shopping center that has a Safeway, Trader Joe's, and Wal-Mart. The last two times I've gone shopping there, I've been approached by Indian men who were seemingly very nice and struck up a conversation with me. (Some background: For a long time, there weren't many Indians in the U.S.--especially certain kinds like Sikhs--so if you saw another one, you'd greet each other, invite them over to have chai, etc. This tradition persists today, although less so, especially in Silicon Valley where we're very common. But still.) As a result, I'm always especially happy to introduce myself to any Indian person I see. Here's how the conversations went:
Seemingly nice man: "Excuse me. Hi! Did you go to Stanford? You look very familiar."
Me: (Wondering if I have a Stanford walk or something.) "Hi--yeah, I did. Did you also?"
Seemingly nice man: (Ignores my question.) "Ah, great, great! (Smile.) What did you study there?"
Me: "Technology and psychology...what about you?"
Seemingly nice man: "So where are you from?"
(...We have a nice conversation in which he seems genuinely interested to meet me and hear about what I'm up to...and then...)
Seemingly nice man: "Are you interested in a new business venture?"
Ohh man. Because this happened FIVE times in two weekends, plus once at a shopping mall in San Jose, I can tell you exactly what was behind their approach. I know because I gave these guys my phone number (until I wised up), and when they called, I got frustrated and asked them what was going on. Here's what I figured out.
Step 1: Go to a public place with a lot of people
Step 2: Approach people who look like suckers (me?) or people you have some affiliation with (in this case, five separate Indian guys approached me). Play up the cultural angle.
Step 3: Deceptively try to ingratiate yourself with them. Three of the five guessed Stanford because I look young and I wear glasses. The fourth asked if I went to Berkeley. Wrong side of the Bay, buddy.
Step 4: Get my business card and follow up with an "exciting business opportunity." Sound disappointed when I decline. Follow up by asking, "So do I understand it right that you're not interested in making money for almost no effort?" When faced with my flat response of "that's right," ask me meekly if I have any friends who would be interested in this business "opportunity."
I hate when people try to scam me--but at least I have some experience in spotting scams. I hate it even more when defenseless people get scammed. And I just feel sad when people are wasting their time and relationships by engaging in network marketing.
Network marketing (aka multi-level marketing, or MLM), Ponzi schemes, or pyramid schemes--yes, there are differences, but I'm disgusted by them all.
My angry encounters with these guys come at a prescient time. Yesterday, The New York Times wrote a damning article on multi-level marketing companies and the new rules proposed by the Federal Trade Commission. "If companies have to tell recruits that the average income is only $1,400 instead of the $50,000 advertised on their site, or that the average salesman only lasts two months, a lot fewer people are going to sign up," said one analyst.
These programs are a scam on your time and your relationships. Yes, there are exceptions and a few people make lots of money. But dig into the data and you'll discover that most people--and I mean that statistically--most people make less than $100/month. Most people don't last very long, either. "But Ramit," you might say, naively, "how can it hurt? If I can make $50/month, what's wrong with that? PS I think I can actually make $50,000/month!!!" There are four things wrong with that: First, you won't make that much. Second, you're not creating any lasting value or building a skill set for you. Third, have you seen how friends treat you if you try to turn your friendship into a sales relationship? And forth, engaging in these stupid "opportunities" distracts you from real entrepreneurship and your goals.
Let me explain.
An overview of network marketing, Ponzi schemes, and pyramid schemes
Network marketing/MLM
Network marketing (i.e., MLM) is the most legitimate cousin in a family of questionable characters. They're like the Beagle Boys from Duck Tales: an unfortunate family of degenerates. Anyway, multi-level marketing programs let you earn money based off the products you sell, and sometimes a percentage of the products sold by people you refer. That's a key distinction: In MLM programs, you earn money from the actual sale of products, not just from endless recruiting of other people.
Unfortunately, the rosiness ends there. As our own Federal Trade Commission (FTC) notes:
Some multilevel marketing plans are legitimate. However, others are illegal pyramid schemes. In pyramids, commissions are based on the number of distributors recruited. Most of the product sales are made to these distributors - not to consumers in general. The underlying goods and services, which vary from vitamins to car leases, serve only to make the schemes look legitimate.
Furthermore, they write, "Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid."
I knew a guy back in college who made me wish I were actually in an ivory tower so I could jump off into a pit of alligators, thereby evoking eerie similarities to Indiana Jones and the Temple of Doom. He was bragging about a new "venture" he had started. I was curious, so I asked him about it, and he had a very nice sales pitch--until I asked him a couple questions that he apparently didn't have scripted answers to. What was he selling? "Oh, tons of assorted products like energy drinks and really good cleaning supplies." (Which he had of course bought first, thus incurring inventory costs, and now had to sell. A few months of your closet being full of EnergyAde makes pennies on the dollars sound attractive.) And how much was he making? I wasn't going to ask, but he kept bragging about how "profitable the opportunity is," so I just asked. His openness vanished rather quickly, especially when someone else chimed in and said, "It must be more than $100/week, right?" That was a typical amount students could earn by working part-time on campus. "Well," he replied, "it's all about pounding the pavement and getting to that tipping point." He'd been doing this for a year.
Another example of an MLM company is Amway. Now, as part of a $6.4 billion organization, something undeniably powerful is happening here. And who am I to criticize? I don't run a $6 billion company. But the data behind Amway is illuminating if you're thinking about MLM programs:
Typically, IBOs (Independent Business Owners, i.e., members) spend money on tapes, books, and seminars which are promoted to IBOs as the preferred way to learn the "business skills of the IBOs" and to maintain their desire to build their business...However, investigations like one done by Dateline NBC in April 2003....suggested that most of the money being earned by these successful individuals was coming from the hidden "tools" business rather than through selling the company products. Critics also claim that the materials are specifically geared towards encouraging IBOs to continue working for a non-economic return, rather than improving their actual business skills.[...]
Amway was ordered to accompany any such statements with the actual averages per distributor, pointing out that more than half of the distributors do not make any money, with the average distributor making less than $100 per month.
Pyramid schemes
It gets worse. While multi-level marketing programs can theoretically be legitimate--even though few people profit, and many take a long time to realize they're not--pyramid schemes are simply fraudulent. In a pyramid scheme, you usually make money recruiting others and hoping that people down the line will pay it upwards. The products you're selling (if there are any) are overpriced and likely only purchased by members in the pyramid scheme. As a point of reference, the first sentence of the Wikipedia entry on pyramid schemes describes them as having a "non-sustainable business model." That's because, mathematically, pyramid schemes soon become impossible to sustain; exponential growth means that, soon, there aren't enough people in the world to participate. Sort of like the amount of girls that can resist my charm.
In other words, pyramid schemes will typically promise a great return based on a small investment. The hucksters have developed a number of variations to obfuscate the real process (older readers may remember the "captain and passengers" model), but the result is always the same: bad.
Ponzi schemes
The final and most fraudulent example is the Ponzi scheme, which involves promises of unusually large investment returns by aggressively recruiting more and more new members to pay earlier members. In fact, the earliest investors often get incredible returns for a short while, thus spurring them to invest more and tell their friends. The scheme's demise comes shortly thereafter, usually with the mastermind(s) taking all the money.
Ponzi schemes are different than pyramid schemes: the Ponzi scammer is the puppet master, whereas recruiting is distributed in a pyramid scheme. Ponzi schemes can also persist by getting more investment from existing members, while pyramid schemes can grow (and thus collapse) faster. There are lots of details about Ponzi schemes, but the main takeaways are they're very fraudulent and very bad.
Why I have a dim opinion of people who participate in these programs--plus a case study
First, they're deceptive. They used a simple heuristic--"Hey, we're both Indian!"--to get attention. While that may work in the short-term, how would a real businessman feel once he realizes he was deceived? And what kind of people would shrug it off and stay with the organization? This is a great example of Cialdini's "click, whirr" strategy to take advantage of these rules. Although I thought they were sincerely interested in me, they actually wanted to sell me on something. Bad, bad, bad.
Second, they're not particularly innovative. They accosted me at grocery stores, for god's sake.
Third, they're often persistent to the point of being irritating. Here's a little case study on something called Pre-Paid Legal. Last year, I gave a talk at MIT. About six months later, one of the students emailed me with an "interesting opportunity" for something called Pre-Paid Legal Services. This is basically a service where you pay $25/month in exchange for legal services; it's like insurance for legal services. They have a fancy magazine (which she helpfully mailed to me) and very, very pushy people who try to recruit you. There are only a few catches to the service: Pre-Paid Legal has been found guilty of fraud, leading to this amusing quote by money manager Frederic E. Russell: “I think Pre-Paid was lucky,” he said. "But a finding of fraud is not exactly the greatest news as far as goodwill and reputation are concerned.” The article ends by noting the following tidbit: “Pre-Paid has set aside $3 million to cover any major damages that may result from the lawsuits. The company—which markets its product as essential—carries no legal insurance itself.” As you can imagine, by this point I was enjoying myself so much that I was eating popcorn while reading these articles.
Would legal insurance have even mattered? As one of their board members actually said, “All you have to know is the word: Yes. Does our product cover everything? Yes. So if somebody asks does it cover this or does it cover that, we're going to say, 'Yes.'"
That same article, from BusinessWeek, points out what's not covered by Pre-Paid Legal:
A review of sample Pre-Paid contracts shows many limitations. Cases involving bankruptcy, alcohol, drugs, pre-existing conditions, wage garnishment, divorce, annulment, child custody, class actions, hit and runs, driving without a license, civil or criminal charges associated with a business, and commercial vehicles over two axles aren't covered. Nor are any "claim, defense, or legal position which, in the opinion of the Provider Attorney, will not prevail in court." Pre-Paid provides for 60 hours of trial time per year, but pretrial work -- the bulk of most cases -- is limited to 2.5 hours per year in a basic policy.
And yesterday's New York Times article notes that an astonishing 45% of Pre-Paid Legal's public shares are currently shorted, meaning sophisticated investors think this company is going to tank. It also suggests the consequences of the newly proposed FTC rules: "...Pre-Paid Legal would have to tell prospects that fewer than a quarter of its sales representatives sold more than one insurance plan in 2005." How would the sales reps take it? Well, the reporter writes, "Pre-Paid Legal suffers from high turnover. In 2005, the company replaced at least 50% of its active salesforce...Industrywide, multilevel marketing companies typically replace all of their sales representatives every year."
With most of this knowledge, that MIT student kept badgering me. Finally, exasperated, I had to tell her rather pointedly that we could go back and forth forever, but I wasn’t interested at all. (These MLM types bring out the most unsavory reactions.) A year later, a friend told me that he got another contact from her—this time endorsing another product.
Fourth, these programs disproportionately target the wrong people. “Make money in your spare time!” they say. Do you think people with a busy career have lots of free time to try “opportunities” they hear about while shopping for tonight's rump roast? Of course not. Professor Ken Wong, who runs the MBA program at Queen’s University, points out the obvious:
"The more educated they were, probably the less likely they would be to buy into the whole concept in the first instance. So you're really targeting a specific kind of individual who life has treated in a very certain way, and you're now saying you don't have to have that way anymore."So we have programs that disproportionately target people who don’t know any better and remain “working” in these programs without being properly compensated—all because of big promises to come and clever marketing. You can see why I’m pissed. In fact, try to dig up research on “network marketing.” It’s hard to find anything substantive among the THOUSANDS OF PAGES OF AFFILIATE OFFERS THAT SCREAM OUT SCAM TO ME. Interestingly, many people have compared these programs (and especially their training programs) to cults. Not just hand-wavy cults, but the strict definition of cults, including isolation, increasing levels of commitment, etc. I agree, there are lots of similarities; for more on this, read Eliot Aronson’s excellent book, Age of Propaganda: The Everyday Use and Abuse of Persuasion.
Fifth, and perhaps most unfortunate of all, these programs are giving their members neither equitable compensation nor the core skills for future growth. If you’ve read this blog before, you know that I hate get-rich-quick schemes (see On Greed and Speed for details). If these so-called opportunities didn’t provide much cash, but gave participants the skills and contacts to run successful businesses, I would say great! Unfortunately, they don’t. Yes, that’s a broad generalization, but I’ve seen far more regret and bitterness over a long period of time than excitement—of course, with the exception of my grocery-store friends. They’d all been doing it for less than 6 months.
Why would you do these programs?
Is it to make more money? Then let me be very clear: You could make more by taking $100/week, putting it in an index fund inside a Roth IRA, and letting it sit there. You can even set this up to happen automatically. In fact, you could arguably make more by investing just $100/month.
Or maybe it’s to maintain your lifestyle and do something entrepreneurial. Great! I admire that more than anyone. But why would you pick an industry riddled by fraudulent opportunists and unsophisticated people whom you can’t learn much from? That smacks of a stupid frat-boy business idea.
Is it to make a difference in the world? Probably not, but just in case, there are many better ways to do it that don’t involve you calling up your friends and family and polluting your relationships by introducing a sales element into them. “Mom, I love what you and Dad have done with the window treatments here! Also, did you know you’re currently vulnerable to numerous legal liabilities? Fortunately you can protect yourself using an exciting service called Pre-Paid Legal Services®!”
Is it because you're new to the area and looking for something entrepreneurial to ease your way into the community? I have to admit that the title of this post is a little sensationalistic. Also, most of the people who approached me were recently from India. Maybe they didn't know any better. But you know what? That only reinforces my point of the kind of predatory organization this is. Plus, there's almost no better way to actively push people away from you in a community than by trying to actively sell them something fraudulent.
Finally, is it because “it couldn’t hurt?” After all, how could it hurt to try it out? The truth, of course, is that it can hurt. You’ll probably alienate your friends, family, and acquaintances, just like that MIT student did to me. Moreover, following that logic of “it couldn’t hurt,” you might as well open a lemonade stand and sell drinks for $0.05 each. “How could it hurt? I made $0.75 today!” The point is that we need to optimize our choices, and $0.75/day (or $100/month) isn’t worth it compared to what you could make. If you read three articles on this site (e.g., about stocks, mutual funds, and retirement accounts), you’d easily make more. Or another site! Or a book! I don’t care. Just recognize the flimsiness of the “it couldn’t hurt rationale.”
I’m bound to get a ton of heat for this post because there are lots of bloggers who write about network marketing. They genuinely believe in what they do. Unfortunately, try doing a blog search for “network marketing”. The results are deplorable, which leads me to my final points.
Ramit’s 5 Maxims of Network Marketing
1. If you have to badger someone into even thinking about maybe considering allowing you to perhaps talk to them for 60 seconds, you may have signed up for a bad “opportunity.” Also, if your marketing plan involves you accosting customers in the cereal aisle, consider that I may be right.
2. If you spend more time recruiting people to do your job than you do selling products—and you’re supposedly in a “sales organization,” you may be in a scam.
3. If the organization you're working for has repeatedly been sued for fraud--and often convicted--that may set off some warning signs. Also, if you're participating in a business model that almost universarlly evokes disgust or, at the minimum, discomfort, that may be another sign. If a lot of people don't like something, there's usually a reason.
4. If you're spending your days doing something that's frustrating and only marginally useful--and your customers, if you have any, feel abused rather than thankful--step outside the bubble for a minute to acknowledge that you're not creating any new value. I don't know one entrepreneur who made it big doing something like this. Now, I fully understand the psychological difficulty in doing this. Maybe one good way to start is by asking people you've pitched what they honestly think about your recent activity.
5. Finally, it’s easy to be wishy-washy about MLM (“The real problem with MLM is not MLM itself, but some of the people it attracts”), but I’m going to go out on a limb here. If you do your research and discover an industry filled with fraud and broken promises—one in which you can reasonably expect to not only be swindled, but to then swindle others—you may want to reconsider your choice.
Thanks for reading. And please, tell your friends.
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About me: My name is Ramit Sethi and I’m a recent Stanford grad. This site is about personal finance (long-term saving, banking, budgeting, and investing) and personal entrepreneurship for college students, recent grads, and everyone else.
To see more articles from iwillteachyoutoberich.com, check out my table of contents (over 2 years of posts), my RSS feed, and my newsletter.
A very special thanks to Ryan McCulloch for the beautiful drawings. He’s an illustrator and clay animator, and you’ll see more of his work on iwillteachyoutoberich in future articles.
I'm surprised. With all the news we've been getting lately about getting out and voting, I haven't seen one piece of information about where I'm supposed to vote beyond the one piece of mail I got about 6 weeks ago. Who knows how many people lost that sample ballot and went online to find the info?
Unfortunately, finding information about voting registration and voting locations is awful. Maybe it's just me--I have Tivo so I skip through commercials, and I don't watch NBC Nightly News--but I can't help thinking that lots of young people have similar habits of going online. In fact, the "maybe it's just me" phrase is a red flag indicating a classic design problem. It's not voters' fault--it's the designers' fault (in this case, election officials) for not giving us the information we need beyond "EVERYBODY GO VOTE!!!"
A cursory search online doesn't give any information, either. Now, I dug around and found the sample ballot, but I wonder how significant that initial "I can't find it online" reaction is for voter turnout. With all the handwringing about low voter turnout, I wonder how much we could bump up results if we had an easy, step-by-step online guide to registering and finding your polling place that we actually knew about.
As Malcolm Gladwell noted in The Tipping Point
Sure enough, when Levanthal redid the experiment, one small change was sufficient to tip the vaccination rate up to 28 percent. It was simply including a map of the campus, with the university health building circled and the times that shots were available clearly listed.
Voting locations based off a mailed document from 6 weeks ago? Talk about a failure of the last mile.
PS--The best voting site I found was http://canivote.org, which I heard about on NPR
God damnit.
I had checked out about 15 books, and I knew about 5 of them were overdue, but I didn't get around to returning them for a couple weeks. This is really unusual of me, and I was feeling like quite the rebel, until I thought about it and realized I was feeling hardcore for not returning LIBRARY BOOKS. Then, last night when I logged in, it said I owed $298.00!!! Apparently if you don't return books after a certain time, they just assume you lost them.
If you can imagine the most horrified look of anguish and pain, that was me. I called them and got the fees reverted back to a more reasonable number. Oh, who am I kidding, $50 in fines is absurd. This is my stupid mistake of the quarter.
Earlier: How I deal with stupid money mistakes (something I didn't mention in this article was that I'm now allocating $30/month for stupid mistakes, up to a max of $300, after which I recycle the money into my investment account and start over again).
Our recruiting book is due Monday, so Friday Entrepreneurs is on a break today and I am hating life. (To see a full list of all the Friday Entrepreneurs, click here.)
Here are some links that I stumbled across this week. Check them out:
Compulsive Buying Not Just For Women. A lot of interesting findings in here. For example, about 5.8% of respondents suffer from a shopping addiction (see the article for their description). That means there are roughly equal numbers of men and women suffer from the symptoms (5.5% of men, 6% of women), yet women seek help overwhelmingly more often than men--leading us to casually infer that women are the ones who have all the shopping problems. Still, I want to scream at one of the girls I know who buys $450 shoes like they're Tootsie Rolls.
Skip the Coffee? What's Money For, Anyway? The author, NYT reporter John Schwartz, points out that he actually enjoys his coffee every day--even though every personal-finance columnist seems to disagree with him. "Buy the damned coffee, if it makes you happy," he says. I agree with spending on things you love, and I also agree that you won't get rich from simply saving a few bucks here and there. But if you do spend on something, you should know exactly how much it's costing you over the long-term. We've all heard how saving on lattes can end up being worth $300,000 later on, etc. If it's worth it to you, okay. Most people never take the step of figuring it out, and end up in the same place as everyone else. Ordinary actions = ordinary results.
JLP's blog, AllFinancialMatters, turns 2 years old today. I'm trying to do a better job of linking to other things I read, and JLP's blog is one of them. Congratulations on 2 years.
A perpetual scholarship to Northwestern for $100. Richard Rounsavell bought the scholarship--in 1866. "With it, he was granted free tuition for himself, his sons -- and all of his descendants accepted to Northwestern."
Beware of the "Growth Trap". "...investors still must be cautious because the fastest growing countries are often the worst investments. Case in point: China. For most of the past decade its stocks have delivered horrible returns although the country's economic growth is second to none. Why does this happen? Because the fastest growers often carry the steepest price tags. Investors' impulse to ignore price and "go for growth" turns out to be a costly mistake." I did not know this.
WSJ columnist Jonathan Clements pans Richard Kiyosaki's and Donald Trump's new book, "Why We Want You to Be Rich." Ohh, man. Update: See my review of Kiyosaki's earlier book, Rich Dad, Poor Dad.
Ok, more to come next week. If you have any interesting articles you've seen lately, let me know by posting a comment.
This is one of the best videos I've seen online.
But first of all, what kind of guy uses the word "cute"? I don't know. But when I sent this video around to my friends yesterday and said "check out this cute video," one guy actually said (and I quote), "I hate you for sending this." Meanwhile, my sisters were cooing like 13-year-old girls at a John Mayer concert.
It doesn't have anything to do directly with personal finance, but it did give me some ideas about taking an abstract, seemingly boring concept and make it completely interesting. Hmm...
(RSS readers, if you can't see the embedded video, click here.)
I got a bunch of ideas from the book giveaway, but unfortunately nothing stood out, so I'm just giving the books away to 2 random people who comment in the next 7 days.
Update: No, comments that say "here's a random comment" don't count. Come on, guys.
Update #2: Done! I've picked the winners: comment #22 from Kimber here, and comment #21 from MyNameIsMatt here. Thanks to everyone. Kim and Matt, you have emails in your inbox with some more details.
It turns out my editor for recruiting book we're writing is also the editor of The Starfish and the Spider book, which I didn't even know. Because of yesterday's book giveaway, she found this blog. And she left a comment on one of my posts. A scary one.
Our recruiting book is due in a few days and I think our agent might kill us if we don't hit our deadline, so expect things to be a little slow around here for the next few days. I hope she's not reading this. Anyway, if you're on my newsletter, you should be getting an update from me later today.
Later this week: How I cut 25% off my friends' budgets (next Monday), a book giveaway, and a new Friday Entrepreneurs.
If this is your first time visiting iwillteachyoutoberich.com (maybe from the Boston Globe article today), welcome. This is a blog on personal finance and personal entrepreneurship for college students, recent college grads, and everyone else.
To get started, check out my table of contents for 2 years of posts. Also, there's an RSS feed and newsletter.
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The article, "So you want to be an entrepreneur," lists 9 ideas to get started. Here's the one about me:
5. Sell yourself. The idea of an Internet start-up is to grow an audience first, and then figure out how to make money. So a logical place to turn to is yourself, because if you can build an audience, then you're an expert in something. At the sprightly age of 24, Ramit Sethi writes the very popular personal finance blog IWillTeachYouToBeRich.com. He has parlayed this success into a public speaking career (seriously -- Fortune 500 companies are paying him to come talk to employees about finance) and a book-writing career (stay tuned for his advice on how to recruit hotshots like him to your company).
I've been moving to a new place, so posting has been light this week. But check out the 60+ comments on my post about spending money strategically and not being cheap. According to the commenters, I am right/wrong/eloquent/unqualified, and more. Also, one person accused me of being a greedy bastard, which made me laugh. Anyway, the best comments are where people write about what valuable things they decided to spend on this week. There are already some amazing results.
Also, a few interesting links I've been reading...
Stay tuned for Friday Entrepreneurs later today.
I am the #2 Google result for "frat boys." Oh, how proud my parents will be.
Last Wednesday, I decided to try something new and held an online chat with IWillTeachYouToBeRich readers. Lots of you asked for a transcript, so below is an excerpt.
The chat was pretty cool: I think we had something like 100-200 people over a couple of hours. Next time, I'll work on finding a better chat room to host lots of people without it getting so chaotic. Also, to the lame troll who changed his nickname to mine and started robotically saying "You must open a Roth IRA," get a life. You do give good advice, though.
For now, here's an excerpt from the chat room. Note: It was informal and there were lots of conversations going on (the full transcript is over 100 pages long!!), so some of it is a little disjointed. Special thanks to Mark Troutman for picking out the key parts of the chat.
Q: ok, so...how do you write your posts, then?
A: how do i write my posts? for the short ones, i read a bunch of blogs, magazines, books, etc and save a lot of stuff that i want to write about. then when the mood hits me, i try to write something short. the longer ones, i put up topics on my pbwiki and add notes to them as i go along...writing a long article takes about 8-15 hours to actually WRITE, but usually about 1-2 months to develop. so i have about 18 articles in limbo on entrepreneurship right now
Q: Ramit, what do you personally use for budgeting and managing your finances?
A: i use quicken, excel, and paper to manage my budget -- but i'm working with a part-ner on a new app to manage finances, so i'm waiting to switch entirely over to that one
Q: What do you think about the conventional wisdom to invest at least the match per-centage in your employer's 401(k) if the investment choices suck?
A: my thoughts: yes, i think matching is a NECSSARY part. so please, please, if your employer matches, please max that part out at least -- even if the options arent the best. remember, it's a retirement account and, if you invest in the proper high-growth mode, you'll at least make more than you could sitting
Q: I opened a Roth IRA with Etrade and they started talking about investing the money I've deposited. I guess I had thought the money just sits there, now I'm kind of dumb-founded as to where I start with investing it
A: the answer is, no, your money SHOULDNT just sit there. you can invest it in anything (stocks, bonds, mutual funds, etc) -- just like any other investment, except you get huge tax advantages. read my post on retirement accounts to figure out how to start
Q: I have a bunch of cash in a traditional saving account and was going to try an CD. But I read that online banks regular savings accounts for the same rate. But I'm wary. How do I find a good online bank?
A: CDs are not for young people, and high-interest savings accounts give you compa-rable interest. INGDirect and Emigrant Direct are the best ive found
Q: I'm planning on investing in a high-interest online savings account. Emigrant Direct has the highest interest rate, so that makes the most sense to invest in. Are there any good arguments for going with HSBCdirect or ING instead?
A: go find the site that makes you comfortable and you can get someone on the phone -- and do it. more money is lost from indecision than bad decisions. After I wrote the posts about high-interest savings account, a BUNCH of people wrote me saying how happy they were to open one. now, that's good...BUT it doesnt stop there. a lot of peo-ple were satisfied, like "i did it!" ---> no, opening ING (or whatever) is just the 1st step. remember, huge growth doesnt come from your savings account.
Q: What about CDs at the online banks if you're saving for something near term? ---
A: Yes, if the illiquidity doesnt matter much, thats cool
Q: Currently I invest about $200 a month to a Roth IRA account with etrade. Some of the stocks I want to buy are $20-$30 and sometimes I can only buy 20 shares. Do you think that is a waste?
A: yes, losing 10% is TOO much for a trade -- that means the stock has to appreciate over 10% just to break even (including trading fees). call them up and ask to see what you can do about consistent investing. also look at places like sharebuilder, etc
Q: i know you're opposed to keeping most of your money in a savings account, but what if i plan on using that money for a down payment for my first property in about a year?
A: a year is too short for most investments -- just keep it in a savings account. you dont want to lose 25% in the stock market, heh
Q: Should we be investing a greater percentage of our assets in index funds or in indi-vidual stocks (suppose we're long term-investors)
A: i cant give you a specific answer to this, but.. a great stock can absolutely trounce the market. the problem is most investors cant pick stocks worth a damn. id start with index funds, and when you get more sophisticated, then you can try buying individual stocks if you feel comfortable
Q: Give us your perspective on personal-finance budgeting software
A: i think most of it is bloated garbage that has 328529359823 features. the hardest problem for people is not "how do i calculate my tax-deferred mortgage benefits"...it's "where the hell is my $ going." so here's the deal: go try them all, mvelopes, pear-budget, quicken, MS money. use paper for all i care (i do.) the key is, what are you go-ing to stick with? literally, in my classes, the hardest thing i teach is keeping a budget for more than 4 weeks. the tool doesnt matter -- your discipline in keeping your budget does. and after 6 weeks of tracking your spending, you will be SHOCKED, i guarantee it
Q: How did you get started giving speaking presentations?
A: ill be honest, i am still working on making that a bigger part of what i do every day. i LOVE speaking. but its a challenge to get speaking gigs. i go outbound quite a bit using my network, friends, contacts to help get me into companies/schools. sometimes i get people emailing me from my site saying, "Can you come speak at XXXX." the speaking part is great because i can communicate the entire site (and more) in about an hour -- plus the stories ive heard from my friends from doing this for a long time.
Q: Do you plan to do any classes in the Los Angeles area?
A: if you email me and bring me to speak there, i'll do it
Ramit Sethi: ok, actually, let me talk about something else. you know, its funny on my site, i write a blog post a day (or whatever), its fairly disjointed so its a challenge writing for people who have been with the site for a long time, vs. casual readers who stumble upon it so i am really careful to actually LIMIT the information i write. too many sites write every little teeny thing about what you should do. im the opposite, id rather limit the information because the more information you have for young people about $, the less likely people are to do something (it's just overwhelming) so technically, i would love it if people opened a retirement account as almost their first action of investing - save tons on taxes, think long-term -- but you have to be careful in talking about Roth IRAs before people uinderstand a savings account. again, the financially correct deci-sion vs. the right decision
gabber884: I'm good at saving, just not good at investing
Ramit Sethi: youre probably inexperienced, not "bad"
gabber230: But, if folks are REALLY interested (read interested enough to DO some-thing), wouldn't they do the research for themselves?
Ramit Sethi: no. absolutely not, most people wont. listen, one of the titles of my future articles is: "The bar is so, so low". thats because tons of people WON'T do what they could to make simple changes -- lose weight, start a savings account, invest, etc. thats why its so easy to be a winner -- it doesnt take much. literally, the logic of "if people really cared / if it were really good for them, people would do it" is so flawed because that would suggest people should start investing at age 22 or earlier yet most people dont!
gabber102: because people are scared. thats why they don't invest
oLD HAG: They also don't all have 401-Ks
gabber230: But isn't that "not caring"
Ramit Sethi: i think they just dont know
maryam: or theyre broke
Ramit Sethi: oldhag, you dont need a 401k to invest. guys, i dont have a 401k. do you realize that?
Q: what's the max percentage of income that should go towards paying a mortgage?
A: my answer is sort of meaningless because if i said 10% (and you were paying 40%), what would you do? --> nothing. search it online to find recommended amounts (al-though things have gotten out of whack lately)
Q: what do you do when you graduate"
A: guys, student debt is good debt. depending on the interest rate, its ok to have it and pay it off slowly. if its like 9%, however, thats not the same thing. however, some people feel completely overwhelmed by having a large debt amount -- even if its at a low inter-est rate. for those people, they may want to add more to their monthly payments. other people may say, "hey, i can make more in the market, so i'll continue to pay down the minimum on student debt." whatever you do, do NOT forget about your retirement ac
Q: Do you recommend any books for novice investors?
A: yes, ill be posting some book reviews soon (like 321538905 people have asked me this one)
Ramit Sethi: ok, hey guys, lets go over a couple of things. first of all, dont ever get those stupid credit cards at retail stores. i cant count the # of times ive seen someone in front of me getting one for like 10% off. i want to shake them and beat them but i dont. first of all 10% is not that much for one purchase. 2nd, those retail cards are the worst -- if you miss one payment, theyll jack your credit up. so avoid them. if you already have one, dont close it, just dont charge more (and make sure its not carrying a balance)
Q: how do i make a million dollars from my lame blog?
A: oh i LOVE that question. i was recently on a blogging panel in front of a bunch of indians. guy kawasaki was a co-panelist, chris pirillo too and lots of people wanted to know: "how do i make $ with my blog?" so here's the deal - too many idiots try to make money with their blog from 1st order effects (largely ads) - i think this is stupid for 99% of people considering that MOST PEOPLE DONT MAKE MUCH MONEY FROM BLOG ADS AT ALL. so the smarter way, i think, is 2nd-order effects, and i can talk about those for a sec. for my blog, i've made money from 2nd-order effects like consulting gigs, job offers, speaking. those are worth far, far more than i could have ever made through ads. i calculated one of the things i made and it was equivalent to like 19 years of ads. some people get book deals -- another 2nd-order effect. here's the deal with 2nd-order effects: dont try to rush it. i get people emailing me, "i have a blog that's 2 months old, where is the money!??!!" and i roll my eyes. if you are trying to make money after 2 months, for-get it. read my post, "On Greed and Speed" for more info
Q: should i buy a house right now?
A: now let me be very direct. first of all, thats a pretty dumb question. who am i to tell you? tons and tons of economists got it wrong - "the market is going down", "the market is going up" so listen carefully to me - read what smart people say. listen to what they say. and make your own decision. with that said, i havent bought a house even though my family has recently become very interested in real estate. i simply have other priori-ties right now, like investing in myself. im taking the cash flow i would have spent and spending it on myself. and i want to be clear about this - the other day, i was at an en-trepreneur dinner with a bunch of fancy entrepreneurs (i was the youngest guy). there were CEOs of public companies, successful people who'd sold companies, etc and we were talking about investing and we all agreed -- investing in yourself is the most power-ful investment you can make in yourself. youre only limited by hard work and luck in-vesting in yourself for me is being able to hire people to do projects i need done
Q: tell us MORE about investing on ourselves/yourselv
A: first of all, i bet everyone in this room has $X they can save every month. now ask yourself, what would you do with $100 more/month? would you spend it on shoes? would you use it to buy a book? would you use it to hire someone for 1 hr of consulting?
Q: will closing my credit card affect my credit?
A: in general, yes, but you should call your CC company and ask. also in general, keeping a card open is a good thing to do -- it shows your credit history is longer-sustained.
Q: Ramit What would u do with $100 every month
A: i'd probably either invest in my roth IRA or use it for a project ive been wanting to do. i have small ideas i want to do -- little sites, design work, etc -- thats what im talking about but i am limited on time
Q: do you ever experience burnout?
A: do i ever experience burnout? sure, when it comes to posting on my site. thats why you'll see that some weeks i take them off (thats when lots of people start getting mad -- see my I Bought a Tie post, heh)
Q: How long should you maintain a credit card before calling your credit card company and asking for a lower rate?
A: maybe a few months, there's no formula
Q: I can't seem to be able to budget wisely - I do great at the first of the mont but then crap out at the end and wind up buying 20 bucks worth of magazines or 5 albums on iTunes - How can I stay focused?
A: there's no secret -- it's just about discipline and entering your data every 2-3 days. after that, youll forget it
Q: What do you think about charity? Do you think it is important? Do you donate your money or time?
A: i absolutely love this question. the answer is yes, both in terms of time and money setting up a scholarship to give back, writing for free, and giving talks for free.
Q: dont you think charity makes people "dependent", isn't better to make them earn it?
A: no, i dont. it depends where you give your money. you look at a foundation like the Gates Foundation, it's run immensely well. i think the benefits from giving to charity are numerous, and you can see people in here saying the same thing.
Q: for ppl that are able to be financially focused...would you recommend using a credit card for daily purchases over a debit and cutting one check to the bank at the end of the month to help your FICO score
A: my answer: credit card. btw, i use my credit card for everything possible (it's easier to track in quicken/money/etc.) with cash, i have to keep the receipts, enter them manu-ally = barrier
Q: what do you think about not spending anything on credit cards? everyone else is in trouble so why not use cash only!"
A: that advice is not for smart people who read personal-finance blogs. i hate that ad-vice because it panders. it assumes, "everyone else mismanages credit cards, so you probably will too" ARE YOU A MORON I WANT TO YELL answer: no.
Q: what % of my income should i invest?
A: 1. no one-size-fits-all formula is good. if youre using that, youre being stupid. 2. with that said, 10% is a bare minimum for what young people should be saving. my students generally save 25%-30% (cant do it? read It Never Gets Easier Than Now)
Q: Should you have a business plan if you're going to run a start up? -- we didnt, and if you have a web startup, these days (in my expdrience), its rare. Should you get a good lawyer and accountant?
A: YES! its worth it! [referring to a lawyer/accountant, not the business plan]
Ramit Sethi: ok, let me give you a higher-level description of my startup work. after i graduated, i had an offer with google but wanted to work on my own stuff for a while. so i consulted for a few VC firms, worked casually with PBwiki. things really started going well with all the things and i was having a great time -- working from home, meeting tons of people. $ was tight but i was loving every minute of it. PLUS, i could work on my own side things (like iwillteach)
gabber230: how tight?
Ramit Sethi: tight enough that i couldnt splurge on weekend NYC trips too much like in the past. tight enough that, oh, yeah, i dont think i was taking a salary from PBwiki at all. anyway, i decided to go fulltime with PBwiki. that shocked a lot of people and i talked it over with a TON of advisors, friends, etc. at that point, pbwiki was 2 people, we grew it from fairly small to pretty big, then we brought in a CTO. we also started to figure out our business model, how to grow and make $. meanwhile we were ultra-lean - we JUST got an office last week. until then i worked from home (which i love) -- now i go in for a few hrs/wk
Q: do you wish you would have worked for google?
A: ill tell you my only regret about not working at google 1. i could have bought a bunch of new stuff with that salary. 2. half my friends work there -- they really hire the best, but ultimately, i decided i could go back corporate any time, and this was the opportunity of a lifetime.
Q: what interested you in a wiki knockoff? honestly...
A: i hope we're not a wiki knockoff : ) we create new features every day, and ill tell you what attracted me to it 1. the team -- david was absolutely brilliant and we had the SAME ideas about business, he brought an absolute juggernaut of coding experience to it. i brought marketing/business experience. and at least in my judgment, here's what i thought 1. this is growing quickly. 2. its a good product, and i can help make it great. 3. there's a need. 4. even if we fail on this, we'll eventually get it right with this team.
Q: Do you ever have problems having TOO MANY ideas at the same time and not knowing which one to go for? (that's me by the way)
A: yes, but ultimately, if you do zero of them, theyre worth 0. read "the myth of the great idea" on my site
Q: Are entrepreneurship classes at college worthwhile?
A: hmmm. i took a few at stanford, they were ok. i learned some big insights, but ill be honest: theres nothing like doing it
Q: how did you meet the people you started pbwiki with?
A: david and i were introduced through a stanford professor who got us together and said, "you guys need to start a company together." we danced around the idea for about 1.5-2 yrs before we did it
Q: did you take any of the management and science engineering classes at stanford?
A: yes, i took quite a few MS&E. MS&E classes were interesting -- practical terms, maybe a little light, theres nothing like doing it
Q: What was your first business exp, Ramit
A: first biz experience: working for a webhosting company in high school (over the phone, doing sales/marketing), then starting my own consulting company after high school then starting a failed web company in college. i learned more from my failed companies/internships than anything else
Q: Does your first business have to be groundbreaking or is simple a good way to start?
A: guys, what matters is getting started. read the myth of the great idea. there are so many things - the idea is not novel/secret. execution matters.
Q: Ramit, what are your goals?
A: thats a really broad question, i dont know. to work with smart people? to do what i want to do? to have a big impact? to never have to make a bad decision because of money.
Q: What are your goals for iwillteachyoutoberich?
A: now thats a good question. i think i have a couple of goals 1. expand the reach or-ganically -- my FAVORITE THING IN THE WORLD is running into someone at a party/etc who says, "oh you're that ramit? i read your blog!" the majority of my readers have come from word of mouth, so i love that. 2. i want to get my writing in front of more people. 3. i want to speak more 4. i want to try some experimental stuff, like (maybe--no promises) podcasts, video, different media methods, delivery methods, etc.
Q: What do you think about joining organizations, like young professional of whatever city, etc?"
A: here's my deal with that. first of all, i think most people misunderstand "networking" and it has an undeserved negative connotation. for more on that, read "Never Eat Alone." 2nd, i think often we spend our time "networking" with the wrong people. its like, is it important for your business to network with other hungry entrepreneurs? or should you read the right publications, identify the 5 people you want to talk to, and go after them? this is why i never understood why people spend so much time submitting their articles to Carnivals of (whatever) considering its mostly BLOGGERS who read the posts! not new people!
To hear about the next chat room, sign up for my newsletter, add my RSS feed to your blog aggregator, and stay tuned.
On my Friday Entrepreneurs post about Kiva.org, here's a comment Premal Shah, president of Kiva, just left:
This is Premal from Kiva.org. I first want to thank everyone for the comments and for checking out the site. The number of loans made on our site has increased by 60% because of iwillteachyoutoberich.com readers. Thanks to everyone in this community who values a social return on investment, and thanks again Ramit for featuring Kiva.org.
Welcome readers from Yahoo and other places! This is a blog on personal finance and personal entrepreneurship for college students, recent college grads, and everyone else. To get started, check out my table of contents, RSS feed, and newsletter.
Talks on personal finance and personal entrepreneurship
I also give talks around the country on personal finance and personal entrepreneurship (see details). In the past, I've spoken at places like Stanford, MIT, Intel, and Deloitte. To have me speak to your company/school/organization, please get in touch.
My favorite posts
Finally, when this blog turned 2 years old last week, I picked out some of my favorite posts.
Add to your My Yahoo page
If you like what I have to say, add IWillTeachYouToBeRich to your My Yahoo page:
(Now everytime you go to My.Yahoo.com, you'll see what's new on this site.)
I'm taking your advice after reading the responses to my survey. So this Wednesday, I'm going to host an online chat. If you want to ask any questions about getting started investing, personal entrepreneurship, or pens/salsa, come check it out. This is my first time doing this, and if it goes well, maybe I'll make it a regular thing.
What: I'll host an online chat room to talk about personal finance, personal entrepreneurship, and whatever else. Very informal, very unstructured.
When: This Wednesday, August 23rd, at 7pm PST (that's 10pm EST).
Where: Come to this site, iwillteachyoutoberich.com, to access the chat.
PS--If you have any suggestions for good chat software to host this, please add a comment!
Two years ago today, on August 17, 2004, I wrote my first post for I Will Teach You To Be Rich.
Today, I took a minute to catch my breath and look back over the last couple of years. Good god, I had no idea what I was getting into when I wrote my first post (which you'll notice still has 0 comments). Here are some stats I just dug up:
Number of posts: Over 300
Number of comments: Over 2,000
Number of ads run on or off the site: 0
Number of people I've given my 1-hour talk to in person: Over 4,000 around the country
Emails received and replied to: Thousands (I lost count)
Growth: I don't know how this happened, but iwillteachyoutoberich.com receives more visitors before noon each day than I received in all of May 2005
The traffic is cool, but who really cares about that. Today, I think this blog has some of the smartest readers of any blog, anywhere. Check the comments and I think you'll agree. Notice the lack of trolls and the actual conversation that goes on!! How novel!!
As I've written this blog, I've tried to keep a few simple things in mind: Getting started is more important than being the smartest person in the room. It's ok to make mistakes. Read a lot so you know when to call BS, but not too much--action is more important than reading. Ordinary actions get ordinary results. And there's a difference between being sexy and being Rich.
This year, there's much, much more to come. I have an entire series planned on getting your dream job (how to find the best job, how to out-interview anybody, and how to win at work), more advanced and beginner topics on investing, more posts on personal entrepreneurship, more talks around the country, and a couple of big announcements to come.
Anyway, I just wanted to say thanks for reading, commenting, and emailing. I know it's hard to dig through some of the older posts, so today I went through and picked 5 of my favorite posts from each category. Take a look. And thanks for being with me.
Introductory Articles
Why do you want to be rich?
The Best Decision vs. The Financially Smart One
Cheap versus frugal
A big fear I have of this site
2006 Makeover, Step #4: Open your retirement accounts
Investing
An analysis of 1000+ IWillTeachYouToBeRich survey responses-- and some new decisions (Best feedback ever)
Dumb: "Don't invest; you can't beat the pros"
All about stocks and bonds
All about mutual funds
Read Warren Buffet's letters
Miscellaneous
What are we doing on this site?
I bought a tie (I love this post because of how angry the comments are)
Cost vs. value: Why I bought a new car (Sorry guys, but I stand by what I wrote)
Probably one of the best comments this site has ever gotten
Boy am I stupid
Personal Entrepreneurship
Barriers are your enemy
We love to debate minutiae
Your College is Not a Technical School
On greed and speed
The Myth of the Great Idea
Saving
Here's how I set up my financial accounts
Letting your parents manage your money is dumb
The Power of Compounding
Time is NOT money--at least, not yours
Cook at home, you lazy bastard
To stay up to date, you can subscribe to my RSS feed and newsletter.
The responses from my survey are coming in (I'll show you the data tomorrow). If you haven't taken the survey yet, please take 60 seconds and take my survey.
Interesting. I asked a couple of questions and discovered that they have a $9.95/month program called "Identity Monitoring," which is basically completely useless, but people who don't know better might sign up for it. However, the upside was that they have a 30-day free trial, during which time they'd send me my credit score for free. This would save me about $35. As long as I canceled within a month, there'd be no charge. (More about why your credit score is important here.)
No problem. I do trial offers all the time and I always enter the cancellation date in my calendar (plus a couple days of buffer in case something goes wrong). Here's what my reminder in Outlook says:
Identify monitoring -- cancel
Account #: XXXXXXX
1-866-279-9637
By entering all the information I need to make a call, I remove all the possible barriers, like "I don't have the account number...I'll do it later." I know the phone number and account number right there.
Anyway, I got the credit score and was happy I saved a little money. So I called them up 2 days ago to cancel. The rep said, "Sir, I'm happy to cancel your account, but did you know you could get your 3-in-1 credit report for free? I show you as only having gotten one so far." (Note: Your credit report is different than your credit score.)
Touche, I thought. So I agreed to continue the service for a little while longer so I could download my credit reports.
I finished that within about 20 minutes and called them back. Little did I know that there was more! This time, another rep offered to send me some my other 2 credit scores if I agreed to keep the service going for another few days.
I checked my calendar and verified that I wouldn't be charged. The reps were all extremely nice and extremely up-front in assuring me that lots of people cancel before 30 days, and that I definitely wouldn't be charged. And knowing what we know about getting fees reversed, even if I did get charged, I'm sure I could get it reversed.
The point is that you don't always have to be suspicious of these things. I got about $100 worth of free stuff for a few minutes on the phone by using a simple infrastructure to make sure I cancel on time. Other things you could use this for: Blockbuster/Netflix trials, any financial-services trial, or basically any trial!
So here's what I want you to do. I want you to get your credit report and credit score today. It will take you a few minutes, but it's worth it:
By the end of today, you'll have a credit report, which you can check for accuracy and make sure your accounts are straight. You'll also know what your credit score is--along with specific instructions on how to improve it.
Note: If you like iwillteachyoutoberich.com, please please please take my survey (it takes 2 minutes).
I realized I want to know more about who you are. Who's reading iwillteachyoutoberich.com? What do you like? How can I make it better?
So I have a favor to ask. Can you take my survey? It's 10 questions long and takes about 3 minutes to finish.
http://www.surveymonkey.com/s.asp?u=333242440162
Thanks!
After I wrote about how my credit card saved me $600 on a flight, a bunch of people asked what credit card I use. Normally, I don't write about too many specific companies, but this is a card I've used and I trust. I use a Citibank Premier Pass Elite card. There's a no-fee card and a fee card. I ran the calculations and decided to get a fee card, which is about $75/year. I chose this one because a friend recommended it, I earn 1 point for every dollar I spend and every mile I fly, plus I get free companion fares for domestic flights over $379. The reason I saved $600 was that I redeemed 25,000 miles for a domestic flight.
In my experience, the cash-back cards ("get 1% back on all your purchases, plus 3% at gas stations!") are a joke. My friends report getting back pitiful amounts at the end of the year. I'm sure some people are happy with theirs, but my friends almost uniformly hate them.
Anyway, if you travel a lot, I encourage you to look into a rewards card. This one happens to be great for me (because I earn rewards when I spend and when I travel), but you can search through a huge list of cards at Bankrate.com. Be sure to run a break-even analysis to see if the extra rewards you get with a fee card are worth it (for most young people, it should be a no-fee card).
If you're just getting started, you may want to read All About Credit Cards or Why your credit card interest rate doesn't matter.
Also, my Citibank card just sent me 5 referrals to give away, so if you're interested, let me know. First come, first served.
If this is your first time visiting iwillteachyoutoberich.com, welcome. This is a blog on personal finance and personal entrepreneurship for college students, recent college grads, and everyone else.
To get started, check out my table of contents, RSS feed, and newsletter.
Scott interviewed me at Money Blogger Podcast: Episode 28: Interview with Ramit Sethi of IWillTeachYouToBeRich (time: 18:22).
Also, I'll be speaking on a panel about blogging in early August. If you want to come, check out the details...
Date: Aug 9, 2006
Time: 6pm to 9pm
Place: HP Oak Room Auditorium, CupertinoPeople on the panel will be:
1. Guy Kawasaki (blog)
Managing Director of Garage Technology Ventures2. Chris Pirillo (blog)
Geek among geeks, Founder Lockergnome3. Ramit Sethi (blog)
Entrepreneur, Co-founder and VP Marketing of PBwikiThe moderator is Rajesh Setty, a friend and the president of ForeSightPlus.
There are limited seats available, so if you're interested, check out the registration page:
Sorry, sorry.
The IWillTeachYouToBeRich newsletter: Sign up here (link really works this time).
I'm sending out a new email newsletter today at 7:15pm PST, so if you want to get it, sign up right now!
The newsletters have content that you won't find on this site.
Here's what my last newsletter said:
The I Will Teach You To Be Rich newsletter
By Ramit Sethi
April 19, 2006
http://www.iwillteachyoutoberich.com
==========================================- If Not Now, Then When?
- Crazy people demanding this newsletter
- Recent IWillTeachYouToBeRich articles
- Interesting articles from around the Web
- Recent/upcoming IWillTeachYouToBeRich talks
- Special thanks
- What's coming next------------------------------------------
If Not Now, Then When?
------------------------------------------
I was reading this article called "20 minutes to a clean home" or something like that a few days ago. It was from MarthaStewart.com (yeah, yeah) and it occurred to me that there was actually a good point behind it.One of the tricks I use to get a lot of stuff done is a little saying: "If not now, then when?" There are always tons of little things I need to do, like picking up the newspaper, washing the dishes, doing my weekly budget, etc. And when they're all on my mind, I tend to do none of them. A lot of the time, I just don't feel like it.
That's when I ask myself that question. If the answer is, "I'll do it later because I'm running late for a meeting," then that's a pretty good reason. But if the answer is, "I just don't feel like it," chances are I won't feel like it later, either. So all things being equal, I'd rather finish them now. If not now, then when?
If you can think of examples of this (answering emails taking out the trash, etc), let me know by replying to this newsletter and I'll post them in an upcoming article.
---------------------------------------
Crazy people demanding this newsletter
---------------------------------------
I don't know what this means, but recently I have been running into a lot of crazy people who apparently read my blog and they all say the same thing: "YOU HAVEN'T SENT A NEWSLETTER OUT IN A LONG TIME!!!!" Last weekend in SF, a girl came up to me at a club saying exactly this. So if you are reading this, crazy girl, here you go.Also, I'll try to send these out more than once every 4 months, heh.
----------------------------------------------------------
Recent IWillTeachYouToBeRich articles
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Here are some recent articles I've posted on IWillTeachYouToBeRich:The 2006 Financial Makeover, steps #1, #2, and #3 http://www.iwillteachyoutoberich.com/archives/2006/03/financial_makeo.html
Smart people ask questions
http://www.iwillteachyoutoberich.com/archives/2006/02/a_simple_litmus.htmlYou spend even when you don't
http://www.iwillteachyoutoberich.com/archives/2006/02/you_spend_even.htmlRight now, experience is more important than money http://www.iwillteachyoutoberich.com/archives/2006/02/right_now_exper.html
The Failure of the Last Mile
http://www.iwillteachyoutoberich.com/archives/2006/03/the_failure_of.htmlThings I hate spending money on (most comments ever) http://www.iwillteachyoutoberich.com/archives/2006/03/things_i_hate_s.html
Cost vs. value: Why I bought a new car (most negative comments) http://www.iwillteachyoutoberich.com/archives/2006/03/cost_vs_value_w.html
READ THEM ALL
There are even more at http://www.iwillteachyoutoberich.com----------------------------------------------------------
Interesting articles from around the Web
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An NBA player who's frugal? This is probably the only time you'll ever see me link to a Sports Illustrated page.
http://sportsillustrated.cnn.com/2006/players/04/04/bonner0410/An interesting proposal to give every 21-year old $10,000 and leverage social influence for responsibility.
http://www.nationalreview.com/interrogatory/qa200603270732.aspHow I Work: awesome overview of how top people (Marissa Mayer, Bill Gross, head of Goldman, head of P&G, etc) work.
http://money.cnn.com/popups/2006/fortune/how_i_work/frameset.exclude.htmlAwesome art that will make you think.
http://mcstrick.livejournal.com/724835.htmlLawyers fight, I laugh (video).
http://www.youtube.com/watch?v=e12sqYYLJxAOne of the best pranks I've ever seen.
http://www.schneier.com/blog/archives/2006/03/basketball_pran.html
Girls make Super Mario World in real life.
http://www.qwantz.com/posterchild/-----------------------------------------------------------------
Recent/upcoming IWillTeachYouToBeRich talks
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I spoke in Connecticut a few weeks ago to a group of 400 students. In May and June, I'll be speaking at Stanford, a couple of companies around the Bay area, and possibly DC. If you'd like to invite me to speak at your school, university, or company, let me know by replying to this newsletter.--------------------------
What's coming next
--------------------------
I'm going to be working on the 2006 financial makeover series because 2895235 people have been screaming at me to finish it. I've also been working on some cool stuff behind the scenes, including email notifications (if you want to be emailed when I post something new, stay tuned to the site), a new way of making my point using pictures (stay tuned), and more speaking gigs. I have 17 new articles on personal entrepreneurship slated to go live as soon as I write them, too.
---
Tell your friends! My site grows through word-of-mouth, and I don't charge for what I write. If you like what I do, please tell your friends by forwarding this newsletter and sharing http://www.iwillteachyoutoberich.com with everyone.I Will Teach You To Be Rich is a free blog about personal finance and personal entrepreneurship. To subscribe, visit http://www.iwillteachyoutoberich.com/newsletter
Thanks,Ramit Sethi
http://www.iwillteachyoutoberich.com
--------------------------------------
The new newsletter goes out tonight. To get it...
PS--Thanks to Tim Grahl for sending me some icons from IconBuffet
I was having lunch with my friend Chris Yeh the other day, and he mentioned this phrase I hadn't heard before. I don't know why, but it struck me as pretty funny.
"Flinch pricing: Attempting to find the highest possible price the customer will bear. If you're trying to sell a software product, you might say the following to your customer:"The price is $1,000...per application...per CPU...per month...for the ongoing maintenance...etc."
You stop when the customer visibly flinches from the pain, and then negotiate down from there."
It was my birthday last week and my friends bought me a gift certificate to Thomas Pink. Then they took me shopping there and I bought a tie. I almost had a heart attack--it is the most expensive tie I have ever bought. Also, the third one. Now all I want to do is walk around with bodyguards and people holding those soft packing peanuts all around me.
More to come later.
You may have noticed that I haven't posted for the last week or so. This isn't because I'm lazy, but because I COULDN'T GET ACCESS TO MY OWN DAMN BLOG. There was a serious bug in MT and my hosting provider, and it was like a child being locked out his own treehouse. I wept last week, a lot.
Anyway, I posted a request for someone to help me last week and a guy named Jason Siffring emailed me offering to help. He walked into what he thought would be a simple fix, and ended up spending hours each day for the last week fixing it. He did this out of the goodness of his heart.
JASON SIFFRING IS THE MAN!!!
If anybody is looking for help with their blog design, installation, or anything else blog-related, I highly recommend him. You can check out his site, surprisehighway.com, or email him directly.
Finally, you might be saying, "Well now that you had a week off, you probably have 89325423 articles ready to post!" Actually, I can't imagine even 1 person saying that, but it sure was good delusionary vanity. Anyway, I'm going to be honest: I don't have a huge stockpile of articles written or anything like that. In fact, I haven't been writing articles at all while the blog was down. It's kind of like if your car gets jacked, you don't plan a roadtrip. But I've got my blog back and I'm BACK!!! So get ready.
I witnessed a momentous occasion last week, when my god damned credit card finally paid for itself. I usually recommend that people get a no-fee credit card for their first one, but if you spend enough it can make sense to get an ultra-rewards card that has an annual fee.
(With my card, an annual fee of about $75 gets you twice the rewards as the free card. So I did a break-even analysis and decided to pay the fee.)
Anyway, after paying the fee for almost 2 years, I finally redeemed some of my miles for a flight that would have cost more than $600. It feels...almost free.
Best practices for time travelers -- How to convince people you're a time traveler. The points are eerily similar to what some pundits on TV do.
Cold Call That Person Now -- Who Knows What Could Happen -- Ben tells you to just do it.
Advice to All You Graduates: Let's Start With That Daily Latte... A well-written but typical article by the NYTimes that urges young people to cook at home, stop buying Starbucks, and pay yourself first. The advice is good, but it reminds me of just about every other personal-finance article I've seen, and I wonder how many people will actually change their behavior because of it.
Hugh's lunch savings calculator -- Find out how much eating out is costing you. Also see my previous article on this, Cook at home, you lazy bastard.
What if we weren't so private about our personal financial lives? -- I'm not sure how I feel about this. It sounds great in theory but makes me uncomfortable when I think about actually doing it. I'm not sure what I take away from this.
43% of first-time home buyers put no money down -- This seems like a bad idea.
Probably the coolest pictures I have ever seen -- See also part 2. This has nothing to do with personal finance, but I think they're cool.
I have a question about some MT stuff. If you know all about MovableType, please email me. Thanks.
I'm speaking at Deloitte in Washington DC tomorrow, so if you leave a comment here, it might take a day or two to be approved.
Also, I just saw the series finale of West Wing so I am pumped up to check DC out!!!
PS--To have me speak at your company/university, check out the IWillTeachYouToBeRich speaking page
I was speaking at a conference in Chicago this weekend (it was cool--President Bush was speaking in the same building, so there were Secret Service agents and German shepherds milling around). Anyway, I'm catching up on stuff. More postings to come soon.
I'm writing a document on how young people like us use technology (cell phones, TV, Tivo, MP3s, etc), and I want to get comments from everybody before I send it out to VCs, entrepreneurs, and a bunch of other people.
If you use a cellphone, TV, etc, please help me fill in the gaps!
Go here: http://yellowpages.pbwiki.com (password is "share")
If you want to see my 1-hour personal-finance talk, I'm speaking on the Stanford campus tonight at 7:30pm. Details here.
If you're in the Bay Area and want to hear my 1-hour talk that covers everything on this site, come check it out (it's free). I'm speaking to Stanford's graduating senior class on Monday, May 8 at 7:30pm, and the organizers were cool with letting me invite a few other people.
Date: Monday, May 8
Time: 7:30pm
Location: Stanford Campus, Manzanita Branner Dining Hall (map)
RSVP: http://class2006.stanford.edu/realworld (just leave your SUID# blank)
Puts our personal-finance questions in perspective:
How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417.No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 — in American currency, about 69 cents.
[...]
"There's a surrealism here that's hard to get across to people," Mike Davies, the chairman of a civic-watchdog group called the Combined Harare Residents Association, said in an interview. "If you need something and have cash, you buy it. If you have cash you spend it today, because tomorrow it's going to be worth 5 percent less.
[...]
"Like potatoes," Regai said. "I went last week, and it was $500,000 for a packet. And when I went this weekend, it was $700,000.
Full NYT article: How Bad Is Inflation in Zimbabwe?
Finally, finally, I have some time to write all the stuff I've been wanting to! This week, I'll be continuing the 2006 Financial Makeover by writing all about retirement accounts. If you've ever wondered about your 401(k), Roth IRA, or how to be a 84-year-old rolling around in a Bentley, stay tuned. Also, hopefully I'll post some personal-entrepreneurship stuff I've been thinking about.
Some links that are interesting:
See you this week. If you have questions or interesting links, email me.
Can you take a minute to fill out a survey for a book I'm writing?
I don't think I've mentioned it on IWillTeachYouToBeRich before, but I'm writing a book on college recruiting. The book will be published by Portfolio (an imprint of Penguin) and will be out in 2007. My co-authors are Chris Resto and Ian Ybarra.
We want your stories about recruiting, interviewing, and working at companies. If you're a college student or a recent college graduate, please take the 5-minute survey.
This is funny. I sent out my latest newsletter a couple of days ago (to learn more and sign up, click here).
Anyway, in one section I wrote, I was talking about weirdos who come up to me in random places and complain that I never send out my newsletter.
--------------- Crazy people demanding this newsletter ---------------I don't know what this means, but recently I have been running into a lot of crazy people who apparently read my blog and they all say the same thing: "YOU HAVEN'T SENT A NEWSLETTER OUT IN A LONG TIME!!!!" Last weekend in SF, a girl came up to me at a club saying exactly this. So if you are reading this, crazy girl, here you go.
Also, I'll try to send these out more than once every 4 months, heh.
Then, 2 MINUTES LATER, I got a Facebook message:
Subject: crazy girl from sf clubHi Ramit,
The crazy girl from the sf club is named [name]!!![name]
Only in this wonderful age could I make fun of a crazy girl through my newsletter, which is based around my blog, and get a response through Facebook--all in 2 minutes. THANK YOU INTERNET!!!!!!!!
God willing, I'm sending out my newsletter tomorrow morning at 10am PST with some new stuff. So sign up now to get tomorrow's newsletter. (I only send it out about once a month and it has stuff never published on this site. See a sample newsletter.)
I'm not really a big dork who only talks about personal finance in real life. Actually, my friends make fun of me because I only like big huge blockbusters. But I'm trying to change that, so I can't wait to see Maxed Out, a new documentary.
In a Newsweek interview with the director, they asked what has changed about the lending industry:
The major change is that the industry discovered that the most profitable consumers were the least responsible consumers—-college students, people who'd declared bankruptcy, housewives [and] people who were consuming beyond their means. People who would pay anything for credit—-any fee or any interest rate because they needed more credit. That's the major change. Before, credit was rationed based on whether you could pay it back, based on your reputation, based on your character to some degree. It's just not that way anymore, and that's a huge change. (Emphasis mine.)
It looks really cool.
Check out...
I have mixed feelings about this article: Oprah Winfrey: 'Wealth is a Good Thing'. Maybe it's more about the choice of words than anything else.
Also, I'm going to be reposting my articles on investing in stocks and bonds. Read them, ask any questions, etc, because I'm slowly getting back into the financial makeover.
I'm still alive, but I've just been buried with some huge projects. I'll be back to posting ASAP.
I've been trying to decide whether to invest in Capital One for a long time and, you know, looking strictly at the financials, it would have been a nice investment:
They recruited heavily at Stanford, got some very good people, paid exquisitely well (I'm serious, a lot), and have a very analytical process for rolling out new products. Actually, I got my ass kicked in one of the interviews. The qualitative part was going well until the guy took out a notepad and said, "Ok, let's do some numbers." Have you ever seen two grown men in suits slaving over a math problem, with one of them saying to the other, "Um, I think that goes on the other side of the equals sign?"
Suffice it to say I didn't go work there.
Anyway, I've thought about investing in Capital One for a long time.
But I don't think I will. See, one of my friends is a professional speaker and he was invited to speak to a Very Large Credit Card Company (not Capital One) on a certain topic. Now my friend agreed to do the talk, only to have them send him some preparatory speaking materials a couple months later.
He told me what he found (paraphrased): "They make you feel empowered to spend, but beneath it all these guys basically want their customers to spend more, upgrade to the next plan, get a higher credit limit, and then spend more. And this is one of the credit companies that has a good public face. We all get fuzzy feelings when we think about them!"
I find that pretty distasteful from an ethical standpoint. You have the average American in thousands of dollars of credit card debt, and these companies simply want more.
Now, I hear Scott's comment on my last post:
It's ridiculous for creditors to recommend the minimum payment, but to offer it is just giving you an option to make a bad choice, which isn't at all ridiculous. If you want to waste your money on interest payments in exchange for a little short-term benefit, it's not Citibank's job to stop you.
But frankly, when debt is so crushing to so many people, I think a little paternalism is in order. I know recently there was a government move to increase the minimum required payments for just this reason. Now, I'm not here to get into a political discussion, and I know that doing that has huge ramifications in so many ways. One of my friends, for example, could hardly pay her credit card bills before the mimimum was raised.
Anyway, what I'm saying is that I won't be investing in credit-card companies for ethical reasons. Sure, they have to make money. And they're doing a fine job of it. But when we don't have financial literacy in this country, and people continue to make horribly bad financial decisions (like paying only the minimum because the credit-card company doesn't explicitly show how much that will cost you), I'm not into that. Sorry for the soapbox post but I can't help but feel turned off by this kind of stuff.
[Update]: Great comments on this post. For the people who said, "But Ramit, credit card companies are just trying to make money," sorry but I don't buy it. That's a lame excuse to do lots of very bad things. And as we've seen in tons of businesses, you can do good while making lots of money.
And whenever people write, "Where do you draw the line?" I get confused. I told you, I draw the line right here!! Anyway, the comments did help me sharpen my thinking and there are some excellent points made. Check out the comments.
An email from Jim English, our superstar intern at PBwiki:
So in general, I’ve never considered myself one of those “let me speak to your manager” type of people. However, having read some of your stuff, I’ve started to feel like certain “expenses” are really just going straight to the pockets of big businesses. ANYWAY. Here’s the crux of the story. So dealing with this new house purchase, I’ve had a couple issues with my apartment complex.1) I needed to extend my lease by 1 month and
2) I had to get the apartment complex to sign on that I had actually lived there and been a good tenant.Well, I knew that issue #1 might cost me some money, but I didn’t think too much. So I went into the office to speak with the “official concierge” who proceeded to tell me that I was in for a $400 dollar upcharge on ONE month (which equates to a 57% premium!) Anyway, I told her that I thought that was ludicrous, but I was willing to pay part of the fee ($100). She said that was impossible and so I told her that I would rather speak to the manager. Next day, I walked in, and I don’t know if the manager had been pre-warned, but as soon as I mentioned the rental situation, she said, “oh, no problem, we can extend your rent for a month and we’ll just keep the rent fee at the same price. We’ll just go in and change the books to look like you had a 7 month lease instead of a 6 month one”. =)
Item #2: I had to have 2 forms signed which said I’d been a resident (part the credit assessment done by the bank). I filled out everything except for the apartment’s signature line and went in yesterday to the same concierge, told me that there is a $25 fee for “rent verification” a.k.a. a FREAKIN SIGNATURE! At that point, I was like, “So since I have two of the same form, is that $50?” And she replied, “No, just $25”. At that point, I felt like it might be negotiable. SO I went into the assistant manager’s office, talked to him for a few minutes, and walked out, rent verified, and NOT out of $25 bucks. =)
Total Savings: $425.
$425 for 5 minutes of sacking up....equals about $8500/hour. Unbeatable. With most negotiations (job offer, car price, rent deal, VC funding, whatever), you have no downside and only huge, huge upside. That's my kind of bet.
It was my friend's birthday on Saturday, so a bunch of us went out to eat in SF. Apparently a couple people at the other end of the table ordered some wine and nobody was paying attention...
Update: Ok, the backstory: My friend (the guy whose birthday it was) called the restaurant in advance and had them pull this prank. Good job, Anton.
I decided to start reviewing some books that I read. I'll do books on personal finance, entrepreneurship, and whatever else I think is cool. (If you have books you like, let me know.) First off...
Rich Dad, Poor Dad: What The Rich Teach Their Kids About Money--That The Poor and Middle Class Do Not!
This book is like the kid you hated in high school, but he let you cheat off his test a couple of times so you kind of like him. I have grudging respect for this book, but every time someone raves about it, I usually just want to punch them in the face.
Rich Dad, Poor Dad is an absolute juggernaut of a book--it's been on the bestseller lists for as long as I remember. I re-read this book yesterday. Man, there are some really great points, like how rich people make money work for them and how everyone else works for money. The first chapter is pure magic--read it. One of my favorite quotes is from his Rich Dad:
Most people never study the subject [money]. They go to work, get their paycheck, balance their checkbooks, and that's it. On top of that, they wonder why they have money problems. Few realize that it's their lack of financial education that is the problem.
He takes a dim view of people who blindly make decisions without stopping to ask themselves why:
A friend of mine in Hawaii is a great artist. He makes a sizable amount of money. One day his mother's attorney called to tell him that she had left him $35,000. This is what was left of her estate after the attorney and the government took their shares. Immediately, he saw an opportunity to increase his business by using some of this money to advertise. Two months later, his first four-color, full-page ad appeared in an expensive magazine that targeted the very rich. The ad ran for three months. He received no replies from the ad, and all of his inheritance is now gone. He now wants to sue the magazine for misrepresentation.This is a common case of someone who can build a beautiful hamburger, but knows little about business. When I asked him what he learned, his only reply was that "advertising salespeople are crooks." I then asked if he would be willing to take a course in sales and a course in direct marketing. His reply, "I don't have the time, and I don't want to waste my money."
The book does a fantastic job teaching how to think about work and money. Its early parts are some of the best I've read. But I don't agree with the book's focus on real estate, which is far too complicated for beginning investors, and the high-level advice with few actionable recommendations. Many people love this book for teaching them how they they're supposed to think about money--but if you ask them what they've done to get there, in my experience, the people who rave about this book haven't done much. Unfortunately, Rich Dad, Poor Dad doesn't have many actionable suggestions. I'd recommend this book as an excellent way to challenge your thinking about work and money, but only if you combine it with other books that make tactical recommendations of financial issues. I'll cover more books I love and hate later.
In college, I drove a rickety-ass minivan that my parents let me use. Here's how bad it was: It shook so badly that when I drove it on the freeway, I always drove in the right lane so that when it broke down--not if--I could simply pull over gracefully. When I took it to get a smog check, which of course it failed, I just put my head in my hands. The funniest thing is that one day my dad went to get new tires for the van and he came back with whitewall tires. I don't know if any of us are old enough to know what whitewall tires are, so here's a picture from Steelthundercc.com:
The damn van looked like a pimp's hoopty ride. Dear god. I made my dad take them back so quickly.
I always found it odd that almost every personal-finance pundit recommends buying a used car. (Here's a list of links submitted by readers where you can see.) Why is there such universal agreement? Apparently, among the reasons they list, cars depreciate quickly, they're built better than ever, used cars have lower insurance, etc--so every young person should buy used.
I disagree. Now, used cars can be a good way to go. But to apply a broad rule that "used is the best" is idiotic. While used cars are a good purchase for some people, new cars are a great choice for others. Here's why I chose to buy a new car.
I was in my last year of college with lots of business meetings that I would rather not have missed because my stupid 12-year-old van broke down. In November, I started looking for a car to buy. This was intentional: You can get amazing deals at the end of the year when dealers want to beat their quotas. First, I test-drove a few cars and researched them, narrowing it down to a Honda Accord or a Mercedes C230. (Both were 4-door models because Indian people hate coupes. Seriously.)
Now I want to take a second to explain how I decided between the two. The Mercedes was sporty and cool and kinda affordable (if a little bit of a stretch for me). But I decided against it for a few reasons: Service is absurdly expensive and I would just be angry every time I had to get stuff done at a dealer, plus insurance is more, etc. But the real reason I didn't want to get the Mercedes is, where do you go from there? You can't get a Geo Prism after driving a Mercedes for a few years. So I decided it would be stupid to get a Mercedes as a 22-year-old. Plus, cars are important to me, but not that important.
I decided to get a Honda Accord. Now I had to choose between new or used.
Why I chose a new car: value (not just cost)
Sure, a new car costs more. But over the long-term, not that much more. And the value--not just monetarily--is much higher. Here are a few things I debated before choosing:
A decently-nice-to-pretty-nice car. Buying a car takes an enormous amount of time. I planned to have this car for many years and I didn't want another piece of crap. As a result, this baseline requirement reduced the disparity between new and used prices. In other words, I wouldn't save a ton of money getting a used car because I wanted a pretty good car, regardless. Quick note: This is admittedly a little bit of vanity. But I've written time and time again about spending on things you love. I love driving and I do it a lot; it's not strictly functional for me. I even sprang for the V6 model. Plus, there are other ways to minimize your total cost, which I'll get to in a minute.
New-car smell. Good god, is there a better smell on earth? This wasn't really a requirement but I just wanted to mention how much I love it. This, and the smell of Payless Shoe Source. Find me at the mall, walking in and out of Payless over and over.
How much cash I'd have to put down. This is important. If you don't have any cash (or very little), a used car is more attractive because the down payment (i.e., money you have to pay immediately) is typically lower. And if you put $0 down, the interest charges on a new car will be much more. In my case, I had cash available to put down.
Interest rate. This becomes more important over a longer-term loan.
Resale value. At first, I was resistant to this idea. After all, I would probably just drive whatever car I got into the ground instead of selling it. Well, fine, it was pointed out to me, but at least calculate what would happen if you sold it in 5 or 10 years. A lot of people point out that "You might have an accident, so the resale value will be totally shot!!" I find that pretty dumb. Yes, it's good to also know what would happen (financially speaking) in that case, but having a total accident is such an edge case that I think it'd be foolish to plan an entire purchase around it. If you're that worried about getting in an accident, maybe you should put away your cellphone AND COSMETICS WHILE DRIVING. Also, you have insurance. Anyway, having a car with good resale value can considerably decrease your total cost of ownership.
Insurance. The insurance rates for a new and used car can be pretty different. Even if they're only slightly different (say, $50/month), that can add up over a few years.
Gas. Everybody loves to debate the minutiae of gas prices, but the actual differences were, financially speaking, insignificant for me. I didn't pay attention to this. (For example, see why hybrid cars don't save you money.)
Here's the deal: Buying a crappy used car will save you up-front money, but it may cost you a lot more over the long-term. If you decide to buy a pretty good used car, in my opinion you might as well spend a little more to mitigate the risks of car repair, etc. That's the risk/reward perspective.
Another perspective, cost vs. value, influenced me more. Buying a new car seems scary because they numbers are so high ($20,000!). But that's what financing is for--especially at extremely low rates like 2-4%. You can put down as much money as you're comfortable with. But the biggest factor in my purchase was the total-value concept: You can get a new car for a relatively low cost over the long term by doing a few sensible things. Now, most of the pundits who talk about buying new vs. used seem to assume that people are completely stupid and will do things like pick a bad car that looks sexy but is poor choice financially (e.g., a Dodge Neon vs. a Honda Accord), spend a lot on the initial purchase price, not shop around for competitive insurance, not take good care of the car, and sell it when they see something shinier.
If you do these things, then yes, you are a moron.
But if you actually think about this, one of the biggest purchases you'll ever make, you can save a lot of money. So do some commonsense things that will make you much happier over the long term:
Ok, so I decided to get a new car. Let's assume my car cost $20,000 ($25k sticker price, negotiated). If I can pay it off in 5 years, and drive it for 3 years afterwards, I can sell my car for about $10,000. (Extrapolate data from KBB and realize that it's a bit hand-wavy.) That's about $1,250/year. And it only gets better as you drive the car longer with no payments. In other words, you save more in non-payments than the car depreciates.
Now, some caveats: First, don't forget insurance, registration, repair, etc. But remember that a used car has all these things, too--just in different amounts. (In my case, insurance for a 5-yr-old used car would save me about $100 every 6 months...not very compelling.) With a used car, the risk goes up (likelihood of repair increases, resale value decreases). The question is whether the reward of lower payments is worth it. Second, this doesn't work with all cars. If you're buying a Dodge Neon, your resale value is going to suck and you're going to be angry every day of your life.
I expect this post will generate a lot of debate, and that's cool. Here's the bottom line: I don't like when pundits say that buying a used car is the only way to go. It's not. Buying a new car can be a smart choice if you pick the right car, negotiate extremely well, and stay disciplined about shopping for insurance, maintaining your car, etc. (It doesn't have to be a purely numbers-oriented decision. I love my car--it's fun to drive and if I had 10x the money, I would still get it.) Because buying a car is such a big purchase, I'm fine spending a little more money and time up front to mitigate risk and get a great car that will last for a long time. And by being sensible about how long you drive your car for (longer is better), you can get a new car for a great value.
Coming up tomorrow, I'm going to write about why I completely disagree when personal-finance pundits say "Buying a used car is the smartest thing you can do!" In fact, I'll tell you exactly why I bought a new car.
But first, I want to collect a list of links where people say buying a used car is the best/only option. Add your comments and let's get a good list going.
I'll start. From "10 things you shouldn't buy new" (http://moneycentral.msn.com/content/savinganddebt/finddealsonline/p92985.asp):
Why not let someone else take that hit? Not only will you be able to save money (or buy more car), but you’ll pay less for insurance. Cars are better-built and last longer than ever before, which means you’re less likely to get a lemon.
Add your links here.
...are totally absurd. And if you look up the stats for Los Altos or Atherton, they're even more ridiculous (median income > $120,000).
Click for a bigger view:
I love this:
Like the salad served at the Pizza Hut but dislike the idea that it’s expensive and you are not allowed to take more than once? Here is a guide on how you can maximize your return of investment, invented by some creative Taiwanese students.
(Via rebecca's pocket.)
PS--If you have specific things you want to see in part #4 of the financial makeover series, post your request here.
From Canada.com:
...Dumenco contends that knowledge of the hippest, hottest blogs can increase hook-up opportunities and boost sexual attractiveness. He maintains some people are using niche blogs such as Gawker.com and Defamer.com to gain pop cultural insights that make them more socially desirable and ultimately more likely to get lucky.
I know they're messed up, and am trying to fix now. Thanks.
Don't forget to read the comments on this site. This one (from this post) was so good that I had to post it here:
Grayden writes:
One thing that might be worth talking about as part of the Financial Makeover is being realistic about housing, transportation, and lifestyle. A lot of people get a bit crazy with spending when they get their first job that pays more than peanuts. For the last several years I've been paying far more than I've needed to because I felt that I needed to live in a NICE apartment. After living in a nice place for a while and even upgrading to a better place, I realized that I was throwing away half of my income on living expenses and not even earning any equity. It seemed obvious enough that is was time to buy a house and start building some real value. After all, my friends were all buying houses and they seem to be managing just fine. After a period of house hunting and analysis of both my finances and my realistic needs, I realized that owning a house would completely ruin me at this point in my life. After spending so much on rent in a full service apartment for several years, I didn't have much money for a decent down payment so the banks would have eaten my lunch. On top of that, I'm still in grad school part time in addition to having a full time job, so I wouldn't have time to properly maintain a house and keep other time commitments in my life as well.Having given my housing situation plenty of reflection and trying to find a way to make it work, I've realized something about myself - I really just don't need to live alone or in a fancy place. Sure it's nice, but I don't need it to be happy. Everyone has different needs to satisfy their esteem. Some people need to drive a nice car but don't care where they live. Some people need a nice home but would be perfectly happy driving a rusty old beater. Some people need to have high end home electronics or designer suits and watches. Some people just don't know what they want and drive themselves into debt trying to have it all without the means to support it. Doing some honest self-reflection and being realistic about things you don't really need can help you find a few big ways to get your finances in order. Cutting back on things you don't honestly need can free up a lot of capital for the things that really do matter to you. For my situation, I've realized that while I do want to own a home some day, it's not time yet. I'd rather get my debts settled and save up a nestegg in case I end up moving to another city when I'm done with grad school. This summer I'm moving out of my expensive apartment and into a room in a friend's house and as a result I'll be cutting my living expenses by more than 60%. That extra saved money can go into investments and savings until a time when my life is sorted out enough to do something with it.
I'll be writing more about this in an upcoming article that I've been thinking about for a few months. (Hint: It's about jeans.)
I was really stunned by this photo (taken from JohnTaylorGatto.org):
I have some ideas for a similar series on personal-finance. If you're a graphic designer and this sounds interesting, let me know (please send your sites/portfolio, too).
Mar. 3--In what is becoming a common practice among companies that issue monthly bills, Verizon has begun to furnish customer payment history, good or bad, to credit reporting agencies.
Read the entire story.
From a strictly financial perspective--not privacy, etc--this is good for people who pay on time, but bad for those who don't. By the way, when I teach my 1-hour class, I ask people who don't have a credit card why they don't. One of the most common answers is "I might forget to pay my bill."
Every credit card (and almost every bill, like your cellphone) now has AutoPay. Make it easy on yourself!
Update: Joe writes: "Well, you need to be careful with auto-pay. For example, I'd never do auto-pay with Comcast because they've overcharged me several times. And once that money's been paid to them it's that much harder to get back." He's right. I should have written this in the original post. ALWAYS check your statement before it gets paid, through AutoPay or anything else.
A great post from my friend Ben Casnocha on what people regret. It's surprisingly positive. (Ben is an 18-year-old entrepreneur who runs a company that he founded at age 14, which is doing very well.)
Inspired by Ian Ybarra's Birthday Project.
IHOP has FREE pancakes today:
On February 28, 2006 from 7 AM to 2 PM IHOPs across the country will celebrate National Pancake Day (also known as Shrove Tuesday) by offering our guests a free short stack of pancakes*.If you're wondering how this is at all relevant to a blog about personal finance and personal entrepreneurship, I have no clue. But I'm traveling until Thursday, so cut me some slack.
JLP from AllThingsFinancial recently interviewed Jonathan Clements, the personal-finance writer for the Wall Street Journal (and one of my favorites).
It's been a few months since I last told you about subscribing to this site via RSS and my newsletter. It's an easy way to stay up-to-date with posts on IWillTeachYouToBeRich, and it takes 2 minutes:
1. Subscribe to the newsletter. It's free and I'll send recent articles and other interesting stuff I find around the Web, including stuff I don't post here.
2. Use RSS.
Or you can get an aggregator in one click. Just choose which one you want below (click the appropriate button):
(Now everytime you go to My.Yahoo.com, you'll see what's new on this site.)
3. Or just keep coming back to this site!
"We love your site but the name 'I Will Teach You To Be Rich' is over the top. If you were to change it, we would be happy to fly you out to speak at our company."
(ATTENTION LUMBERING CORPORATIONS: I REALLY LIKE THE NAME OF THIS SITE AND IT'S NOT GOING TO CHANGE ANY TIME IN THE NEAR FUTURE. SO PLEASE DON'T ASK.)
"http://www.iwillteachyoutoberich.com is too long of a name. No one will ever remember it."
"College students already have economics classes and education through their banks."
"Make sure your articles are short. Nobody reads long blog posts."
The solution? Find the people you trust, the ones who've done it before. Ask them what they think and listen hard. And then ignore everybody else.
I'm looking for an expert in blog CMS (MoveableType and Wordpress). Bonus points if you know CSS. If you can help, please let me know.
My friend Noah Kagan is a product manager at Facebook. He just coordinated the rollout of a new Valentine's promotion, which I thought was pretty cool.
But I also had some suggestions for him, which echo my suggestions of not getting greedy and trying to monetize things too quickly (see On Greed and Speed).
Now, The Facebook has already built an incredible community, so they can monetize all they want. But there are times where going slower will, I think, actually be more profitable. Here's what I emailed to Noah:
I was thinking about your Valentines promotion today.This is a good example of something that can be turned into a viral-marketing effort, or slowed down by barriers. First of all, I really like the idea. But my guess is that adoption will be relatively low (by percentage) because...
1. It costs money
2. A lot of money
3. And because it costs money, the most any user will send is 1Here's what I would do for the next promotion of this kind: Make it free, but offer value-added services. For example, if I did the Valentines thing, I would:
* Let people send 5 free Valentines, and charge $ per Valentine after that
* Make paid Valentines stand out more (e.g., offer to include a picture or video, change the color, etc)
* Add a permission piece to it, by adding a checkbox saying "Join the BlahBlah group" or "Get notified about a special BlahBlah we're doing in March."As a result, you'd get probably 100x the Valentines sent. Yes, you'd get lower immediate revenue and have some logistical problems (with 50,000 Valentines at Stanford, would any of them be seen?) but those can be worked around by targeting them and some other clever ways.
But the upside is that (1) immediate traffic would go up, making it ripe to tie that day in with your ad team, and (2) if you tied the checkbox offer to an upcoming promotion, you would more than make up for it by building a huge, opt-in permission asset.
Anyway, just a thought.
-Ramit
More on personal entrepreneurship
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Greed and Speed example
In my essay On Greed and Speed, I talked about not trying to make money off everything so quickly. Naval Ravikant (former founder of Epinions.com and now running a stealth startup) writes on the same idea, using Craigslist as an example.
The real story is that Craig is well on his way to building an EBay / Yahoo! sized business with no venture capital, no big-shot management, no marketing, no patents, no real technology, etc. He's taken all the value from newspapers with none of the cost. And everyone loves him for it (probably because he's leaving the money on the table).
Read the whole thing: Craigslist is Worth More Than Ebay
Sexy or rich?
In an interview with FMF of Free Money Finance, he asked me my best advice for investors was. Here's what I said:
"When you invest, there's a difference between being sexy and being rich. When I hear people talking about the stocks they bought/sold/shorted last week, I realize that my investment style sounds pretty boring: 'Well, I bought a few good stocks 5 years ago and I haven't done anything. All I did was buy more when the price went down.' But investment isn't about being sexy--it's about making money, and when you look at the investment literature, buy-and-hold investing wins over the long term, every time. Forget what CNBC or the magazines say about the stock-of-the-month. Do a rigorous analysis, make the right decisions up front, and then re-evaluate your investment every 6 months or so. It's not as cool as those guys in red coats shouting and waving their hands on CNBC, but as an individual investor, you'll get far greater returns."
An example:
Hershey--"quiet, low-tech, unsexy"--beats the market. By a lot. From Newmark's Door.
Duh
I love this quote:
"We have a ‘strategic’ plan. It’s called doing things."Herb Kelleher
CEO, Southwest Airlines
Ok, this is kind of a weird story, but why not. Yesterday, I stopped at the Jack in the Box drive-thru to get some fries. I ordered a large fries (we were taking a road trip), but as we drove away, I discovered that they had also charged me extra for small fries!!! How outrageous!!!
We were at the very beginning of a 2.5-hour trip, so with nothing else to do, I called them up and told them had mischarged me. I thought they would just write my name down and I could get some free fries the next time I went in, whenever that was.
Me: I ordered large fries but you also charged me for small fries
Jack lady: When did you come in?
Me: Like 10 minutes ago
Jack: Come back and we'll fix it
Me: I can't, I'm already on the freeway
Here's where things start to go wrong:
Jack: Well, when do you want to come in?
Me: (Fumbling to think of a date) I don't know...sometime next week?
Jack: Tell me exactly when so I can tell the manager on duty
Me: Umm...I guess Monday
Jack: What time?
Me: Uhh...afternoon?
Jack: So, 3-5pm?
SO NOW I APPARENTLY HAVE CORNERED MYSELF INTO HAVING TO GO BACK TO JACK IN THE BOX TO PICK UP A SMALL FRIES ($1.10), WHICH I'M NOT EVEN HUNGRY FOR BUT I GUESS I HAVE TO GO GET THEM
DAMNIT!!!!!!!!!!
In addition to IWillTeachYouToBeRich.com, I also have a free newsletter where I send out stuff I never post on here. To subscribe, click here.
Here's a newsletter I sent out a while ago:
The I Will Teach You To Be Rich newsletter
By Ramit Sethi
Dec. 6, 2005
http://www.iwillteachyoutoberich.com
==========================================- Observations from a cruise
- Series on personal entrepreneurship
- Interesting articles from around the Web
- Speaking at MIT this week
- Special thanks
- What's coming next------------------------------------------
Observations from a cruise
------------------------------------------
I went on a cruise with my family a few months ago. It was cool and we had a great vacation! Never have I eaten so much. But as soon as we arrived, I realized something curious. Within ten minutes of boarding, we were presented the Coke Deal by 5 separate cruise employees. The "deal" was that you would get unlimited Coke for $27 (per person) for the 7-day cruise. Without it, though, you'd have to pay about $2.50/drink for the cruise. I thought it was interesting.First of all, if you ever go on a cruise and start noticing things like this, something is probably very wrong with you.
Anyway, I found it interesting because it showed how the total cost of
something is often WAY higher than the sticker price. I read a number
somewhere that cruises make over 50% of their revenues once you come
on-board (drinks, entertainment, off-ship excursions, etc). I can't find that number again, but other cruise sites agree that it's high.For me, the big takeaway was that a lot of things are like this (just not as blatantly obvious). Buy a new house and you have to shop at a more expensive grocery store. Buy nice pants and you'll have to get them hemmed. And on and on.
The total cost of ownership (TCO) is my new way of looking at something, and it changes a lot of what I'd thought before.
For example, you hear all the personal-finance experts saying "buy a used car!" It's become a mantra of the personal-finance world. "New cars lose $10,000 as soon as you drive them off the lot! And lower insurance! And blah blah blah." Too bad I disagree, though: Used cars are great for some people, but new cars are a fantastic purchase for many others. Why? All because of total cost of ownership.
More about that next time. For now, when you're thinking of buying
something, think about TCO.
----------------------------------------------------------
Series on personal entrepreneurship
----------------------------------------------------------
Last time I wrote, I mentioned that I'd be starting a series on personal entrepreneurship. Well, I did, and here are some of the most popular articles...OLDER ARTICLES
The Myth of The Great Idea
http://www.iwillteachyoutoberich.com/archives/2005/10/the_myth_of_the.htmlWe Love to Debate Minutiae
http://www.iwillteachyoutoberich.com/archives/2005/10/we_love_to_deba.htmlYour Idea Isn't Good Enough to Keep Secret
http://www.iwillteachyoutoberich.com/archives/2005/10/your_idea_isnt.html
NEWER ARTICLES
Your College is Not a Technical School
http://www.iwillteachyoutoberich.com/archives/2005/11/your_college_is.htmlSuccess and The Shrug Effect
http://www.iwillteachyoutoberich.com/archives/2005/11/success_and_the.htmlGuilt and Our Choices
http://www.iwillteachyoutoberich.com/archives/2005/10/guilt_and_our_c.html
READ THEM ALL
There are even more. To see all the personal-entrepreneurship articles:
http://www.iwillteachyoutoberich.com/archives/personal_entrepreneurship/inde
x.html----------------------------------------------------------
Interesting articles from around the Web
----------------------------------------------------------
A good list of common categories to include in your budget
http://www.mymamasaid.com/save/article/63What I've Learned: Jeff Bezos (CEO, Amazon). Some nice thoughts about debt, but even more useful stuff for general life. (For more profiles, use the pulldown box at the end of the article.)
http://www.esquire.com/features/learned/020101_mwi_bezos.htmlNice 1st-person story about a woman buying a car. Note how some jackass car salesmen behave differently towards women than men; this is also true of some financial advisors.
http://leafyme.blogspot.com/2005/06/hello-over-here.htmlGreat financial calculators.
http://www.bankrate.com/brm/calculators/calc_index.aspOne of the best posts on rejection/failure I've ever seen.
http://www.roadtoforbes.com/index.php/ksblog/rejection/-----------------------------------------
Speaking at MIT this week
-----------------------------------------
I'll be speaking at MIT this Thursday (12/8/05) on personal finance and personal entrepreneurship. If you're interested...5:00pm - 6:30pm in 32-144 or
8:00pm - 9:30pm in 4-163--------------------------
Special thanks
--------------------------
Special thanks to Mark Hurst of Good Experience (top experience-design firm at http://www.goodexperience.com) for the idea of this newsletter format.--------------------------------
What's coming next
--------------------------------
- I have an ebook coming out in a week or two called "The Top 11 Things Every College Graduate Should Know." Newsletter subscribers get first crack at it, so stay tuned.
- A lot of new articles on personal entrepreneurship
- A lot of people have been writing to ask about Roth IRAs, so I'll do a guide to your Roth IRA soon
- If you have requests, please email me at ramit@ramitsethi.com
I only ask one favor: If you find this useful, please let friends know about
I Will Teach You To Be Rich. You can do that by plugging my site or
forwarding this email to your friends..I Will Teach You To Be Rich is a free blog about personal finance and
personal entrepreneurship. Subscribe to this newsletter at
http://www.iwillteachyoutoberich.com/newsletter or unsubscribe at
[long URL].Thanks,
Ramit Sethi
http://www.iwillteachyoutoberich.com
Subscribe to the newsletter here.
Interested in having me speak at your college or company? It just takes one email.
From Pedro L., a reader:
...I was going to send you an e-mail when I had more time but like you always say, do it now and don't wait later.I am a 20 year old college student in NJ. I come from a low-income immigrant family. I have lived here for the past 14 years of so. When I was in high school I was always told to invest, even by people who didn't. No one ever explained how to go about it in any way. So, as soon as I turned 18 I hit the books. (I'm a history and education major and I am very good with computers) I studied day and night. In March of 2004 I became a shareholder. I find the same problems you write about in my peers. They think they're too young?!? They don't have money?!? (These kids' families are WAY better off than my family) I have always given them advice and they have never seem t! o follow it.
The internet has so much garbage out there and so do investing books. Your blog is great, it actually tells you what to do unlike investing books that tell fictional stories about fictional characters and fictional money. Your site has everything I have learned in one website. I keep learning and learning more. I am proud to have a $5,000 portfolio as we speak. My peers have better cars and uhhh other things but they're already 2 years behind!
I bet my friend is going to be very unhappy soon. This is a story about her, but first let me tell you a story about my company's board of directors.
We had an exciting deal and we were feeling good. But when we took it to our board members for their advice--they're entrepreneurs with much more experience than we have--they were lukewarm on the idea. Actually, they told us we were being stupid: "If you don't get this deal, you lose. And if you do get this deal, you still lose because the margins are so low. You lose either way!!"
When No Good Can Come of This, I am very wary.
So, back to my friend. She IMd me yesterday and told me that her manager had a hot stock tip and should she get it? The stock had jumped over the past 3 months and he'd tripled his money.
With only that information, I told her that she would be stupid to buy the stock right away. First, is her manager really the best source of information? Second, if it's jumped 3x in the last few months, isn't it possible she'd be buying it high and later selling it low?
Also (god there are so many reasons this is a bad idea):
She decided she'd probably invest anyway. Ok, her decision.
But here's the clincher: Even though she has a great income, she is only putting in $500-$1000 for the stock so she can hedge her risks.
This strikes me as pretty weird: If she does really well, she'll wish she had put more money in; in other words, she's hedging herself out of any real success. And if the stock tanks, she loses all her money.
Either way, she loses! No Good Can Come of This.
Now, I see a lot of value in starting slow and not putting all your eggs in one basket. But if you're not putting in more money because you haven't done any research on a stock, that's dumb. By doing a real, fundamental analysis, you can gain at least some certainty/information about the stock. And then, you can decide to either (1) invest a real amount (by her salary standards) or (2) not invest at all.
Yes, investing is a risk. But if your 2 potential outcomes are bad, that's a bad investment.
The 2006 Bloggies are now accepting nominations for the best blog in different categories.
If you like IWillTeachYouToBeRich--whether it's my writing on personal finance, personal entrepreneurship, or just mocking lots of things--please take a second and nominate it for Best Topical Weblog. Thanks!
Nominate IWillTeachYouToBeRich here: http://2006.bloggies.com/
I gave a couple of talks at MIT before the holidays.
The scariest thing about this photo is not the look on my face (although let's be honest, what the hell am I doing here?), but the frightening math formulas on the chalkboard. Yes, those are real.
The Carnival of Investing is up. The article about ETrade surprised me.
Amazon Credits You New URL: Amazon Credits You. Cool new service: If you buy something from Amazon, enter the info here, and you'll be notified if they reduce their prices within 30 days.
How much frugality is too much? Totally agree--except about the shampoo/water thing. Every Indian person does that, and I think it's eminently sensible.
Great article about why tools don't matter, as I earlier wrote here.
Things I Hate, my comedy blog about...things I hate.
Yes, it is totally unnecessary and gaudy. So here we go!!!!!!!!
What does Ramit want for Christmas?
I'll be in Boston tomorrow to speak at MIT on personal finance and personal entrepreneurship. If you're in the area, you're welcome to join us.
12/8/05
8:00pm-9:30pm in 4-163
More posting when I get back.
Forbes came out with this fun article called the Forbes Fictional Fifteen, where they compare the wealth of Scrooge McDuck, Santa Claus, Lex Luthor, and a bunch of other characters. Don't miss the bios.
Cool article: Forbes Fictional Fifteen
Thanks to EVERYONE who gave me ideas for naming a talk I'll be giving later this month. We ended up with well over 50 ideas.
The winner is...
Norman Livla, who suggested 5 Secrets of Personal Entrepreneurship You'll Want To Know.
It's simple and gets my message across. Thanks, Norman!
I'll be sending him an advance copy of my new e-book ("The Top 11 Things Every College Graduate Should Know") as a prize. I know he's not a recent graduate, but it's applicable to everyone.
To get your own copy, stay tuned here.
It's been a few months since I last told you about subscribing to this site via RSS and my newsletter. I want to encourage you to do it--it's an easy way to stay up-to-date with posts on IWillTeachYouToBeRich. Here's how:
1. Subscribe to the newsletter. It's free and I'll send recent articles and other interesting stuff I find around the Web.
2. Use RSS.
Or you can get an aggregator in one click. Just choose which one you want below (click the appropriate button):
(Now everytime you go to My.Yahoo.com, you'll see what's new on this site.)
3. Or just keep coming back to this site!
I can't think of a good title for a talk I'm giving next month (drawing material from this site about Barriers, The Myth of the Great Idea, etc).
Can you help?
Here are my 2 tentative titles:
The 5 Secrets of Personal Entrepreneurship:
How to Start a Company or Run a Project Better Than Anyone Else-or-
The 5 Secrets of Personal Entrepreneurship: How to Play the Game Better Than Anyone Else
Both of these are kinda lame. Do you have any ideas? I'll give a prize to the person who makes the winning suggestion.
Leave your comment (and see others) here.
I rarely devote an entire entry to one blog, but this one deserves it:
She's witty, cocky, entrepreneurial--and unbelievably smart. Once I started reading, I couldn't stop.
From a new Washington Post poll of local teens:
Sometimes their confidence borders on delusional: The vast majority say it's likely they will be rich...
But as Lincoln said, "How many legs does a dog have if you call the tail a leg? Four. Calling a tail a leg doesn't make it a leg."
Regardless, there are some interesting findings in the full article.
This is the first of many posts on this topic. Seriously, isn't personal finance at least as important important as teaching post-modern analysis of Wuthering Heights?
PS--I don't know what the last sentence means. English majors, please don't write me.
Anyway, check out a letter my friend Ian Ybarra wrote to Student Financial Services at MIT.
I graduated (with a student loan) from MIT in June, 2004. And like all students with those credentials, I sat in an "exit interview," which surely consisted of my receiving a folder of papers and watching a really bad instructional video about paying off student loans.Recently, I revisited that folder of student loan documentation. In addition to the papers stating the principal, interest, and repayment terms of my loan, there was your business card (how I knew to contact you) and a paper with the headings "The Danger of Credit Cards, 10 Facts Students Need to Know." Below those headings were, as promised, 10 facts students need to know -- 10 terribly scary facts students need to know about very basic matters of personal finance, like...
#1 "Debt problems can lead to depression, which affects study habits, academic performance and retention rates."
AND
#2 "Unfortunately, in a few extreme cases, the stress associated with credit card debt has been a factor in student suicides."
AND
#4 "Some studies suggest that those students with credit card balances in excess of $1000 drink more, smoke more, use more prescriptions for
depression and have lower grade point averages than those who don't carry credit card debt."AND
#6 "Colleges and universities are the one group that makes money out of the credit card industry without bearing any responsibility for educating the students about the possible pitfalls and the devastating effect bad credit can have on their financial future. In return for lucrative fees, many colleges allow the banks and credit card companies to hawk their cards right on campus."
(Read all 10 at
http://www.sec.state.ma.us/sct/sctprs/prscrd/crdidx.htm)Great information. Definitely good to know...4 years earlier, don't you think?
Fortunately, I didn't leave school with credit card debt, my GPA was solid, I didn't kill myself, and I didn't develop substance abuse problems. But what about the kids who weren't so fortunate?
Why were they not given this information when they entered MIT rather than when they left? Why are MIT students not exposed to the basics of personal finance -- like those covered by Ramit Sethi's seminars
http://seminars.iwillteachyoutoberich.com/ -- as part of their "entrance interviews," rather than being notified of what could have happened to them over the past four years as part of their "exit interviews"?For as intelligent as MIT students are, I meet far too many new MIT graduates who have crazy credit card debt or don't even have credit cards in their own names or wonder what kind of music comes on MITFCU's CDs...the list goes on.
This seems broken. I hope that the people in your office are working to fix it.
Best,
Ian Ybarra
If you have ideas for how to fix this at your school, please send an email or add a comment.
Also check out Ian Ybarra's blog, one of the best I read about discovering what you really want to do.
In my post about cheap vs. frugal people a few days ago, I mentioned value vs. cost. I want to dig into this a little bit more.
Remember when I went to the grocery store and was outraged at how much it cost to buy the basics for new apartment? That sucked.
Anyway, my reaction was based on the cost ($186.00!!!) instead of the value. The value of buying food at the grocery store becomes obvious when you compare it to eating out.
The easiest way to see this is to do a quick break-even analysis.
(Remember, I live in Palo Alto and the food around here is for old white rich people.)
(Try playing with the values of the spreadsheet--they're editable. If you're reading this in RSS, the spreadsheet won't show up, so click through to see this actual page.)
A break-even analysis works for more than food. Try thinking of examples of your own where you want to see when the money you've spent (invested?) will pay off. Some ideas:
The big takeaway for me is that, hey, $186.00 isn't really that much for a first grocery run. That much food gave me MUCH more than 12 meals. So it was clearly worth it.
Next time you're thinking about buying something, evaluate the value, not the cost!
Also, don't live in Palo Alto if you like dirty cheap food.
An email I got:
Hi,
I was referred to you by [NAME OF FRIEND]. I checked out your website and would like to learn something from you in the class. However, my friends are not interested in investments, they think that it is gambling so I don't know how I can manage to get 10 people to be at a location at a specific time. But I really want to see what I will gain from the class.
I get these emails a lot.
I can already guarantee that she won’t take the class. The emails of people who are really interested read much differently.
This has happened before, many times. (That's why I started the blog.)
I cut down on lame requests like this by creating a few more barriers for the 1-hour class. This weeds out some of the fakers like this.
It’s so funny because even if I gave the class and charged her $500, it would be worth it. She could break even on that money in less than 6 months, and the REST OF HER LIFE would be gravy. But people don’t think of certain things as investments...they just think "Oh my god, that’s expensive!"
Despite her friends that think investing is gambling (!), it's really cool that she's taking the initiative to learn. But taking initiative isn't the same as following through.
After responding to her email, I waited 2 weeks before posting this. Still no response.
And look what you find!
Maybe you can tell someone to Google themselves next time you realize they are cheap (or frugal).
I was brushing my teeth this morning and realized that probably nobody on this site knows how to pronounce my name or much of anything else about me. So as an exercise in extreme vanity, here goes...
My name is Ramit Sethi (pronounced "ruh-meet say-tee").
I recently graduated from Stanford, where I did my undergrad and grad work and studied technology and psychology. I'm working on my own stuff now, including expanding this site, working on a technology startup with a friend, and some independent consulting.
There's more info on my home page: http://www.RamitSethi.com.
Gabe Rosen sends this link:
The number of millionaires in the US has reached a record 8.9m, rising for the third consecutive year despite faltering stock and bond markets.[...]
Jeanette Luhr, the manager of the research study, said: "The growth we've seen this year is largely due to measured planning and active reinvestment...overall the asset allocation of these households has not changed significantly. When asked about their investment approach over the past year, 61 per cent of millionaires said that approach has changed very little, indicating they have a strategy and they are sticking to it."
Everybody knows a cheap person, and probably hates them. But I think we often mislabel frugal people cheap. These are just my opinions, but here's what I think differentiates the two:
Cheap people care about the cost of something.
Frugal people care about the value of something.
Cheap people try to get the lowest price on everything.
Frugal people try to get the lowest price on most things, but spend a lot on items they really care about.
Cheap people are inconsiderate. For example, when getting a meal with other people, if their food costs $7.95, they'll put in $8.00, knowing very well that tax and tip mean it's closer to $11.
Frugal people won't order a Coke if they're on a budget, so that when the bill comes, they don't look cheap.
Yes, being cheap and/or frugal can be a cultural quality. I won't spend much more time on this one.
Cheap people keep a running tally with their friends, family, and co-workers. Some frugal people do this, too, but certainly not all.
Because of the fear of even one person suggesting they spent too much on something, cheap people are not always honest about what they spent on something. Neither are frugal people.
Cheap people are unreasonable and cannot understand why they can't get something for free. Sometimes this is an act, but sometimes it's not.
Frugal people will try as hard as cheap people to get a deal, but they understand that it's a dance and, in the end, they don't intrinsically deserve a special deal.
Cheap people's cheapness affects those around them. Frugal people's frugality affects themselves.
Both cheap and frugal people will be more assertive than most people when trying to get a deal. Over the long term, they'll both save more money. But one has a cost, while the other pays dividends.
Cheap people think short term. Frugal people think long term.
I'm teaching my finance class this Wednesday, September 21, at 7pm on the Stanford campus. This one is open to anyone, so come by if you're in the area...
CLASS DESCRIPTION -- I Will Teach You To Be Rich (1 hour long)
------------------------
I teach a 1-hour class on personal finance including banking, budgeting, and saving.
It REALLY pays to start now. Check this: if you save only $100/month until you're 30 (for only 10 years, then you never save money again), and your dumb friend starts later--saving $100/month from age 30 to 65 (that's 35 years compared to your 10 years)--you will have way more money (over $100,000 more) than him at age 65. Start early and you will be rich.
In the class, I go over...
1. How to save your money--tricks to not pay your bank any fees, how to budget, using credit cards, etc.
2. How to make more money by investing--what are stocks? bonds? mutual funds? Roth IRAs? And what can you do to start today and maximize returns?
I start at a beginner level, but if you have any specific questions about your own money, you can bring them and I'll help.
Don't be shy...if you're in the area, see you on Wednesday!
If you haven't yet donated to the Red Cross (or even if you have), you have to see this.
One of the organizations I consult for is called Omidyar Network (Pierre Omidyar = the founder of eBay).
Omidyar Network is matching donations 1-to-1 for Katrina victims. That means if you donate $100, they'll kick in $100.
This is simply amazing and I hope you'll take advantage of it. It doesn't take long and if this doesn't encourage donations, what will?
My professor thought it'd be funny to give me some writing prize--in all $1 bills. BUT NOW MY ONLY CHOICE IS TO GO TO VEGAS!!! LATER PEOPLE
At Smart Money Daily. Check it out.
I don't have really anything to add to this article. It's provocative and surprising and shocking:
http://www.scalzi.com/whatever/003704.html
Check out the comments, too.
Even $10 helps.
It doesn't take long, either.
Donate now: http://www.redcross.org/donate/donate.html
Ok today I'm going to break down how I've structured my bank accounts.
If only that sounded cooler.
Anyway, I have 3 main accounts:
1. Wells Fargo
2. ING Direct
I keep the majority of my discretionary savings here. So from every dollar I earn, I transfer a percentage into this account. I might use money here for an emergency fund, mid-term savings like for furniture for a new place, or car maintenance that I know I'll have to do in a few months.
3. ETrade
I used to have a money-market account, but it was only earning about 1.5% (compared to 3.30% at ING), so I closed it. Now, when I want to invest money, I just transfer it over to ETrade, where it sits until I invest it.
Ok, so that's the logistics of how I've set my accounts up. I wrote so many words above, but what does it all really mean?
Build yourself an infrastructure to make it easier to save.
Here's how: For every dollar that comes in, I allocate percentages to different accounts. For example (I'm making these numbers up), let's say I made $100 from a paycheck. I might put
25% in savings
50% living expenses
25% recreational
And you can make it easier by having multiple accounts. I manage all of this stuff in Quicken, so even though I may have $1,000 sitting in my ING account, I can easily tell that $200 is for furniture, $300 is for an upcoming car repair, and the rest is for whatever.
It's not that hard!! Take some simple steps:
1. Open an investment account. Start sending some % of your income there. Money should almost always flow TOWARDS your investment account, not away from it.
2. Open a savings account and use it to segment your money. Remember, an investment account is for long-term savings. A savings account is for mid-term savings--and if you can't think of anything you'll need in the next 5 years, trust me, you will (e.g., a car, a mortgage, a wedding, a new hairdo, who cares). If you want to do it at your own bank (BofA, Wells Fargo, etc), great. If you want to open an ING account, great. It doesn't matter--just get your money into smaller, more manageable buckets.
3. Allocate percentages. Use your budget to figure out the maximum % of each dollar that you can allocate to different accounts.
The key point of this whole thing: Once you create this infrastructure, your money is MUCH easier to manage. It's like using shelves on your desk--all of a sudden, your paperwork is easier and more welcoming to deal with. Once you have different accounts and a set % of money going to them, it becomes much more automatic. And like I wrote yesterday, you can start dealing with the more interesting questions, rather than focusing on logistics.
If you have questions, just ask.
PS--If you want an ING account, I can refer you and you get $25 (I get $10). If you're interested, let me know.
---
If you liked this article, I've written hundreds more articles on personal finance and personal entrepreneurship. Please check out my table of contents, RSS feed, and newsletter. Or you can digg this.
Do you ever notice how on The West Wing, they say things like "send that to my office" and "take the meeting and fix it"?
They don't say "my office is in room 314 and my assistant's name is Donna Moss and her extension is x4685."
That's because as we get more experience, we don't worry about logistics as much. It becomes less relevant for us to specify email addresses, dates, etc.
...is up at AllThingsFinancial.
Btw, I'm still alive and will have a bunch of new stuff up this week. Stay tuned!
Apart from my love of Ramen noodles, pens, personal finance, and viral marketing, I have a not-so-secret love of ironing.
My goal is to iron the creases so sharply that they'll cut your face.
I have been searching for a business model for this skill of mine. Some of my friends suggested putting together a quick Web site showing people how to iron a shirt. Good idea, I replied, EXCEPT...
1. No one knows how to iron a shirt
2. Nobody cares about learning how to iron
3. Nobody pays for anything related to this (except to have a laundromat do it for them)
4. I don't know how much positive personal branding I could receive from this
If I were Rowenta (they are like the Rolls Royce of irons), I would launch a massive ironing-education program in America. Maybe this is why I'm not the CEO of Rowenta, though.
Maybe I'll just keep this as a hobby of mine.
Good posts up--check it out.
This week's Carnival of the Capitalists is online. Lots of great articles there!
That's it! I'll be back from vacation soon...
Thanks to Owen for his real-estate articles! I learned a bunch. I'll be on vacation for a few days, but I've scheduled some posts to go up while I'm gone.
This is a guest post by Owen Johnson.
Part 7 in a series of 7 on real estate.
THE WEEKLONG SERIES OF REAL ESTATE BASICS
1. The Real Scoop on Real Estate
2. Starting Down the Real Estate Investment Path
3. The Transaction Mechanics
4. A Primer on Real Estate Agency
5. Leveraging Yourself to Grow Your Wealth
6. Management Infrastructure
7. The Week in Review
This is a guest post by Owen Johnson.
Part 6 in a series of 7 on real estate.
THE WEEKLONG SERIES OF REAL ESTATE BASICS
1. The Real Scoop on Real Estate
2. Starting Down the Real Estate Investment Path
3. The Transaction Mechanics
4. A Primer on Real Estate Agency
5. Leveraging Yourself to Grow Your Wealth
6. Management Infrastructure
7. The Week in Review
This is a guest post by Owen Johnson.
Part 5 in a series of 7 on real estate.
THE WEEKLONG SERIES OF REAL ESTATE BASICS
1. The Real Scoop on Real Estate
2. Starting Down the Real Estate Investment Path
3. The Transaction Mechanics
4. A Primer on Real Estate Agency
5. Leveraging Yourself to Grow Your Wealth
6. Management Infrastructure
7. The Week in Review
This is a guest post by Owen Johnson.
Part 4 in a series of 7 on real estate.
THE WEEKLONG SERIES OF REAL ESTATE BASICS
1. The Real Scoop on Real Estate
2. Starting Down the Real Estate Investment Path
3. The Transaction Mechanics
4. A Primer on Real Estate Agency
5. Leveraging Yourself to Grow Your Wealth
6. Management Infrastructure
7. The Week in Review
This is a guest post by Owen Johnson.
Part 3 in a series of 7 on real estate.
THE WEEKLONG SERIES OF REAL ESTATE BASICS
1. The Real Scoop on Real Estate
2. Starting Down the Real Estate Investment Path
3. The Transaction Mechanics
4. A Primer on Real Estate Agency
5. Leveraging Yourself to Grow Your Wealth
6. Management Infrastructure
7. The Week in Review
...$351,000.
This is a guest post by Owen Johnson.
Part 2 in a series of 7 on real estate.
THE WEEKLONG SERIES OF REAL ESTATE BASICS
1. The Real Scoop on Real Estate
2. Starting Down the Real Estate Investment Path
3. The Transaction Mechanics
4. A Primer on Real Estate Agency
5. Leveraging Yourself to Grow Your Wealth
6. Management Infrastructure
7. The Week in Review
This is a guest post by Owen Johnson.
The introduction to the entire series...read this first.
THE WEEKLONG SERIES OF REAL ESTATE BASICS
1. The Real Scoop on Real Estate
2. Starting Down the Real Estate Investment Path
3. The Transaction Mechanics
4. A Primer on Real Estate Agency
5. Leveraging Yourself to Grow Your Wealth
6. Management Infrastructure
7. The Week in Review
Here are Rei's slides about identity theft, which build on yesterday's post and give specific advice for what you can to prevent and respond to identity theft. They are aptly named...
How to Protect Your Identity (Powerpoint file)
What To Do If Someone Steals Your Identity (also Powerpoint)
Any questions, email me or post a comment and Rei will try to get back to you.
This is a guest post by Rei Onishi.
One day you open up your credit card statement and notice you’ve been charged $5,500 for a new computer system and stereo you never bought three weeks ago and $400 worth of international phone calls you never made. You soon learn that someone armed with nothing more than your name and a set of unique identifier numbers was able to rip off your identity and successfully convince people that they were you.
Here's what's coming up on IWillTeachYouToBeRich!
And of course more stuff from me throughout.
Ok, I just moved into a new place so I had to buy food. This is after a long vacation where my mom asked me what I wanted to eat every morning and cooked gourmet food for every meal. So I went to the grocery store to get set up.
I watched with mounting horror as the checker rang my food up. After everything...IT COST $186.00!!! WHAT THE HELL!? I only bought things like bread, milk, eggs, BASICALLY JUST PRISON FOOD. PLEASE KILL ME
More Things I Hate
I'm happy to host the Carnival of Personal Finance this week. To remind you, this is where we collect the best of personal-finance articles from around the Internet (read more about it here). Check out all the great articles below by bloggers, journalists, and others! Thanks to everyone for submitting entries.
Phil Town is totally write about our unhealthy obsession with being (overly) financially conservative in Safety Net Nation. Nice job.
Here's an oldie but goodie from FiveCentNickel: Dave Ramsey is Bad at Math. See why nickel thinks Ramsey (a personal-finance radio host, etc) is just plain wrong about paying off debt.
You can retire without Social Security! This is a great, comprehensive article that points out how taking small steps today can make you financially secure for the rest of your life.
Investing: Roth 401k or Traditional 401k? Enough said!
Ryan Williams announces the NetworthIQ blog (NetworthIQ is the "first social personal finance tool"). Check out the introductory article.
A nice overview of some issues surrounding property taxes. Thanks to Flexo from FiveAndTwenty for this.
Jim from Bargaineering.com points out an article on Morningstar's investing courses that help shape your financial knowledge.
Did you ever wonder how much you pay in gas taxes every year? After Washington state hiked their gas taxes to be the third highest in the U.S., Ironman at Political Calculations built a tool to find out just how much was going out of pocket! Very cool.
What's dollar-cost averaging and why is it good? Jeff from RoadToRich.com writes about it in (I love the title) Make your market timing friends feel like crap.
The Happy Capitalist writes about why privacy policies are not all created equal.
Dan Melson writes about a bunch of tax-related issues you should know about in his article, On the Demise of Estate Tax.
JLP from AllThingsFinancial takes a complicated topic and makes it as easy as possible. Check it out: How to Calculate Present Value of an Annuity.
What do you do if you see something you really want? FMF from FreeMoneyFinance suggests the two-day rule.
Something that made me think: "An interesting observation I recently made was that the graph of the US average earnings is a straight line on a linear (non-logarithmic) graph!! This indicates that the wage growth is slowing in US!!!" See the US Average Hourly Earnings Chart.
Jon at Smart Money Daily writes about the surprising lessons he learned playing Cashflow.
Wayne Hurlbert says podcasts are great marketing for books.
And to wrap it up, a nice WSJ article about some personal-finance bloggers you know! (Registration required.)
Check out the schedule for past/future carnivals of personal finance!
Be sure to submit your personal-finance entries to the Carnival of Personal Finance!
I'm hosting it this week. Here's how it works:
Send me the top 2 or 3 personal-finance articles you've seen around. (If you're a blogger, it's ok to send your own.) Deadline is Monday, July 18th at 10am.
I'll pick the best and feature them on Monday!
Ian sent me a link to an old Fortune article about the Tiger 21, an "exclusive investment club."
I don't know if I like the idea or not, but the article made me think.
The Best Therapy $10 Million Can Buy (PDF file)
Remember, I have a free newsletter that I send out occasionally.
Lots of stuff there that you'll never find on this site. It's free. You can stay up-to-date with new stuff on this site. And you'll never be spammed. What else could you ask for?
Happy Monday!
I'm hosting the Carnival of Personal Finance this week. Here's how it works:
Send me the top 2 or 3 personal-finance articles you've seen around. (If you're a blogger, it's ok to send your own.) Deadline is Monday, July 18th at 10am.
I'll pick the best and feature them next Monday!
For more reading, check out the other carnivals.
From my old college roommate JRK:
"As you continue to move on towards full-on personal finance guru status, may I make one request:
Never, ever use the phrase "buying a home."
My birthday is on Thursday and I have a simple request:
Current bid on Ebay: $250,100
I'm such a simple man!!!
Dear lord raising a baby is expensive.
Mad Anthony writes on the elasticity of gas prices, which made me think about my own budgeting.
Money lessons from Dad. My favorite is #1.
First-hand account of how women are discriminated against when buying a car.
Ok, I have a few things coming up on here. First, I'm writing an article on a disturbing trend I've been noticing among some of my friends: giving their money to their parents to manage for them.
I've also been thinking of expanding the focus of IWillTeachYouToBeRich to include entrepreneurship (where real money and fun can be found) and articles on negotiation--something like a 5-day overview of bargaining and negotiation. This would include theory and actual applied, practical tips, from interviewing to car-buying, from the streets of India to the nearby McDonald's. I've taught negotiation to a lot of people and it's always fun.
Finally, there are upcoming articles on real estate, budgeting, and banking.
Let me know what you want to see!
Anita Sharpe from Worthwhile Magazine pointed her readers to IWillTeachYouToBeRich.
Welcome!
This is a personal-finance site for college students, recent college grads, and everyone else. It's about getting rich, but more importantly finding out why you want to be rich.
Take a look around, (start at the Table of Contents if you like) sign up for the free newsletter, and let me know if you have any questions!
PS--For everyone else, Worthwhile Mag ("Work with Purpose, Passion, and Profit") has a great blog.
I love Tyler's post over at Marginal Revolution:
Writing this site is a lot of fun for me. I get to go around, meet interesting people, and make fun of things. I once got a free lunch. But still, I'm not sure it makes a big difference.
People sometimes post comments to old entries on this site. Today, someone submitted my favorite comment of all time: Tips from a very smart CFO (scroll down for the comment). Is it real? Is it fake? Who knows.
It's 8:31pm on the day after graduation as I'm writing this. Almost everybody has moved out and the house is quiet. The end-of-the-year rush is crazy, but it's something you get used to. Maybe too used to.
In Quicken (or whatever budgeting software you use), when you enter an expenditure, you can assign it a category (e.g., gasoline, clothing, cell phone, etc).
Things have been slow around here...because I'm graduating from Stanford tomorrow! So please excuse how quiet it's been. I have a lot I want to write and I'll put it up ASAP.
...on the Stanford campus. If you're interested, come on out and join us. Send me an email for the details: ramit@stanford.edu
Class details: http://www.IWillTeachYouToBeRich.com/class
FYI this song is horrible:
Rich Girl
By Gwen Stefani
If I was a rich girl (na, na....)
See, I'd have all the money in the world, if I was a wealthy girl
No man could test me, impress me, my cash flow would never ever end
Cause I'd have all the money in the world, if I was a wealthy girl
Full lyrics here.
I fly to New York pretty often and I almost always take JetBlue. On top of being cheap and having a great customer experience, you get bonus points for booking online that translate into a free flight pretty soon. But I had a problem with my flight points last time. Here's how I got it fixed.
IWillTeachYouToBeRich.com is totally revamped starting today! You'll now be able to post comments (even on old posts), easily see articles by category (see the Table of Contents), and not be blinded by the ugliness of my old site.
One quick note: I worked with Kamil Pelka from Helldesign and had an EXCELLENT experience. If you have any design projects, I recommend them 100%.
This is just the first change of many to come! Poke around and see what you can find...
This is good:
By calling 1-888-5-OPTOUT (567-8688) or logging onto www.OptOutPreScreen.com you can "opt-out" of receiving pre-approved credit card offers for five years OR forever. "Opting-Out" prevents consumer credit reporting companies from using your credit file information for pre-approved offers of credit or insurance.
That's from Sound Money Tips, one of the other personal-finance blogs I read.
Oh yeah, over the next few weeks, I'm going to be posting some of my favorite personal-finance blogs. Stay tuned.
Update: Will H. wrote in asking if this site was legit: "1) I've never heard of it and I've opted out of everything on Earth and 2) They want your SSN? This is like an application to be the victim of indentity theft." But in fact, even though it's ugly, this site is legit. You can find a link off the TransUnion contact page and EPIC's Top Ten Privacy Resolutions for 2005.
I like hearing dumb things because then I mock them and the person who said them. Here's the latest: "I'm an economics major! I don't need to learn about money!"
Just because you're an econ major doesn't necessarily mean you know personal finance. That's like saying if you're a programmer, you're expert at using Microsoft Word. Give me a break, please.
Economics is more theoretical and really valuable for some things--and econ majors understand the theory and usually pick up nuances of personal finance that other people don't. But studying economics doesn't directly translate to managing your money--just because you understand multicollinearity or Kaldor-Hicks efficiency doesn't mean you understand how to buy a stock.
Who will I mock next? Send more dumb things my way: ramit@stanford.edu
From the Stanford Daily:
College is the time when many students take charge of their own money. Now, thanks to the efforts of an economics whiz kid, students can set aside their financial fears.Ramit Sethi, a fifth-year co-terminal student in psychology, runs a program to teach college students and recent graduates about personal finance. Today, Sethi travels around the country giving lectures on personal finance and runs a non-profit Web site, IWillTeachYouToBeRich.com.
And my favorite quote of all:
"Most other personal finance education is written by old white men for old white men," he said. "It's not directed towards college students and it's boring..."
Read the entire article: Student teaches financial skills.
A little while ago, I wrote an article about the unbelievable amount we spend on subscriptions every month.
A little while ago, I wrote an article about the unbelievable amount we spend on subscriptions every month.
I've been going over the survey responses. Thanks to all of the ideas, I'm going to be improving the site with some very cool stuff in the next few weeks and months.
Here's a quick overview of the stats:
I spend a lot of time writing and teaching about personal finance. Hopefully you've enjoyed it and will continue to in the future.
Now I'm trying to make this site better and I could use your help. Can you take a 3-minute survey? I'll use your feedback to add more content and to see what you want to learn about.
Thanks for your help.
Here's a great Frontline documentary by PBS:
Secret History of the Credit Card
Here's a great Frontline documentary by PBS:
Secret History of the Credit Card
Hmm...sometimes it IS worth it!
In the varieties popped, the percentage of unpopped kernels ranged from 4 percent in premium brands to 47 percent in the cheaper ones.CNN reports on groundbreaking innovation in the home popcorn market: Scientists solve unpopped popcorn
Hi Ramit,
I stumbled upon your website a few months ago and have so far benefited immensely from your writings. I am 20 and have been earning a decent living since I was 17, but always managed to live from paycheck to paycheck. Recently I've turned things around and have been mercilessly attacking my old spending habits. I setup a Roth IRA for 2004 and was able to max it, and I am saving a significant amount of my earnings every month. Now that I have some funds put away in a relatively conservative, long term investment, I am looking to make some riskier moves with the additional savings I am racking up. I plan to keep contributing to the Roth and maxing it every year.
Josh
I got this email today:
Good DayI am contacting you based on information obtained from business library which vouched for your good reputation
I am interested in investing about US$15,500,000 through you in your country or abroad in any viable and profitable venture that you will recommend. I would not like to invest my money here due to bad
ecconomy policy and also for security reason Please contact me by phone 234-8035838190 or through my private email address: chioforegbu@excite.com for details immediately you access this mail.Regards.
Mr Chimes Oforegbu
Sometimes, teaching people how to get rich gets me a bad rap. "You just want to make money," I've been told. Or "money isn't everything." These gems, while not particularly eloquent, do have a point. Actually, I'd prefer that these people ask me why I teach people to be rich. It's important to ask yourself, too: Why do you want to be rich?
Do you know what your credit report says about you?
Starting this year, it's free for you to see your report once a year:
http://www.AnnualCreditReport.com/
(Remember, this is different than getting your credit score, which you have to pay to get.)
I was in Japan a few weeks ago. When I got to Narita airport a couple hours before my return flight, I decided to pick up something to read on the way home.
As we get older, we naturally get more conservative with our money. That's why, when we're young, it pays to be aggressive with our investments.
I like to drive fast. A few days ago, I drove on a long trip and realized something: It's probably not worth it to drive so fast. I ran a quick calculation and discovered that, if 2 drivers drove in a 40mph zone, the sensible driver (40mph) would take 30 minutes to drive 20 miles. The fast driver (60mph) would indeed get there faster--but it would take him 27.5 minutes for a grand savings of 2.5 minutes.* I was disgusted with my findings.
I was also disgusted with myself for thinking like an old man. This kind of thinking, I realized, is why grad students start wearing bike helmets and why Americans don't eat street food in third world countries. They think the risk just isn't worth it.
We naturally get more conservative as we get older. When it comes to finances, you are (or should be) in hyper-growth mode in your 20s. You can afford great volatility of stocks, and your timeline is long enough to mitigate most reasonable risk. More importantly, we don't have kids, mortgages, and huge car payments to support. Let me draw out 3 scenarios to show you why investing as much as you can (and as aggressively as you can) is important when you're young:
Great news!
Terri Cullen from the Wall Street Journal interviewed me last week and wrote an article about personal-finance Web sites, including IWillTeachYouToBeRich:
By popular demand...if you want to be updated of new entries on this site, sign up for the free IWillTeachYouToBeRich newsletter.
There's a new tool out that might give you a better sense of your risk tolerance.
I had a great time teaching my 1-hour class at MIT last week. Here are some pictures and things I noticed...
Seventy-five percent of respondents, for example, claim they don't make any major purchases on credit cards unless they can pay them off immediately. But 74 percent say they are concerned about being able to pay their credit card bills every month.
Straight from the Wall Street Journal...
"Nearly half of Americans say their biggest investment mistake was to wait too long to start investing, according to a new survey.
Want to learn everything on this site in 1 hour? I teach a 1-hour class called I Will Teach You To Be Rich.
2 things that (I think) are worth spending money on: the irrational things that make no financial sense, but you love, and anything that gives you the potential to make more money. Read on for more...
This is a blog on personal finance (banking, saving, budgeting, and investing) and personal entrepreneurship.
It's for students, recent graduates, and other young people.
I'm a recent graduate of Stanford, where I studied technology and psychology. Now I'm the co-founder & VP of Marketing for PBwiki, a wiki startup in Silicon Valley.
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