Personal Finance Interview with Ramit Sethi on How to be Rich

Psychologist and money management expert Ramit Sethi has read just about every personal-finance book out there. And while some are worthwhile reads he says many of them focus too much on preaching about all the things we should doing with our money.

"But does anyone really think we need to see yet another compound-interest chart? Or hear another old person telling 20-somethings about how important a Roth IRA is?" he says.

So instead of giving people advice on keeping a budget or being mindful of how everyday splurges add up, the New York Times best-selling author of I Will Teach You To Be Rich offers practical, no-nonsense advice on how we can live rich lives right now.

"There's this prevalent idea that the key to wealth is to cut back on everything for years and years, and then maybe when you retire you'll be able to take a nice vacation," he says. "My students want to live a rich life now, and it's possible."

We recently caught up with Ramit to get his advice for young people on starting out on their financial journey - from tips on finding scholarships to best practices for starting a job hunt.

Hi, Ramit! Can you tell us a little about I Will Teach You to be Rich? When and why did you start the site?

I started the site when I was in college. The back story is pretty interesting. Since I came from a middle-class family, I had to pay my way through college, so I ended up applying for around 65 scholarships. When I got my first scholarship check, I invested it in the stock market -- and immediately lost half my money.

That was when I decided to learn how money worked. And all the while, I was studying psychology and human behavior, so when I saw all these "tips" that financial experts kept throwing around -- like "keep a budget" and "stop spending money on lattes" -- I realized most of it made no sense.

Very few people keep budgets. Almost nodiv wants to cut back on lattes. I knew there was a better way if you could blend living a rich life with psychology.

Who should be reading it?

People who want to live a rich life. I don't write for people who want to clip coupons, or cut back on their $3 latte. I write for people who want to quadruple their salary, automate their finances, improve their social skills and start a business.

We already "know" we should be saving more. So why don't we do it?

The truth is, none of us wants to be a financial expert. We just want our money to go where it needs to go, automatically, and work for us. That was what I wanted to tackle with my book. By the end, you'll know exactly which accounts to use and avoid (I name names), specific word-for-word scripts on how to negotiate your credit card fees, and how to automate your finances so you spend less than one hour/month.

The most important thing is how to spend extravagantly on the things you love, as long as you cut costs mercilessly on the things you don't.

What's your advice to students on finding money for college? What should they be looking for? What should they steer clear of?

I've written about finding scholarships a lot since I paid my entire way through undergrad and grad school at Stanford. The first step I recommend is to go to your high school's career center. This is one of the most underutilized resources. You can even call up other high schools and ask them if they have any scholarships that apply to you. They'll love this. No one ever goes there to seek out scholarships so you have a good chance if you just apply.

Talk to your friends and parents and parents' friends. Many companies have scholarships they might know about. For example, my sister worked at Kaiser, which offered a college scholarship to relatives of Kaiser employees. My mom is a teacher and there's a California Teachers Union scholarship.

Don't bother with online scholarship sites. There's a much larger pool of applicants and you'll rarely win anything. You should also avoid paying to apply for a scholarship.

You applied for more than 65 scholarships when trying to pay for your education. What advice do you have on handling this process in a way that gets you the greatest returns?

You'll need to write a few essays for different applications, but four to five essays will cover most any question you'll get asked. Write really good essays and have lots of people proofread them then you'll be able to use the same essays over and over.

A lot of people just submit bland recommendations and essays that say the same thing as everyone else. Stand out. For example, an essay I wrote on Chris Rock landed me a $100,000 scholarship.

You can control how good your recommendations are by making it easier for them. Tell recommenders what you want them to highlight and give them your resume and a few key points they should highlight. They'll be thankful you did a lot of the work for them.

After graduating and landing that first job, what steps should young people take toward mastering money and building their wealth?

A huge win is setting up your money to work for you, automatically. On average, people spend far too much time doing things like paying bills, transferring money from one account to another, and trying to figure out how much is left for spending. I only spend about an hour per month managing my personal finances, and it's actually easy to set up. I explain how in my 12-minute guide to automating your accounts.

You can start to dominate your finances by having your system passively do the right thing for you. It will help you automatically manage your money, guilt-free, for years to come. Bills, payments and even investments will be automated, leaving you to focus on the things that really matter.

You say you don't have to be perfect or super smart to get rich - so what qualities should you have?

It's really easy to discount other people's successes, by saying, "well he went to an Ivy League School" or "She comes from money." We like to believe that we're vastly different that people that have succeeded. I call this the "Special Snowflake" syndrome. But the truth is, doing a few things right can put you ahead of 99 percent of people.

Success in all areas of life (fitness, careers, business) comes from a willingness to test out different approaches and fail -- a lot. I fail all the time. In fact, if I'm not failing, it's a signal to me that I'm not growing. When something doesn't work out a good reframe is to look at it this way: "It's not a failure, it's a test." When you approach life this way, you can constantly try new ideas until you find what works for you and your specific situation.

How are you trying to change the perception that the only way to become wealthy is to act like you're broke when you're starting out?

The I Will Teach You To Be Rich philosophy has always been to focus on the long-term, and to focus on big wins that matter. There are a few Big Wins in life where - if you simply get them right - you almost never have to worry about the small things. If you can focus on the five to 10 Big Wins, rather than 50 little things, you can have an insurmountable edge in life.

I have students that regularly spend $200 on shoes, or buy a round of drinks for their friends on the weekends. By nailing the Big Wins, you don't have to worry about cutting back on what you love to save $3 per day on lattes.

A lot of personal finance bloggers say they've gotten rid of credit cards in favor of cash - what's your opinion of them? Should we keep them in our wallets? Store them on ice in the freezer? Or, run them through the shredder?

"Cut them all up!" becomes an easy battle cry for people who don't realize the benefits of multiple sources of credit. They're worth having but you need to know how to manage them well. When you don't pay them off completely, or miss a payment, you could end up owing an enormous amount of interest.

There are many ways to maximize your credit card benefits. Most people don't know how many credit card perks they really have. For example, most major credits give you an automatic one-year extended warranty on purchases, trip-cancellation insurance, concierge service and more.

What advice would you give to young people trying to land their first job?

Most people approach their job search the exact same way and get the exact same dismal results. First, they spend hours on minutiae like "tweaking their resume," then apply to hundreds of jobs by blasting their resume to any random opening they find on job boards.

I teach a much more systematic approach that starts with identifying your dream jobs and dream companies then reaching out individually to people that can help. Like most pursuits in life, if you do just twice the work up front, you can get 10x the results.

It looks like you've been really busy over the last few years creating a lot of content not just around personal finance, but careers, freelancing, and psychology. What are you working on now?

There's a few exciting projects going on for me right now:

  • I just launched a brand new course that has been in the works for years called Zero to Launch. It's all about creating an online business -- going from "no idea" to online profit then expand to ongoing, automatic income
  • I'm really excited about the opportunity to take some of my students to the next level in their businesses. I've had students that found huge success in my freelancing course, Earn1K so I created my advanced 6-Figure Consulting Program to 2x, 5x, even 10x the business without increasing their workload.
  • Later this month, I'll be talking more about what holds people back from finding their Dream Job, specifically the common and costly mistakes I see students making when identifying and applying to jobs.

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