It seemed appropriate that this would be my first book distillation, because this was the book finally got me using my Kindle, and the one that triggered my recent nonfiction joyride. Ramit Sethi wrote this book for everyone, but it’s especially relevant to people in their 20s and 30s who don’t really know much about personal finance, budgeting, investing, etc. He talks about finance in a way that is very readable. I’m turning 30 in a few months, so it seemed important to educate myself.
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- Compare credit cards online at BankRate (although I prefer NerdWallet‘s site)
- Set up automatic payments of your credit card (don’t maintain a balance!)
- Almost all bank fees can be negotiated (he gives a script for doing this)
- You actually lose money in most savings accounts, since the interest (usually 0.05% to 1.0%) is less than the average rate of inflation (about 3% annually)
- If your employer matches 401k contributions, use it as much as you can
- Open a Roth IRA now, even if you only have $50 to spare
- Contribute to both every month (you can automate your bank account to do this after each paycheck)
- Mutual funds and investing advisors are a generally jokes that will lose/waste money
- No one can beat the market in the long run because no one can actually predict it. There are numbers to back this up, stockbrokers are just salesmen selling you a product, and they will make money regardless of how your stocks do
- Rather than mutual funds or stocks, invest in low-fee index funds from brokerages like Vanguard or Schwab that track indexes that follow the movement of the whole stock market, the S&P 500, international stocks, etc.
- Warren Buffett makes a similar suggestion here
- Balanced asset allocation (translation: variety of investments) will yield greater benefits. Sethi mentions David Swenson’s Yale portfolio allocation, which my research has shown to be an especially stable one
Frugality and Saving Money
- Use Mint.com or a similar service to track all your accounts and spending habits. Mint also has a bill-paying function, which seems very useful.
- Automated savings and payments makes saving money easier because you never see the money that’s being saved, so you don’t feel tempted to spend it
- Monthly Automatic Money Flow
- treat your checking account like your email inbox: everything goes there first
- 5th of the month
- automatic transfer to savings (5-10%)
- automatic transfer to Roth IRA (5-10%)
- 7th of the month
- auto-pay any monthly bills, log on to pay any others
- auto-pay credit card
- at this point all your expenses and savings are covered, so the remaining money can be spent freely
- Monthly Automatic Money Flow
- You can change your monthly billing dates to the same day so you can pay everything at once
Sethi advocates a lot of automation of finances (similar to Tim Ferriss’ recommendations in The Four Hour Workweek), which I think has the potential to remove a lot of anxiety when it comes to $$$. He has more advice for frugality and budgeting, but nothing that can be neatly concentrated for this post. This book is a good introduction to the topics above and more.