Good news: You don't have to be perfect to be rich. Or the smartest person in the room. Or a type-A personality. Or lucky.
In fact, you can set yourself on the road to wealth with any amount of money if you use the easy, “set it and forget it“ system I'll show you below.
Your money was automatically going where it was supposed to
Your bills were paid on time every month (without you even thinking about it)
You automatically saved money
You invested in all the right places without lifting a finger
And you even had some income left over to spend on what you love – guilt free
And that's what this guide is all about. You can end your money worries, feelings of overwhelm, and the frustration of sifting through the mountains of financial information.
And you don't have to spend years studying compound interest charts or weeks trying to find the latest hot stocks to get there.
All that's required of you is a willingness to think about money in a different way than you're probably used to.
Read it whenever and wherever you want.
Yes! Give me my PDF
The problem with conventional money advice that keeps many of us frustrated and confused
Take Me To Part 1
How to setup your accounts so you spend less than an hour per month worrying about money
Take Me To Part 2
The secret to saving money painlessly – while still spending money on your “guilty” pleasures
Take Me To Part 3
Investing for beginners: get great returns without the confusion and overwhelm
Why debt is hard to pay down, and how to make it simple and painless to get out of debt
Take Me To Part 5
How to take your money to the next level by making more of it – using skills you already have
Hi, I'm Ramit Sethi. I'm the New York Times bestselling author of the book, I Will Teach You To Be Rich.
I've helped millions of readers live a rich life using psychology, tough love, and tested, step-by-step systems that work in the real world.
I started I Will Teach You To Be Rich because I was tired of hearing so-called financial “experts“ telling us ALL the things we couldn't do with our money.
And after 60 years of cutting back, you just might have enough in savings to MAYBE (someday) enjoy it.
To me, living a Rich Life - and being in control of my money - wasn't about cutting back on everything.
I wanted more, and, if you're reading this, I bet you do, too.
We want to go out with our friends. We want to take amazing vacations. We want to buy gifts for our family, donate to charity, and live in nice places.
Back in 2004 when I first started learning about money, I had the same question. Then, I was just a frustrated college student.
I started to learn about investing and my finances after taking my first scholarship check, investing it in the stock market, and immediately losing half my money.
This was a big turning point for me. I realized if I didn't learn how money worked, I'd end up the same as everyone else around me – broke, in debt, and clueless about how money actually works.
So I spent years reading every book I could find, watching every TV show, devouring all the financial tips and advice I could, and I finally developed my own philosophy on money.
It's an honest question that you should spend some time really trying to answer. Everyone's "rich life" looks different.
Here's what living a Rich Life means to me:
It not just the money we're after. But mastering our money is the first step toward creating our own Rich Lives.
Nobody wants to spend all their time thinking about money.
But we all want the experiences that properly managing money gives us: being able to buy a round of drinks for our friends, being able to take 3-week vacations, being able to buy nice clothes or shoes – all guilt free.
Many of us mistakenly focus on the most pointless areas of personal finance – nobody's taught us any other way! Should I open this credit card? I feel guilty paying for name-brand cheese. Do you think I should buy one of those coupon books? I'll show you how to work on the right things with your money and avoid costly mistakes.
Take Me To Part 1
Want to make your accounts work together and save automatically? I'll reveal the exact strategies you can use to save money, pay your bills, and invest – all hassle-free and all automatic for life.
Take Me To Part 2
Cutting back on lattes and other conventional advice simply doesn't work. Why have money if we're not allowed to spend it? I'll show you how to spend your money guilt-free on what you love while cutting costs mercilessly on what you don't.
Take Me To Part 3
How would you like to have a portfolio of investments – and all the right retirement accounts – that puts stock-pickers and financial “experts” to shame? I can help you get there with some simple (but ultra-effective) investing strategies.
Take Me To Part 4
If you have credit card debt — even if you aren't sure exactly how much you have — I'll show you how to pay it off faster. I've even gone so far as to create a new tool to show you exactly how much you owe and how to pay it off as painlessly as possible.
Take Me To Part 5
Let me give you a life-changing fact: there's a limit to how much you can save but no limit to how much you can earn. Earning more money is the fastest and biggest way to improve your financial situation. And you don't have to go back to school, change careers, or even learn new skills to up your earning power.
Take Me To Part 6
In this guide, we're going to stop the overwhelm, confusion and frustration. You'll get five simple steps to create a personal money management system that practically runs itself.
If you avoid making costly money mistakes, you can save hundreds of thousands – if not millions – of dollars over your lifetime. Knowing what NOT to do with our money is half the battle.
Read it whenever and wherever you want.
Yes! Give me my PDFAfter I graduated from Stanford, I noticed a lot my friends – the same ones who used to say things like “There's no, way I'll ever get fat!” – packed on the pounds a few years later.
Why is that? Weight gain doesn't happen overnight.
Instead it creeps up on us a few pounds at a time. And before we know it, we look up and we're 20 lbs heavier.
So what do we do? We overwhelm ourselves with small choices, (which brand of protein bar to buy? Which running shoes are the best?) instead of focusing on the big wins of eating less and exercising more.
If you think about it, money works the same way.
Or worse, we just ignore the topic of money completely… because it make us feel guilty, like our fitness or food.
Both options lead to the same results: NONE.
Just like with our fitness, when it comes to our personal finances, most people only need to focus on two things: setting up reliable, no-fee bank accounts with automated savings and bill payments and investing earlier on in life so we can let our money grow for 30+ years.
But that's not as sexy as chair-throwing and ratings-driven cartoons on TV calling out thousands of complex investments you need to make.
And it's not as tactical as the penny-pinchers who tell you to stop spending on everything.
You won't find that kind of advice here. If frugality is what you're after, please go back to 2 hours of carefully separating toilet paper by hand to save $1.42 a week.
If you don't want to be that person, I want to show you how to actually save money without guilt, frustration, confusion, or constantly being bombarded with terrible money advice.
“Keep a budget!” and “Cut back!”
But probably the biggest rallying cry for frugality “experts” is to cut back on your morning coffee. You've probably seen a chart like this.
The explanation goes something like this:
If you save $2/day by making coffee at home, you'll save $62/month which equals around $700/year. “Properly invested,” that'll grow into $10,000 in 10 years!
Regardless of factors like we love Starbucks caramel double lattes, we're feeling stressed, or we drive by the coffee shop on the way to work, we have to use our limited willpower first thing in the morning, every day, forever.
And what these no-latte, finger-waggers aren't taking into account – as they gorge on their homemade coffee – is that every decision we make to not buy that latte, to not consume that, to not have that depletes our willpower.
The result looks something like this.
You've skipped morning coffee every day for 365 days. You have $730 dollars, right!? Probably not. $2/day is not significant enough that you'll “see” the savings at the end of the month. Unless you physically put aside $2 every single day. Which brings us back to point #1. And even if you do it, how do you invest it? What account do you put it in? It's easy to see how this becomes much more complicated than putting grounds in your coffee maker.
We all puts things off, of course.
But waiting until the last minute to get smarter with our money is one of the worst things we can ever do. Every year we wait to get started with investing and saving puts a huge dent in our long-term financial plans.
Here's an example.
Look at the chart carefully. Smart Sally actually invests less than Dumb Dan, but ends up with about $50,000 more.
She invests $100/month from age 25-35 and never touches her money again. Dumb Dan on the other hand WAITS to do anything with his money.
He doesn't start investing until he's 35. Then he invests the same $100/month every year until he's 65.
So Smart Sally only invested her money for 10 years. While Dumb Dan invested for 30, and she still comes out nearly $50,000 ahead with less work.
There's a hefty price for waiting to take control of your money. Starting early is the single best way to get rich.Tweet this
You don't have to be perfect to be rich. Or the smartest person in the room. Or a type-A personality. In fact, with my six-week program to financial independence, you can start with any amount of money, do just a portion of what I suggest, and succeed brilliantly through good times and bad.
Just tell me where to send it.
There are a lot of broke finance professors out there. People who know the ins, outs, ups and downs of money, yet they're deeply in debt. How can that be?
Because information alone is not enough. Especially when it comes to managing money, 80% (or more) of your long-term success comes down to your behavior around saving, spending and investing, The other 20% comes from knowing what to do.
That's why I put this section in the front of this guide. If this is the only section of the guide you read, you'll be ahead of 99% of people.
Your behavior of spending, saving, and investing will all be automated
You won't have to force yourself to do a thing
All of your money will go where it's supposed to – automatically
Read it whenever and wherever you want.
Yes! Give me my PDFOne reason we don't save money is the pain of putting money into our savings accounts each month.
Just like cutting back on lattes we may do it once or twice but if we have to make the decision EVERY paycheck, we're setting ourselves up to fail.
That's why automated finances work so well. By setting up a bulletproof personal finance system, you can start to dominate your finances by having your system passively do the right things for you.
It will help you automatically manage your money, guilt-free, for years to come.
Here's a 11-minute guide on how to set up your money and accounts to automatically pay bills, save, and even invest every month:
Your behavior of spending, saving, and investing will all be automated.
Then, you know exactly what you have left to spend (guilt-free) each month.
$5 latte? Sure! A round of drinks with friends? Absolutely.
I'm not the guy who wags his finger and tells you “No, you can't do that. It costs too much.”
I say “Okay so you want to buy that expensive pair of shoes? Cool, let me show you how you can actually get it.”
Unlike most people in the personal finance world, I actually spend lots of money eating out and traveling, and never feel guilty.
Rather than taking a simplistic view of “don't spend money on ANY expensive things” there's a much more nuanced approach to spending.
Spend extravagantly on the things you love, and cut costs mercilessly on the things you don'tTweet this
The only problem is most people aren't deciding what's important to them and what's not.
Lets take a look at a case study to see how you can decide what's important to you and build a plan of conscious spending.
My friend spends over $21,000/year going out.
Most people's reaction to that: “OH MY GOD, THAT'S SO MUCH*#%(#%(#%!”
But let's break it down. And see, is it really extreme?
Let's say you go out 4x/week – to dinners and bars – and spend an average of $100/night.
I'm being conservative with the numbers here, since a dinner can run $60/person and drinks could be $12 each. I'm not including bottle service, which might cost $800 or $1,000. (He lives in a big city.) That's easily $400/week.
Now, this guy also makes a healthy six-figure salary, and he's invested quite a bit in his 401(k) and outside investments (including real estate). The key here is that he works such long hours that he's only really free Friday and Saturday nights. And so he goes out. Hard.
And although $21,000 sounds outrageous on the surface, you have to take context into consideration.
For example, look at his spending by percentage: Just for easy calculations, if we assume that this guy makes $210,000/year net, his going-out budget is roughly 10% of his income.
For my friends who make $35,000/year, you can be damn sure that they're spending more than $3,500/year ($67/week) on going out.
But my other friend has a plan and he's decided to spend his money this way.
By that, I mean we're not being proactive about planning where our money should go.
We're going through life doing whatever, and inferring our spending patterns from the bills we get at the end of the month.
We not only lack a prescriptive budget (“I want to spend 20% on my retirement account, 10% on savings, 20% on going out…”), we even lack a descriptive budget (“Where the hell is my money going?”).
You can spend on the things you love, too, but it takes a plan. And it's really as simple as that.
First, categorize your spending: know where your money goes so you're in complete control of every decision. Conscious spending is about making a plan on how you want to spend your money.
Then, optimize your spending to fit these recommendations:
Now to find the the categories you've yet to fill out, you're going to have to go a little deeper. Just take last month's expenses as an example. Just look at a recent credit card or bank statement to do this.
Now, subtract these amounts from your take-home pay, and you'll have a sense of what you have left over for the other categories of investing, saving and guilt free spending.
Notice I said guilt free spending money. That's the fun money. You can use this for anything you want, guilt free, once you know where the rest of your money is going.
One of the most common reasons people can't get ahead is expenses they just didn't expect. I constantly hear things like this:
I was just about to pay off my credit card debt FOREVER, and then I had to get a new __________ for my ________
God, I didn't expect to get that traffic ticket
Every time I think I'm getting ahead, my car breaks down or I have to replace some appliance.
Here's the trick: A lot of what seems unpredictable is extremely predictable — over the long term. What seems like surprise expenses is actually not a surprise if you analyze your spending for the past 5 years. Which of course nobody does.
For example, that “surprise” car repair? It might not happen in the same month, but every year, you might average spending about $400 on car repair. That's $33/month. Once you know that, set up an automatic deposit into your sub-savings account and you're done.
(Formerly ING Direct)
I save $100/month into it. If there's anything left at the end of the year, I take out 20% to reward myself, and roll the rest back into my main savings account.
Keep a “Stupid Mistakes” sub-savings account. Just the simple fact of having one will sharpen your focus on avoiding the mistakes in the first place. And when you do make a stupid mistake, you'll be able to use your sub-savings account as a buffer to keep your automation system on track.
I'm about to share the investing advice I wish I had when I first started learning about money. Back then, I tried to “beat the market,” and lost half of my very first college scholarship check.
So if you've ignored your retirement account until “later” or thought about picking stocks based on how “hot” they are at the moment, this section is for you.
You'll learn how to invest your money for the long-term (without worrying about stock prices every day) – all clearly laid out and easy to understand.
A lot of us are simply scared to put our money in the market. And for the most part, we have every reason to feel that way.
On one hand, you have media moguls who scream financial crisis at even the slightest dips in the market to drive up their ratings.
On the other hand, we've just come out of one of the biggest stock market crashes in generations. Some of us have even watched our families and friends be forced to keep working instead of retire on time.
All that really is scary. But, if you believe the market will recover (which it has) and grow over the long term, you need to be investing consistently.
Other reasons people don't invest? “I don't have time” and “I don't want to lose money”.
I get it. Nobody just LOVES spending time managing their money and, certainly, nobody likes losing it.
But I've taken the pains to research investment strategies that don't take lots of time to maintain and can still pay off in a major way.
One quick note: when it comes to investing, nobody can guarantee returns, and if they do, you should probably run the other way.
(Or start by setting up your accounts today)
Consistency is the key and we'll talk about how you can do that with minimal effort using a complete investing system. And trust me there's no better time to start then today.
Read it whenever and wherever you want.
Yes! Give me my PDFThis drives me nuts because it's simply not true.
3 most important factors for investing: 1. do your research, 2. be disciplined, 3. start earlyTweet this
If you're 25 years old and you save $100/month until you're 35 (for only 10 years, then you never save money again), and your dumb friend starts later – saving $100/month from age 35 to 65 (that's 30 years compared to your 10 years) – you will have way more money (over $50,000 more) than him at age 65.
It's not hard to become rich. But it takes work and consistent saving, and so it's easier for a lot of people to shrug their shoulders and put it off for another day. Unfortunately, every extra year you wait to start investing makes it dramatically harder to make the same amount of money.
Start early and you will be rich.
What if you had started investing $10 per week five years ago, receiving an average 8 percent return? Guess how much you'd have?
It turns out that by now, you'd have thousands of dollars – all from investing a little more than $1 per day. Think about that $10 a week – where did it go, anyway?
If you're like most people, it probably slipped through your fingers on random things like cab rides and lunches. Despite wild rides in the stock market, with a long term perspective, the best thing you can do is start investing early.
| If you invest this much per week… | After 1 year, you'll have… | After 5 years, you'll have… | After 10 years, you'll have… |
|---|---|---|---|
| $10 | $562 | $3,295 | $8,136 |
| $20 | $1,123 | $6,589 | $16,271 |
| $50 | $2,808 | $16,473 | $40,678 |
I'm not a old man yet, but when I see these numbers, it's tempting to run around with a cane and a vodka tonic in hand, screaming at young people. Not only do we fail to invest our money, but we don't even know why it's important!
| Age of employee | Percentage who participate in a 401(k) | Percentage of pay they contribute | Median balance of their 401(k) | My comment |
|---|---|---|---|---|
| 18 – 25 | 31.3% | 5.6% | $1,280 | Too busy watching The Hills. |
| 26 – 41 | 63.1% | 7.2% | $14,730 | These people have realized that perhaps saving money is important |
| 42 and up | 72.0% | 8.3% | $44,330 | These older folks are wishing they could go back in time and beat themselves for not saving more, like Biff in Back to the Future II |
No matter what stage of life you’re in, the most important thing and my goal is to get you started and make it easy to maintain your investments.
By doing just those two things you'll be on the way to getting rich.
And setting up your investment accounts is an excellent first step toward actually investing (we'll cover how you can below).
But, the first thing to note is that you don't have to be rich to open an investment account.
Most account providers actually waive the minimums if you set up automatic transfers (which is what we're all about).
Really it's not. Nobody can reliably pick stocks that will outperform the market over the long term. Thinking you can beat the market is an easy way to make mistakes and become overconfident in your abilities.
Even “experts” cannot guess where a stock will go next. Just turn on CNBC and watch the dazzled looks on the pundit's faces when they make a wrong call on a stock.
Plus, having to pay attention to the latest hot stock or every micro-change in the market is risky and involves a lot of guesswork.
I prefer investing in low-cost, diversified funds consistently, rather than chasing stocks and relying on guesswork to get through.
That's the same strategy recommended by Nobel Laureates and billionaire investors, like Warren Buffett.
Many people mistakenly think that retirement accounts are just places for you to save money until you're 65.
Actually, they offer you humongous benefits if you agree to save for a long-term horizon. Let's compare regular (taxable) investment accounts with retirement accounts.
When you open up an account at ETrade, Scottrade or whatever, you're generally opening up a regular investing account, which is also called a taxable account.
This means that when you sell your stocks, you'll pay taxes on your gains – and if you sell your stocks in less than a year, you'll pay a huge amount (regular income-tax rates, like 15% or 30%).
Let's not get bogged down in the details, okay. As we talked about early, buy-and-hold investing wins over the long term. And because of the way taxes are structured, you pay a penalty for trading too frequently.
But there's an even stronger advantage to holding your money for longer – say, until retirement.
Retirement accounts, quite simply, give you huge tax/growth advantages in exchange for your promise to save and invest for the long term.
Now, this doesn't mean that you have to hold the same portfolio for 30 years. You can buy and sell shares of almost anything as often as you want. But with a few exceptions, you have to leave the money in your account until you get near retirement age.
In a retirement account, you get big tax benefits. While 10% or 20% may not seem like much in 1 year, when you compound that over 30 years, it becomes a gigantic amount.
In fact, if you were to start a retirement account next week, two things will happen: (1) You will be more financially prepared than 99% of your peers, and (2) you will be rich.
Yeah, I said it: If you start a retirement account in your early 20s or 30s and fund it regularly, you will be rich.
Let's look at a simple comparison of investing in a retirement account vs. just investing in a regular, taxable account:
Don't worry about the exact amounts. Just notice the difference in how much you earn - especially at the end.
A retirement account - whether it's a Roth IRA, 401(k) or something else - lets your money grow at an accelerated rate with hardly any extra work from your end.
Now let's get into the details.
A 401(k) is a type of retirement account. If you work for a company, chances are you already have a 401(k) offered to you.
Here's how a 401(k) works: You put pre-tax money into the account, meaning you haven't paid taxes on it yet.
Let's look at why that's important. In regular, taxable investment accounts, you pay taxes on your income and then invest it.
So for every $100 you make, you might actually only be able to invest $85 of it. 15% (or whatever, depending on your tax rate) goes to the tax man.
A 401(k) is different. You can invest the entire $100 and let it grow for about 30 years. That extra ~15% turns out to make a huge difference as it gets compounded more and more.
There's an extra benefit, too: Your company might offer a 401(k) match.
For example, a 1:1 match up to $2,000 means that your company will match every dollar you invest up to $2,000; therefore, investing $2,000/year really means you're investing $4,000/year. Woah.
This is free money and you absolutely, positively need to participate if your employer offers a 401(k) match. It doesn't matter what kind of debt or expenses or whatever you have – if your company offers a match, do it.
Basically, it goes into an investing account where a professional investing company manages it. You can choose from a bunch of different investing options, like aggressive, mixed, international, etc. Honestly, it's like McDonald's for investors: anyone can do it. The hardest part is making the first phone call to HR to get it set up.
You get to put pre-tax money to work (i.e., money you haven't paid taxes on yet, so there's more of it to grow).
Your company might offer an insanely lucrative 401(k) match, which you must take.
And it's not that hard to set up – your company does most of the work. In fact you can instruct them to automatically withdraw a certain amount from every paycheck.
Don't worry about switching jobs: if you leave your company later, you can take your 401(k) with you.
The 401(k) isn't tax-free, though. There are a few restrictions.
This is intentional: This money is for your retirement, not to go out drinking on Saturday.
If you want real wealth in your retirement, you absolutely need a Roth IRA. It's another type of retirement account.
And every person should have a Roth IRA. It's simply the best deal out there for long-term investing.
Remember how your 401(k) uses pre-tax dollars and you pay income tax when you take the money out at retirement?
Well, a Roth IRA is different than a 401(k). A Roth uses after-tax dollars to give you an even better deal. With a Roth, you put in already taxed income into stocks, bonds, index funds – whatever – and you don't pay when you withdraw it.
When you make money every year, you have to pay taxes on it. With a Roth, you take this after-tax money, invest it, and pay no taxes when you withdraw it.
If Roth IRAs had been around in 1970 and you'd invested $10,000 in Southwest Airlines, you'd only have had to pay taxes on the initial $10,000 income.
When you withdrew the money 30 years later, you wouldn't have had to pay any taxes on it. Oh, and by the way, your $10,000 would have turned into $10 million.
You pay taxes on the initial amount, but not the earnings. And over 30 years, that is a stunningly good deal.
Again, you're expected to treat this as a long-term investment vehicle.
You are penalized if you withdraw your earnings before you're 59.5 years old. (Exception: You can withdraw your principal, or the amount you actually invested from your pocket, at any time, penalty-free. Most people don't know this.)
There are also exceptions for down payments on a home, funding education for you/partner/children/grandchildren, and some other emergency reasons.
And there's a maximum income of $181,000 to make full contributions to a Roth. But you can read about those later.
First, you can only get some of those exceptions if your Roth IRA has been open for 5 years. This reason alone is enough for you to open your Roth IRA on Monday.
Second, starting early is crucial. I'm not going to belabor the point, but every dollar you invest now is worth much, much more later. Even waiting two years can cost you tens of thousands of dollars.
Currently, the maximum you're allowed to invest in your Roth IRA is $5,500 a year (updated in 2008). I don't care where you get the money, but get it. Put it in your Roth and max it out this year.
It's easy. You can go through your current discount brokerage, like E*Trade or Scottrade.
I recommend an independent service like Vanguard.
Next steps, call them up, tell them you want to open a Roth IRA, and they'll walk you through it.
Special note: These places have minimum amounts for opening a Roth IRA, usually $3,000. Sometimes they'll waive the minimums if you set up an automatic payment plan depositing, say, $100/month.
Shop around though.
Once your account is set up, your money will just be sitting there. You need to do things then:
First, set up an automatic payment plan so you're automatically depositing money into your Roth. How much?
Try doing as much as you're comfortable with, plus 10%.
Second, decide where to invest your Roth money. I recommend low-cost, diversified index funds as the best option or target date funds.
The simple answer is both: These accounts, while conceptually different, work together pretty well.
Here's how I think about it.
First, I would max out any 401(k) match that my company provides. Second, I'd max out the $5,500 for my Roth IRA. Third, I'd max out the rest of my 401(k), up to $15,000. Finally–if your employer doesn't offer a 401(k), you're not employed yet, or you still have money left over–I'd open a regular, taxable investment account and put money there in stocks, index funds, etc.
Well, there's a lot of dorky debate in the personal-finance world, but the basic reasons are taxes and tax policy: Assuming your career goes well, you'll be in a higher tax bracket when you retire, meaning that you'd have to pay more taxes with a 401(k). Another common reason for the Roth is that tax rates are considered likely to increase.
You can get the entire chapter, free, below. In it, I cover the nitty-gritty of maintaining your investment accounts easily, asset allocation, and rebalancing your portfolio to maximize return.
If your net worth is in the red, it makes it hard to even conceive investing or saving your cash.
So let's eliminate your debt, once and for all.
Debt sucks.
We know that credit card debt is one of the biggest barriers to living a rich life.
Debt prevents us from enjoying ourselves and investing in ourselves. And worst of all, it buries us in guilt and fear.
We can help. We did some research with our top students to see what works (and what doesn't) when it comes to paying off your debt. We also built a calculator to help you build a straightforward plan for getting rid of your debt once and for all.
Read it whenever and wherever you want.
Yes! Give me my PDF
Two most important steps to getting out of debt fast: 1. find out how much debt you have and 2. start making a dentTweet this
To show you how costly not paying down your debt can be, I wanted to give you a quick example of simple items that could be costing you thousands more because you haven't tackled your debt strategically.
Take a quick look at this table with a few examples of how much more expensive things get one you finance them with credit cards and minimum payments.
One of the biggest problems with credit cards is the hidden cost of using them. It may be incredibly convenient to swipe your card at every retailer, but if you don't pay your bill the same month, you'll end up owing way more than you realize. Take, for instance, an iPod. It looks like it costs $250, but if you buy it using a credit card with the average 14% APR and a 4% minimum payment, and then only pay the minimum each month, you'll be out almost 20 percent more in total.
| Lets say you buy this… | Paying minimum payments, it will take this long to pay it off… | You'll pay this much in interest… |
|---|---|---|
| $250 iPod | 2 years 6 months | $47 |
| $1,500 computer | 7 years 9 months | $562 |
| $10,000 furniture | 13 years 3 months | $4,062 |
If you paid only the minimum monthly balance on your $10,000 purchase, it would take you more than 13 years and cost you more than $4,000 in interest alone. Remember, this doesn't even factor in your “opportunity cost“: Instead of paying off a $10,000 sofa in 13 years, if you'd invested the same amount and earned 8%, it would've turned into about $27,000!
Because loans are usually large amounts spread out over many years, the savings can be significant by paying a little extra off your loan each month. The longer the loan, the more you save.
Let's say you have a $10,000 student loan, at a 6.8% interest rate and a 10-year repayment period. If you go with the standard monthly payment you'll pay around $115 a month. But look at how much you'll save in interest if you just pay $100 more each month:
| Monthly payments | Total interest paid | You save |
|---|---|---|
| $115 | $3,810 | $0 |
| $215 | $1,640 | $2,169 |
| $315 | $1,056 | $2,754 |
| $415 | $728 | $3,027 |
Note: Previously I wrote “You have $100 extra per month. Should you pay off your mortgage early or invest?” and linked to two great articles. The point is, if can contribute even a small amount per month — whether to investments or any loans — the benefits can be huge.
Minimum Payments Equal Maximum Pain.
| His monthly payment is… | It will take this long to pay off… | Total interest paid… |
|---|---|---|
| $200 |  2 years, 8 months |
 $1,313.96 |
| Her monthly payment is… | It will take this long to pay off… | Total interest paid… |
|---|---|---|
| $400 |  14 months |
 $436.46 |
Interest rate doesn't matter if you don't carry a balance. The interest rate is irrelevant as long as you're paying off your entire balance each month. Don't keep a balance, please – if you are, stop reading now and use my credit card payment calculator to pay it down quick.
The vast majority of people should use a rewards card. If you're already spending money, you should be rewarded for it. Exceptions are people who can't qualify, who should instead use a secured credit card.
I prefer travel cards over cash back. Most people would benefit more from travel rewards than from cash-back. I describe the details of why in my book. For some reason, people get really mad when I make this recommendation, but I don't care.
I prefer general rewards cards, not airline-specific cards. Unless you fly a majority of flights on the SAME airline, I prefer a general travel card instead of an airline-specific card (like a United card). For example, I fly Jetblue and Virgin a lot, so I want a travel card that I can redeem on multiple airlines, not just one.
Annual fees are not Satan's spawn. I know it may be blasphemy to personal-finance “experts,” but I'm willing to pay an annual fee! OMG! This is why you can call me RTR: Ramit The Rebel. In some cases, there are no-fee versions of the card, so you should always calculate if you spend enough to justify it. Still, $65/year is just not that significant to my financial situation any more.
I am merciless about using my credit card perks, which can easily be worth $1,000/year. DO THIS.
Now that you've learned how to build a bulletproof financial system and put thousands of dollars back into your pocket, you're well on your way to living a Rich Life – filled with more money, more success and more FUN.
The steps in this guide are essential to making your money work for you, not the other way around. But this is just the beginning.
Let me give you a life-changing fact: there's a limit to how much you can save but no limit to how much you can earn.
And the rewards can be huge — from an extra $1,000 a month in side income, to a 5-figure raise multiplied over your lifetime, or the freedom of earning money from an online business.
Want to know how to earn more money and start putting even more money into all of your accounts? I'll give you some of my best material to help you succeed.
I want a successful online business that pays me even when I'm not working.
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