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.

First, I should acknowledge that the kids are not really dumb because of the psychological technique I’m going to describe below, but can’t we all agree that kids are pretty dumb in general? Come on. My parents just told me a story about how, when I was a kid, my Dad once cut a grapefruit for me and sprinkled sugar on it. I screamed and screamed for FIFTEEN MINUTES about how I didn’t want sugar on it. When my dad finally said, “Ok ok” and took the sugar off with a spoon, I still screamed because I didn’t want THAT grapefruit. I feel sorry for my dad, 24 years later, and I hope you see why I make fun of dumb kids now. So I’m delighted when I can trick them.

In 1979, researchers Beaman, Klentz, Diener, and Svanum wrote a terrific piece of research involving Cooley’s Looking Glass Self, which basically points out that we are not independent individuals as we like to think. Instead, we’re a product of our surroundings, including how we think others think of us, and we act accordingly. For example, if I believe other people think of me as an entrepreneur, I’m more likely to act entrepreneurially so I can continue developing that positive judgment.

They made this practical using an experiment with children and Halloween. Since I know many of you are illiterate and only read blogs for information, I took the trouble of going through the literature for you. Remember these from college?

The researchers decided to see how they could apply the looking-glass principle to change children’s behavior. To do that, they tested 349 children who were trick-or-treating by setting up a bowl full of candy and using the following manipulations:

1. They would ask the children their names and ages to evoke self-awareness, or “individuate” them (e.g., “I am Ramit Sethi” and the accompanying connotations of ‘I am a good person’).
2. In one condition, a woman told the children to only take one piece of candy.
3. In another condition, a mirror was placed conspicuously so children could see themselves as they reached into the candy bowl.
4. In a final condition, they combined the “warning” and “mirror” conditions.

There is a lot more to it, and while the methodology is interesting, I’ll just cut to the results.

What did they find?

Key results

• BASELINE: With no mirror and no warning to take only one piece of candy from the bowl, 75% of children took more than 1 piece of candy. Ok, makes sense. It’s sitting there in front of you.
• VERBAL WARNING ONLY: When the experimenters warned children to take only 1 candy, that number dropped to 34.2%. Good job kids, listen to your elders.
• COMBINED EFFECT: When the researchers (1) warned the children to only take one candy, plus (2) put a mirror in front of them, that number dropped to 11.7%. Astonishing.

Why would a mirror produce such a big change in behavior?

What are some of the other ways you can apply this to yourself?

I’ll be covering this — plus more principles of social psychology — in the I Will Teach You To Be Rich boot camp, launching November 3rd.

Learn more…

Get additional bonuses and an early-bird discount by signing up for the free pre-list here.

Every time a provocative article about personal finance comes out (like this recent one about 401(k)s), dozens of people forward it to me, complaining, “Ugh, if only we had better education.” Kind of like how everyone looks at me, expectantly, whenever I’m in a club and bhangra music comes on. Get a life.

Doesn’t it seem like people throw “education” around as the solution to every problem in personal finance? Oh, if we could just get young people better educated. How? Who’ll do it? Why hasn’t it been done for 50 years? Oh, those are just details.

This has been driving me nuts for a long time, and I’ve been spending the last few years thinking about better ways to change people’s attitudes and behaviors (here are some of my results). I’ve recently ranted on how personal finance is not about willpower, and how we love to demonize fat and poor people for not trying hard enough.

So when it comes to education, I start rolling my eyes when people suggest education is the magic bullet. Let’s get real, please. As heretical as it is to say in our society, “education” is not the panacea for personal finance. That’s a simplistic throw-away answer that does nothing to address real solutions.

People have been saying that for 50 years and it hasn’t worked for many, many reasons. “Wishing” there was more education doesn’t accomplish anything except making us feel better about ourselves for feeling bad about our society.

Here are a few ideas I’ll argue:

• Nobody wants to learn about financial literacy — but instructors and organizations keep teaching this worthless topic. People may want to learn about being rich or paying for their wedding or how to travel to Tahiti, but I’ve never, ever heard a young person say, “Hey Ramit! I really want to become financial literate!” Its dry, boring, and unrewarding.

  In fact, even I don’t care about financial literacy. Did you know that the back cover of my book says, “6 weeks to financial literacy” — copy I accidentally glossed over when we developed the design — and when I noticed it after launch, I immediately had it changed for the next reprint?

• There are powerful interests against teaching personal-finance in schools for reasons including the following: Not enough qualified people to teach it, perceived (or real) liability, “it’s never been done,” “what are the metrics?” and “we are already overloaded.”
• Many purported “educational” seminars and organizations are really thinly veiled fronts to sell expensive, scammy products that benefit their salespeople. I have no problems charging people premium prices for premium goods, but when people are paying unnecessary fees that cost tens of thousands of dollars, I start getting pissed

And by the way, when we say that people in America are financially illiterate, what do we mean? Let’s take a look at a sample quiz:

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

a. More than today
b. Exactly the same as today
c. Less than today
d. Do not know

3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

a. True
b. False
c. Do not know

The results are predictably terrible. Here’s an example (see more at the Jump$tart Coalition):

[F]ewer than one-third of young adults possess basic knowledge of interest rates, inflation, and risk diversification.

Ok, so people suck at personal finance. They don’t know what they’re doing, they get into all kinds of debt, pick incorrect investments and asset allocations, and then blame everybody else for their problems.

So what should we do?

We should make powerful defaults that do the right thing, because most people will never change their defaults. This is also known as “libertarian paternalism.” For example, automatic enrollment has produced astonishing results to encourage people to contribute to their 401(k)s. Isn’t that better than no default at all?

Whenever our own judgment has proven time and time again to be incorrect (see investor psychology), we should have products that make up for own fallibility. This is the same reason I have a GPS device in my car: because no matter how hard I try, no matter how much willpower I use, no matter how important it is…I still get lost.

We should segment people who are willing to invest time and resources for bigger wins, and reward them. Most people take what’s given to them and never proactively seek out a personal finance book or the huge amount of free, great information online. (That’s because we don’t want information, we want solutions.) But if you do — if you’re willing to pay for value — there should be tools that help you get far ahead of others who accept vanilla defaults.

We should unite the disparate behavioral elements to improve us in a holistic way. Think about career, negotiation, entrepreneurship, health and fitness. If you can use techniques to master one, you can use similar techniques to master all of these.

I’m going to start suggesting possible solutions over time, some of which will be controversial. For example, my blog works for a very self-selected group of internet nerds who read a lot of blogs. You guys are not typical — you are an elite, niche audience. I love that, but this is just one piece of the puzzle.

Bottom line: Don’t think that the magical idea of “education” will solve all personal-finance problems. Yes, education is important — both the quality of education and the quantity — but more important is changing the surrounding systems: better investment products for customers, understanding how our community affects our health and money, offering tailored options for different people (e.g., poor immigrant family of 5 vs. upper-middle-class of 3) and using automation and technology whenever our own judgment proves consistently faulty.

I’ll dig into these more over time.

People love to demonize others for overspending and overeating, especially behind the anonymity of online commenting. Nothing drives me crazier than people who ignore decades of research to judge others for their supposed lack of willpower.

This is why you’ll see the personal-responsibility zealots who repeatedly chant, “Ugh, let’s talk about personal responsibility,” as if that simplistic argument explains why people who genuinely want to spend and eat less simply cannot.

This superb New York Times article offers more evidence of ancillary factors in behavioral change:

“I have grave concerns about how many of these television shows stigmatize overweight people by making them a spectacle,” said Kelly D. Brownell, director of the Rudd Center for Food Policy and Obesity at Yale. “They suggest that if you only try hard enough you can be thin. A far better message is that it’s hard to lose weight and that it’s not just willpower and personal responsibility, but that both biology and the environment are players.”

I’ve written about the similarities between food and personal finance before.

Former FDA commissioner David Kessler has written a terrific book describing how food companies systematically engineer foods to overeaten (including designing foods that can be swallowed quicker so we can consumer more and more in one sitting). These are tested, refined, and optimized processes, not mere accidents.

Most importantly, behavioral change is not simply about trying harder. Yes, effort is important, but whether it’s passive barriers or the variety of other reasons that illustrate how personal finance is not about more willpower, let’s be real: Behavioral change is incredibly complex and difficult.

Anyone who believes people overeat and overspend simply because of a lack of willpower is simplistically ignoring decades of research so they can ideologically mislead themselves.

To find supporting evidence for my theory, I Googled “bmw asshole” and got 1,500+ responses, including this one. I rest my case.

There has only been one exception (he was a startup CTO…who by definition cannot be an asshole). Also, Asians don’t count because they don’t drive BMWs.

The point is this: There are patterns you can recognize. We like to believe we’re individual and different, but the entire field of social psychology illustrates how we mistakenly believe we’re in control of our own lives while systematically underestimating situational and social influence.

As we get older, the vast majority of us fall into predictable patterns: We become more conservative with our investments. We have kids. We spend on things we never imagined we would (like window treatments, homeowners’ insurance, and childcare).

Recently, I wrote a post about the 10 Year Savings Strategy, where I recommended that people who are already saving and investing and maxing out their retirement accounts do one simple thing: Find some people who are 10 years older and ask them what they wish they’d saved for. Then start saving for those things.

This isn’t as sexy as alternative investments or currency arbitrage, but it works. It also forces us to confront the fact that most of us will live very similar lives as everyone else. We’ll start really paying attention to our money around age 40. Our wedding cost will be far higher than we planned. We’ll buy a house.

Sure, there are exceptions. But chances are you’re not going to be one of them. None of us is.

The comments that people submitted to the post were some of the most interesting and infuriating I can remember, prompting me to write a 456-word comment in response. Here are a few selected comments from the original post:

Delusional Guy:

“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. If you get divorced, you’re screwed. For anyone who would ever put themselves into that situation, I have no sympathy because it is completely avoidable. Marriage is a contract and (especially for guys) if you enter into it, you will be on the losing end from the get go. You recommend getting advice from your elders. What do they tell me? Don’t get married. That’s some advice I’ll be taking because I care too much about my assets.

Actually I see kids as a complete waste of money, time, and freedom. There are many people out there who live child free (and loving it) and I will be one of them. Don’t believe it? Believe it when i get a vasectomy sometime in the near future.”

Smart Person Who Understands The Point of the Post, Not Just The Superficial Words

“Ramit, I really liked this. The take-away was still the same despite that I don’t intend to have children (and neither does my g/f). Plan for large expenses I will encounter on my path in life, whether or not it’s children or lots of travel or whatever hobby I choose. The action is not, “save for children.” The action is: ask and try to predict what your major expenses will be in 10 years and save for it. Don’t think you’re going to be above average and beat the system. Reality is sometimes harsh on us 20-somethings. Realize I am not an exception to every rule. Realize that reality will bite me sometimes and I will want to be prepared.”

Hilarious Person I Want To Marry

“Good lord….To pretend you know exactly what you want now (at say, 25) for when you are 50 is the equivalent of adamantly stating when you are 5 that you hate all boys/girls and will never like them. It’s utterly ridiculous. All you can do is acknowledge that your current self cannot predict everything that will happen in your life, or everything that you will want, but it’s probably going to cost more than you think. So instead of spending so much energy being defensive, why don’t you critically think about his point, and whether you want to apply it to your finances?”

And finally, here’s the response that I left in the comments:

“Exactly. Some phenomenal comments on this post and some very, very stupid ones.

The most absurd thing about many of the negative comments is the inability to take a strategy or tactic and apply it to the commenters’ own lives. If you’re not going to get married (which you probably are, despite what you think now), you’re still going to have many other expenses that you simply can’t predict yet. If you claim you’re determined to have a frugal wedding (which many people say, by the way), then the question to ask is this: “Under what conditions might I find significant future expenses that I didn’t predict?” Ever hear of the hedonic treadmill?

I’m willing to bet one of the commenters who complained this post is “obvious” hasn’t cut costs, automated, created a Conscious Spending Plan, earned more, optimized his spending, maxed out investments, and created sub-accounts for his future 10+ year spending. I’m not being sarcastic — if you have, please let me know and I’ll call you because I’d love to profile you for my readers.

“Obvious” doesn’t mean “easy.” But that’s the point of the post, isn’t it?

As commenter Sara said:

“To pretend you know exactly what you want now (at say, 25) for when you are 50 is the equivalent of adamantly stating when you are 5 that you hate all boys/girls and will never like them. It’s utterly ridiculous. All you can do is acknowledge that your current self cannot predict everything that will happen in your life, or everything that you will want, but it’s probably going to cost more than you think. So instead of spending so much energy being defensive, why don’t you critically think about his point, and whether you want to apply it to your finances?”

Now that I’m writing, let me go on a little bit: One key insight of writing a blog for a large audience has been how entitled people feel in getting a tip that’s exactly written for their specific situation. “I’m 60 and widowed!” people say. Or, “But I’m gonna have a vasectomy!”

A post addressing your specific situation is not going to happen here — you need to use your imagination and think about how to apply them to your life. And I’m not going to water down this blog with equivocations and qualifications (as ec213 points out).

The sad thing about this is the smart people already know this. I have to write this comment for whiners who (1) constantly complain about this site, (2) will never buy anything, and (3) repeatedly threaten to leave.

With that said, I LOVED writing this post and I love reading these comments even more. Look for MORE posts like this.”

By planning to live an ordinary life, you give yourself the means to be extraordinary.

The original post on the 10 Year Savings Strategy is here.

Follow me on Twitter to get frequent micro-updates that I only post there.

“It’s easy enough to point out the insignificance of planting a garden, buying fewer clothes, or using fluorescent bulbs…But the ecological irrelevance of these practices was beside the point. What downscalers offered was not a better way to reduce emissions, but rather, a way to reduce guilt. In 2007, we asked environmentalists in focus groups about green consumption. None thought that consuming green would do much of anything to address a huge challenge like global warming. They did it anyway, they said, because it made them feel better.”

What is the point of saving money on obsessing about small expenses like lattes? Is it to truly save money, or is it to reduce guilt?

I’m curious to hear what you think, although iwillteachyoutoberich readers are self-selected against small frugality.

I’ve always believed that you can’t out-frugal your way to rich. And it’s not just about the math ($3/day doesn’t really add up to that much). More importantly, it’s about the psychology of big wins: Most of us are never going to completely stop spending money on the things we love — especially daily things like our morning coffee — so exhortations to “just stop buying those lattes” are invariably meaningless. Plus, there’s the Paradox of Choice: The more things we worry about, the less we do of anything at all.

And then there’s guilt.

If there is one thing I hate, it’s behavioral change based on guilt. Yes, guilt can cause you to change your eating habits or spending, but the attitudinal and behavioral change is usually short-lived and ineffective.

In Guilt and Our Choices, I wrote:

In college, I never understood the jackasses who would say they had “tons of work to do” and that they “should work” and would go to the library for 13 hours, where they would chat on AIM, read maybe a total of 25 pages, and come back telling everyone they’d been at the library “all day” (wipe brow). This smacks of stupidity and when I saw this, I thanked god that he made me a tall but frail man, because if I were Mike-Tyson-sized, there would be some trouble for everybody.

I’ve found that guilt is a hugely insidious influence for people, especially people our age. We’re making decisions about classes, careers, money, and life because of guilt in a hugely disproportionate way. How many people do you know that major in econ because they’re guilty about their parents paying $160,000 for them to attend college? Or they go to law school? Or choose some particular job because they “should”?

How much of “saving” money is about guilt? Do we feel guilty about splurging for dessert or buying those jeans…but then do it any way? How many friends do we know who say, “Yeah, I really should save more money…”

Or do we create a conscious spending plan, decide strategically what we love and what we don’t, and spend accordingly?

I’m curious to hear what you think about guilt and spending. What do you do? What do your friends do?

Today’s post on mental accounting is by Claire, who holds an MBA and other degrees from Stanford and Oxford.

Belsky and Gilovich have a big job ahead of them. In only 215 pages, they want to explain to you why you’re an idiot. Sometimes.

Promising to give you “lessons from the new science of behavioral economics,” Why Smart People Make Big Money Mistakes was right up my alley. I love learning about the motivations behind spending, saving, and doing dumb stuff with money. This book promised to answer some of those fascinating money questions. Why are so many of us willing to spend so much more for a product bought on credit than with cash? Why do business executives spend ever-increasing amounts of money on failing products or money-losing corporate divisions? Although originally written in 1999, the book holds a wealth of wisdom for all time.

Learn Mental Accounting:

Behavioral economists say that mental accounting works like this: let’s say you have bought a $150 ticket to a concert. When you show up at the door and realize you have lost your ticket, do you buy another? Probably not.

But let’s say you hadn’t bought the ticket yet, and you show up at the door of the concert hall to buy your ticket. Unfortunately, you realized you’ve lost $150 in cash since you walked from your car. LUCKILY, you still have enough in your wallet though to cover the cost of the ticket. Do you buy the ticket? Yes.

Why?

Both scenarios are a loss of $150. However, in the second scenario you separate the losing of the $150 from the purchasing of the ticket. In the first you consider the cost of the event as a total of $300 and retch at the high cost.

It turns out that Mental Accounting is a huge contributor to the low rates of savings in the US (in 1999 it was 4% in the US and over 15% in Japan).

When Do You Use Mental Accounting?

How can you know if you are more likely to be affected by mental accounting? Here are some clues:

• You don’t think you spend, but you have trouble saving
• You have savings in the bank, but your credit cards aren’t always paid off
• You spend more with credit cards than with cash
• You’re more likely to spend your tax refund than your savings on a new itouch

Things You Should Know about Mental Accounting:

• We have a tendency to value money differently depending on where it comes from. If you win $50 in the lottery – considered “found” money – you more likely to spend that on garbage than the $50 you earned on the job. If you get  tax refund – you’ll run out and spend it instead of saving.

• We are victims of the concept of “relative cost”. You want to spend $10,500 dollars but the used car dealer says  it’ll be $500 extra this time of year. Mental accounting tells you that $500 in compared to the cost of the car isn’t that bad. But you want to buy a washing machine for $500 – you show up and they say it’s now $1000. Do you buy it? No. Mental accounting tells me that’s crazy talk.

• Plastic equals fake money:It sounds like the oldest most overused money trick but it still holds true – people do spend more with credit cards. When the weight of your wallet doesn’t change, you are less likely to think you’ve really spent anything.

How can you fix the problem of Mental Accounting?

• Do what the book says: “Imagine that all income is earned income.” You worked for granny’s xmas check, so don’t waste it.
• Pretend you don’t have the plastic. Although Belsky and Gilovich haven’t gone all Dave Ramsey on us and told us not to use credit cards, they are saying we should stop and think: would I buy this if I was using cash?
• Use mental accounting to your advantage by automatically funneling money out of your paycheck (Ramit does this, and has told you to follow suit)
• Remember that money is money. $3,000 more on a $200,000 house isn’t less money than $3,000 more on a $3,000 dining room set.
• Record keeping is the key to success – I’ve always claimed this, and this book enforced this more than anything. (Yes, we’ve regressed back to Ramit’s dreaded David Bach latte factor.) Little things can add up. $10 a day in extra soda, gum, magazines and lunch out is $3,500 bucks a year.

Did I like it?

Oh yeah.

Will you like it?

If you want to learn about your mind, and not crunch numbers, you’ll get a kick out of it. Heck, win it here.

Take away point?

Money is money is money. Your mind, however, can be on crack.

Claire is an author of the upcoming book, Over-Choiced, and has been featured in such publications as Business Week and The Huffington Post, and at her money-saving blog, Choyster Cash. Get “Why Smart People Make Big Money Mistakes” on Amazon.