The first post of 2009 — How to dominate your personal finances

Ramit Sethi

This year is going to be awesome. I can tell you this for sure, because this year we’re going to:

  • Learn how to automate your money — one of the most important parts of making sure you hit your money goals consistently
  • Have crystal-clear answers for the most common personal-finance questions: “Should I buy or rent?” “Should I pay off my debt or invest?” “How do I invest?” “How do I save more money each month?” — and be able to explain them to others.
  • Learn how to avoid crackpot prognosticators that try to predict which way oil, stocks, and real estate prices will go…and nearly always get it wrong.
  • Learn more frugality tips that really work, as well as tactical tips for easier investing, negotiating, and tracking your money

I’ll do this through more detailed blog posts, videos, Money Diaries, interviews, and my new book (coming out in April 2009).

I know first posts of the year are supposed to cover resolutions, but I think these three posts do a better job than I could:

Jared Goralnick points out that one of the best things you can do is know what you want.

K notes how New Year’s resolutions must fit into your lifestyle

And the New York Times illustrates how almost all New Year’s resolutions fail

The truth is, I don’t believe in New Year’s resolutions. If you have to be really honest with yourself, did you actually achieve last year’s resolutions? Do we even remember what they were?

It’s time to get brutally honest
Few of us are honest with ourselves. I wrote about in The $28,000 Question: Why Are We All Hypocrites About Our Wedding?, where I pointed out how we all love to say “My wedding will be simple, but it never really is. If we acknowledged that our wedding would be over $20,000, we could start saving for it. And when I pointed out how much you need to save for a wedding, people’s jaws dropped.

Let’s get real.

When 90%+ of people consistently get the same result (failure for New Year’s resolutions), I start to believe that the real answer is, “forget it and acknowledge the truth.”

For example, when I constantly tell myself I’m going to take work home when I go to visit my parents — yet I’ve never actually done any work there — it’s time to be honest and acknowledge that I’m never going to work while hanging out with my parents. Now, I leave my work at home and enjoy my vacation.

When you constantly berate yourself for not keeping a budget, even though everyone says you should, it’s time to forget it and find something that works. (I’ll show you how in a future post.)

Consistency, not magical moments
Success is not about some special moment in time, like the first of the year. If you haven’t been able to do something all year, there’s very little chance that a New Year’s resolution is going to change that.

This year, like every year, is about sensible changes. They may not be as sexy as announcing to your friends that you have a new resolution to lose 50lbs or you’re going to cut your spending by 50% in 1 month, but systematic changes work. Make your money flow automatic. Understand where your money should be going (debt vs. investing?). Figure out how to run the numbers so you can see if one decision is better than another.

It’s not as sexy as “15 stocks you must buy!” or “18 banks with better interest rates than yours,” but it actually works. I’ve written about why sensible goals impress your friends, get you girls, and help you lose weight. As I always say, would you rather be sexy or rich?

I need your help, though. You need to decide what you want to accomplish this year. If you’re looking for quick tips that will be silver bullets, this isn’t the right blog for you. If you want someone to help you save money using extreme frugality tips to save an extra few bucks here and there, I’m not your guy (there are better frugality bloggers out there). And if you have no idea why you’re earning, spending, saving, investing, and automating your money — or if it’s just to keep up with your friends — this is definitely not the site for you. I need you to decide why you want to be rich — and what rich means to you. Do you want to pay off your debt this year? Or be investing $500/month by June? Or save up for a vacation to China?

Once you know where you want to get, you can take my tips and apply them to your life. Everything falls into place once you’re saving and spending towards something.

I’ll help with the best tips I can write for you. For an example of some of my favorite tips, please check out my Save $1,000 in 30 Days Challenge (scroll down for the tips). I spent over 150 hours writing those tips, and they saved people hundreds of thousands of dollars. Expect more highly tactical tips like that, but directed towards topics like investing, negotiating, and more.

Later this week, I’ll post my 30th tip of the 30 Day Challenge.

Then we’ll get on to the new stuff.

It’s going to be a great year.

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  1. Eric S. Mueller

    For the record, my wife and I did our wedding for under $4000, which includes all parties involved. That figure includes her dress, our honeymoon, and a luxury rental car for a week, my parents’ and grandmother’s flight and hotel stay, and food. When I found that the same $300 would either get me 3 hours of a Rolls Royce or 1 week in an Oldsmobile, I went with the Olds.

    I’m looking forward to a great year.

  2. Sam

    Interesting, my wedding was right around $10,000 this past spring in the Northern Virginia area. It has inspired friends of ours to tone down their weddings some simply because ours was so enjoyable.

  3. Writer's Coin

    After that post, I’m pumped myself! Let’s rock it.

  4. Adam

    I hate you now., I want a quick easy fix!!!

    HAha lol

  5. Joshua

    You know Ramit, I’m actually wondering how I (we) can save money on our wedding? I’m 24, without a girlfriend, but my jar dropped when I saw the average cost. In 2009, I’m starting a wedding fund and will save bit by bit each month (via ING subaccount). Maybe you could write a post on HOW we all can save money for our wedding, such as areas of costs to cut, ways to involve our friends/relative for roles, do-it-yourself invitations, etc. I’m all up for frugal wedding but doesn’t want to disappoint my future wife by having a hosting a bad wedding either. Although it’s impossible to predict when you’re going to get hitched, but I’d like to assume that I’ll get marry by 30 (so 6 years from today).

  6. Anne Good

    Great stuff as always, Ramit. I’m looking forward to your new content. Too bad the mainstream financial media doesn’t pay more attention to you and other similar voices.

  7. Jared Goralnick

    2009 really is going to rock. I look forward to your, as always, tactical but thoughtful recommendations. (I even went ahead and bought an Entertainment book after your recommendation, though I hadn’t seen one of those things since like 1992.)

    I do believe in goal-setting (not so much “resolutions”) and leading up to a New Year is a good time for me to reflect on the past year. It’s kind of like a Status of My Life time, where I get to re-plot my path. And those goals I set do end up guiding much of the rest of the year. But maybe I’m atypical–I guess the thing is that most people who come up with resolutions think of them for about 15 minutes and throw down unreachable or intangible things. I mention all this not as a critique of your approach, but because I would someday be curious to hear what (if any) high expectations you have for yourself in the new year :-).

    Anyhow, thanks for the link over to Technotheory, and have a rockin ’09.

  8. Bradly Fletchall

    My fiance and I had a hard conversation last night about our wedding budget. We had totally blown it and now we are cutting back. We had hit $29,000.00 and simply don’t have time to come up with that much money by June of this year.

    We are now going with the white linens that are included with the ballroom instead of the $4.50 per table linens that match her colors. No chair covers ($4.00 x 180). The chairs look fine really. Oh and we cut out the photo booth. It would have been cool but it was $1000.00. With other cuts we got the cost down to around $23,000.00 which puts us back in range.

  9. Asmita

    Seriously, it’s great to see you in my Reader. My “new year’s “resolution is to stop procrastinating. Believe it or not, this blog helps me do that. I am already feeling energetic.

  10. JR

    You’re spot on with new year resolutions. It feels good when you’re writing them down, you imagine how good it’ll be when you finally achieve them, and three months later you don’t even remember what they were.

    I’m looking forward to your articles on investment strategies and automating money flow.

  11. stephanie

    I’m glad you’ll be talking more about investing. I’m pretty good with saving, but don’t know much about investments. I have a 403(b) and a Roth IRA, but both contain simple mutual funds. I’d like to start saving in vehicles that I can withdraw from at any time (since I’d like to retire before 59 1/2), but I don’t know where to begin. I’m looking forward to your articles!

  12. Trendy Indy

    Good Post, I have paid off 12000 dollars in debt after I started reading your post and started saving at the same time, though in small amounts, I have 9000 dollars left to pay and I sure I will pay it down by April.

    Thanks for your informational posts.

    Happy New Year and YES, its going to be a great year.

  13. Freddy

    Ramit, great writing, really! You’re raising my expectations! 🙂 I’ve always loved this blog, but I’ve never taken your domain name too seriously. Up till now. It seems like you’ve got really big plans for us! 😉

    One question: when you speak of ‘automated income’, what do you have in mind? Not solely investment income, I hope? Because in that case I’d prefer more focus on entrepreneurship. It’s a very interesting topic where I feel I could learn a lot from you. We’re about the same age and when I see someone my age doing admirable things I don’t see myself doing (yet *), I want to learn from that! This is in fact the main reason why I’ve been following your blog.

    Anyway, I wish you and all readers a fruitful year with lots of insights and inspiration!

  14. Mike @ TheThriftyLife

    My wedding cost less than $150. $45 for the marriage license, $45 for the justice of the peace and $60 for dinner. And it’s still the best $150 I’ve ever spent.

    I have to criticize something though. You say:

    Everything falls into place once you’re saving and spending towards something.

    It would be nice if everything fell into place, but it doesn’t. Things will go wrong, emergencies will happen and you need to be prepared for them and expect them. When they happen you need to stay level headed and deal with it as best you can. If you fall you need to pick yourself up and go back and read the writers who inspired you in the first place. Bottom line is you need to keep going because everything just doesn’t fall into place.

    Don’t get me wrong, I’m a optimist and I think if you build a vision, work hard and plan well, you can accomplish many things. Part of working hard is taking in information from many sources. There are many great blogs out there sharing tips and strategies and it would be simply stupid to ignore any that you find helpful. Including this one.

    On the topic of resolutions, some people need a “big-bang” approach to solving a problem or getting started on a new path. It can take considerable effort to turn yourself around and the new year serves as a mental fresh start for many. Most people don’t have the mental stamina to follow-through and stick to their goal, but that doesn’t detract from the event that serves to kick-start many new resolutions.

  15. Jonathan

    I agree with Freddy above, that the income automation bit is the most anticipated for me – particularly the business creation aspect – although investing instruments are always interesting as well.

  16. mike

    I absolutely love the energy in your post. Can’t place my finger on why, but I’ve been feeling optimistic about this upcoming year too, despite the “doom and gloom” portrayed through all the mass media outlets these days.

    I’m not much on resolutions either, but I do make short- and long-term goals. As for 2009, I’m hoping to continue investing at my typical rate in my 401k throughout the year, while paying off the remaining $8500 balance on an auto loan by June 2009, while also trying to save $20,000 in short term savings for a future first home purchase (likely will buy sometime in 2010-2012). Aggressive goals, considering my current income and family situation, but like I said, I’m feeling really optimistic these days.

    Happy New Year to you and yours. Thanks, as always, for the thought provoking insight and entertainment in your posts.

  17. Kyle

    2009 Goals :
    Pay off debts in order:
    $4k CC
    $4k student loan
    $12k car loan
    $10k in 2 Roths
    $12k for cash purchase of wife’s car
    $15k emergency fund
    To do all, have to live off just wife’s income or raise total income

  18. Battra92

    So I should start a wedding fund? What on earth for? I’m 26, single and happy to be so. I haven’t even been on a date since August and unless something changes in my life I don’t see it happening.

    Besides, it’s the bride’s family who should pay for everything. 😉

    2009 should be a good year for me. I’m working on figuring saving money on my car insurance and finally getting my own place.

    I look forward to reading another rent vs. own argument. It;s a bit hard for me to justify either, I’m afraid.

  19. Suparna

    I am single in life and will be married by December 09 but i want to be independent financially. Although i have no source of income do you think investing in Stock market this year can earn me some good returns for my marriage ?


  20. Ramit Sethi

    Suparna: No.

    Battra92: One of the differences between financially prepared people and people who ARE NOT prepared is that the smart ones plan ahead. You may be single today, but you know you’ll be married in X years.

  21. Studenomics

    Ramit: I love how you deviate from most other pf bloggers by avoiding all the frugality tips. Honestly I know it’s important to save a few bucks here and there because it all adds up but some advice is just plain absurd. I love how your tips on saving money involve the bigger picture and not saving 10$ by cutting your own hair. When I started blogging about pf I decided that I would share similar view points with you in the sense that I feel a higher emphasis should be placed on earning money and setting goals, as opposed to worrying about saving every penny.

    My question to you is do you plan on listing more controversial/risky options of earning money in 2009?

  22. The Personal Finance Playbook

    Glad to see you’re back to posting. I was coming here for no reason for days on end.

  23. Sonia

    Hi Ramit,
    I downloaded Suze’s books first thing this morning when I saw the email from TD Ameritrade. I love Suze’s advice especially to those of us who are starting out on our own.
    I also downloaded Women and Money last year and now this year I will have an extra 100 dollars in my ameritade account. I am so happy!

  24. Ruth

    Yay you’re back!
    2 things:
    1. THANK YOU for the time and work you put into your blog. I like that your posts are relevant and applicable and that you inject humor into them as well.
    2. Regarding today’s post, I think creating a firm financial foundation is actually pretty damn sexy. 🙂

  25. Barbara Saunders

    I downloaded Suze’s advice and have had an experience to share which contradicts a small point she writes. She recommended paying off all credit cards and not using them so as not to have to worry about interest rate jumps, etc.

    I am sure this is happening to other people as well. I keep several credit cards with no balances for emergencies. (Of 6 cards, I use one for day-to-day purchases, earn a rebate, and pay it off each month; one for business expenses, also paid off each month; and one for special purchases, such as all expenses for a recent business trip, paid off as soon as the reimbursement check was received.)

    I got a letter from Citibank cancelling a card for inactivity. It was bizarrely worded, like a “Dear Jane” letter: “We made a commitment to you … we apologize for not meeting your needs … there is nothing you can do to reactivate this account!” When I did use this card, it was for a large (several thousand dollar) purchase of business equipment that I paid off over many months at a low introductory rate. I guess that is not the kind of customer they want!

    So, I suppose I will have to go through the tedious exercise of making small purchases on all remaining cards so as not to hurt these companies’ feelings.

  26. Battra92

    Ramit: I guess I see what you are saying. I still don’t see marriage in my future (I don’t want to get married) but I suppose I do see what you mean about the whole planning ahead. I do that in that I have a savings account just for my housing which I know is coming this year and automatic payroll deductions.

  27. K

    Do you want to save money on your wedding?
    That’s the first question to ask.

    Our wedding was one of the best networking events
    I have ever helped organize.
    Our guest list of 300 all cared about us,
    all wanted the best for us,
    all wanted us to succeed.
    And on that one day,
    they were all focused on the two of us.
    That doesn’t happen very often, folks.

    I’m dang frugal
    (and yes, I wore a resale wedding dress
    and we negotiated with vendors
    but even I could see the opportunities,
    simply by looking at our guest list.

    Thanks for the link love, Ramit!

  28. Hannah

    I am a new reader to your site and I must say that I love it and will be a lifelong reader. I am looking forward to your advice on investing — I am a college student with some money to spare (due to a job) and I want to put it away before I spend it on stupid stuff. I would love advice on stuff like this! Thanks for your inspiration.

  29. Grey

    I’ll join the others saying that my wedding did actually come very cheap and simple. My wife and I made a decision and we stuck to it. All it all it was only 10 people. People break their new years resolutions because they don’t really intend to keep them.

  30. mike

    @ Barbara Saunders –

    None of my business, I know, but why on earth do you care if your seldom used cards get cancelled?

    If you build up a decent emergency fund and maintain one or maybe two (one business, one personal) credit cards… you don’t need those other ones.

  31. Margo

    Paying for graduate school, after you’ve been working for awhile and have some assets…do you cash in retirement assets or not?

    I’ve already done the cost/benefit analysis to support pursuing an elite program, and it is completely worth it. Given that the upfront cost is something like $60-70k per year for two years, is it worth cashing in retirement assets to cut down loans? Is it better to retain liquidity? The first $20.5K in Stafford loans per year comes at 6.8%, remainder at 8.5%.

    It’d be interesting to know the break-even points, esp. if you work up the numbers for a few scenarios, like a PhD program, a graduate arts degree, an MBA, etc., factoring in relative payscales in those fields post-degree.

  32. Elizabeth

    For the record, my husband and I did our wedding and honeymoon for less than $4000: we eloped to Las Vegas (spent a week on a hotel on the strip, which was most of the expense) and hired a decent photographer so we’d have photos to show the folks.

  33. Sam

    Joshua – I had the most perfect wedding (in my opinion) this summer for $10,000 (including rings, dress, venue, honeymoon, etc.). We put a lot of thought into what parts were most important to us and spent more time (iPod of music playlists, wrote our own ceremony) and money (a great venue, good food and drink = half our budget) on them. We aren’t religious so we did the short ceremony and reception in the same place, had friends help by being the dj, ushers, officiant, hair/makeup artist and photographer. Everything turned out really well because we took the time to plan it and focused on what was most important to us. In short, spend money on what is important, scrap or find cheap ways to do the other things and rely on family and friends to help! For lots of ideas on wedding stuff checkout It can be overwhelming at times, but you can get some good ideas and support while planning.

  34. malia

    I got married in Los Gatos CA a couple of years ago for just under 10,000. It was a beautiful wedding. Pretty stress free. It was a great start to my new life. We paid for it all in cash. Went hardcore saving about 13 months before the wedding. Made a budget and seperated out grocery, entertainment, gas money in cash. Paid our bills saved every bit of what was left for wedding.

    My wedding was part of a package deal through Los Gatos History Club. Go Ceremony and reception site, tables, linens,china, food, all beer, wine and soda you can eat or drink, DJ and cake for around 6 K. This was for 100 people. Everything tasted and looked wonderful. Everyone danced the night away. The package was the way to go.

    Favors total cost for 100 about $30- Purchased card stock, 100 anjou pears with stems, some ribbon, a pear stamp, stamp pad, silver pen and borrowed a whole punch. Printed out Thank You, our name, wedding date and the phrase “the perfect pair” Did several on on sheet(probably 2″x3″) cut out tags, puched wholes, lined the edge with silver pen, stamped the pear over the wrighting, (looks professional if you use black ink) punched whole and hung over each pear steam. Every guest got one pear. Sat it on each place setting as part of the table scape.

    Spent about $300 on flowers. Contacted a rose farm, purchased roses direct. Used about 1.5 dozen per table. Purchased silver flower containers at big lots took roses, made roses all same height used rubber bands to hold together tightly (or florist wire) chop bottom so they fit the vase. Put your flush cut rose steams in the palm of your hand, press move stems one way and hand the opposite so you make the steams go diagonal. Plop in vase. Tie with ribbons for Bouquets add some baby roses to the brides so you get a different effect for her bouquet. I suggest using all the same colors if you are not good at working with flowers, I am not.

    There is so much you can do with a little thought and patience. Good luck.

  35. Danielle

    In the last month I lost my job. My 2009 goal would have been to payoff 50% of our consumer credit card debt. But now its going to be more like… Find a better paying job and scrimp on everything else to make my emergency fund stretch as long as I can.

    I strongly agree with your “no new years resolutions”! I started a resolution about mid year last year of “no diets ever”. I also am on the “no budgets ever” bandwagon too!

    I try to do a quarterly evaluation of my life including finances, fitness, career, family etc. If you only check in on an area of your life once a year you can get really off track!

    I got married in 2007 and we targeted $10K and started saving as soon as we were engaged. We were within a few hundred of that amount, paid for it all ourselves and we had a wonderful wedding and eveyone had a a great time. We did charge and payoff over time our honeymoon.

    @Joshua – plenty of those type of sites and books and resources on ways to save money on a wedding are out there. I have a couple pieces of advice though…
    1) Even though my brother sang at our wedding as a gift to us, he is a poor college student so we ended up giving him $100 anyway. Plan accordingly.
    2) Having a family member be your photographer should be much cheaper, but you can often find people who have more experience than “aunt judy” but are still in the $500 cost range by looking for people that run home studios or a wedding photography business in their spare time. Plus they won’t be distracted from your photos by their own desire to visit with family.. and its easier for a stranger to be bossy enough to direct the family pictures.
    3) Stay away from specialty wedding stores for things like ring pillows, guest books, fancy pens, centerpieces, flower girl baskets… the markups are atrocious. Most big craft stores will have pre-made items and even more can be crafted up with ribbon or lace to be what you need.
    4) While we had a professional do our boquet flowers, corsages and 1 centerpiece for the head table, we just picked up random flowers (roses in orange and white for $30 is what we found) from Sams Club the day before the wedding for our centerpieces and my Aunts went to the reception site early to arrange them.

    @battra92 – A lot more people are getting married later in life, and the older more financially independent you and your wife-to-be are from you parents, the less likely you are to hit her parents up for the whole amount (and the more you pay for the more say you will have in the type of wedding). I don’t think you should be saving specifically for a wedding if you are not even dating someone seriously. If you do start to want marriage in the future you should probably start saving for a ring before saving for a wedding anyway.

  36. Cointreau

    I have a couple of questions that are never addressed in this type of discussion, and are especially relevant in this economic environment.

    First, wrt safety net savings, should it be larger now than before? Previously, I thought of my CC credit limit as part of my emergency plan. Now that seems foolish, since some CC companies are chasing balances downward as the account is paid down (lowering limits as balances drop, cancelling cards-see above). This defeats the “limit-as-buffer” approach. Since CC companies are scum and not worthy of trust, should one hold back more emergency cash rather than paying down balances more aggressively?

    Second, given uncertainties in the employment landscape, does it make sense to pay down a secured auto loan (say at 8%) before paying off a 27% CC balance? Failure to pay CC debt smacks you around in many ways, but failure to pay a car loan lures tow trucks. Is it better to pay off the car, or to trust Citi not to chase your balance to the basement?

    What would you do?

  37. Debt Relief Geek

    I agree with you. Some New Year’s Resolution never really happened and we should be honest on that.

    Anyways, I love your post about the $1000 30 day challenge and I’ve read some of the tips they are really interesting.

  38. AJC

    On the ‘should I buy or rent” one, I am definitely in favor of buying, and have come up with a formula to tell you how much you can afford:

    … I’d LOVE some feedback!

  39. mike

    thanks for your publication you sent to me over the years.This have help me made impact in peoples lives in Ghana where i live in Africa. I hope you can send me mini articles on how to save and when to save.thank you.

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  41. pickeju

    Weddings as a sacred cow really crack me up. We had 150 guests and spent $2k, which was spread out over about 6 months. My painfully obvious suggestions: set a food theme (we did a dessert buffet that was nice and cheap), start your DIY stuff early (flowers, tablecloths, etc), have a small wedding party (try just sticking to MOH and BM), stop freaking out about what sits on the table (we did cupcake trees covered in yet more desserts along with candy dishes for mints, nuts, etc), and take advantage of the time of year (we used pumpkins and leaves for literally everything last fall). I had more time than money, so I started purchasing and finishing the handmade stuff 6 months ahead. And then at the end I had so much help that I went to work the day before because there really wasn’t anything left to do.

    Moving on…. goal setting year-by-year is great, but if you’ve been missing your goals consistently, then you may want to break down your goals into smaller chunks (guided missile approach). If I want to earn $5k in extra income outside of work this year, then I would be wise to try and meet or exceed $420 each month. Setting the goal is only the first step, get specific and make a plan! Identify the steps you’ll take and keep your motivation close at hand.

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