Here’s an excerpt from last week’s IWillTeachYouToBeRich chat

Ramit Sethi

Last Wednesday, I decided to try something new and held an online chat with IWillTeachYouToBeRich readers. Lots of you asked for a transcript, so below is an excerpt.

The chat was pretty cool: I think we had something like 100-200 people over a couple of hours. Next time, I’ll work on finding a better chat room to host lots of people without it getting so chaotic. Also, to the lame troll who changed his nickname to mine and started robotically saying “You must open a Roth IRA,” get a life. You do give good advice, though.

For now, here’s an excerpt from the chat room. Note: It was informal and there were lots of conversations going on (the full transcript is over 100 pages long!!), so some of it is a little disjointed. Special thanks to Mark Troutman for picking out the key parts of the chat.

Quiz: What is your earning potential? Choose the answer you agree with the most
View Results

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Q: ok, so…how do you write your posts, then?
A: how do i write my posts? for the short ones, i read a bunch of blogs, magazines, books, etc and save a lot of stuff that i want to write about. then when the mood hits me, i try to write something short. the longer ones, i put up topics on my pbwiki and add notes to them as i go along…writing a long article takes about 8-15 hours to actually WRITE, but usually about 1-2 months to develop. so i have about 18 articles in limbo on entrepreneurship right now

Q: Ramit, what do you personally use for budgeting and managing your finances?
A: i use quicken, excel, and paper to manage my budget — but i’m working with a part-ner on a new app to manage finances, so i’m waiting to switch entirely over to that one

Q: What do you think about the conventional wisdom to invest at least the match per-centage in your employer’s 401(k) if the investment choices suck?
A: my thoughts: yes, i think matching is a NECSSARY part. so please, please, if your employer matches, please max that part out at least — even if the options arent the best. remember, it’s a retirement account and, if you invest in the proper high-growth mode, you’ll at least make more than you could sitting

Q: I opened a Roth IRA with Etrade and they started talking about investing the money I’ve deposited. I guess I had thought the money just sits there, now I’m kind of dumb-founded as to where I start with investing it
A: the answer is, no, your money SHOULDNT just sit there. you can invest it in anything (stocks, bonds, mutual funds, etc) — just like any other investment, except you get huge tax advantages. read my post on retirement accounts to figure out how to start

Q: I have a bunch of cash in a traditional saving account and was going to try an CD. But I read that online banks regular savings accounts for the same rate. But I’m wary. How do I find a good online bank?
A: CDs are not for young people, and high-interest savings accounts give you compa-rable interest. INGDirect and Emigrant Direct are the best ive found

Q: I’m planning on investing in a high-interest online savings account. Emigrant Direct has the highest interest rate, so that makes the most sense to invest in. Are there any good arguments for going with HSBCdirect or ING instead?
A: go find the site that makes you comfortable and you can get someone on the phone — and do it. more money is lost from indecision than bad decisions. After I wrote the posts about high-interest savings account, a BUNCH of people wrote me saying how happy they were to open one. now, that’s good…BUT it doesnt stop there. a lot of peo-ple were satisfied, like “i did it!” —> no, opening ING (or whatever) is just the 1st step. remember, huge growth doesnt come from your savings account.

Q: What about CDs at the online banks if you’re saving for something near term? —
A: Yes, if the illiquidity doesnt matter much, thats cool

Q: Currently I invest about $200 a month to a Roth IRA account with etrade. Some of the stocks I want to buy are $20-$30 and sometimes I can only buy 20 shares. Do you think that is a waste?
A: yes, losing 10% is TOO much for a trade — that means the stock has to appreciate over 10% just to break even (including trading fees). call them up and ask to see what you can do about consistent investing. also look at places like sharebuilder, etc

Q: i know you’re opposed to keeping most of your money in a savings account, but what if i plan on using that money for a down payment for my first property in about a year?
A: a year is too short for most investments — just keep it in a savings account. you dont want to lose 25% in the stock market, heh

Q: Should we be investing a greater percentage of our assets in index funds or in indi-vidual stocks (suppose we’re long term-investors)
A: i cant give you a specific answer to this, but.. a great stock can absolutely trounce the market. the problem is most investors cant pick stocks worth a damn. id start with index funds, and when you get more sophisticated, then you can try buying individual stocks if you feel comfortable

Q: Give us your perspective on personal-finance budgeting software
A: i think most of it is bloated garbage that has 328529359823 features. the hardest problem for people is not “how do i calculate my tax-deferred mortgage benefits”…it’s “where the hell is my $ going.” so here’s the deal: go try them all, mvelopes, pear-budget, quicken, MS money. use paper for all i care (i do.) the key is, what are you go-ing to stick with? literally, in my classes, the hardest thing i teach is keeping a budget for more than 4 weeks. the tool doesnt matter — your discipline in keeping your budget does. and after 6 weeks of tracking your spending, you will be SHOCKED, i guarantee it

Q: How did you get started giving speaking presentations?
A: ill be honest, i am still working on making that a bigger part of what i do every day. i LOVE speaking. but its a challenge to get speaking gigs. i go outbound quite a bit using my network, friends, contacts to help get me into companies/schools. sometimes i get people emailing me from my site saying, “Can you come speak at XXXX.” the speaking part is great because i can communicate the entire site (and more) in about an hour — plus the stories ive heard from my friends from doing this for a long time.

Q: Do you plan to do any classes in the Los Angeles area?
A: if you email me and bring me to speak there, i’ll do it

Ramit Sethi: ok, actually, let me talk about something else. you know, its funny on my site, i write a blog post a day (or whatever), its fairly disjointed so its a challenge writing for people who have been with the site for a long time, vs. casual readers who stumble upon it so i am really careful to actually LIMIT the information i write. too many sites write every little teeny thing about what you should do. im the opposite, id rather limit the information because the more information you have for young people about $, the less likely people are to do something (it’s just overwhelming) so technically, i would love it if people opened a retirement account as almost their first action of investing – save tons on taxes, think long-term — but you have to be careful in talking about Roth IRAs before people uinderstand a savings account. again, the financially correct deci-sion vs. the right decision

gabber884: I’m good at saving, just not good at investing

Ramit Sethi: youre probably inexperienced, not “bad”

gabber230: But, if folks are REALLY interested (read interested enough to DO some-thing), wouldn’t they do the research for themselves?

Ramit Sethi: no. absolutely not, most people wont. listen, one of the titles of my future articles is: “The bar is so, so low”. thats because tons of people WON’T do what they could to make simple changes — lose weight, start a savings account, invest, etc. thats why its so easy to be a winner — it doesnt take much. literally, the logic of “if people really cared / if it were really good for them, people would do it” is so flawed because that would suggest people should start investing at age 22 or earlier yet most people dont!

gabber102: because people are scared. thats why they don’t invest

oLD HAG: They also don’t all have 401-Ks

gabber230: But isn’t that “not caring”

Ramit Sethi: i think they just dont know

maryam: or theyre broke

Ramit Sethi: oldhag, you dont need a 401k to invest. guys, i dont have a 401k. do you realize that?

Q: what’s the max percentage of income that should go towards paying a mortgage?
A: my answer is sort of meaningless because if i said 10% (and you were paying 40%), what would you do? –> nothing. search it online to find recommended amounts (al-though things have gotten out of whack lately)

Q: what do you do when you graduate”
A: guys, student debt is good debt. depending on the interest rate, its ok to have it and pay it off slowly. if its like 9%, however, thats not the same thing. however, some people feel completely overwhelmed by having a large debt amount — even if its at a low inter-est rate. for those people, they may want to add more to their monthly payments. other people may say, “hey, i can make more in the market, so i’ll continue to pay down the minimum on student debt.” whatever you do, do NOT forget about your retirement ac

Q: Do you recommend any books for novice investors?
A: yes, ill be posting some book reviews soon (like 321538905 people have asked me this one)

Ramit Sethi: ok, hey guys, lets go over a couple of things. first of all, dont ever get those stupid credit cards at retail stores. i cant count the # of times ive seen someone in front of me getting one for like 10% off. i want to shake them and beat them but i dont. first of all 10% is not that much for one purchase. 2nd, those retail cards are the worst — if you miss one payment, theyll jack your credit up. so avoid them. if you already have one, dont close it, just dont charge more (and make sure its not carrying a balance)

Q: how do i make a million dollars from my lame blog?
A: oh i LOVE that question. i was recently on a blogging panel in front of a bunch of indians. guy kawasaki was a co-panelist, chris pirillo too and lots of people wanted to know: “how do i make $ with my blog?” so here’s the deal – too many idiots try to make money with their blog from 1st order effects (largely ads) – i think this is stupid for 99% of people considering that MOST PEOPLE DONT MAKE MUCH MONEY FROM BLOG ADS AT ALL. so the smarter way, i think, is 2nd-order effects, and i can talk about those for a sec. for my blog, i’ve made money from 2nd-order effects like consulting gigs, job offers, speaking. those are worth far, far more than i could have ever made through ads. i calculated one of the things i made and it was equivalent to like 19 years of ads. some people get book deals — another 2nd-order effect. here’s the deal with 2nd-order effects: dont try to rush it. i get people emailing me, “i have a blog that’s 2 months old, where is the money!??!!” and i roll my eyes. if you are trying to make money after 2 months, for-get it. read my post, “On Greed and Speed” for more info

Q: should i buy a house right now?
A: now let me be very direct. first of all, thats a pretty dumb question. who am i to tell you? tons and tons of economists got it wrong – “the market is going down”, “the market is going up” so listen carefully to me – read what smart people say. listen to what they say. and make your own decision. with that said, i havent bought a house even though my family has recently become very interested in real estate. i simply have other priori-ties right now, like investing in myself. im taking the cash flow i would have spent and spending it on myself. and i want to be clear about this – the other day, i was at an en-trepreneur dinner with a bunch of fancy entrepreneurs (i was the youngest guy). there were CEOs of public companies, successful people who’d sold companies, etc and we were talking about investing and we all agreed — investing in yourself is the most power-ful investment you can make in yourself. youre only limited by hard work and luck in-vesting in yourself for me is being able to hire people to do projects i need done

Q: tell us MORE about investing on ourselves/yourselv
A: first of all, i bet everyone in this room has $X they can save every month. now ask yourself, what would you do with $100 more/month? would you spend it on shoes? would you use it to buy a book? would you use it to hire someone for 1 hr of consulting?

Q: will closing my credit card affect my credit?
A: in general, yes, but you should call your CC company and ask. also in general, keeping a card open is a good thing to do — it shows your credit history is longer-sustained.

Q: Ramit What would u do with $100 every month
A: i’d probably either invest in my roth IRA or use it for a project ive been wanting to do. i have small ideas i want to do — little sites, design work, etc — thats what im talking about but i am limited on time

Q: do you ever experience burnout?
A: do i ever experience burnout? sure, when it comes to posting on my site. thats why you’ll see that some weeks i take them off (thats when lots of people start getting mad — see my I Bought a Tie post, heh)

Q: How long should you maintain a credit card before calling your credit card company and asking for a lower rate?
A: maybe a few months, there’s no formula

Q: I can’t seem to be able to budget wisely – I do great at the first of the mont but then crap out at the end and wind up buying 20 bucks worth of magazines or 5 albums on iTunes – How can I stay focused?
A: there’s no secret — it’s just about discipline and entering your data every 2-3 days. after that, youll forget it

Q: What do you think about charity? Do you think it is important? Do you donate your money or time?
A: i absolutely love this question. the answer is yes, both in terms of time and money setting up a scholarship to give back, writing for free, and giving talks for free.

Q: dont you think charity makes people “dependent”, isn’t better to make them earn it?
A: no, i dont. it depends where you give your money. you look at a foundation like the Gates Foundation, it’s run immensely well. i think the benefits from giving to charity are numerous, and you can see people in here saying the same thing.

Q: for ppl that are able to be financially focused…would you recommend using a credit card for daily purchases over a debit and cutting one check to the bank at the end of the month to help your FICO score
A: my answer: credit card. btw, i use my credit card for everything possible (it’s easier to track in quicken/money/etc.) with cash, i have to keep the receipts, enter them manu-ally = barrier

Q: what do you think about not spending anything on credit cards? everyone else is in trouble so why not use cash only!”
A: that advice is not for smart people who read personal-finance blogs. i hate that ad-vice because it panders. it assumes, “everyone else mismanages credit cards, so you probably will too” ARE YOU A MORON I WANT TO YELL answer: no.

Q: what % of my income should i invest?
A: 1. no one-size-fits-all formula is good. if youre using that, youre being stupid. 2. with that said, 10% is a bare minimum for what young people should be saving. my students generally save 25%-30% (cant do it? read It Never Gets Easier Than Now)

Q: Should you have a business plan if you’re going to run a start up? — we didnt, and if you have a web startup, these days (in my expdrience), its rare. Should you get a good lawyer and accountant?
A: YES! its worth it! [referring to a lawyer/accountant, not the business plan]

Ramit Sethi: ok, let me give you a higher-level description of my startup work. after i graduated, i had an offer with google but wanted to work on my own stuff for a while. so i consulted for a few VC firms, worked casually with PBwiki. things really started going well with all the things and i was having a great time — working from home, meeting tons of people. $ was tight but i was loving every minute of it. PLUS, i could work on my own side things (like iwillteach)

gabber230: how tight?

Ramit Sethi: tight enough that i couldnt splurge on weekend NYC trips too much like in the past. tight enough that, oh, yeah, i dont think i was taking a salary from PBwiki at all. anyway, i decided to go fulltime with PBwiki. that shocked a lot of people and i talked it over with a TON of advisors, friends, etc. at that point, pbwiki was 2 people, we grew it from fairly small to pretty big, then we brought in a CTO. we also started to figure out our business model, how to grow and make $. meanwhile we were ultra-lean – we JUST got an office last week. until then i worked from home (which i love) — now i go in for a few hrs/wk

Q: do you wish you would have worked for google?
A: ill tell you my only regret about not working at google 1. i could have bought a bunch of new stuff with that salary. 2. half my friends work there — they really hire the best, but ultimately, i decided i could go back corporate any time, and this was the opportunity of a lifetime.

Q: what interested you in a wiki knockoff? honestly…
A: i hope we’re not a wiki knockoff : ) we create new features every day, and ill tell you what attracted me to it 1. the team — david was absolutely brilliant and we had the SAME ideas about business, he brought an absolute juggernaut of coding experience to it. i brought marketing/business experience. and at least in my judgment, here’s what i thought 1. this is growing quickly. 2. its a good product, and i can help make it great. 3. there’s a need. 4. even if we fail on this, we’ll eventually get it right with this team.

Q: Do you ever have problems having TOO MANY ideas at the same time and not knowing which one to go for? (that’s me by the way)
A: yes, but ultimately, if you do zero of them, theyre worth 0. read “the myth of the great idea” on my site

Q: Are entrepreneurship classes at college worthwhile?
A: hmmm. i took a few at stanford, they were ok. i learned some big insights, but ill be honest: theres nothing like doing it

Q: how did you meet the people you started pbwiki with?
A: david and i were introduced through a stanford professor who got us together and said, “you guys need to start a company together.” we danced around the idea for about 1.5-2 yrs before we did it

Q: did you take any of the management and science engineering classes at stanford?
A: yes, i took quite a few MS&E. MS&E classes were interesting — practical terms, maybe a little light, theres nothing like doing it

Q: What was your first business exp, Ramit
A: first biz experience: working for a webhosting company in high school (over the phone, doing sales/marketing), then starting my own consulting company after high school then starting a failed web company in college. i learned more from my failed companies/internships than anything else

Q: Does your first business have to be groundbreaking or is simple a good way to start?
A: guys, what matters is getting started. read the myth of the great idea. there are so many things – the idea is not novel/secret. execution matters.

Q: Ramit, what are your goals?
A: thats a really broad question, i dont know. to work with smart people? to do what i want to do? to have a big impact? to never have to make a bad decision because of money.

Q: What are your goals for iwillteachyoutoberich?
A: now thats a good question. i think i have a couple of goals 1. expand the reach or-ganically — my FAVORITE THING IN THE WORLD is running into someone at a party/etc who says, “oh you’re that ramit? i read your blog!” the majority of my readers have come from word of mouth, so i love that. 2. i want to get my writing in front of more people. 3. i want to speak more 4. i want to try some experimental stuff, like (maybe–no promises) podcasts, video, different media methods, delivery methods, etc.

Q: What do you think about joining organizations, like young professional of whatever city, etc?”
A: here’s my deal with that. first of all, i think most people misunderstand “networking” and it has an undeserved negative connotation. for more on that, read “Never Eat Alone.” 2nd, i think often we spend our time “networking” with the wrong people. its like, is it important for your business to network with other hungry entrepreneurs? or should you read the right publications, identify the 5 people you want to talk to, and go after them? this is why i never understood why people spend so much time submitting their articles to Carnivals of (whatever) considering its mostly BLOGGERS who read the posts! not new people!

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  1. Cody McKibben

    Wow man, I think this chat thing was an excellent idea. I am so dissapointed I missed it.

    You never spoke much (at least not in the excerpt) about if you have a business plan for PBwiki. Do you guys outsource much of the actual nitty-gritty work to real tech geniuses and just handle most of the self-promoting and making deals yourselves? And who are the type of people Ramit Sethi eats lunch with? (in other words, who are your 5 networking contacts/mentors/etc?)

  2. Jon Payne

    “A: guys, what matters is getting started. read the myth of the great idea. there are so many things – the idea is not novel/secret. execution matters.”

    I love this, and agree wholeheartedly. If you spend your time refining the perfect idea and delay actually getting started you don’t stand nearly as good a chance at success. I have several ventures I’ve started myself and I run a web marketing firm, so I’ve seen my share of both successes and failures. Action and putting the effort on the implementation is the common denominator in the successful cases.

  3. candice

    Thanks for posting some of the transcript.

    I’m in consulting/startup hell (well, the moneymaking good kind) and didn’t get time to stop in for it.

    (Maybe I’ll throw my hat in for friday entrepreneurs when the business has a website that doesn’t look so hasty and awful. Soon, I swear.)

  4. J.D.

    I love your comments about making money from blogs. You and I have talked a little about this via e-mail. I wrestle all the time with whether or not to have ads. They do provide an income stream, but it’s smallish. And it’s never really going to be enough to support me. Ultimately I’ve decided that if the ads are relatively innocuous, there’s no harm in leaving them.

    At the same time, though, I’d love to strip them off completely. I’m afraid that would take away the carrot from the stock, though, and I’d have less motivation.

    I’m not sure why I think this, though. It’s a Barrier of sorts. I blogged for FIVE years without any thought to revenue. (Though, admittedly, that was for a personal blog, a blog I did in my spare time.) Why shouldn’t I be able to do it now?

    It’s one of the fundamental questions I wrestle with EVERY day.

    RE: credit cards — My position is changing. A little. I still don’t like them, especially for myself, but I think the key is to KNOW YOURSELF. If you have think you have a problem with credit, don’t use it. If you can handle it, then by all means: make use of them. I still think it’s wise for college kids to take some time to get accustomed to managing cash before they obtain credit, though.

    Great post.

  5. John

    If you had some kind of forums on your site then you could have all the instant feedback benefits of periodic chats without the drawbacks of chatrooms. For instance when people decide to behave like idiotic trolls you could just permanently ban their IPs from using your forums. Also it would keep things simpler and arranged by topic and let you respond to posts when/if you feel like it rather than feeling rushed to respond to 100 different finance questions simultaneously being thrown at you.

  6. John

    You don’t have a 401(k)? You max out your Roth IRA at $4k. And then you just stop? Any tax bracket above 15% needs a 401(k), don’t you think?

    Also: There is no such thing as good debt. There are good investments, worth incurring debt, and serious learning is high among them.

  7. John

    I also remain modestly shocked by your view that CD’s aren’t for young people. How do you recommend young people (or any people) beat 5.31% in a Roth (where there’s no tax on CD proceeds)? This is *guaranteed* gain.

  8. Jerry

    Man, you need to really rething the credit cards thing. If you can’t control your credit card – don’t even think of becoming rich. Credit cards are a must for the entrepreneur and most come with the added bonus of interest free days and reward points. I’ve gotten many free trips overseas thanks to the free miles! Also, imagine going out for dinner with 20 people. Bill comes up to $1000. You collect the cash, charge it to your card and walaa, that’s $1000 interest free until the next payment date.