1. “I want to make passive income”

I love when people say this because you can tell they have no idea what they’re talking about. It’s kind of like trying to identify people with bad taste: Just go to the local Hometown Buffett. They’re all there.

I hate to say it but most of us don’t need to focus on passive income, we need to focus on improving our active income — our jobs. How? By becoming more skilled, solving more problems for our bosses, and basically out-hustling co-workers.

A lot of people don’t like to hear this because it means that instead of reaching for some dream of $500/day in passive income, they actually have to do some work right now at their jobs. But your job is the most likely place you can significantly increase your income.

Solution: Get better at your job and negotiate your salary. Here’s how:

2. “If I just try harder, I can save more.”

This is like a fat man swearing off sugar and delicious Taco Bell. Not even swearing it off, just saying he can swear it off “some day.” The truth is, we all know we need to save money, exercise more, call our family regularly…but there are serious barriers to doing all of these.

There is significant research indicating that simply trying harder will not help you get started investing.

Solution: Automate your finances so you’re not dependent on your willpower.

• Personal finance is not about more willpower, including specific details on my automation system for your finances & a 12-minute tactical video
• The psychology of passive barriers (why we can’t seem to do things we “know” we need to do)

3. “I’m going to start keeping a budget”

Do you guys remember when I made fun of stupid frat-boy business ideas, the worst one being when a bunch of dudes get together and decide to start a t-shirt company?

This is like that, only for grownups. At some point in our lives, each one of us will get motivated and decide, “Yes! I’m going to track my spending.” This will last about 10 minutes until we realize it’s (1) really hard, (2) we don’t like ourselves when we objectively analyze our spending, and (3) it’s much easier to do nothing than to subject ourselves to the pain of budgeting.

In fact, I am going to quote a very wise man on this one: myself. Here, directly from my book, are my thoughts on budgeting:

“Create a budget!” is the sort of worthless advice that personal-finance pundits feel good prescribing…Who wants to track their spending? The few people who actually try it find that their budgets completely fail after two days because tracking every penny is overwhelming. Amusingly, in a 2007 survey by bankrate.com, 75 percent of Americans said they have a budget—which is complete nonsense. “There’s probably a lot of wishful thinking in this response,” says Jared Bernstein, director of the Living Standards Program of the Economic Policy Institute. “It’s probably more accurate to say that three-quarters think they should work on a monthly budget.” My kind of man: exposing the delusions of people everywhere!”

Solution: Create a Conscious Spending Plan that will let you spend extravagantly on the things you love, as long as you cut costs mercilessly on the things you don’t.

• Conscious Spending: How my friend spends $21,000/year going out
• Full Conscious Spending Plan (with specific recommendations on percentages for each category) is available in my book

4. “My friend goes on vacation 4x a year and he makes less than me!”

Your friend is either a highly skilled practitioner of Conscious Spending, or an idiot. What’s funny is this becomes more true as you get older, yet we get even more jealous. Think about it: How many times have you heard one of your parents ask the other one, “Why can’t we go on vacation like they do?” without understanding how their spending breaks down?

Odds are, they’re not conscious spenders, but rather overspenders.

The single-best book on this is the Millionaire Next Door, where we learn surprising facts about the average millionaire: 80% are first-generation affluent, invest 15%-20% of household income, buy used cars, and rarely buy expensive watches or suits. They’re the ordinary neighbors who are saving money instead of spending it on a new Mercedes.

Solution: Would you look at a bunch of blue whales for advice on losing weight? Then why would you look at your ordinary friends, who are making ordinary money decisions, and will end up with ordinary results — not having enough money — as role models? Refocus your financial aspirations to people you value and their conscious decisions, not showy displays of wealth from people who are poor role models. If you suspect they can’t afford it, they probably can’t.

5. “I’m different than everyone else…I don’t need to save up for a wedding/kids/car/life insurance”

This is also known as, “Ugh, Ramit, I’ve already done all the stuff you’ve told me…now what?”

People are delusional about what will happen in the next 10 years. For example, if you’re in your 20s, the next 10 years will bring kids, a new car, a mortgage, taxes, insurance, maintenance, travel, life insurance, medical insurance….etc.

Every day I get frustrated people who tell me they’ve implemented all my strategies, yet when I tell them the next step is to implement the Ten Year Savings Strategy — where they save for the most likely things they’ll encounter within ten years — they become oddly dismissive.

Why? Because it’s not sexy. They want advanced “tips” and “tactics” to do something cool…even though saving money for the things they will almost certainly need is the most pragmatic thing to do. They actually say things like this (a real comment):

“First of all, I’m not getting married. No, this isn’t just the talk of someone who can’t see far enough into the future. We all know the only benefit of getting married is in avoiding divorce.”

Solution: If you think you’ve already optimized your finances 100%, use my Ten Year Savings Strategy and ask a few people 10 years older than you what they wish they’d saved for. Then do it. Oh yeah, and if you’re “sure” you’re not going to have kids or get married because it always ends in divorce, just go hang out with your 14-year-old friends and come back here in 10 years.

• The Ten Year Savings Strategy: Saving money after you’ve already handled the basics
• Why do delusional people think their spending will be different than other people’s?

6. “I’m going to invest in stocks”

I am getting so mad typing this that I don’t even know where to start. First of all, let me acknowledge that fewer than 5% of people will probably ever say this, since most people don’t invest at all, then turn 40 and get scared, call their HR rep, set up some kind of mis-allocated 401(k) plan, and then go on their merry way whistling and eating walnuts.

So if you’re thinking about this, it’s actually a good thing — it means you’re probably thinking about investing far sooner than others.

Unfortunately, “investing” does not mean picking stocks. It also does not mean buying a house, but that’s another story.

Even the fanciest portfolio managers fail to beat the market most of the time, which is why I argue for target-date funds, where you simply pick a fund determined by your age, set up automated payments, and get on with your life.

It’s also critically important to note that your asset allocation is more important than the individual investments you make. Think about it like this: If you write a book, your Table of Contents is more important than any individual word you write. Yet people obsess about the words instead of spending the bulk of their time on the TOC.

Solution: Stop trying to pick stocks. Instead, automate your investments with target-date funds or, if you really want to control your investments, a group of low-cost index funds.

• Behavioral psychology/economics on why you are not a good stock-picker
• Full chapter on why investment “experts” are overrated and hilariously wrong in my book, along with another chapter on specific ways to automate your investments with sensible, long-term investments

7. “Money is just for greedy people…I don’t need to worry about this stuff”

No it’s not. This is the excuse of lazy people who don’t want to spend a weekend learning about money, but instead worry and complain about it for the rest of their lives. I’ve said it since this site came out: “Rich” isn’t just about money, it’s living a rich life, whether it’s buying nice clothes, traveling around the world, spending extravagantly on your hobbies, or spending as much time with your friends/family as possible.

But part of that is money. If you haven’t optimized your money — whether you earn $35,000 or $350,000 per year — it doesn’t mean you’ve taken a principled stand against consumerism. It means you’re lazy.

Solution: Take one weekend to learn about your personal finances. Once you automate your money, you’ll never worry about it again.

• Automate your money
• Some of my favorite books on money
• My Scrooge Strategy premium tips, which will save you hundreds of dollars per year

Save hundreds and get a last-minute holiday gift. I’ve recently added new premium tips to The Scrooge Strategy to help you save money, including:

• How to save $940 on domestic flights
• Using cognitive dissonance to force yourself to save money,
• Specific phone calls to make once/year to save hundreds

…and lots more. Sign up for a 1-month free trial at The Scrooge Strategy.

Once-a-year gift: Sign up by December 24th, 2009, and you’ll get a free gift Scrooge Strategy subscription to give to a friend, including proven tips to save, earn more, and optimize spending on day-to-day purchases.

1. Sign up for Scrooge Strategy
2. You’ll receive an email with instructions on adding a complimentary subscription for a friend. As long as you’re a member, they’ll stay a complimentary member. They’ll receive their subscription on Christmas day.

So when a Wharton professor wrote a Washington Post column pointing out common myths of homeownership, I laughed at some of the comments.

• “Wow is this a poorly written and intentionally misleading piece of b.s. I wasted countless thousands renting apartments before wising up and buying a house. The author would rather have us all in housing collectives or government owned communes. Home ownership is still the American dream; don’t let this joker fool you.”
• “…Housing is a great long-term investment. Yes, it is. Because what the author doesn’t mention is that you have to have a place to live. If you rent, you have a place to live but the return on your ‘investment’ when you pay rent is 0.”
• “this guy gets paid for this s^^t?”

Newspaper sites have the worst commenters in the world.

But there was a comment that made my jaw drop. Can anyone spot the multiple problems with this comment?

“Another story: My father bought our family house in NJ for about $27k in 1964; sold it for $350k in 2000. Home ownership is terrific long-term investment.”

(Need a hint? This and this will help.)

Tonight (Thursday, 11/5), I’m doing a live webcast to show you 5 psychological techniques to change your financial behavior. You’re learn how to trick yourself to save and earn more using powerful techniques I haven’t mentioned anywhere else.

After showing you the new psychological models, I’ll do a Lightning Talk to answer YOUR questions. I’ll also answer questions about the Boot Camp.

I want to pack this full of information in 30 minutes, so here’s what I’m covering…

7:00pm – 7:10pm: 5 Psychological Techniques to Trick Yourself:
Forced Constraints, Accountability Partners (used the RIGHT way), Subscription Snafus, Better Than Cash, and Mental Accounting. These have saved me thousands of dollars since I started my blog in 2004

7:10pm – 7:20pm: LIGHTNING Round:
10 minutes of questions — ask me ANYTHING — and I’ll spend a maximum of 30 seconds per question. It’s going to get nutty

7:20 – 7:30pm Boot Camp questions:
I’ll share the Country Club Effect, details of the Boot Camp, tell you more about the guest speakers, and share some of the surprising things that have already happened inside

How to attend:
Go to http://www.iwillteachyoutoberich.com/blog and click refresh at 7pm Pacific TONIGHT (Thursday). A video feed will appear with me creepily staring at you and likely screaming at you. Greetings!

Q: Will this be recorded?
A: No

Q: Please, can you record it? I have to be in Guatemala building houses for poor quadriplegic children
A: No

Q: What if something is wrong and nothing is showing up at iwillteachyoutoberich.com/blog at 7pm tonight?
A: (1) 7pm PACIFIC, and (2) if something goes wrong, check twitter.com/ramit for updates

One last thing — if you plan to make it, leave your name and a question so I can keep an eye out for you.

See you tonight.

• Negotiate an $8,000 salary increase + 50% more equity
• Save tens of thousands of dollars
• Learn more using entrepreneurship
• Travel around the world, and
• Automate their money so they don’t worry about day-to-day finances

Today I’m announcing the I Will Teach You To Be Rich Boot Camp to take ACTION.

The Manifest Destiny Problem: “More is Better”
Have you noticed how lots of people always want more and more information, but rarely implement what they already have? A couple years ago, I started realizing how lots of personal-finance readers were constantly asking for more and more information — more blog posts, more book reviews, more financial magazines — but would often just READ, not take action.

To put it bluntly, I have lots of friends who read blog post after blog post, but have STILL not automated their money, started investing, or even put together an aggressive plan to pay off debt.

I’ve done the same with fitness books and SAT books, so I know that the solution isn’t “more,” but actually using what you have.

And it takes acknowledging that there are profound barriers between reading and DOING. The Boot Camp is designed to crush those barriers and force you to take action on your finances in just 6 weeks.

For example, I have a very successful friend who’s been overpaying for health insurance by a few hundred dollars for months. Why? Because he has to fax in one form….and he doesn’t have a fax machine. It’s a barrier that’s costed him thousands of unnecessary dollars. And while it’s easy to dismiss him as lazy — which he’s not — look inwards: There are things we “know” you need to do, but we still don’t do them.

Hit the gym? Clean the garage. Automate finances.

Instead, we look for more and more information as if that’ll solve it. This is the Manifest Destiny problem that we all have. “What’s the newest tip? Did that blog update? What are the 21 Ways I Should ____???”

The truth is that while the strategies and tactics matter, the point is not reading — it’s getting off our asses and implementing them.

About the Boot Camp
The I Will Teach You To Be Rich Boot Camp is a 6-week program that will help you automate your finances, pick the right accounts, begin investing, create a bulletproof plan to crush debt, and let you automate the day-to-day so you can focus on the things you REALLY care about:

• Traveling
• Spending money, guilt-free, on the things you love
• Hanging out with friends and family
• Earning more
• Focusing on getting out of the rat race

Each week, you’ll get material on credit cards, picking the right accounts, negotiation, investing, automation, and more. You’ll get lots of material from my book, so how is this Boot Camp different than simply reading my (or any) personal-finance book?

1. Live & personal Q&A from me each week. In addition to the weekly curriculum, I’ll be doing live webcasts each week, answering your SPECIFIC questions on money, debt, automation, and more.

2. Not just money — entrepreneurship and psychology. Each week, I’ll give a mini-talk on an entrepreneurial topic like “Managing Virtual Assistants” or “Productivity for Entrepreneurs.” I’ll cover psychological techniques and barriers and show how to apply them to YOUR situation.

3. Guest speakers on entrepreneurship. I’ve invited guest speakers like Charlie Hoehn (Recession Proof Graduate author), Pamela Slim, and Penelope Trunk to talk about topics like marketing, pricing, finding your dream job, and more. You’ll get 1 hour with each of them, live, on a webcast where you can ask questions and get specific answers.

4. A community of other people who are investing in themselves. We’ve put together a private community site where you’ll be able to exchange the best techniques you’ve used, which techniques to AVOID, and how you’ve paid off debt, earned more, automated, started side businesses, and more. Imagine a close-knit group of community members where you can ask personal questions and get meaningful answers. A group where everyone wants to be there — and support each other.

The most important difference in all of this is ACTION. Not only will you read, you’ll be surrounded by hundreds of other people who believe in paying for value and investing in themselves to automate their finances.

Here’s why the Boot Camp is worth it: Beyond forcing you to take action, if you optimize even one $20/month subscription, you’ll more than pay for the program. If you discover one leak in your financial system, you’ll probably get positive ROI that very day. And if you discover one psychological technique, automation tactic, or entrepreneurial idea to apply to your finances or life, it would be well worth it. Just ONE.

Now, obviously this isn’t right for everyone. If you’ve read my book, taken the advice, fully automated your finances, cut costs, began earning more, optimized spending, and handled day-to-day finances and relationship issues, then you can probably skip this. Or if you’ve done it on your own, that’s excellent — congratulations.

But if you could use some help to take action — to get a little nudge of help, to meet other people in your situation who have invested in themselves — then the Boot Camp will help you kickstart your finances in 6 weeks. If you think you could benefit from new psychological techniques and guest speakers on entrepreneurship, I’d love to have you.

That’s because this won’t be passive. It’s ACTIVE: I’ll email you each week with course material. I’ll be on your ass to get it done. And I’ll constantly show you how others are succeeding by taking strategic shortcuts, working smart, and leveraging others’ winning techniques.

6 weeks of work for a lifetime of automation.

Three questions to ask yourself

• We spend money on movies, going out, subscriptions…when was the last time you invested in yourself?
• If you knew you could try this out as a trial, would you? Good news: I offer a 30-day money-back guarantee
• It’s OK if this Boot Camp isn’t the right fit for you, but I encourage you to make a plan to meaningfully take your finances to the next level before the end of the year. Whether it’s this or something else, please get it done and start 2010 off fresh. And you can’t just put it off: No decision is a decision

I’ve written up details, along with the specific curriculum, guest speakers, price, and an easy way to sign up here:

Join the Boot Camp: http://www.iwillteachyoutoberich.com/bootcamp

Registration closes on Friday, November 6th, and since this price is for the pioneer class only, next time I run this, the price will at least double.

Below are 7 stories, straight from readers just like you, who have saved and earned thousands of dollars using I Will Teach You To Be Rich techniques. The stories include details on how they got out of debt, saved more, and earned more so they could travel, buy a house, and live a richer life.

Remember — tomorrow I launch the I Will Teach You To Be Rich Boot Camp (early details), where I’ll unveil a 6-week course and curriculum to force you to take ACTION and automate, invest, and start thinking about entrepreneurship.

Jason Demant saved $50,000 in 2 years and is now taking a 1-year vacation

“The reason I’m writing is to thank you for your help in automating my money, getting my 401K properly allocated, and pushing me to sell my crap to make some cash. Using your step-by-step instructions and advice, my girlfriend and I have been able to save over $50,000 the past couple of years and now, in a couple weeks, we will be quitting our Silicon Valley jobs and traveling around Asia on an extremely extended vacation (1-year minimum)! I’ve been reading your site for a few years now and I’ve never properly thanked you for the help, so I decided it was time. Thank you!”

Terry Martin got off his ass and paid off thousands in debt — and earned more

“I’m writing you to let you know how much your blog has helped my wife and I take charge of our finances. I’m actually embarrassed to say this, but we were some of the people you mentioned in tip #25 of the save $1000 in a month challenge. We would complain about our financial situation, but did nothing to change it.

After I realized this, I got to work. I read all your tips and made a game plan. I saved $100 a month on cable, $20 on our cell phone bill, created several ING savings accounts, my wife got serious about cutting coupons (she has a 3 ring binder!), I sold an old camcorder on craigslist, and cut off my Sirius account (but when I called to cancel it, they gave me 3 more months free with the option to cancel it for good afterwards—who would have thought?). We cut back on eating out except we each get twice a month at lunch time. My wife got overtime at work along with a raise, I started a side job, and I will start teaching night classes soon. Not only did we cut our spending drastically, we also have more money coming in. Our debt will be cut in half by the end of the year and eliminated by the end of the next!

Update: “Right now we are just over 18,500 in debt not counting my wife’s newly added student loan which would add about another $8000 . By the end of the year, we will have paid about $14,000 off while putting at least $500 a month in savings for a down payment on a house and 50 a month into another savings. This is, of course, things keep going as planned.

But not only are we saving money, we are increasing how much we make too! I have started a side business, while its not bringing in a lot of extra money now, things are starting to pick up. I also talked my company into paying for training classes for a certification that will greatly increase my value $15 to $20K a year in the workplace. Especially helpful during these tough times. My wife is also getting her company to pay for most of her classes to get her bachelor’s degree so she can move up to a new, higher paying position. During this whole process, we have been saving for a down payment on a house and I’m happy to say we are closing on our first home July 20th.

I would personally like to thank you for website and your book. The tips were inspiration to get up and do more than just complain about our financial situation. Although we are not rich money wise, we love where we are at and what the future holds. You have truly taught us how to be rich. Thank you.”

Christopher P. is saving hundreds of dollars and earning more

“I would say i have saved: $320 from cutting my cable bill by 40 dollars last 8 months (they raised it again 2 months ago. I just called right back and got it lowered . I put $30 a week into savings accounts (960 total saved 8/months)

8 months ago i decided that i would earn more money. First I asked for a 5% raise at work and got it. (This was scary because we had just had 3 rounds of firings.) Then i sat down and figured out what interested me and I could make money doing. I was in love with the iPhone but too poor to buy one. But I taught myself to program for the iPhone anyways and just 2 months ago finally purchased one. It was slow going at first and the amount i was putting away seemed pretty insignificant. But 8 months later looking back i am really seeing the transformation that took place.

Two weeks ago I finally finished and started selling my first app. It has been such a great experience and your website gave me the kick in the pants i needed. (Thank You) I haven’t done any advertising and on my first day i sold 17 copies! Not enough to quit my job but extra income. Since then the amount of units I have sold has been slowly but steadily increasing. (It’s been rated 5 stars)

People all over the wold have purchased my app now. (Japan, Canada, Great Britain, Australia, Netherlands and United States so far) In the first two weeks after Apple’s cut i made $200. October looks like it will be a much better month!”

Brian Drolet is saving $2,880/year

“Big wins =

• Dropping cable $40/month
• $1 raise at work = $240/month extra
• Closed checkings account = $13/month extra
• Automated my cell phone bill = $7/month

I’m saving $720/year just from those 3 things and earning $2880/year extra.”

Misha has turned her savings around

“I wanted to write to you and say thank you. After reading your book I was able to get a good handle on my finances. I think the most helpful was the chart you use to show the movement of the money and the automation. Check out a snapshot of my my mint NET INCOME.”

Josh G has saved $14,000 in a few months

“I have saved 14k so far since I started May 2008 and I’m on track for 20k by the end of the year!
Fear kept me from automating my savings previously. I had bills and it seems that was all I thought about every month.

There was a blog post that you did which you mentioned using ING Direct to create sub accounts. It was in that post I decided to try the full automated savings because I could do sub accounts for future purposes.”

Michael Hagan saved hundreds from March to July of this year

“I’ve saved: $900 in savings since March, $700 towards Roth IRA since March. I started the whole thing around February/March

I would say that the things that held me back the most was a) not knowing what to do in the first place b) getting out of college saddled with massive credit card and student loan debt (working a full-time, unpaid internship in LA was expensive!) c) messing around in high school just enough to where I couldn’t qualify for scholarships and being just too middle class to get gov’t $$ for college, and finally d) trying to keep up with all my friends that had good jobs and nice things. A fool’s game!”

The difference between these people and others is they took ACTION. It’s easy to read blog post after blog post, but when you decide to take action — and you have a clear plan of which Big Wins to attack — the results can come quickly.

The Boot Camp will include a step-by-step plan to take action on your finances, automate, create a plan to pay off debt, and more. I’m including psychological techniques to use against yourself to lock the behavioral changes in. Plus, live video webcasts from me each week (where I’ll answer your questions), as well as guest speakers to cover entrepreneurship topics like marketing, pricing, and critical business mistakes to avoid.

Check back tomorrow, when I’ll open up Boot Camp registration.

To skip the entire explanation below: Get a preview and new bonuses I’ve never released on entrepreneurship, negotiation, and personal finance at http://www.iwillteachyoutoberich.com/bootcamp

Last week, I asked I Will Teach You To Be Rich readers what you want to do before the end of 2009. Look at the #1 result:

Taking ACTION. Aww yeah…

• One of my readers, Paul, cut 30% off his 30-year mortgage, saving $5,000/year
• Another reader saved $1,455 with two phone calls
• And in a personal example, I took my friend’s advice exactly one year ago and implemented it in a month. Since then, it’s generated tens of thousands of dollars for me

The key is not just learning more, it’s IMPLEMENTING the tips you’ve read about.

So in 7 days, I’m launching the first official I Will Teach You To Be Rich Boot Camp to help people invest in themselves — to stop reading and start taking ACTION with their finances.

What’s an online bootcamp?

You’re reading this site, so you’re already dedicated to saving money by focusing on the Big Wins. But there’s more than just saving money — there’s picking the right accounts, earning more, optimizing your spending (including automation).

I’ve put together an online 6-week boot camp that will take you through my entire automation system, including picking the right accounts, creating a plan to pay off debt, opening and funding the right investment accounts, and automating your money.

You want to know how to turn your idea into a business? Have a specific question about your finances or want to get input on a marketing plan? Yep, we’ll cover that.

The bootcamp includes:

• Weekly live classes from me where I’ll kick your ass to take action implementing an advanced automation system, and answer your specific questions (new topics)
• Expert guest speakers on entrepreneurship, finding dream jobs, earning more, and advanced topics — every week (new)
• Curriculum with detailed action steps on saving, earning more, automation, and entrepreneurship — which will let you start 2010 off fresh (some new material)
• Private community with hundreds of other members who are going through the same thing as you (and are dedicated to taking ACTION)

I’m sick of people reading blogs and books and websites and doing nothing. The point is not reading, it’s automating your money, starting to invest, and using conscious spending to live a Rich Life!

Why a bootcamp?

Because there are 2 months left in 2009, and I want to show you how you can make life changes in just 6 weeks. I have tons and tons of examples of people who’ve taken action and gotten out of thousands of debt, started earning more, etc.

I’ve spent months developing the curriculum and building a system that will help you take action on your finances. After all, if you’re going to spend time learning about personal finance, you might as well go the extra step and apply it to your OWN life.

By the end of the bootcamp, I guarantee you’ll have saved money, automated your finances…and stopped worrying about your day-to-day finances.

What you should do

I’ve put together a pre-launch list with tons of bonuses, including a video on how I spilled coffee on my brand-new laptop (and still got over $1,000 reimbursed to me for my mistake), an extremely detailed video on how I helped my friend Susan negotiate $8,000 in a salary negotiation, and MANY other bonuses.

Everyone who signs up for the pre-launch list will get a discount to the bootcamp when it launches on November 3rd.

Sign up instantly for the pre-list here and get 7 days of unreleased bonuses (videos, case studies, and surprises):

http://www.iwillteachyoutoberich.com/bootcamp

Today I want to know this: What’s the best investment you’ve ever made? Not a specific fund or stock, but a personal investment (a course, a book, a trip, etc) that helped propel you beyond everyone else.

Some examples of investments

• My friend Paul Singh puts aside $3,000 per year to travel and meet interesting people. Any time he needs consulting work, he makes a phone call and he has a new job.
• Charlie Hoehn invested his time into working for me for free — as well as Tim Ferriss, Tucker Max, and many other people — and has done work that none of his peers can match. (He then wrote an ebook about how he did it.)
• In college, I flew across the country to meet Seth Godin, which led to an internship, which led to 2 published books, TV exposure, and much more.

So, 2 questions:

What’s the best personal investment you’ve ever made?

And why are people so obsessed with cutting their spending instead of investing in themselves for a potentially much larger reward?

Stay tuned…

Just because you can write down a top-of-mind analysis on a napkin doesn’t mean you understand a company’s financials. And remember, most professional investors — who are paid millions of dollars per year — can’t either. Investing is not about picking stocks. TELL YOUR FRIENDS THIS.

My Prognostication Failed

“Five years ago I had a friend who was sitting with Netflix stock which had increased in value by 500% when he came to me and asked for some advice: Should he sell? My response was yes based on the following criteria.

Strong Competition- Blockbuster had recently entered the fray; they had a strong competitive strength with their local stores and had plenty of money to target Netflix. I figured even if Netflix did win the costs associated with acquiring and retaining subscriptions in a competitive atmosphere would erode substantial earnings.

Digital Transition- At the time 5 years ago many were predicting a strong push to web based content delivery. It made a lot of sense and would have an impact on Netflix. Expectations were that strong players like Microsoft, Google, Sony, and Apple would crowd out Netflix.

Content Acquisition- With the digital transition I expected consumers to transition to watching web video. As such, companies interested in this market would need to negotiate new deals with the film companies. The Netflix model is somewhat disruptive and they lacked strong relationships with the film companies. This would require a hurdle that Netflix would have to overcome, which introduced substantial risk.

Increasing costs of doing business- Netflix’s primary model was based upon delivery by mail, the more customers used the service the more expensive it would become. Additionally the US Postal Service had shown an interest in continuing to increase the cost of shipping.

Business Transition- Netflix was looking to radically change their business model from mail delivery to digital delivery. It was unclear they had the Intellectual Property, or business assets to smoothly make this transition.

While these were all valid concerns at the time, Netflix has been validated. My friend sold Netflix around $10, and it’s now hovering near $45 (yes up another 500% from where he had it).”

It continually enraged me when individual investors think “investing=real estate” or “investing=picking stocks.” Even worse is when this lie prevents people from ever investing in the first place because it’s too complicated.

There is a simpler way: lifecycle funds. I cover this all in chapter 7 of my book, including picking long-term investments, automating investing, and various investments based on your appetite for risk.

Turn on the TV or read any comments section of an online newspaper — even the New York Times — and you will quickly feel the need to take a shower and to physically distance yourself from common citizens of dubious intellect.

You’ll notice people complaining about their taxes, while never cutting their own spending, earning more, or optimize their spending (like the CEO Model I describe in the Save $1,000 in 30 Days Challenge).

The problem is multi-faceted:

First, once something incurs spending, it’s incredibly difficult to stop spending on it. Why? On a national level, because there’s momentum, jobs, and opposition to change. On an individual level, we’re more motivated by loss than by gain, so it’s easier to do nothing than to take away something we’ve grown accustomed to.

Second, people get emotional. You see this with jobs and taxes (and rightfully so), but also with areas as prosaic as design changes on Facebook. In many/most circumstances, we don’t like change, and we over-emphasize our own interests (”I CAN’T UNDERSTAND WHY THEY DON’T MAKE A MAC PRODUCT!!! GRRR!!), while never seeing the big picture (Macs have a ridiculously small market share).

Third, the natural progression is to do more: more staff, more funding, more spending. Without a conscious spending plan, you’ll find that executing a Think, Want, Do analysis will reveal some huge disparities in where you think your money is going vs. where it’s actually going.

Let’s take a look at some numbers.

Now, you can take a couple routes after seeing these:

1. Complain about Obama, Democrats, Republicans, the war in Iraq, etc. The funny thing is, people love to debate minutiae but fail to realize that energy is a valuable resource — and it’d be much more productive to focus on things we can control (like our asset allocation, automation, negotiation, etc). If you do this, you are just like everybody else who loves to complain but does nothing to improve their own finances.

2. Realize that the real message of this post is to focus on the BIG WINS — the things that let us save significant amounts of money. While it might be fun and emotionally liberating to debate over some local issue, the way to move the federal budget forward is to fix the 800-lb gorilla: healthcare costs. The same is true of your spending: The very first tip in my Scrooge Strategy is called the Two-Headed Savings Approach, where I show you how to focus on dramatically cutting the costs on your two biggest discretionary expenses, rather than trying to save 5% on 50 things (as most people do), and ending up feeling guilty and achieving no behavioral change.

Stop complaining about things you can’t control. Realize that the correlation between macro-economic and political decisions has very little to do with our money on a day-to-day basis. Most importantly, we’re cognitive misers, and only have a limited amount of attention. Focus on your own finances first, and let the fools (or politicians) debate the macro-level.

Today, I want to pull back the curtain to tell you about 3 people I’ve heard from in the last few days.

• A 32-year-old woman who just discovered she’s been paying unnecessary fees to her financial “advisor” for the last 13 years
• A 40-something female surgeon who makes $500,000/year but isn’t sure what to do with her money
• A 24-year-old guy who negotiated $200 back with one phone call

At the bottom of each profile, I’ve added a “lessons learned” section.

#1: “Am I really allowed to ask what his commission is?”

Over the weekend, I was out for drinks with some friends and ended up sitting next to this girl who, once she heard what I do, started asking money questions. It turns out that she was very interested in investing, and had actually just bought a condo in San Francisco (with a $500 monthly HOA fee). You probably already know my thoughts on real estate as an investment, so I just kept quiet.

But then she mentioned that she’d also been investing in life insurance, and I started choking on my drink. Why does a 32-year-old with no dependents need life insurance, much less as an “investment”? But it gets worse. I found out she’d “locked up the money”…for the last 13 years. I almost had to stop myself from shaving down my tortilla chips to the fine point of a shiv and stabbing myself in the throat.

I tried to play it cool but she asked me, point-blank, “What do you think? Don’t sugar-coat it.” So I told her that her “advisor” was probably making a fat commission off her, and there’s virtually no reason for someone in her financial situation to be investing in life insurance. (I didn’t mention the condo — not much she could do about that now.)

She was receptive. And she was concerned that she was being taken advantage of. “I only call my advisor once a year,” she said. “And I’ve gotten my entire family into life insurance since that’s what he recommended to me.”

So I told her to go ask her broker what his commissions are — how he makes money — and why he chose life insurance for her. Maybe there was a legitimate reason, although I doubted it. She looked at me and said, “Am I really allowed to ask what his commission is?” Don’t you guys find that interesting? “Of course,” I said. “He works for you, and he’s probably making money off your money. You have the right to know.” She said, “Oh, okay. Because if someone asked me what my profit margins were, I wouldn’t tell them.”

Good point. But if you’re using a commission-based advisor (which you shouldn’t), you have the right to know. And you have the right to put your money in a more appropriate investment than life insurance for a young woman, larded up with unnecessary fees.

Lessons learned

• Don’t dismiss this girl as stupid. She actually got engaged with her money, which is more than most people do. Unfortunately, she didn’t do her research and probably got taken advantage of by an unscrupulous advisor. Ironically, even though she got sub-optimal returns (and made a questionable real-estate “investment”), she’s better off than the vast majority of people in this country who never pay attention to their finances at all. She can get this back on track. And she’s already shown the initiative to take action
• Her investment probably did fine — it just could have done better without the fees. Costs matter
• Evaluate your investments and major expenditures each month. Chances are you’re getting ripped off somewhere. I have a super-detailed script on calls to make once/year as one of my Scrooge Strategy tips

#2: “Well, I made $500,000 last year…”

I was in Lake Tahoe a few weeks ago kayaking with a group (yes, some bloggers leave their room) and a woman came up next to me on the water. She had heard me speak and had no idea what to do with her money. She really caught my attention with this exchange.

Her: “The thing is, I earned a LOT of money last year, but it’s just sitting in the bank.
Me: “How much are we talking about, ballpark?”
Her: “I earned $500,000 last year. And I have $200,000 just sitting in a bank account.”
Me: (Stops rowing)

It’s totally fascinating to meet a woman who’s supremely alpha in one area but has no idea what to do in another. She was in her 40s, single, and a surgeon. She was considering buying a house (”for the tax deduction”…one of the few times this might actually make sense) but also because she didn’t know anything else about investing.

We started talking about other business stuff and a few minutes later she asked me, “What’s your consulting rate?” I told her and, without blinking, she said, “Can you just take care of my money? I can pay you.” Now, I charge a ridiculous amount for consulting, so the fact that she didn’t even FLINCH when I told her my rate was really surprising — and tempting.

But no, I told her. “I don’t do portfolio management. I rarely say this, but you should really talk to a financial advisor. You can find a good, fee-only advisor at http://www.napfa.org/ or I can recommend one by email.”

Why did I recommend a financial advisor for her and not the earlier woman? Because in my book, I mention there are only a few categories of people who generally should use financial advisors in the 20-35 year-old range (typically people who are earning a tremendous amount, need more sophisticated money-management strategies, and are too busy to do this on their own.) Not only does this woman fit the description by being busy and very successful, she’s older and likely won’t do anything without someone helping her.

I’m thrilled to tell you that she’s started to take control of her money. But the lessons learned with this woman are very interesting.

Lessons learned

• A high income solves most financial problems. People don’t like to hear this because they like to judge people’s financial behavior, but it’s true. Yes, she’s in her 40s. Yes, she missed the prime time of her life to invest and compound her growth. But at $500,000 per year, she can catch up quickly and have a very good quality of life
• Paying for value is a sign of successful people. She caught me off guard when she offered to hire me as a consultant, but when I was thinking about it later, it didn’t surprise me. Most of the successful people I know are willing to pay for value. They pay for training courses and understand that you can’t out-frugal your way to being rich — you sometimes have to spend money to earn money.

  Compare this philosophy to people who believe there’s only a limited amount of money (and they have to protect theirs) or people who expect everything to be free. Though she hadn’t started investing, the fact that she’s she’s dominated her career and is willing to pay a significant amount of money to handle her money — and she falls into a category of really busy professionals who could benefit from a fee-based advisor — means can quickly ramp up on the financial side

#3: “I was charged with $200 in overdraft fees”

David Howe, 24, emailed me from D.C.

“I made a mistake in my checking account, I thought I had transferred money to cover pending transactions but I didn’t “confirm” the transfer. I was charged with $200 in overdraft fees.

I called the bank using your template, and I think there were 3 consecutive lines you suggested in your book.

After the first line she credited me $70.

After the second line she credited me $105. I repeated the second line again almost verbatim and she credit me $120.

Then I used the third line, $150, the third again $200.

The funniest part was she responded to every line almost in the exact way you said she would in the book!! I just found it comical (and I’m very glad to have the $200 back!) Maybe I’ll use it to open a Roth IRA…”

Lessons learned

• My negotiation tips are fucking awesome. I literally have hundreds and hundreds of people who have negotiated significant amounts back from banks (here are just a few). If you don’t have my book, buy it now — there is a lot of completely new stuff you’ve never seen in there. Order I Will Teach You To Be Rich (includes negotiation scripts and a 6-week plan to dominate your finances)
• David knew to negotiate like an Indian — meaning he recognized that he has more control in his relationships with companies. While many people simply sit back and take it, he called them and got $200 back within a few minutes. Once you do this with one company, you realize how much power you have to do it with many companies.

Hope you guys enjoyed these profiles. I’m always hearing interesting money stories, so if you like these, I’ll try to share more of them.