I had a bunch of stuff I wanted to post today, but I just threw it out the window after I saw some new emails come in.

Yesterday, I wrote about the guy who bought a car, got ripped off, and was embarrassed. Check out the comments on that post, which are excellent.

Well, a lot has happened since then. I'll give you the (multiple) dramatic updates later today. Apparently this blog has turned into the General Hospital of personal-finance blogs. So be it!!!

Here's an email I got just now (names changed).

I need a little help. Well actually a lot of help. My friend got suckered into a TERRIBLE car deal. I mean bad. I don't know all the details but I know he has a contract for 6 years on a $20,000 car with a APR of 17.something%, and that 1/3 of this monthly income will be spent on this car. Basically I have 2 problems.

1. My Friend is an IDIOT, and not just because he got suckered into a bad deal, that happens, but because he is too embarrassed to do anything about it. He thinks he will just trade it in to the same car dealership and get a cheaper car.
2. I don't know enough about buying a car (I don't own one because I cannot afford it right now) and am not familiar with possible legal recourse.

I am a pretty dedicated Ramit follower and have read your site for awhile. I told John (my moron friend) to contact a lawyer, and since I can't do that for him, I am emailing you. He cannot afford to make these payments and to lose $15,000ish on interest (did I do the math right?) is ridiculous. This is highway robbery, and those car dealers are swine. They made him think when he was signing the papers that he could bring it back in 24 hours if he had second thoughts, and then when he did (I made him) they wouldn't take the car back, saying that "That wasn't what we meant".

I know you don't have time enough to solve everyones problems and you are not some kind of inexhaustible free resource, but if you can help, please let me know. I would be happy to return the favor in any way I can.

We have exchanged emails a few times in the past. Even if you don't remember, I did follow through with your advice. It was prolly 6 months ago, and I should have followed up with you. Lesson learned. Now I follow up.

Three things:

Every paragraph has something super-interesting in it.

I find it interesting how we get embarrassed by our money mistakes and we don't want to talk about them. I'm not pointing fingers--I've done it before, too. Rationally, in this case, it would make sense for this guy to ask for help. In fact, it could save him thousands of dollars. But the social pressures to appear knowledgeable exact a surprisingly high cost.

Finally, does anyone have any advice for him? I have no idea, so I just suggested that his friend see a lawyer ASAP.

Earlier this month, I wrote how food and personal finance are similar. Now check out a few excerpts from yesterday's New York Times Magazine article on nutrition, which also has lots of parallels to money:

Humans deciding what to eat without expert help — something they have been doing with notable success since coming down out of the trees — is seriously unprofitable if you’re a food company, distinctly risky if you’re a nutritionist and just plain boring if you’re a newspaper editor or journalist. (Or, for that matter, an eater. Who wants to hear, yet again, “Eat more fruits and vegetables”?) And so, like a large gray fog, a great Conspiracy of Confusion has gathered around the simplest questions of nutrition — much to the advantage of everybody involved. Except perhaps the ostensible beneficiary of all this nutritional expertise and advice: us, and our health and happiness as eaters.

Naïvely putting two and two together, the committee drafted a straightforward set of dietary guidelines calling on Americans to cut down on red meat and dairy products. Within weeks a firestorm, emanating from the red-meat and dairy industries, engulfed the committee, and Senator McGovern (who had a great many cattle ranchers among his South Dakota constituents) was forced to beat a retreat. The committee’s recommendations were hastily rewritten. Plain talk about food — the committee had advised Americans to actually “reduce consumption of meat” — was replaced by artful compromise: “Choose meats, poultry and fish that will reduce saturated-fat intake.”

A subtle change in emphasis, you might say, but a world of difference just the same. First, the stark message to “eat less” of a particular food has been deep-sixed; don’t look for it ever again in any official U.S. dietary pronouncement...“Eat less” is the most unwelcome advice of all, but in fact the scientific case for eating a lot less than we currently do is compelling.

Sort of how like you rarely hear financial "experts" recommending the most time-proven strategies of all: Live beneath your means, save aggressively, invest early, and continue learning about money. It's just not sexy, is it?

The full New York Times article: Unhappy Meals.

J.D. at Get Rich Slowly (a great personal-finance blog), writes:

This Friday, January 26th, you can receive free, professional retirement advice by phone courtesy of Kiplinger’s Personal Finance:

Get free, personalized answers to your financial questions. For the fifth time, we are joining with the National Association of Personal Financial Advisors (NAPFA) to sponsor Kiplinger’s Jump-Start Your Retirement Plan Days. From 9 a.m. to 6 p.m. eastern time on Friday, January 26, NAPFA members across the U.S. will be standing by to take your calls and answer your questions.

Normally, these fee-only planners, who are well versed in investments, taxes, insurance, estate planning, and retirement and college saving, charge clients $100 to $250 an hour. But on Jump-Start Days, you pay nothing — not even for the phone call. Just dial 888-919-2345.

Our retirement hotline is a public service that is offered to all, not just Kiplinger’s subscribers. If your questions can’t be answered on the spot, you may be referred to resources on the Internet that will help you find the information you need.

A few weeks ago, a couple of friends and I were talking about where we want to travel this year, and one of them said something that surprised me. "You probably wouldn't approve, but I want to go to the Caribbean this year."

Huh? Why wouldn't I approve?

I thought about this in a pensive stare for many moments, taking the form of Rodin's Thinking Man and wishing that I had a pipe and perhaps a tweed jacket. Then I figured it out. Apparently, I'm the personal-finance guy to some people. And, I realized with a sinking feeling, to many people, "the personal-finance guy" means "the guy who tells me I can't do stuff because it costs too much money."

Nothing could be further from the truth. Now, I will call your ass out when you're being stupid about money. But I'm not the finger-wagging parent who tells you not to spend money on lattes. Instead of taking a simplistic "don't spend money on expensive things!!!" view, I believe there's a nuanced approach to spending. Today, I'm going to tell you about 3 friends who are spending lots and lots of money on things you might consider frivolous--like shoes and going out--but I'm going to tell you exactly why I think they're perfectly justified.

But first, let's talk about a couple of things.

Frugality. There are plenty of blogs on frugality. This is not one of them. I think you can have lots of fun debating the minutiae about which grain of rice is cheaper, but it doesn't really get you much further towards your goals. Also, most Americans are not brought up with the idea of frugality. I've been in a car with friends who were so hungry that they had to pull over and get food even though we were only 5 minutes from home.

For me, writing a blog on frugality would be like trying to convince an ankylosaurus to dance a god damn jig. As a result, I don't believe that frugality is very sustainable for a lot of people. Yes, maybe we'll stop buying those lattes (or whatever), but something else will take its place. In my opinion, unless there's a fundamental mindset from a young age, it's hard to change the I-want-it-now habits. Whether you agree with me or not, that's why I don't write a blog based on where to find the cheapest laundry detergent.

Finally, and this is the most important, frugality alone doesn't get you to your goals. It's a helpful but not sufficient condition. So I take another approach of trying to write about money holistically, while urging you to make your own decisions about what's important enough to spend a lot on, and what's not.

2007 is the year of conscious spending. THE PROBLEM IS HARDLY ANYONE IS DECIDING WHAT'S IMPORTANT AND WHAT'S NOT! DAMNIT! That's why 2007 is the year of conscious spending, in which I want you to consciously decide what you're going to spend on. No more "I guess I spent that much" when you see your credit card statements.

The simple fact is that as young people, most of us are not spending consciously. We're spending on whatever, then reactively feeling good or bad about it. Every time I meet someone who has a prescriptive budget (aka, "Here's how much I want to spend on X this month), I'm so enchanted that my love rivals Shah Jahan's for his wife Mumtaz Mahal (look it up).

Today I'm going to write about people who spend a lot on things that most people consider absurd. This article is not a rationalization for absurd spending habits. PLEASE. If you walk away from this article with your hands triumphantly over your head saying "I'M PERFECT!!!" then you are a moron and your parents are probably very sad. But if you look at the idea of conscious spending--of people who have paid themselves first, then used the money they have left over to do what they want with it--then your parents will be very happy and probably live longer. Man, I can't believe I just used your parents' longevity to convince you to read.

Ok, let's get to it.

My three friends

The shoe lover. My first friend is a girl who spends about $5,000/year on shoes. Since expensive shoes cost about $300-$500 each, this is around 10 or 15 shoes annually. "THAT'S RIDICULOUS!!!" you might be saying. And on the surface, that number is indeed large. But I think iwillteachyoutoberich readers can look a little deeper. This girl makes a very healthy six-figure salary. She has a roommate, eats for free at work, and doesn't spend much on fancy electronics, gym, etc. In fact, her job provides many of the amenities other people pay for.

She loves shoes. A lot. And so, after funding her 401(k) and a taxable investment account (she makes too much for a Roth), she has money left over. Now here's where it's interesting. "But Ramit," you might say, "it doesn't matter. $500 shoes are ridiculous. Nobody needs to spend that much on shoes! You're just saying it's ok because...well, I don't know. But it's too much!!!"

I see eloquence does not reign rule today. But I want to take that statement apart. First, I bet most people who are astounded at the price of her shoes haven't even done what she's done. To the people who would criticize someone for spending $5,000/year on shoes: Have you funded your 401(k) and started outside investment accounts? Do you keep a strict budget of how much you spend? Second, when you have extra money lying around (extra = after reasonably maxing out your investment options), what's better: Making a strategic decision to spend on what you love? Or just spending it on random things here or there and eventually watching your money trickle out?

This girl loves shoes. And after planning for her long-term and short-term goals, she has money left over. This is why it's so surprising that people pass judgment when they see others buying things like expensive shoes. This girl has her shit together. And I think she's right on.

The partier. My second friend spends over $21,000/year going out. "OH MY GOD, THAT'S SO MUCH*#%(#%(#%!" a couple people said yesterday. Let's break it down, though. Let's say you go out 4x/week--to dinners and bars--and spend an average of $100/night. I'm being conservative with the numbers here, since a dinner can run $60/person and drinks could be $12 each. I'm not including bottle service, which might cost $800 or $1,000. (He lives in a big city.) That's easily $400/week.

Now, this guy also makes a healthy six-figure salary, and he's similarly invested quite a bit in his 401(k) and outside investments (including real estate). The key here is that he works such long hours that he's only really free Friday and Saturday nights. And so he goes out. Hard.

In just a couple years, this guy has saved more than almost any of my friends. He's also spent more on going out than anybody I know. And although $21,000 sounds outrageous on the surface, you have to take context into consideration. For example, look at his spending by percentage: Just for easy calculations, if we assume that this guy makes $210,000/year net, his going-out budget is roughly 10% of his income. For my friends who make $35,000/year, you can be damn sure that they're spending more than $3,500/year ($67/week) on going out.

The subscription nut. The third friend is a tech guy who has a Tivo subscription, Rhapsody subscription, cable/Internet connection, gym membership, Netflix account, magazine subscriptions, and a couple of monthly online accounts. Now, when I wrote Guess How Much Your Subscriptions Cost?, the point was to highlight how we systematically discount the cumulative effect of our subscriptions. In other words, we forget to add them all up to see the total amount--which is usually a LOT. That's why companies love, love, love subscriptions.

Anyway, I showed my friend my article, and he just shrugged. I started to get angry and use a line I've always wanted to use--"Do you know who I am?"--but he then explained that his subscriptions came out of his entertainment budget, which he'd carefully thought about and revised every few months. And, not surprisingly, he has a savings plan that is automatically deducted from his paycheck.

The point here is that, whether or not I agree with his subscriptions, he'd thought about it. He'd sat down, considered what he wanted to spend on, and was executing on a plan. That's doing more than 99% of the young people I've talked to. Shit, if he had decided he wanted to spend $8,000/year on furry donkey costumes and Faberge eggs, that would have been great. At least he has a plan.

An analysis
I know a lot of people are going to start screaming at me for things they disagree with, so I want to try to take it step by step. Then you can send your criticisms to youarestupid!!!@iwillteachyoutoberich.com.

Most of us are not consciously thinking about our spending. By that, I mean we're not being proactive about planning where our money should go. We're going through our 20s doing whatever, and inferring our spending patterns from the bills we get at the end of the month. We not only lack a prescriptive budget ("I want to spend 20% on my retirement account, 10% on savings, 20% on going out..."), we even lack a descriptive budget ("where the hell is my money going?"). (More about budgets and asset allocation.) And so I completely understand the sickening feeling we get when we see our bills, or the guilty feeling we have when going out to a dinner with friends.

We're also looking at surface characteristics and making stupid judgments. 'You spent $300 on jeans!' 'Why do you shop at Whole Foods?' 'Why did you decide to live in that expensive area?' I know we all wonder these things about our friends because I do, too. And, in fact, most of our judgments are right: Because young people are not carefully considering their financial choices in the context of their long-term goals--e.g., we're not paying ourselves first and we're not developing an investment/savings plan--when you think your friend can't afford those $300 jeans, you're probably right. I've tried to be less judgmental about this. I'm not always successful, but I'm trying to work on the fact that the sticker price doesn't matter--it's the context around it. You want to buy a $1,000 bottle of wine? And you already saved $50,000 this year at age 25? Great! But if your friends are going out four times a week on a $25,000 salary, I bet they're not consciously spending.

The friends I wrote about above are an exception to most people our age.

They have a plan. Instead of frivolously spending money without a holistic goal, they took a few hours, wrote down where each % of every $ should go, and then built an infrastructure to do it automatically. They spend less time worrying about money than most people! These are people who already know about ING and their credit cards and basic asset allocation. They're not experts, but they got started a while ago.

To me, this is an enviable position to be in, and it's exactly what iwillteachyoutoberich is about: cutting costs on what you don't care about, and spending extravagantly on the things you do. The problem is, we all want to have it now, so we make short-term decisions. We also use simplistic goals like "Oh, fine, no more lattes!" I hate when people say that, because (1) it's usually thought of as a panacea, and (2) for the people who have to make that pledge, it's usually such a part of their routine that hoping for long-term behavioral change is hopeless. What if I suggested that you could be doing what one of these friends are--spending whatever you planned without thinking twice--and it would make perfect financial sense? And you wouldn't feel guilty about it?

I know that sounds good. But the catch is, there are no stupid, simple secrets like "no Starbucks." You need to work to change your spending habits for a year, or maybe 2 or 3. Would you be prepared to work that long to get to a place where you knew exactly what you're spending, and you could spend extravagantly on the things you value?

You can. It takes a plan. And it's really as simple as that.

"But Ramit..."

"These people probably spend hours every day managing their money"
Nope. I asked them how much time they spent, and not surprisingly, it's just a few hours a month. Two of them set up an automatic infrastructure so that money is automatically moved from one accout to another as paychecks come in. Once you set your infrastructure up, you'll spend less time managing your money than most people do. And you'll have more of it, too. The simplest way to do this is to set up a high-interest savings account (let me know if you want a $25 referral to ING -- more about ING/setting up your accounts) and automatically deduct money from each paycheck.

"I'll never make six figures in my early 20s"
THAT'S NOT THE POOINT!! PLEASE DO ME A FAVOR AND DON'T GET CAUGHT IN THE DETAILS. That's exactly what I wrote about in The Shrug Effect. Here are some better suggestions:

• Think about it by percentage ("what percentage of my income am I spending going out?").
• Think about it in terms of goals ("how much do I need to save for a down payment on a house in 5 years?").
• Just look at yourself and say, what am I already spending a huge amount on? And what would I really like to be spending on? A good way to do this is to say, If I had all the money in the world, what would I like to do? Then figure out how to do it. But remember, pay yourself first instead of just spending on things you want.

Still, there is some truth to what you said. If you're making $40,000, your lifestyle is just going to be different than someone making $190,000. That's just a fact. But whatever your income is, I guarantee you can live better on it by having a spending plan.

"Yesterday, you wrote that you just moved to San Francisco and you're paying 2x the rent. Why would you do that? Shouldn't you live beneath your means?"
Good question. I still am. In my 2007 resolutions post, I wrote that in 2007, I'll make more, save more, and spend more than ever before this year. I created an asset allocation to save and invest more money (both in the stock market and in my own businesses), and then I looked at what I had left over. And I consciously decided that the higher rent, parking, eating costs, etc, was worth it.

One additional point is that money isn't just here to be saved and scrimped and pinched. It's here for us to enjoy. And I love living in SF. When you consciously spend, you can say "it's worth it" after having actually considered the alternatives using numbers, not foofy emotions.

"I have identified a fatal flaw in your reasoning. Yes, your friends may have maxed out their 401(k)s, but they could still invest more. And since every dollar we save now is worth a lot later, your dumb friends are actually losing tons of money!! HAHA!!"
Touche. Yes, technically you could always save more. But when your money becomes oppressive to you, that's when you stop respecting it. If I were saving 95% of everything I was earning and not enjoying any of it, would I really have an incentive to respect my own self-set goals? As someone commented earlier today, personal finance has a lot more to do with "personal" than with "finance."

And so, as a personal example of my finances and decision-making for moving to SF, I definitely could have taken the extra money and put it towards more investments. But after making my asset allocation, I'm happy with how much money I'm putting away. I don't want to blindly just save more and more with no good reason. Conscious spending is about putting your money in the best places that make the most sense for you.

I think the comments on this post are going to be very interesting. I want my major takeaway points to be very clear:

1. Conscious spending is about making a plan on how you want to spend your money.
2. Most of us are not spending consciously--we're just spending whatever and then getting the bills at the end of the month.
3. Why should we spend consciously? If your plan is forward-thinking, you'll be able to pay yourself first by automatically saving/investing part of each dollar that comes in. You also won't feel guilty when you go out, or buy shoes, or whatever, because it will be an explicit part of your goals. And if you structure your system to pay yourself first, in a few months, you'll start to see it add up. Imagine where you'll be one year from now.

Thanks for reading. And please tell your friends.

Tomorrow I'm going to tell you 3 stories about friends of mine and one about me. We're all recent college grads.

• The shoe lover. One of them spends over $5,000/year on shoes
• The partier. Another spends over $400/week going out (that's about $21,000/year)
• The subscription nut. And the third friend has a Tivo subscription, Rhapsody subscription, cable/Internet connection, gym membership, Netflix account, magazine subscriptions, and a couple of monthly online accounts

The thing is, I agree with all of their spending patterns.

Find out why--and why I just moved to San Francisco, where I'm paying over 2x the rent I used to pay.

Tomorrow on iwillteachyoutoberich.com.

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.

What an interesting idea.:

For the month of November, I’m only spending $30 on food. The only exception will be things that are freely available to the average person (salt taken from restaurants, sauce packets from Taco Bell, free coffee from an office). Buying in advance is fine, but at the end of the month, it all has to add up to $30 or less.

My favorite part is that he took the time to write it up and share what he found.

Check it out: http://www.hungryforamonth.blogspot.com/

Vanessa writes:

I'm in the middle of a real estate deal and have $80,000 to park for one month until I fork it over to the seller, so I thought I'd open a high-interest (5.05%) HSBC account. I began the "15 minute" transaction on Friday morning. For some reason, the bank was not able to complete it online, so it had to verify my existing bank account with two tiny depositions. They didn't show up until today, Monday. Then I called the bank to see what the next step was and I was told that I should receive an email "any day now" and that no one could complete my application. I sent an email and was told that someone would respond to me within 48 hours.

I can practically hear the lost interest ticking away!

I then got back onto the web site, navigated around until I got to the right place, and completed my application. Which still hasn't been verified or anything.

This process seemed so old-school for what should be an easy Internet transaction. Any advice about opening high-interest accounts, or any banks that have a better process?

My response:

Can I be honest? It sounds like you’re being a little impatient. One or two days here or there doesn’t make a big difference—we’re talking about just over 10 bucks a day. I’d encourage you to think long-term and pick the best place that makes you comfortable, not be in a rush to make some money. Even though banks may be Internet based, they have strict security rules that take time for a reason.

Contrary to the idiotic investing magazines and TV shows, getting rich is not a sprint. It's a marathon, and fortunately one in which I can remain in my room, typing away furiously and incurring absolutely zero sweat. If you find yourself under the gun to make a financial decision quickly, I'm willing to bet it's almost always a bad decision.

Here's what I've been hinting about for the last few days: my first ebook!

It's called Ramit's 2007 Guide to Kicking Ass. It includes 5 all-new essays I wrote, plus new essays by some other great personal-finance bloggers. I'm publishing this now because I couldn't wait until 2007.

The guide includes new essays on personal finance, personal entrepreneurship, making mistakes, and more. All of them are completely new, and there's one ridiculous story about who has the most frugal family in the world (read it and weep). Plus lots of ranting, mocking, and tactical tips. I packaged it all up in a PDF designed by Scott Hurff and included a bunch of gorgeous illustrations by Ryan McCulloch.

The Guest Bloggers
J.D. Roth of Get Rich Slowly
Jeffrey Pritchard (JLP) of AllFinancialMatters
Casey Serin of I Am Facing Foreclosure
K of K’s blog

The Table of Contents

• Who Has the Most Frugal Family? An Investigation...Page 3
  
• The Key to Running a Great Project (hint: it starts with an “M”) by Ramit...Page 5
  
• Producers, Consumers, and the Information Diet by Ramit...Page 7
  
• Why Do People Get So Nutty Around Christmas? (large PDF; right-click to download) by Ramit...Page 8
  
• 101 Words on Running More Than One Project at Once by Ramit...Page 11
  
• How to Send an Introductory Email by Ramit...Page 12
  
• Money Day by J.D. Roth...Page 14
  
• Take Advantage of Your Youth by JLP...Page 18
  
• Handling Failure: Dealing with a $2.2 Million Mistake at Age 24 by Casey Serin...Page 22
  
• Building the Team You Already Have by K...Page 26

Get it now
I'm selling this 30-page guide for $4.95. If you like what I've written for the last 2+ years, I think you'll love this. (Maybe a gift for someone else, too?)

Should you buy it? I thought long and hard about charging for this, and I referred back to my old posts on paying for things you value. And if you don't love it, just let me know--I'll refund 100% of your money back.

If you want to distribute this to friends, please buy 2 copies--on your honor.

Update: To pay by check, scroll to comment #46.

Really? Did you say that on January 1 of this year?

Today's date: November 20th, 2006.

<a href="http://www.iwillteachyoutoberich.com" title="No, start today: Get your ass kicked at iwillteachyoutoberich.com"><img src="http://www.iwillteachyoutoberich.com/archives/tomorrow.jpg" width="300" height="200" alt="No, start today: Get your ass kicked at iwillteachyoutoberich.com" /></a>

See Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6 of this series.

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!!

Sri writes:

How does one know that he/she is doing great in terms of savings? Is there a magic number?

For example:
Age 35, single Savings: > US$100K = great
Age 35, single Savings: > US$200K = outstanding
Age 25, married, savings <10K = poor

My response to him:

Nope, no magic number. There are guidelines and comparisons like this and this--both are very good links that show you how others are doing), but if you're reading iwillteachyoutoberich, they're basically meaningless because (1) most people don’t know what they’re doing--do you want to benchmark against that?, and (2) it really all depends on your goals.

If you want to be a multi-millionaire by age 40—or better yet, you have some specific goals like “I want to start a foundation and give away 5% of my wealth every year” or “I want to take a 3-month vacation every year and travel with my kids”—you can plan for them. But if you just want to be better than everyone else in your same age bracket, you’re asking for trouble. It’s a never-ending cycle of keeping up with others…really for no good reason.

There is actually some pretty good data on this question, but I need to go to the library to find it. (Some of the best online data is where the Fed does a survey of consumer finances every 3 years and posts it in PDF here. I printed it out but, man, there are a lot of numbers. Actually, heh, it's for households and doesn't break out data for young people). I'll dig up the data and post sometime when I get around to it.

Send me your questions any time by email.

Today I want to take a minute to write about my friend Jim. Here's a guy who embodies what I talk about on this site: getting rich by identifying your priorities, being frugal on things you don't care about and spending on the things you do, taking entrepreneurial risks, and realizing the difference between being sexy and being rich.

I went to junior high and high school with Jim, and now he's one of my roommates. Man, as I write this, I realize we've known each other for over 10 years, making me simultaneously amazed and disgusted. Anyway, Jim graduated from Berkeley and now works at a great tech company as a software developer. He found a job he loves. He does entrepreneurial projects on the side. And he's not fancy about managing his finances--he doesn't make a big deal out of it, he just methodically handles his business.

I remember him calling me up a while ago, telling me he had just gotten another raise. "Awesome!" I said. Ironically, that was the same week he moved into an even cheaper place to live. Maybe it's not actually that ironic. Whereas a lot of us take our new raises and spend it, really rich people take those raises, invest them, and continue living on the older wage that they've become accustomed to.

He makes conscious choices about what he spends his money on. Jim has told me over and over that he doesn't care much about living in a fancy place, so he saves money on that. He cooks at home when he can instead of eating out every day. But he loves outdoor stuff--biking, camping, travel. And so he splurges on those things. He has a top-of-the-line bike. He just got back from a week-long trip to New York, just for fun. And he uses his coding skills to do cool things; he's one of the guys I co-founded an education company with (more info), which we spent our own money on but ultimately failed. The downside was a few thousand dollars. The upside was the potential to have a big impact, learn a lot, and possibly make a lot of money (which we didn't). He took the risk.

Too often, we think that our rich friends are the ones with the highest-paying jobs who have the nicest clothes, eat at the nicest places, and have the most glamorous lifestyle. No. Those are the people who spend the most. There's a difference. And a lot of times we think rich means the person who talks about their finances all the time, shows off about the new stock they bought, and uses fancy words like derivatives and options.

Not true.

There's a difference between being sexy and rich.

Jim is already rich (more: Why do you want to be rich?). He can live anywhere, but he lives beneath his means. Although he hates Suze Orman and mocks me for watching her (I love her), he's spent the time to learn about growth and asset allocation and investing. However, if he doesn't know something, he asks people who do. He saves and invests agressively. Best of all, he doesn't live like a pauper: His frugality about the things he doesn't care about allows him to spend a lot on the things he loves. There's a difference between cheap and frugal.

A couple months ago, Jim jokingly asked me, "Why don't you ever write about me on your site?" That surprised me and I thought about it for a while. Too often, personal-finance blogs berate people for failing to plan and manage every aspect of their financial future, or only focus on the outlier issues. It's easy to spend every day writing about the things that we're not doing, and I think I've fallen into that trap a little bit. But I want to celebrate the people who have taken the time to set up their accounts right, thought hard about investing and saving, and created an infrastructure so that it actually gets easier over time. That's rich. Happy 25th Birthday, Jim.

Casey points me to You Can Learn a Lot From a Rich Girl, a breathtakingly good article filled with insights about the dumb things we do with money:

The author (I don't know who it is) writes about Marilyn, the "rich" girl:

Driving home from the bar one evening, my friend Marilyn confided in me that she was afraid. In six months, she would be graduating from grad school and her parents were going to cut her off financially for the first time in 26 years. Marilyn works twice a week (8 hours total) waiting tables to pay for pot and shoes, but everything else from her rent to her groceries has been paid for by her parents. Marilyn, at 26, doesn’t know how to balance a checkbook and has no idea what a gallon of milk costs. On top of that, she managed to secretly charge up some credit cards to the tune of $12,000 and that debt alone was overwhelming her. She couldn’t imagine what it would be like when she had to pay all of her own bills, plus the credit card debt. She fucked up big time and rather than admit that to her parents (who amassed their wealth through careful, responsible investments) she was desperately confiding in her older friend hoping for a magic solution to her problems.

On young people buying expensive clothes, going out extravagantly, and not realizing how much we can really afford:

I’ve spoken to a lot of college kids lately who regularly spend $200 for a pair of blue jeans. When I ask them how long it takes for them to earn that kind of cash, the answer usually falls in the realm of a week or so. At this point, I will stress that not even the very wealthy spend an entire weeks worth of salary on one article of clothing. College kids disagree because they’ve seen wealthy people wearing more expensive clothing than their jeans. So I explain that while they may wear more expensive clothing, that it doesn’t constitute a week of their salary. Normally, they earn the price of expensive jeans in an hour, often less. On the off chance that the kid understands the picture that I’m trying to paint for him, he expresses shock that I would suggest he should never spend more than $8 (his hourly wage) on a single article of clothing….or alternatively buy significantly less clothing. But most of the time, the idea that they might be living well above their means only confuses them and they just stare at me blankly.

And on the cluelessly stupid way we act about Christmas gifts:

Every Christmas we go over to her house bundled up in sweaters and jackets, swathed in a layer of blankets because she can’t afford to turn the heat up. But everyone will be plowed with the presents that she couldn’t control the impulse to buy. It pains me to see and I just want to say to her to please take back the bracelet and the sweater and the gift certificate and the 20 presents you bought the children that will most likely be donated to charity without them ever playing with them because they have so much already and please, turn your heat up.

Read the full article here: You Can Learn a Lot From a Rich Girl. And if you're the author, please get in touch.

Like I mentioned last week, I'm going to post ways to save money on recurring costs every Monday. Today: auto insurance.

I discovered from personal experience how easy it is to save money on this. When I first bought insurance, I shopped around and ended up buying 21st Century, one of the worst companies on the planet. They lost my paperwork for THREE MONTHS, overcharged me, and sent me about 3 letters per week in the mail. Leave me alone you horrible company.

Anyway, I feel ridiculous saying this, but I saved a bunch of money by switching to Geico. Seriously. I called up a bunch of places and ended up saving about $175 per 6 months, or $350 per year for a few hours of calls. Plus, I'll save that much every year, making it a pretty good rate.

Now, to today's way to save money: Here are the phone numbers for some of the biggest auto insurers. (I included only phone numbers on purpose, because clicking around all their shiny websites is a great way to get distracted and do nothing. Plus, the best deals come from talking to someone on the phone.) Call them up and spend an hour figuring out which is the best value. Switching is easier than you think, and it's a one-time thing.

Geico: 1-800-861-8380
State Farm: 1-877-734-2265
Allstate: 1-877-572-5268
Progressive: 1-800-776-4737
AAA: 1-877-323-4222

PS--The best line to use is not, "Is that the best price?" but "What other discounts are available?"

Update: Some really great comments below, including points about cost vs. value ("don't just pick the cheapest insurance, pick the best value") and a reminder to re-shop the rates in a year.

The reason I chose Michael Jordan is that he is the only famous athlete that comes to mind. Sadly, the second person I thought of was Bo Jackson. Man, how sad is that shit. Anyway, here are some emails I've gotten in the last few weeks about calling up companies and asking for better rates.

Thanks for the great blog. It just saved me 20 bucks in about 5 minutes. I just recently moved, and in all the mess, the payments for my 2 credit card bills arrived exactly 1 day late, as I found out by the finance charges on my next bill. I knew why I got the extra charges, and I also knew it was my fault, but because of your blog, I called the companies, something I never would have done before. I played dumb and simply asked why I had this new charge on my bill, and both companies took care of it immeadiately, without me even asking! "Oh, it appears your payment arrived one day late last month; that is why you have the finance charges. I'll give you a credit for that right away."

Thanks for giving me the mindset that I am a customer who deserves to be treated well.

Sincerely,

Michael

* * *

A few months ago, when setting up my new number over the phone I requested a business savings plan for calling internationally. My new bill came this week, with $250 in international calls, some at over $10 a minute. I realized the international calling plan was never added to my bill - I just hadn't noticed because there were no international calls on the previous bill.

My hopes weren't high, because there was no proof I'd requested the plan, just my word. However, I called customer service, explained the situation as nicely as possible, and within a few minutes, my international phone bill was adjusted at the savings rate, saving me $232. It never hurts to ask, folks.

Gabe

* * *

I actually called up Schwab, and told them about Ing and Emigrant. They immediately offered to put my cash in a Money Market with 5% interest, just to keep me with them. I decided to do that, until I figure out the next steps.

Thanks again!

Alex

My goal with these kinds of posts is to get us all to take more initiative about the companies we do business with. I remember when I was a kid, I used to get so embarrassed when my parents would complain about the service or try to get lower fees. It took me a long time to realize that these companies work for me.

I'm willing to bet that if you called up the top 5 companies you pay money to today, you could get reduced fees on at least one thing. Better yet, if you save $30/month, you're actually saving $360/year. Two or three of those deals start to add up.

These emails made me think of something. There are so many little things in our lives that we can call and negotiate to save $10, $50, $100, or more per month. I'm going to start posting one thing to do each week, every Monday.

PS--Yeah, I saw that the first email was actually his fault, slight as it was. If you're trying to get fees waived for your own mistakes, that only goes so far. I once had a girl tell me about how she was negotiating her EIGHTEENTH OVERDRAFT THAT YEAR. I just stared at her, blinking.

Let's start the week off right: with me getting really angry and threatening to throw heavy things at people.

Guys, I am so tired of hearing about young people sabotaging themselves by being cheap. Not frugal, cheap. (There's a difference.) Let me tell you why using an example from the recent IWillTeachYouToBeRich chat I recently held.

During the chat, someone asked me what I was going to do with the site in the future, and I mentioned how I was interested in using different types of media like podcasts, videos, etc. There was a lot of enthusiasm: "Yeah, Ramit!" they said, "you should do it!"

Then I decided to test the lovey-dovey emotions that we were all feeling. See, I've been getting lots of requests to do a regular podcast, but it's a lot of work to do a really good one. That's why I've been playing with the idea of charging for them.

Oh, man. When I mentioned this in the chat room, people went apeshit. They were dead set against it, and I watched the mood go from Kumbaya-happiness to dark indignation. Curious, I thought. Actually, I thought it was completely stupid, and here's why:

Before I went nuts, I asked people, why not charge? And the reasons I got back were so breathtakingly absurd that I actually stripped out people's names.

person1: don't charge though
person2: yeah, please don't charge
person3: I have universtiy debts to pay for... =... O(
person4: It feels punitive
person5: your good karma will come back to you muliplied if you do not charge
person6: because people dont want to pay lol my guess is you will lose many readers if they have to pay
person7: No charge....comeon! you cant ask us to pay to learn saving :)
person8: one thing that would concern me if you charged is that the quality of material would need to match the fee
person9: i think you should charge. you weed out the ppl who aren't willing to make basic investments in their investments
person10: dont charge
person11: frankly your latest work hasn't been great ;(
person12: we cheap :P don't charge. we hear to save money here XD
person13: suze orman does not charge for her show
person14: Dude, there are people who CAN'T pay. (Me, for example, here in Bangladesh, I don't have a way to pay for stuff in the web.)
person15: you've been giving out quality information for free, i think i've gotten used to it...
person16: Charging is not a succesful business model for editorial content on the web, currently
person17: people dont know what the advice is worth before getting it but you have to pay first
person18: you will NOT attract new audience members by charging....existing ones, maybe
person19: Payment is a barrier between the reader and the important information; I would think you of all people would understand how dangerous it is to erect even minor barriers for people.

Seeing this really pissed me off. In fact, these reasons are so ridiculous that I almost took out a sledgehammer and smashed my monitor, Hollywood-style.

Listen, if I decide to charge for podcasts--which I haven't decided yet--then you can decide if they're valuable enough to pay for. But please don't use dumb excuses like "How can you expect me to pay when I'm trying to save?" and "I'm used to free stuff."

The truth is that most young people don't understand the value of money. Ooh, yeah, I said it. We don't differentiate between cost and value. We'll happily spend money eating out, drinking, or going to movies, but when it comes to paying for content or other valuable items--things you consider an investment--we balk. We've gotten used to everything being free, and when things start costing money, the result is a panicked "no way!" reaction. How do I know? Because I'm a young guy, and a few years ago I was saying stupid stuff like the above quotes, too.

When I was younger, I tried to save money on everything, whether it was a Coke or a major purchase like an iPod. I understand being on that end of the gradient. Now that I'm earning money, though, I see the value in spending money on things beyond eating out. Person9's comment spoke to me:

"person9: i think you should charge. you weed out the ppl who aren't willing to make basic investments in their investments"

Frankly, if you'd told me to spend more money on certain things back then, I would have ignored you. But hopefully you're smarter than my past self. Also, you might have read enough on this site to know that spending on the things you love is perfectly ok.

Ben Casnocha put it well when he wrote this:

"What are the best corners to cut? In the Google cafeteria, the food is awesome, and the chairs and tables are pieces of shit. That's a great example of cutting the right corners."

Right on. Today, I see young people sabotaging themselves all the time by being cheap about the wrong things. "I'm not going to buy that book! It costs $27.95!" they say, not realizing that the book could inspire them to do something that would make them $10,000. That's a 357x return. Or, "I'm not going to spend $15.00 on the more expensive cellphone plan--that's ridiculous!" No, what's ridiculous is you then not monitoring your usage and ending up spending $58.00 in overage fees in one month.

"But Ramit," you might say, hiding behind a wall because of the mallet I am holding on this angry Tuesday, "how do I know that $30 book will pay off? What if I don't get anything from it?" Jesus Christ, you don't know! That's called taking a risk! Unfortunately, I see a lot of people nickel-and-diming the really important things that could pay off explosively.

Instead of being guided by the invisible hand of stupidity, take some conscious control of your spending. Are you just spending on eating out? When was the last time you spent money strategically to try to gain something useful? Yes, it's actually good to spend money on things you value. Yes, it's important to spend money on things that will benefit you financially, intellectually, whatever. Yes, I'm encouraging you to spend money on certain things! In fact, here are some of the subscriptions and things I've spent money on:

• A subscription to Before & After Magazine, to improve my design skills
• A subscription to the Rhapsody music service, because I like finding new music without having to wait
• A Rowenta iron, because I love ironing

This point of this isn't to brag about how much I spend on stuff. Heh, frankly, it's not that much in the grand scheme. And it's a little different than my posts on Irrational But Good Things To Buy and Cost vs. Value. The point is to differentiate between spending on fun, and spending on things you consider investments.

In the quotes from the chat above, one guy said something like, 'How can I spend money on a podcast when you expect me to save?' Let's get real here: Assuming the podcast (or whatever) is worth paying for, then you need to think more about whether it's an investment or a simple cost. Does it have the potential to make you happy? Beyond that, could it give you the potential to make more than the cost of the podcast? Is there a trial or a refund policy? Is there some magical way of of judging if you think the content will be good (like maybe 2 YEARS OF POSTS?!?)?

This post isn't just about my hypothetical podcasts, and it's not about going to buy that iPod/coat/car you've really been wanting. It's about not being cheap. It's about using your money strategically by realizing what's an investment and what's not. So here's what I want you to do. This week, go find something valuable you want to spend money on--and then go buy it. Yes, I'm telling you to go spend money on something you love and something that will benefit you in some way. Do me a favor and add a comment here telling us what you bought. Bonus points if you spend money on something that will turn your money into 10x what you spent (e.g., a good business book or buying lunch for your mentor to get his advice). Remember: You control your spending.

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If you're new to IWillTeachYouToBeRich, check out my table of contents, RSS feed, and email newsletter. You can also add this blog to your My Yahoo page.

Most big banks are looking wildly around wondering why young people are moving to high-interest savings accounts. Perhaps it's because Wells Fargo's interest rate is around 0.5% and they try to nickel-and-dime us for every small service. Sometimes, when I'm negotiating out of bank fees, I'm tempted to use a line I have never had the courage to use yet: "Do you know who I am?" But then I realize I'm a 24-year-old Indian guy with an ectomorphic body structure, and the phrase becomes a little less powerful.

You can be earning about 10x that money with a high-interest savings account. For more details, here's how I set up my financial accounts.

But there's a little more.

Get the right habits. First, some people wonder why they should bother doing opening up another savings account when they only have a few hundred dollars. The difference in interest isn't really that much. But being young is about getting the right habits so that when you do have a lot of money, you know what to do with it.

A savings account is not enough. Stop being lazy!! Second, and this is more important, I've noticed that a lot of you are really satisfied with yourselves for opening up an ING account (or whatever). Good! We all should--it's a great step in the right direction. But there's a weird sense of, "I did it, now I'm done!" Guys, opening up a savings account is one of the earliest steps to getting rich. It's the equivalent of an infant crawling 14 steps. Now that you've got one of your financial accounts set up, it's time to start thinking about growth through investing. Earning 5% in a savings account is not enough.

To post this image on your blog, MySpace, etc:

<a href="http://www.iwillteachyoutoberich.com" title="Only fools accept 0.5% interest rates. Get started at iwillteachyoutoberich.com"><img src="http://www.iwillteachyoutoberich.com/archives/interest.jpg" width="300" height="200" alt="Only fools accept 0.5% interest rates. Get started at iwillteachyoutoberich.com" /></a>

See Part 1, Part 2, and Part 3 of this series.

Dan Portnoy and Tim Grahl were nice enough to interview me for their Business Opportunities Podcast last week. Here's some of what you'll hear in the podcast:

5:53 -- Who am I to say I will teach you to be rich?
7:12 -- There's no secret to getting Rich
8:30 -- What does being Rich mean?
10:00 -- Dan and I mock those stupid stock suggestions we get by email
10:35 -- After you figure out what Rich is, what then?
11:00 -- I plug my own 1-hour talks (more info: seminars.iwillteachyoutoberich.com)
11:58 -- Growth through different types of investments
12:27 -- The single most important part of getting Rich (I meant to say "bad decisions," not "decisions," oops)
13:15 -- I give some advice for entrepreneurs on personal finance, finding mentors, and more

Listen to the interview here.

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.

Jonathan Y. writes,

"I came across this piggy bank for kids, which has separate “buckets” that allow kids to set aside money for different things. As a kid, I always just thought you put ALL your money in one BIG bucket…and decided where it would go later on. I imagine many young people have this mentality out of college. Sticking to a plan is much easier when you decide where the money will go, then dole it out to accounts. Can you imagine the way (hopefully) this type of toy could change the way a child thinks about money?? Amazing!

PS- “Now 40% larger!” I could give the manufacturer a hug!"

How many of us end up each month saying, "I guess I spent that?"

I've done it many, many times.

Budgeting is really hard, and although every one nags us to set one up, few of us do. I think less than 5% of my peers have an up-to-date budget.

That's ok. Well, actually, it sucks and you're probably losing tons of money on crap you don't know you're spending on, but I'm not going to preach. Instead, I'm going to make a new piece of software to track your spending, compare it against other people like you, and set savings goals.

We've already started building it. If you want to be a beta tester when it's ready, sign up for my newsletter.

To post this image on your blog, MySpace, etc:

<a href="http://www.iwillteachyoutoberich.com" title="How much did you spend last month? Get started at iwillteachyoutoberich.com"><img src="http://www.iwillteachyoutoberich.com/archives/guess.jpg" width="300" height="200" alt="How much did you spend last month? Get started at iwillteachyoutoberich.com" /></a>

See Part 1 and Part 2 of this series.

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Update: Welcome readers from Businessweek.com 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.

I have the data from my survey below! Reading these made me want to laugh, cry, and vomit. Also, if my mom didn't read this site, I would tell you a couple other things it made me want to do. Anyway, this was the first time I've tried to understand more about you--and man, was I surprised. The analysis is long, but I really encourage you to take a few minutes to read it to see where I'm going with this site.

Methodology: I surveyed over 1,000 readers of http://www.iwillteachyoutoberich.com during the last 48 hours.

Age: About 1/3 of you are recent grads. Huge surprise: The second-largest demographic is 30-39 years old. I had no idea.

Gender: About 77% of you are males, 23% female. This makes me sad for many reasons.

How often you read this site: RSS readers overwhelmingly read iwillteachyoutoberich every day, while www.iwillteachyoutoberich.com visitors mostly read it a few times a week.

How long you've been a reader: The majority of you are new readers within the last 6 months. This jives with my traffic data. I've seen most of my growth in the last 6-9 months.

Newsletter subscriber? According to this data, over half of you are. Don't believe it, though; it's a self-selection factor (e.g., the people who replied to my request to fill out the survey are the same people who are likely to sign up for the newsletter. Sign up here--free--and get articles I never write for the blog.) I know for a fact that my newsletter has only a fraction of the total number of readers of this site.

How you heard about iwillteachyoutoberich.com: Most people heard about this site from another blog. Second up was Google, and then a bunch of other sites followed (Digg, delicious, etc). One of these days, I need to optimize the crawlability of this site for search engines (if you can help, let me know).

Location: My survey question was flawed, making it hard to properly analyze this, but most of you live in the US. There are a ton of international readers, though.

What do you like about IWillTeachYouToBeRich?
The answers to this question warmed my very heart. The vast majority of you like my writing and you talk about my posts using words like "straightforward," "not condescending," "funny," "honest" and "I trust you." Many of you mentioned appreciating that I kick people's ass to get up and start doing something. A few of you didn't like my jokes, but I just dismissed you as not funny. Most of you like when I mock stupid people. Delightful!!

Some responses to What do you like about IWillTeachYouToBeRich?

"Direct tone, not condescending but humorously blunt at times. The investment advice is great and really takes the mystery out of things."

"You are reachable; I think you have emailed me back with support within 30 min of emailing you. This takes up your time and energy, and you get nothing...I know I am not alone when I say, if I ever have any way of helping YOU out, I would do it at the drop of a hat."

"I enjoy Ramit's writing style and straightforward/practical advice...I also greatly enjoy his rants, which are hilarious."

"Pertinent honest information. Nothing I don’t need. No annoying ads running throughout the page. Ramit has taken the task of educating people like me for free, devotes much free time to it, is smart enough to know that it will benefit him in the long run and doesn’t have to make it an instant source of income."

"Practical, down to earth. no lame "quick fixes."

"You just helped me realize that I'm not the only person in the world with finance sensibility... but we are few in number. You also spoke with me on the telephone regarding entrepreneurship and some business ideas. That is absolutely steller. Who else would do that?"

"Your angle -- targeting kids. God! I wish somebody had grabbed ME by the scruff of the neck when I was 23. And that you keep the steps of your plan simple simple simple. It's a no-brainer to follow. And that you are literate. Woohoo! I haven't found a mispelling or grammatical sollecism yet. Will you be MY son?"

For What do you like about IWillTeachYouToBeRich?, see all 746 responses (opens new window).

What 3 things could I do to make it better?
More posts. The #1 response to this question was "More posts." That makes me happy and also sad. I really thought I was posting a lot! On one hand, it's flattering to hear that you want to read more. But I also have to be realistic about how much I can post--especially long articles that take lots of time to write. It's the same as working out: You can start off by running 20 miles a day and lifting 200lbs, but you'll burn out in a week, and that's worthless. I'd much rather exercise less but make it sustainable--just like with writing this blog. Though it may seem like I write off the top of my head, it takes a lot of planning and research.

I also discovered that you know exactly when I write a post that's sub-par (e.g., the I Got a New Tie post). Anyway, I'll try my best to post as often as possible, but please be patient and remember I have a lot of other stuff going on, too.

Look and organization of the blog. The #2 response was to improve the look and organization of this blog. About 5 million of you complained about the ridiculous scrolling on iwillteachyoutoberich.com. As a usability guy, this is important to me. It's also something I've been meaning to do but, honestly, it worked and I've had more important things to do. Anyway, I'll bump this up in my to-do list. Coming up: A better archive system (god, I know), easier readability, and better commenting. Once you get hundreds of posts up, it starts to get hard to manage.

Stay on topic or expand? A lot of you wanted me to write more about entrepreneurship. Others wanted me to stay on topic and write more about personal finance, including more advanced topics. So here's the deal: I have tons and tons more to write on personal entrepreneurship. I also have more stuff to write about personal finance, especially now that lots of you have started getting your accounts in order. I'll try to do a little of both, but it's always tough to strike a balance between staying on personal finance and expanding onto other things I think are cool. I'll use my judgment, but I've never been someone to stay on one thing forever.

More planning. One interesting thing I learned was that lots of you want consistency: What's coming? Can you run a regular series on Fridays? How did you get a new speaking gig? I've decided to do something like this starting in the next couple of weeks, so stay tuned. In general, I'll try to be more transparent about what's coming and what I'm working on.

More consistency. I'll follow through with longer series I run, like the 2006 makeover series. I'll also be more disciplined about sending out newsletters more often.

Recommendations for services and sites. This really surprised me: Lots of you want recommendations for services I've used, like bank accounts, credit cards, insurance, etc. I've been VERY hesitant to write about specific companies for fear that you'd think I was selling out to some company. But from this feedback, it seems like I've earned enough trust to talk about services I like and hate. Actually, I've had a ton of positive feedback from my post on ING and other high-interest savings accounts, so I'll try to share my experiences with you about companies I like--and don't like. You also mentioned wanting me to link to other blogs/sites I read. No problem. Finally, I was really happy to see a couple responses about writing about women and money. This has been on my mind for a long time, and it's on my to-do list.

Things I won't do. But...there are some things you wanted that I just won't be doing. Some people want specific stock recommendations. Sorry, I don't do that. Others want me to write about getting out of debt. Frankly, I think one of the unique parts of this site is that I don't treat everyone as if they have tons of debt. I'm writing about looking forward, not looking back, so I won't be spending lots of time on debt-reduction strategies. If you're looking for that, there are lots of good blogs. I'd also recommend Suze Orman's latest book.

Others want me to write about older issues, like for people who are 30+. Well...I'll do a little of this, but frankly, I'm not 30, so I'd prefer to focus on younger people. Older people: Please realize that lots of this is applicable to you, even if specifically mention young people (and I mocked you in one of my recent posts for being arthritic). About a trillion of you wanted me to write more articles. I'll try, but blogging is one part of my life, not all of it, and I'd rather post nothing than some stupid link to the new Fed rates or Emigrant Direct's latest security feature. Finally, I'm not going to treat you like idiots. A number of people asked me to write shorter articles and to include fewer links so they wouldn't get "distracted." That is moronic.

Some responses to What 3 things could I do to make it better?:

"More Ramit: Instead of making small posts apologizing for an absence from that blog, take the time to give the world an update to what you've been doing. I realize lots of business dealings are sensetive information but lots of people, myself included, would love to hear Ramit's latest and greatest conquests or involvements from time to time."

"Lately, there have been a lot of articles that seemed off-topic to the original theme that I got to know."

"More frequent or consistent posts. You're kind of inconsistent. I'd like to know I can count on you for a post every day, every other day, every third day, twice a week, whatever."

"Run more scenarios...for example if you have 1000 dollars right now, "this is what I would do"...."

"Make the table of contents easier to navigate."

"More series(es) (and stick to the series with a regular update. "Monday Money Management", or similar, for a month would be nice. I think you tend to get distracted from longer series and would do well to keep a structure.)"

"Having more links to other good web sites. Introducing other good weblogs."

"More articles on personal finance and investing. - Less articles on why its important to invest now. I think you've written too many already. - Not everyone who reads your blog is right out of college or ~23-24 years of age."

For What 3 things could I do to make it better?, see all 631 responses (opens new window).

Tell me a story. How has the IWillTeachYouToBeRich blog changed your attitudes or behavior about being Rich? One specific example would be great.
Over a year ago, I wrote a post called "A big fear I have of this site," in which I talked about how I was afraid lots of people would read the site but take no action. I'm so, so happy that this isn't the case.

You're doing all kinds of things after reading my blog: Being more frugal. Saving money. Opening the right accounts. Investing money. Learning about asset allocation. Debating your friends about what Rich means. Thinking about money choices. And being CONSCIOUS about what you do.

I love this, so rather than talk about it, I'll just show you some quotes from real people--just like you and me--who've started on the way to being Rich.

"I like creating a budget and sticking to it. So when I budget $50/month for eating out, I almost always stick to it. After I read your post about paying a little extra every now and then because we can afford it, I did some reflecting. I've convinced myself (with help from your blog) that I should splurge every now and then. I also went on two vacations the past two weeks and loved every second of them. I hadn't taken a vacation in almost 8 months and after coming home I realized that I need to treat myself to a vacation way more often. The day after coming home I was at work and went to your blog to see that you had posted about doing things now. I can't agree more and am definitely going to do more things now since I have the time and can afford to do them."

"You have caused me to stop waiting around, remove all barriers, and take financial control of my life. I have begun actively investing, set up a high-interest savings account, maxed out my 401k, begun setting up my own business, and focusing on the things I want to do in life. "

"I really liked your barriers post...I ended up going back to the gym to work out because of it."

"Reorganized my banking accounts to the "inbox - outgoin fixed payments" account (includes money transfers to the other accounts), the 'go ahead, spend everything in here daily living' account, and the 'short term' savings account, and the 'retirement' account. My entire money flow situation has never been easier and requiring less of my time than it has been since doing this."

"At the bank, I happened to remember the blog you had written about having your bank sevice charges waived - "sometimes all you gotta do is ask". So, I told the bank lady "Hey, my dad's been a customer here for so many years and blah blah blah, could you give me a discount on the exchange rate?". She consulted with her boss and knocked off 10 paise from the Forex rate! I saved Rs 500 that day."

"I'd always thought retirement accounts were for old folks, but since your post on them, I've gotten off my ass and opened a Roth IRA. I'm a graduate student looking at several more years of grad school and surviving on fellowhips, but you've got me thinking seriously about my financial future and I am now one of the most financially prepared physics grad students that I know."

"Be interesting by being interested: I do this at parties more now. I used to talk too much about myself especially because I work at Google so everyone is curious about me. *Just do it now: I fixed my toilet flusher instead of just waiting and doing it later: later was worse than now. I also just do it with taking out garbage, etc. Small stuff, but it feels good not to procrastinate."

"I stopped going to Starbucks!"

"Right after Christmas I had close to 3,000 in credit card debt, less than 1,000 in the bank with another 500 in savings and 200 in some Roth IRA I had started 2 years earlier. Six months later, I've paid off all my debt, have 2,000 in the bank, 1,000 in savings and 1,500 in a mutual fund Roth IRA."

For How has the IWillTeachYouToBeRich blog changed your attitudes or behavior about being Rich?, see all 557 responses (opens new window).

My general comments
You are contradictory. Look at these two quotes:

"Go back and delete all the "What's Never Easier Than Now" posts. They read like something on a Hallmark card. Most importantly, they're out of kilter with the sardonic tone often presented in the blog and represent a violation of consistency."

vs.
"I really REALLY liked this past weeks series (and similar ones in the past) "It never gets easier than now."

I found this pattern in tons of responses, and I only expect this polarization to increase as I write more. Somehow, this blog has gotten big enough that when I write something, I get lots and lots of feedback, both positive and negative. In fact, just 10 minutes ago, someone commented on one of my recent posts that it "disappointed" him and that I was losing focus of the blog. And yet, an hour ago, someone sent me the nicest email agreeing with an entire post I'd written. Here's the deal: If I try to be everything to everybody, this blog will start sucking. I'm going to keep my voice and try to post what I find interesting. I'll keep doing surveys to get a broader sense of what you want. But remember: I read every comment and respond to every email. If you have a question, just let me know.

You are smart. Dear god, I have some of the smartest readers online. I know this from reading some of the idiotic knuckleheads on other finance sites, forums, and blogs. In fact, go check out the comments on any typical post of mine--that's often where the most interesting points are, and you'll be shocked by how much intelligent debate is going on. On a few occasions when I've been linked to by other huge sites, you'll quickly notice the quality of comments going down. It's like monkeys invaded iwillteachyoutoberich, and I'm afraid to mock them because they are so rabidly crazy. Anyway, I'm just glad my usual readers are so smart. The downside is that I've had my ass called out more than once when I made a mistake. Why can't you all just be smart, supportive, and deferential?

You want more from other readers. Quite a few of you have asked me to find ways to introduce you all together. I'll be trying to think of different ways to do this.

You want more information than this site can provide. I've never fooled myself into thinking iwillteachyoutoberich.com is the one source of information for young people and personal finance. That's why it confused me when some readers got so mad when I didn't post for a week or so. If I really want to learn about something, I don't only use one source. And if I'm not getting what I need, I take the initiative to find the information myself. I'll do better at this by posting links to other things I read. But please, as much as it hurts me to say it, you should be reading more than just this site. To learn about personal finance when I was getting started, I read books, magazines, web sites, and watched TV shows. As always, diversification is good. And if you do it for a while, you'll learn to spot the BS.

If you really want something fixed, please help! Lots of you are designers, coders, accessibility experts, etc. If you spot something that should be fixed, please let me know if you can help. I've had a few people volunteer to help and I've been thrilled in every single case. In fact, I've been so happy that I've sent some of them consulting gigs afterwards. But more than that, it takes the burden off me and lets me focus on writing.

Most of you don't know about my personal-finance talks. I saw very few comments on my talks. I give 1-hour personal-finance talks to audiences at corporations, universities, and schools anywhere around the country. If you'd like to have me come speak to your group, please visit http://seminars.iwillteachyoutoberich.com. Take the first step and send me an email. If you like my writing, I guarantee you'll like my talk. Seriously, I guarantee it.

You're doing it. This site has somehow become more than just my fun web site for writing things. I still remember when I started this blog: It was after spending about 1.5 years trying to convince people to take my "I Will Teach You To Be Rich" curriculum, to which everyone said "That sounds great!!!" and then would never, ever show up. When I started the blog, I was lucky if I got a few comments. Now, we have people starting retirement accounts, telling friends about how to manage their money, making mistakes (in the good way), and challenging me to learn things I didn't know. As I've always said, you don't have to be the smartest person to be Rich. You just have to get started today. And people have, more than I could have predicted.

Thanks for your feedback. I'm seriously humbled that I've been able to make a small change in anyone's life. If there's one thing you can do for me, it's this: Tell a friend about iwillteachyoutoberich.com. That's it!

Every time I hear someone say "I'm too busy" to do something, a little puppy dies and I want to stab myself in the eye with a katana blade. I don't think people realize how good we have it right now: We're young, we're only responsible for ourselves, and we can do basically anything we want. If you think about the responsibilities we'll have in 20 years--or even 5--you start to appreciate that doing almost anything will never get easier than it is now.

Here are 9 examples:

Saving money is never easier than now. If you don't think you can save 25%+ of your salary today, think about this: You have no one else you're spending on. And while your salary will go up, the increase won't be commensurate with your expenses--unless you start developing habits right now. Let's think about some of the expenses we'll face soon: insurance, a new home, homeowner's insurance, remodeling, moving costs, a car, car insurance, car repair, medical costs, vacations, giving to charity, giving wedding gifts, giving birthday gifts, giving graduation gifts, a babysitter, diapers, baby formula, kids' sports, and, finally, unexpected expenses. As Chris Yeh wrote, "Just this morning, I calculated that our monthly expenses are about 10X what they were when my wife and I were just a single couple living on our own, mostly due to our two bundles of joy." If you think you'll be able to save more in the future than today, you're out of your mind. Read my site, read others, start a budget, and find a way.

Working out. We're in the best natural shape of our lives. There's a school near my place, and when I run, I see older men sweating like Patrick Ewing after only one lap. I scornfully lap those 72-year-old men over and over again. It'll never be easier than today.

Eating fast food. With that said, our metabolism also makes it possible for us to eat the greasiest, most delicious food on earth without causing our thighs (or whatever) to show it. So maybe we shouldn't feel guilty about enjoying that filthy KFC bowl.

Starting your own business. Here are some common reasons people give for not starting one "right now" that make me thankful I am not a dragon (my sigh would ignite them): "I'll just wait until I save a little more money," they say. Or "I just have to learn some more before I do it." Now, most people won't start their own companies and that is perfectly cool. But for those that want to, there's nothing like learning by doing--and if you fail, what's the worst that can happen at our age? You don't lose your house or wife and kids. You go and...get a regular job. You can always go to the corporate world. Going the entrepreneurial route gets harder and harder.

I faced this exact situation when I was graduating from college: Google made me a great offer, the position was a nice fit, and the people there are really smart. Plus, the food is amazing. But I decided to go the startup route (to PBwiki) because I can always go back to the corporate side. The people at Google couldn't have been more supportive.

Just hanging out with friends. It's easier to go out with friends now than it will ever be in the future. Why? Because we all live in the same general area, live similar lifestyles, and have virtually no responsibilities to anyone else. "But Ramit," you might say, "most of my friends live far away." Even if they live on another coast, we have such few external responsibilities that we can take a weekend trip to most places. Also, on my comedy blog (Things I Hate), I wrote about the people in college who get "married" by only hanging out with their boyfriend/girlfriend. What a huge mistake. Your friends aren't all boring and in serious relationships yet. If you have any married friends, have you ever tried hanging out with them? It's like a giraffe trying to find a pair of lost contact lenses. Impossible. We're young, our friends are young, and we're all pretty available to hang.

Doing your own side projects. Holy christ, we have more free time right now than we know what to do with. "But Ramit," you might say, "I work 12 hours a day and then I study for the GMAT and then I build houses in Guatemala on the weekends. You're full of shit." Let's keep it real: We all have lots and lots of time we use for leisure activities--whether it's watching The Hills (Heidi surprised me on Wednesday), working out, or whatever. The question is, can you track what you spend your time on and redirect it to something you care about? Something that will have an impact for the next 5, 10, or 50 years? The answer is yes. And we'll only get busier in the future.

Taking risks in investing and life. I'm going to describe some fears we have about investing, but you can apply this to anything.

Don't worry so much about losing all your money. Don't worry about not having the optimal asset allocation. Don't worry about your friends making more than you. Worry about not getting started. In my 1-hour talks, I ask young people our age about what would happen if we lost all our money right now. After a couple of inevitable gasps, most people admit that it wouldn't really be that bad. Maybe they'd go live at home for a few months, get back on their feet, and go get another job. But what happens when you're 35 with a husband, 2 kids, and a mortgage? Losing most (or all) of your money would be catastrophic. And if you're 65 and spending your money on pills and bingo, losing your money can be a matter of life and death.

To get higher returns, you incur higher risks. And at our age, we have a huge tolerance for risk--even an appetite for it. And if we invest well for the long term, time can mitigate any short-term losses. No, I'm not telling you to lose all your money. You have to get educated and get started (see a list of all my articles). But if you let a fear of losing money deter you from investing, you're losing the best years of compounding to turn a little money into a lot.

Meeting interesting people. You wouldn't believe how many people are willing to meet to share advice and connections. I meet them all the time, and it's not because I'm some fancy guy (I'm not). It's because I'm young and interested. CEOs, VCs, and even small-business proprietors and teachers are so friendly. I think it's because of 3 things: First, people love to talk about themselves, and I'm interested in their story. Second, people love talking to young people, both to share their experience and to stay connected to young people; for example, last week, I taught a business friend what "Benjamins" are. God I loved it. Third, people love knowing that your intentions are pure and that you got in touch to learn, not to inject some corporate agenda. Who knows what could happen if you just asked?

Traveling. You think when you're 30, you'll be able to take a weekend trip to New York, stay out until 5am, then make it back in time for Monday morning? No way. I'm not 30, but aren't most 30-year-olds plagued with arthritic joints and incontinence? Heh, I hope I don't get in trouble for that one. Anyway, traveling to visit (or live) in other places is unbelievably easy right now. To visit, it costs about $200 roundtrip to anywhere in country. To live, we pick a place, get a job, and it's done. We have no one to answer to, and imagine the amount you can learn by living somewhere else.

Living in situations your parents would abhor. As we get older, we naturally demand a more comfortable living situation. When we travel abroad, for example, we can stay in hostels with no problem. When older people travel, they need a hotel. In college, we lived in like 150 square feet with 2 other people. Older people measure their homes in the thousands of square feet, and they have things like "dens" and "islands" in their "kitchen." (Funny thing: You should have seen some of the parents' horrified faces when they visited Stanford, where the dorms are actually really nice. And then to buy sheets ("linens" to them) at Target? Oh my god!) Ok, that went off on a huge tangent, but the point is that we can live in a way that older people cannot. So whether that's saving on rent by living in a cheaper place, or driving your 10-year-old car, or just realizing you don't need that much...it's never easier than it is now.

---

Next week, I'm going to feature some interesting people and their examples of things that are easiest to do now. Monday starts off with Seth Godin.

But for now, think about it. Is this going to be just another blog article you read and then go on with your day? Or can you think of something concrete, right now, that you want to do because it's easier now than it will ever be?

PS--If you liked this article, check out my table of contents, RSS feed, and newsletter.

This might be an odd topic, but I've been to 2 friends' weddings in the last 3 weeks and all of a sudden I'm thinking of weird stuff. Anyway, I was watching Suze Orman's show the other day (I love it) and two separate people called in asking about how to get out debt; they were drowning in bills from credit-card companies and car loans. Yet both of them were dutifully saving money towards their children's college education.

This made me do two things: First, I took my burrito and almost hurled it at the TV. But I had covered it in a wonderful blend of 3 hot sauces so it was too delectable to let go. Also, it made me think about what I'm going to do for my kids' education.

No, I don't have kids and probably won't for a while. But I think there are some interesting philosophical decisions behind how we treat money and our kids. It seems like the common American sentiment is, "Of course I'll pay for my children's education if I can." I'm not sure it's so simple, though. Maybe some parents can weigh in the comments, too.

First, let's distinguish between if you can pay and if you can't: The people on Suze's show were wrong. They should have been taking the money for their kids' education and using it to pay off their high-interest debt. Being financially responsible means being able to take care of yourself in old age. So if you can't afford to save money for your kids, then this is a simple question! The 1st category of people, then, are those who can't afford to help their children with educational expenses.

Then there are the people who can afford to help with all of their children's education--and they do so. They cover it entirely. This is the 2nd category.

The third category is the one that interests me. It's somewhere in between--maybe the parents are middle class and can contribute a little towards it. Maybe the parents are wealthy but want to teach their kids the responsibility of paying for part of their education.

Lessons from Stanford
Maybe it's my ignorance, but by the time my kids go to college, I expect to be able to pay for them (don't we all?). Let's just assume that's true for now. What will I do?

I was thinking back to my time at Stanford. Ok, so contrary to popular belief, Stanford students are not a bunch of rich kids driving BMWs around and flaunting their wealth. That's USC. Yes, there are lots and lots of students from wealthy families but, interestingly, it's pretty hard to tell from just looking at the student body: Everybody wears similar clothes and, somehow, the culture has developed so it's just not cool to flaunt wealth. I felt right at home eating buffalo wings for dinner.

But one thing struck me: Most of my friends had parents who were contributing 100% of their educational expenses. It wasn't an anomaly--it was extremely common. Now, part of this is understandable: With a price tag of $47,011 per year, hardly anybody could be expected to shoulder it themselves. And over half of Stanford students receive some kind of financial aid. But (at least from my anecdotal observations), it was almost always paid for by parents. And what interesting is that a lot of the students couldn't imagine it any other way.

Stanford is an anomaly--that's not how it is at most other colleges. In fact, "The average college senior graduated [in 2006] with more than $19,000 in debt" (more from USA Today). And from talking to my friends at other schools, many of them are paying for it themselves.

This disparity between Stanford students and others made me realize 2 things:
1. We take the cultural assumptions around us for granted, assuming that if it's true for our friends, it must be true for everyone. There's a psych term for this, but I can't remember. Anyone?
2. I don't know what I'll do for my kids' education

1 of 4
The idea of "if you could afford to pay for your kids' education, why wouldn't you?" is pretty compelling. And just because lots of people have their parents pay for their education doesn't make them irresponsible, nor does paying for your own education necessarily make you responsible. But then I think about my family and get a different perspective.

I was 1 of 4 kids in my family, and we're middle class. I think back to how many activities we were all involved in and I can't imagine how my parents had the time to take us everywhere--or the money. That's why when college time came around, our parents told us plainly that we'd have to get scholarships to afford it. So we did. My mom and dad taught us to worry about money last--"First, get in, then the money will take care of itself," they always said. And when college-application time came around, we each applied to dozens of scholarships.

This strategy ("wait and it'll work out") is plainly opposite of the stuff I talk about on this site. I write about planning, investing for the long-term, making a budget, and more. But my parents' strategy (if you can call it that) worked, too. By the time we all finish our education, the retail price tag will top well over $1 million, but we won't have paid nearly that. Our parents helped out where they could, but we used scholarships and grants and loans to cover the rest.

"I walked to work, through the snow, uphill..."
Assuming that I will have enough to completely cover my kids' educational expenses, will I? At this point, I'm thinking...probably not. Honestly, I think part of it may be for the same reason as your parents say, "When I was your age, I walked 15 miles to work, in the snow, uphill..." Maybe I think that earning scholarships, grants, and even taking on loans makes us a little more responsible. This isn't saying I'll stick them with all the bills, but maybe some (most?).

With that said, I don't claim to understand how I'll feel as a parent. God knows I still have a lot to learn about kids. The other day, I was at a BBQ and I turned around from talking to someone and knocked this infant over. Seriously, though, do you look at your feet wherever you're walking? I felt bad and apparently so did the little boy, because he immediately started crying (of course). As I bent over to pick him up, every single person at the BBQ stopped to look at us: the shrieking child and the confused, rapidly retreating guy. Not knowing what to do, I tried to give him watermelon to quiet him down, but he just preferred to cry. Perhaps I met my match in persuasion on that fateful day.

Anyway, clearly I still have a lot to learn.

But I'm still kind of unsure what I'll do. From a strictly financial perspective, in a few years I might want to start saving money for my kids' education. That would be the smart thing to do. But my own experience growing up tells me, hey, assuming limited resources that we all have, maybe I should focus them on today and help guide them with scholarships and other ways of funding later on down the line.

Are the two mutually exclusive? Is this a case of the best decision vs. the financially smart one? I don't know. But just like when I wrote that buying a used car isn't the only smart choice, I've realized that this seemingly common sentiment of "We must save for our kids' education!" isn't the only way to go. So maybe the big takeaway for me is that, hey, if you have a very salient personal experience with something, then no matter what the objective personal-finance advice is, your decisions will be colored with that experience. This is the availability heuristic at work.

Parents, I'd be interested to hear what your thoughts are.

One of my friends pointed something out that I thought was pretty interesting: Things change once you graduate and start earning money, but sometimes our mindset doesn't change as fast.

A little while ago, a bunch of us got invited to a birthday dinner for one of my friends. Someone had planned it and invited us, and of course we all checked out the restaurant URL in the email. "Oh man," a few of us said, because the entrees were about $25-$30 each.

To put it in context, that's expensive, but not that expensive for a nice place in the Bay Area. The thing was, we all just thought, "that's a little expensive for a birthday dinner." Why? It wasn't a rational objection, since we do dinners out like that once in a while. I guess for me, it was the thought that, 'hey, this could be expensive for a lot of people that are obligated to come because it's a birthday dinner.'

Another friend and I were talking about this, and she gave me a different perspective. "We have to realize that people earn money now," she said. "We're not college students any more. It's ok to spend money on some things."

I hadn't thought of it that way before. Things have changed--most of my friends have great jobs and $30 or $40 isn't a huge hardship. Yet a bunch of us (myself included) are still in the college mindset sometimes. That's good for a lot of things, but not everything.

But after she pointed this out, I thought, hey, she's right--it's ok for a birthday dinner. On the other hand, who cares what I think? It's not really my perspective that's important, but the person's for whom a $40 dinner isn't feasible. So I'm trying to reconcile these 2 ideas.

Of course, my friend isn't saying that we should do these dinners every day. But her point--that when you're earning money, it's ok to pay for certain things--is something I agree on, and it took her pointing it out to really realize it.

I'll write more on this later, but this occurred to me yesterday when I paid a little extra for something I wanted done just right.

A couple years ago, I lived in New York for a while when I was doing a summer internship. While I was there, I decided not to open a bank account because it would take time, blah blah blah. So I just used those ATMs and ate the $3.00 charges ($1.50 from my bank, $1.50 from the ATM) each time. It was a revolting feeling but I didn't think it was worth it to open a bank account just for a couple of months.

Now I feel dumb. I was just talking to my friend, who recently moved to New York in the same situation as I was: She'll be there for a few months and didn't want to open a bank account, but instead of just shrugging and saying "Damn that" she actually called her bank. She just asked them if they would waive the ATM fees while she was there. "No problem," they said, and she's going to save $100+ just for making a phone call.

I've written about how to negotiate out of bank fees before. But I didn't even think of this!

Update: Welcome Lifehacker readers! If it's your first time here, check out my table of contents. If you like what you read, subscribe to my newsletter (free, sent out every 4-6 weeks, no spam, etc).

One of my friends called me yesterday and told me she had no credit card, so could she borrow mine to make some purchase? This is the equivalent to one of Dr. Koop's friends being morbidly obese because of only eating butter. Imagine how angry it made me!!! Anyway, I told her to get a credit card and start building her credit (more about that here), but she said that she has no income so she can't get a credit card.

There's an easy way around that: Get a secured credit card! These are credit cards where you put down a few hundred bucks in a savings account, and the bank uses that as collateral to issue you credit. After a few months, you can graduate to a regular ("unsecured") credit card. To get one, call your bank and ask about it.

More about secured credit cards here.

The financially smart decision isn't always the right one. When I say this, it usually irritates engineers and economists, who love to believe that we all behave rationally. This just makes me even more gleeful, resulting in an upward spiral of doom. Seriously, I love messing with them.

Anyway, my friend told me an interesting story the other day: After graduating, he had about $12,000 of debt from college loans at a ~4% interest rate. He also had a good job and about $15,000 lying around in a money-market account. Now, because his interest rate was so low, technically the financially smart decision would be to invest that $15k and pay the minimum monthly payments on his loan, profiting off of the difference. In other words, assuming he could get a 10% return on his investment, he would make approximately 6% (i.e., 10%-6%) because his loan's interest rate is lower than the returns he could theoretically get. Yes, I'm leaving out trading fees/taxes/risk/etc, but you get the point. If he went by the book, he should have invested the money and paid off his debt slowly.

But he didn't do that. He paid the loan off entirely, all at once, despite my loud protests. Why? Because he hates debt. Like really, really hates it.

When I first heard this, I wanted to hit him with a bat, attach him to a long string, push him out of a plane, and then instruct the pilot do to 25 or 50 lazy loops in the sky. I would also make him wear one of those striped propeller hats, just for fun.

But I realized that he made the best decision for himself, even though it wasn't necessarily the financially smart decision. Even though he technically should have made monthly payments, he hates having any debt and it would have been intolerable for him. (You know how certain people act badly with debt? They forget to pay it off, it makes them really uncomfortable, etc? That's him.) His move isn't the right move for most people, but there's a larger point behind it: There are some things with money--e.g., having debt, lending to friends, having money sitting in our checking account--that drive us so crazy that we start doing weird things. The question is, can we recognize it? And then what do we do? My friend was smart to recognize that having debt drove him crazy, and he did something about it. It wasn't the textbook move, but it was probably the right one.

Another friend of mine has had to borrow small amounts of money from her family a couple times in the last few years. Technically, when she paid it back, she should have calculated the time/interest rate and paid back the precise amount. Instead, she just paid back the amount plus $100. There's more to life than interest rates.

"But Ramit," anal calculation-loving dorks might point out, "you always talk about budgeting and making smart financial decisions. If she only owed $15 interest and she paid $100, she made a mistake. And now you're writing an article to try to justify what she did!"

printf("get a life dude");

The truth is that your money decisions should (1) get you closer to being Rich and (2) make you feel increasingly confident and comfortable about what you're doing. The minute your financial infrastructure starts making you feel oppressed is the minute you start ignoring it. No, don't be stupid and use this as an excuse to do dumb things ("It makes me comfortable to buy this new $2000 flatscreen TV, so I'll do it! Thanks Ramit!!!"). But if it makes you feel really happy, go ahead and hide $20 in your coat pocket for next season. If having debt absolutely, truly makes you go crazy and do stupid things, you don't always have to go by the book.

Think big picture. What could you do today to make you less hesitant about managing your money for the long term?

I flew to NYC to hang out with some friends this weekend. While we were out one night, my friend Kimen introduced me to one of her friends. We're both bloggers, so we started having a nerdy conversation about readers, comments, etc. Then, when she found out I write about personal finance, we started talking about money.

I found our conversation totally fascinating.

She makes $80,000 a year. She did her taxes last week and just discovered how much money she really has: $245 in savings and $8,000 in credit-card debt.

Don't gasp or laugh. From the thousands of people I've talked to through this site and around the country, it's very, very typical.

What was really interesting was how perceptive she was. I asked her how come, and she said this:

"I live in New York and I go out all the time. Every time my friends and I go out, I usually buy a few rounds of drinks and dinner. (Points to a group of friends we're all out with): I might even buy all the drinks tonight."

This is the kind of thing you can easily dismiss as someone who's just out of control, but I really urge you not to. I asked her why she did that, and she continued:

"I have a great job and I just always figured that I could. I was the kind of girl who bought everyone dinner because I could afford it."

Becoming Rich isn't just about rational choices and saving and investing. It's about emotions. It's about feeling like part of a group because you spend money. It's about getting into a role with your money, finding it hard to change, and finding that spark that makes you think hard about what you're doing. It's about changing your spending behavior into something you admire about yourself.

Don't dismiss this girl. She's smart and eloquent and more self-aware than most people I know. There is something singularly interesting here to learn from, and I hope she does--and so do we.

Michael Jackson pays a lot of interest on his credit card.

Originally, they had tried to hammer out a deal in which Citigroup would acquire the loans, and offer Mr. Jackson a more favorable interest rate, around 6 percent, these executives said. Mr. Jackson had been paying more than 20 percent in monthly interest payments.

Erick Schonfeld does the math and notes, "That comes to about $50 million a year just in interest."

Good god.

Heh, I wonder if it's as simple as taking my advice to call Bank of America, smile, and ask them to lower his interest rate. "Hi, yes, Nicole is it? Nicole, I'd like to have my interest rate lowered please" (expectant pause).

...I guess maybe my advice doesn't work once your interest payments alone are FIFTY FOUR MILLION DOLLARS!!!!!!!!

I'm paying off my credit card bill online right now, and the amount is $1,473. The minimum payment is only $22.00. In other words, I only have to pay 1.5% of what I owe right now. How sweet of you, Citibank!!

That is so ridiculous. If you only paid the monthly minimum, can you guess how long it would take to pay that off with 15% interest, and how much it would end up costing?

Interesting:

The Chinese government announced plans on Wednesday to increase existing taxes and impose new ones on April 1 for everything from gas-guzzling vehicles to chopsticks in a move to rein in rising use of energy and timber and the widening gap between rich and poor.

New or higher taxes will fall on vehicles with engines larger than two liters, disposable wooden chopsticks, planks for wood floors, luxury watches, golf clubs, golf balls and certain oil products.

[...]

The finance ministry is imposing a 5 percent tax on chopsticks and floor planks, citing a need to conserve timber.

Ok, a couple of things. First of all, how the hell do you use chopsticks? I've tried for years to learn how and I think I am just a moron.

Second, compare the behavior of the Chinese government with the US, where personal consumption makes up 70% of GDP (in China, it's 42%).

So governments restrict spending on items, but what about regular people? What if you put a tax on your own luxury spending? Something like "for every $1 I spend on shoes, I'm going to add $1 to my savings account." Is that too weird?

Happy Friday. Today I thought it'd be fun to put down all the stuff we hate spending money on. Now, I'm perfectly willing to spend lots of money on stuff I love, but not these things (below). Check some of mine out and add your own comments.

Dry cleaning. What kind of damn service cleans things without using water? I still don't understand how this works. All I understand is that it's outrageously expensive to clean things, and it just looks like they used a lint roller and a sheet of Bounce to make my sweaters look smooth and smell nice. Also, I hate people who think they have to dry clean things THAT DON'T NEED DRY CLEANING, or dryclean all the time.

Expensive restaurants that leave you completely unsatisfied. These are the foofy places that serve you 1 eggroll (split in 2) and call it an appetizer. That's a tease, not an appetizer, you jackass manager. Also, there are usually a lot of old people in these kinds of restaurants. Maybe it's because they can afford to pay 100% for 1/6 of a meal. Give me some Taco Bell, please.

Books that are not good.

Shoes that look like regular shoes but cost $200. I was shopping with 2 friends in San Francisco last weekend (1 guy and 1 girl) and the girl decided to go shoe shopping. My friend and I just sat down, facing a wall and hoping to die. Anyway, it turns out that we were facing a wall of Coach shoes. So when the girl ambled over about 20 minutes later (kill me), I pointed out this pair of shoes to her. "Look at this shoe," I said, "it looks so trashy! It's just a regular pair of Keds, and it's $78.00 just because it's Coach. I could get the same shoe at Payless for $7.99. Give me a break!!!" Little did I notice the woman sitting directly to my left, about 2 feet away, who was currently getting some shoes brought to her. Which shoes were they? Of course--the trashy ones I had pointed out. Great. And of course my jackass friends knew exactly what I had done, and they forced me to sit there awkwardly for 10 more minutes. I hate them. I would have done the same thing to them, though.

Organic groceries. Whole Foods. All the BS foods that are designed to make you feel better about yourself rather than actually feeding you. STOP WITH THE LOW SELF-ESTEEM AND JUST GET SOME NORMAL CARROTS.

Anything more than $5 for parking. A few years ago, I had an interview with a hedge fund and they told me to come to San Francisco and park in this lot, etc. So I did, and the interview lasted the whole day. At the end of the day, every single company will give you vouchers to cover any expenses you incurred during the interview. (You shouldn't be losing money interviewing for a company.) Anyway, they were all "Have a nice day!" so I politely asked about a voucher for my parking, which (remember) they had told me to park in. The lady looked completely surprised and said, "Uhh, let me check on that" and disappeared into a back room. About 3 minutes later she came out and said, "Sorry, we don't do that." REMEMBER, THIS WAS A MULTI-BILLION-DOLLAR HEDGE FUND that couldn't validate my parking. It turned out to be $27.00. On that fateful day, I vowed that if I accepted the offer, I would negotiate at least $27 into my signing bonus.

The price of food at athletic events. I suppose that since I never go to athletic events, this is a decidedly theoretical argument.

Maintenance on stuff you already spent a lot on. Examples: cameras, washing machines, and I guess dry cleaning.

Food like bananas that ALWAYS seems to go bad when you're a single person. Now, when I buy groceries, I just start immediately eating them in a race against time. It's like I'll be in the car on the way home and I have an apple in my mouth, I'm polishing a pear in one hand, and opening a package of strawberries in the other.

1-hour photo. I hated this enough to write an entire article about it.

Laundromats, which are seriously expensive.

Gym signup fees. If anyone on this site doesn't negotiate their gym memberships (THEY ARE COMPLETELY NEGOTIABLE), I am going to hit you.

There are so many more!!!!!!!!! But for now, add your own to the comments and let's get this going.

Related:

• Things I Hate, my comedy blog that is much, much more expansive than this list
  
• My thoughts on being cheap vs. frugal
  
• Things that are irrational but worth it

I still hear people saying "I can't compete against professional investors...they're pros and I'm just a little guy." Wrong. I am going to hammer this in 1 billion times: It's not about being the smartest person or knowing insider investment information. Take Erik, for example, who's doing it with just a little discipline and common sense.

He writes:

My fiance and I got engaged in May 2005. We decided to get married on Sept. 17 2006 and made the decision to pay for it ourselves, and not go into debt doing so. This was not an easy task - we bought our first home a few months prior to getting engaged and at the time I was working full-time while and my fiance was only working seasonal jobs.

We looked at our expenses for two months and saw where money was going. Then my fiance started what she called the "cash diet". At the beginning of every month, we'd withdraw an amount of money enough to cover groceries, gasoline, eating out, and miscellanious expenses that came up. The money was placed into seperate envelopes and stayed at a central location in our house, so we could not spend the cash on whim while we were out. In order to spend money on something, we'd have to plan ahead so we had it with us. Our bills would just be paid online as we recieved them, and nothing would go on credit cards. Through this cash diet, we estimated we could save at least $700 a month.

Amazingly this change of perspective worked. Our first month we saved over $1000, despite having some expenses that we did not expect. More importantly we felt like we were actually SAVING, and not living paycheck to paycheck. We don't feel like we are giving up any luxuries and the peace of mind is great.

The cash diet worked so great in fact, that by the end of the month we'll have enough in the bank to pay for the wedding. We've decided to keep on the diet. Hopefully this will save us enough to go on a honeymoon and after that - who knows?

Secondly, far too many people think they need to have a new car every 2 years. I drive an 11 year old Geo Metro that I got FOR FREE - someone just gave it to me. Since I do my own repair work, it's really cheap to maintain and drive. It's really reliable and have never done anything more than routine maintainance on it.

A friend of mine was poking fun at me, trying to get me to ditch the car and get a brand new one. He was particulary amused by one of my mirrors, which I had broken off accidently when I was carrying a ladder. It had only been a few days since that happened and I did not have a replacement yet, all I did was strap it down with some twine to hold it in place temporarily.

I asked him how much he paid, per month, for his car. $350. I told him that for what he pays in one month on his new car, I could buy a new mirror, new floor mats, new seat covers, oil change, and still have money left over to go to a few nice dinners. This car's function is to get me from point A to point B and as soon as it can no longer do that safely and reliably, I'll get rid of it. (But I'll replace it with another used car).

I get a lot of laughs out my old car, but the one who laughs loudest is me... all the way to the bank.

"Even billionaires need to budget."

That quote is one of my favorites from yesterday's SF Chronicle article on Larry Ellison's spending. His accountant actually wrote him an email in 2002 telling him he needed to cut his spending and start to budget. Him. A billionaire. I love it.

Other great quotes:

If you were to look in the textbook for how a financial plan should work, this would be in chapter one under, 'Never do this,' said Cynthia Harrington.

[...]

At the bottom of a document that detailed Ellison's 2000 debt load, Simon had scrawled a rough accounting of Ellison's lavish spending, according to deposition testimony:

1) Life Style -- annual $20m
2) Interest Accrual -- annual $75m
3) Villa in Japan -- $25m
4) New Yacht -- $194m -- over 3 yrs
5) America's Cup -- $80m -- over 3 yrs
6) UAD -- 12m over 3 yrs.

Read the Chronicle article.

See the actual email from Ellison's accountant.

Start your own budget.

A little holiday secret: The cheapest place to get magazines is on eBay. It's almost shockingly cheap--you can get 3 years of a magazine for less than $5.

For yourself, for gifts, whatever...subscriptions are cool because they keep on giving, especially to people who don't get anything in the mail.

How are these subscriptions so cheap and who are the sellers? Some are resellers, some are bulk distributors, some I don't know. Just check their rating and bid with reputable people. I have had great experiences in the past. And these deals are incredible--here are just a few you can get right now:

• MAXIM Regular subscription price: 12 issues for $12
  eBay price: 36 issues for $2.75

• TIME MAGAZINE
  Regular subscription price: 1 year for $29.95
  eBay price: 1 year for $12.99

• VOGUE
  Regular subscription: 1 year for $18
  eBay price: 1 year for $8.99

Tell your friends!

In the last few months, there have been 89235932153 articles about why hybrid cars are the best because gas is so expensive and they save you lots of money.

So I'm digging out an article from the IWillTeachYouToBeRich archives today:

Hybrid cars don't save you money. Do the math!

I was in New York for a few days, so back to regular posting.

I ran across this blog entry yesterday, which is pretty thought-provoking:

Ramit Sethi's otherwise-great site I Will Teach You to Be Rich is a classic example of rich-person thinking; he assumes that people in their 20s can afford to take risks in their investments, because if worst comes to worst, we can just move in with our parents. Can all of us who have studiously avoided burdening our parents for the last 5-10 years laugh uproariously together?

The whole article has more thinking: "on becoming a capitalist pig."

She's right, I do think that. But is that wrong?

What do you think?

This is a guest post by Michael Squier.

In the next 5 minutes, I will save you tens of thousands of dollars.

This should be a no brainier, but I’m sure many of you will be disappointed when you find that I’m not talking about a stock pick, or a magic money mutual fund. It’s something that actually exists; it’s your FICO score. If you don’t know what I’m referring to, think it has something to do with sports, or are just plain scared to discuss this topic; read on. Your FICO score is your credit rating and it can make and save you money. There are a few simple tips you need know to take control of your credit score, show it whose boss, and ultimately save you tens of thousands of dollars.

The Stats
The average American’s FICO score is 686. Scores range from 350-850 (citations; more on this later). The average credit card debt is $8,400, with an average interest rate of 13.15%. It takes between 22-24 years to pay this debt off.

Lifelong Grade
If you are reading this article it is my guess that you are striving to be anything but average. I want you to think of your FICO score as a lifelong grade, and even though “C’s get degrees” they will not make you rich. Since you are able to read, I can also surmise that you have gone to school and are able to remember grading scales. I want you to consider your FICO score as a grading scale that will stay with you for the rest of your life. This is your lifelong grading scale.

FICO scores range from 350-850.
780 above = A+
720 - 779 = A-
680 - 719 = B
620 - 679= C
550 - 619 = D
549 below = F

Leading the Curve
The good news is, there is no homework needed to improve your score. There are many different ways to improve your score, but we are going to focus on the major 3. I promise this will not require a finance degree.

1. Make your payments on time. Baring a major catastrophe, you should not spend more than you can afford. If you cannot pay off your credit cards each month, then you are spending too much money. That’s the bottom line. If right now you can’t afford to pay off the full amount, make sure you make your minimum payments each month on time. Lenders report to the three credit bureaus (Transunion, Experian, Equifax) each month. What they are reporting is your ability to pay back your loan, and to pay it on time. If you pay on time, your scores go up. If you pay late, your scores go down. Simple.

2. If you do carry a balance, try to keep your balance less than 40% of your high credit limit. For example, if your credit card limit is $1000, you want to keep your monthly balance under $400. The higher the monthly balance carried on your loans, the more it appears as though you are unable to pay off your debts. Would you lend money to a friend who owed a large amount of money to two other friends? Many lenders won’t either. The higher the carried balance, the more risky you become. The more risky you become, the more expensive your cost of money in the form of higher interest rates. Simple.

3. Don’t close old credit cards; pay them down. This may be different from what you have heard in the past. There are two reasons why you should keep your cards open. The first is that the credit bureaus want to see a long history of on time payments. If you close down that card, then the payment history is erased. Second, if you close your cards then you will affect your overall credit ratio negatively. We discussed this in the last paragraph. If you carry two credit cards with $1000 balance, your total available credit is $2000. Let’s assume one card has a $300 monthly balance and the other has a $500 monthly balance. Your carried balance would look like this: $300 + $500 = $800 monthly balance. $800/$2000 high balance = 40%. If you close down the $300 credit card your equation changes: $500/$1000 = 50%. Your risk has just gone up, which negatively affects your credit score. Pay those cards down. Keep your history for future lenders to view. This will improve your score. Simple.

Let’s assume you have followed through on the last three tips, and your credit scores have gone through the roof. You are earning an ‘A+’ on the FICO grade scale. One of the first things you will notice is a change in your mail. Instead of receiving collection company mail, you will start to receive love letters from an unlikely source, lenders. Credit cards will offer you 0% to transfer your balances or to open a card. Car dealers will give you 0% for a new car purchase. If you own a home, banks will offer you interest rates below prime on home equity loans. Money will be thrown at you.

Interest rates are directly related to risk. Having a high grade let’s potential lenders know that you are a low risk. Your low risk is rewarded with low rates. You become valuable. Your ability to leverage money has increased, and your ability to finish rich has taken a turn for the better.

If you are still not convinced that the past 5 minutes have been worth your time, let me give you one last dramatic example. Let’s look at what will most likely be the largest purchase you will ever make, your house. Let’s compare ‘Jack A.’ vs. ‘Jack F.’, and control every other variable that goes into qualifying for a loan, other than FICO score.

Jack F:

Jack A:

Over the life of the loan, Jack A. will save $181,109.25. Tens of thousands of dollars! Simple.

• Michael Squier, the author, is a professional in the world of Real Estate Finance, but he’s much happier drinking wine with his fiancée Rebecca. You can reach him by email with any questions or comments at mpsquier@aol.com.
• Some sites for further information:
  http://www.bankrate.com
  http://www.annualcreditreport.com
  http://www.experian.com
  http://www.transunion.com
  http://www.equifax.com

Bank of America has a great new idea out.

Keep the Change:

Every time you buy something with a Bank of America Visa® debit card, we'll round up your purchase to the nearest dollar amount and transfer the difference from your checking to your savings account free of charge.

In other words, if your coffee costs $3.57, you'll pay $4.00 and they'll put the $0.43 in your savings account for you. It's not much, but it's a good start and it adds up.

Why didn't I think of this?

Link via Signals vs. Noise (see their discussion of Keep the Change)

Update: Dale points out why I am wrong in the comments.

HAHA:

Need to save some money? Here are some Ideas (from Everybody Loves Your Money).

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.

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

• Checking account: This is like the inbox of my financial infrastructure--it's where I deposit everything first, then sort it out. My checking account earns no interest, so I move it stuff out of here regularly.
  
• Savings account: I hardly use this account. It's only for short-term money that I will need in less than a month. For example, if I'm subletting a place out and have a security deposit that I'll refund in a month, I'll move it here. Or if I bet someone and the bet comes due in a month, I might keep it here. The downside of this account: The interest rate sucks (it's only 0.50%). Upside: You can transfer money between Wells Fargo checking/savings accounts in less than 24 hours.

2. ING Direct

• Savings account: I opened an ING account because the interest rates are ridiculous: 3.30% 4.35%.. It's a normal savings account, FDIC insured, all that. The only difference is that you do your banking online (transferring back and forth, to other accounts, etc). If I need to transfer to or from it, it takes a few days (but is free).

  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

• Investing accounts: These include a couple of different stock accounts and a Roth IRA. This is where all my long-term money goes!

  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.

Here's a trick whenever I make some unexpected money.

I've had a lot going on lately, so I've been having to transfer money to a bunch of different accounts. Sometimes I'll "borrow" from one of my accounts and promise to pay it back to myself, etc.

Anyway, I made some unplanned money in the last couple of weeks, which was basically exactly the amount I needed to pay back one of my self-loans.

I have detested bottled water since their popularity in the late 90s, when people started walking around with bottles as if they couldn't find potable water WITHIN WALKING DISTANCE OF ANYWHERE. Now I have some data to back up my disgust:

Ounce for ounce, it costs more than gasoline, even at today's high gasoline prices; depending on the brand, it costs 250 to 10,000 times more than tap water. Globally, bottled water is now a $46 billion industry.

Read the full NYTimes article (via This is Broken)
UPDATE: CBS News has a good article on this topic

PS--I'm back from vacation

Pretend last week was an average week for you. How much did you spend? Seriously...take a second.

Ok. Whatever you just said, sorry, but you're wrong. And there's a reason for that. We're cognitively not wired to properly amortize our spending over long periods of time. See, you didn't properly take into account the $500 you spent on Christmas gifts, or the 2-week vacation you took at home when you spend nothing at all.

It's really hard to do it. That's why I use technology to help. You can use whatever you want, but the basic thing is that without knowing concretely what you're spending, you can't really expect to save much.

• Why/how to keep a budget
• Another way to keep a budget
• What to do if you spend way more than you budgeted
• Guess how much your subscriptions cost? and the followup article.

There are some others you can check out in the Saving category (see other categories on the right side of this page).

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!

Here's an email I just got. It's a good one. Instead of just trying to answer it myself, I thought I would put it on IWillTeachYouToBeRich and see what other people think. Let's try to get a few good responses up here.

A few weeks ago, one of my friends IMd me to ask what she should do with her money. She typed like 15 lines of detailed financial questions, background information, and intricate questions, and then waited for my answer. I thought it would be fun to mess around with her so I waited a few seconds and then asked her this:

"Do you think my hair is pretty?"

Man, nothing makes me happier than aggravating the people around me. In all seriousness, though, when I read what she wrote, I told her I thought her plan was exactly the wrong thing to do. Since then, I've had 4 more people propose the same thing. They were wrong, too.

Ok, I've gotten some heat for this idea, but I don't care. I'm tired of hearing people bragging about their credit card's low interest rate. Here's why I don't care whether it's 5% or 80%.

Terri Cullen, who previously covered IWillTeachYouToBeRich in the Wall Street Journal, writes a great new column on making time to manage your finances:

If, when eating dinner with friends, you pay for the bill with your credit card and your friends give you cash, don't do what I do. Don't think "Wow! $50 extra cash in my wallet!"

NO!!! Put it in the bank!!

I just checked my statement and I have like 5 charges of $50, $64, $25, etc. Then, like in a movie, my mouth agape, I opened my wallet and saw...one $1 bill. Great.

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.

Nice article by Money Magazine about the 50 smartest things you can do with your money: http://money.cnn.com/magazine/investing/smartest/

Some good stuff there.

I'm a big fan of saving as much as possible and creating a lean budget, but even I realize that saving can only do so much. But just today I realized...

Ever wonder how to raise your kids if you have money? Here's tomorrow's WSJ personal-finance article--and a question for you.

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.

A lot of people are really cheap. They'd rather not spend $1 than spend $1 knowing they'll make $5 back. That's not smart. On the other hand, smart people know they should treat certain expenses as investments, not discretionary spending. Another way to look at is that it's ok (even preferred) to spend money on anything where you'll make a return on it.

Companies do this--even troubled ones. Check out Sun Microsystems, which has had a very tough time in the last 5 years. But even Sun knows enough to protect its R&D (3rd paragraph) and think long term, not just cut all spending.

A little while ago, I wrote an article about the unbelievable amount we spend on subscriptions every month.

• $30/month for Internet
  
• $50/month for cell phone
  
• $40/month for cable TV
  

Nobody should want to be rich just for the money. Here's a great quote from Tim Sanders in his new book, The Likeability Factor.

Success has been redefined. My grandmother, a product of the Great Depression, raised me to value a lifetime of financial security in which I would never lose my home and could afford to send my kids to college, drive a nice car, and enjoy an occasional steak. For the most part, financial security meant being able to maintain one's lifestyle without worrying about going broke.

Today our goal isn't financial security -- we want financial freedom. Freedom from what? Freedom from facing ugly choices in life. Freedom from working on projects that make us feel sick. Most of all, freedom from working with people we hate.

More on the Things I Hate.

Thanks to Ian for the link!

Of all the auto-related economy moves, premium vs regular gas is one of the least important!
--Jonathan S.

A little while ago, Jonathan sent me a long email telling me why he disagreed with me. We went back and forth, but one his points really stuck with me--saving on little things may help you feel better, but it often does nothing to really grow your money. So today, I wrote a little story about saving. Do you think I should consider a career in fiction?

Don’t lie to me, you hybrid lover.

If you buy a hybrid car, say you’re doing it for the environment. Say you’re doing it to be cool like some tree-hugging celebrities you read about in US Weekly. Hell, say it because you can get it in a cool color (I actually heard this “reason” recently). But don’t say you’re doing it for your pocketbook. Don’t lie to me. More important, don’t lie to yourself.

Here's a great Frontline documentary by PBS:

Secret History of the Credit Card

My buddy David wrote me to tell me he thinks my advice about developing good habits from early is wrong (original article: Good Habits Early On--> Rich). Take a look at his note below and let me know what you think!

When you think about it, opening up an investment account, monitoring your credit cards, and tracking your spending is a pretty big hassle.

But I want to give you an example of why it's important to get the right habits now, while you're young:

Some dumb things I have heard recently:

"I don't have any money right now...I'll invest money later"
"I'm not even thinking about retirement"
" " (no opinion of investing at all, the worst possible situation)

I've written about making your money earn money for you before. The key to being rich isn't picking the most sophisticated, tax-sheltered investment or doing fancy real-estate deals. The easiest way to get rich is to start early--even with little amounts of money. Check out the 20-second simulation with pretty pictures (from Vanguard). Click to play:

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?

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?

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:

I've written about the importance of creating a budget before. But I just got an email with another idea:

Regarding savings and expenses - there's an easier way to manage. Most people have trouble keeping track of expenses. The easier way? Just decide how much you want to save each month and automatically transfer that into savings then spend the rest. No need for complex expense management.

Phil

It's still a good idea to know exactly how your spending is breaking down, but this is a great first step to saving money. I really like his idea of saving first, then spending what's left.

I've written about the importance of creating a budget before. But I just got an email with another idea:

Regarding savings and expenses - there's an easier way to manage. Most people have trouble keeping track of expenses. The easier way? Just decide how much you want to save each month and automatically transfer that into savings then spend the rest. No need for complex expense management.

Phil

It's still a good idea to know exactly how your spending is breaking down, but this is a great first step to saving money. I really like his idea of saving first, then spending what's left.

Just got back from New York yesterday. I was there visiting friends, partying, and doing some business. I had some especially memorable times, including eating 10 slices of pizza in 4 days, getting utterly shut down by some women, and wondering how the hell my investment banking friends work until 1 AM EVERY DAY OF THE WEEK.

Anyway, I also completely overspent my budget. I had withdrawn a little bit over $300 and ended up spending more than double that. Oops.

So what do you do when you blow your budget for a special occasion?

CNN Money has a great article called "8 credit score myths."

I'm tired of people saying "time is money." No, it's not--especially not yours.

Your subscriptions cost way more than you think--especially media subscriptions. Take a look:

Having a savings account at your bank is a good start. But did you know that you're actually losing money by keeping your savings there?

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.

I showed this site to my friend George Northup, the CFO now-CEO of AuctionDrop. He had a few more suggestions for things young investors should learn.

From a chat with one of my friends...

hoochiebooty: so i'm looking at my bank statement
hoochiebooty: online
hoochiebooty: and it has this check that i apparently wrote for like 700 bucks

Want to learn everything on this site in 1 hour? I teach a 1-hour class called I Will Teach You To Be Rich.

Unless you drive a car that says "Premium Fuel Only," you don't need premium gas!

Every time I do a summer internship, I lose my mind and start eating out every day. Then about halfway through the summer, I realize I have no money saved up, only fond memories of that taco truck down the street.

I hate a lot of things in this world, but none as much as 1-hour film processing.

Do you have a credit card?

If not, you should. A credit card lets you start building credit, which will let you get loans for cars, houses, etc.

"But Ramit," you might say...

You'd be surprised how much money you lose through bad banking. Here are some tricks to get you off to a good start.

How much did you spend on food last month? What percentage of your monthly expenditures is on transportation? Where did all that money you withdrew last week go?

I know, I know. Not as sexy as arbitraging distressed securities and trading like those cool guys on TV.

The first step to making money is knowing where you spend it. Once you know where your money is going, you can budget and control it.