How To Start Investing Your Way To Financial Success By Ramit Sethi

1. Avoid bank fees like the plague

Your bank shouldn’t be putting you in the poorhouse. Instead, your bank should help you save money. But according to FDIC data, big banks collected $11.45 billion in overdraft and non-sufficient fees in 2017. The truth hurts: Most banks charge $35 per overdraft fee.

Sethi says he is “fanatical” about having a bank account that doesn’t charge fees of any kind — no monthly maintenance fees, setup fees, or overdraft fees. And I’m 100 percent with him. Like Sethi, I also avoid banks with fees. If you’re a Chime member, you too can rest assured that you won’t be charged fees of any sort.

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2. Understand The Psychology of Money

Are you obsessing over what you don’t have and what you shouldn’t spend your money on? Or are you investing in yourself and planning for the future?

It was at Stanford that Ramit first became interested in how our psychology influences money.

He learned that there are two basic mindsets that we have when it comes to money, and both end up affecting your outcome.

When you have a scarcity mindset, you tend to believe that you never have enough money. It always feels like it’s running out, no matter what your bank account says.

When you have an abundance mindset, you know there’s always enough money. Your bank account might not have much in it (though this is less likely to be true) but you are confident in your ability to make more and provide for yourself.

Below are some clues to see which category you fall under.

You might have a scarcity mindset if you:

  • Always focus on short-term costs;
  • Congratulate yourself on paying less;
  • Evade taxes;
  • Feel consistent anxiety over your finances;
  • Believe money is evil;
  • Feel unlucky or restricted by your funds.

You probably have an abundant mindset if you:

  • Focus on long-term results;
  • Value investing in yourself;
  • Know the price of doing business;
  • Believe you can always earn more;
  • Understand the value of money;
  • Appreciate what you have.

If you’ve identified clues that you might have a scarcity mindset, it’s not too late to make the switch. It takes conscious effort to change your subconscious beliefs but over time you’ll see results.

2. Engage in conscious spending

One of the big differences between Sethi and many other finance experts is that he doesn't focus on sacrificing to grow rich. Instead, he explains, "Our philosophy is simple: Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t."

Rather than cutting lattes from your budget if they're important to you, Sethi encourages people to spend consciously. He believes most forms of budgeting are like a bad diet that's difficult to stick to, and instead urges a simpler approach of dividing income into fixed costs, investments, savings, and money you can spend guilt-free.

He also suggests taking the time to figure out where you want your money to go, and then deciding how to spend it after carefully considering what you love to buy. By knowing where your money goes, automating the process, cutting expenses that don't provide value, and using your cash for what matters to you, you can make the most of your hard-earned dollars.

5. Plan For PLEs

What are PLEs?

PLEs are Predictable Life Events. These events include (but are not limited to) marriage, buying a home, having children, going on a trip, or investing in a program.

Simple, right?

But how many people actually start planning and saving for these Predictable Life Events before they need to?

We know to save for retirement but it usually doesn’t even occur to us to set aside some cash for the other things that will matter to us in the future.

You can do so by setting up an automatic system to put money into a sub-savings account. Ramit actually does this. He started saving for an engagement ring before he had even met his wife.

It might sound wild on the face of it but it’s way more reasonable to save in advance.

After all, there are hidden costs to short-term thinking and hidden benefits to long-term thinking.

1. Log into all of your accounts

First, you’ll need to log in to each account and link your accounts together so you can set up automatic transfers from one account to another. When you log in to any of your accounts, you’ll usually find an option called something like “Link Accounts,” “Transfer,” or “Set Up Payments.”

These are the links you need to make:

Examples: Your 401(k) should be connected to your checking account via direct deposit (talk to your HR rep about setting this up — it takes 10 minutes to fill out a form). Then log into your Roth IRA, savings account, and credit card, where you can link your checking account to them. Finally, there are some bills that can’t be paid through your checking account, like your rent. For those, use your checking account’s free bill-pay feature so they automatically issue your landlord a check on the precise date it’s due. Now, you never have to manually write a check again.

3. Set up auto-savings

Throughout the book, Sethi talks about different ways you can automate your savings. For instance, you can set up an auto transfer directly from your paycheck into a 401(k) account. Or automate your investments. And of course, you’ll want to automate your savings for big money goals. If you’re a Chime member, the Save When I Get Paid feature allows you to save a percentage of every paycheck.

3. Get all of your bills on the same schedule

To accomplish this, get all your bills together, call the companies, and ask them to switch your billing dates. Most of these will take five minutes each to do. There may be a couple of months of odd billing as your accounts adjust, but it will smooth itself out after that. If you’re paid on the 1st of the month, I suggest switching all your bills to arrive on or around that time, too.

Call and say this: “Hi, I’m currently being billed on the 17th of each month, and I’d like to change that to the 1st of the month. Do I need to do anything besides ask right here on the phone?” Of course, depending on your situation, you can request any billing date that will be easy for you.

Now that you’ve got everything coming at the beginning of the month, it’s time to actually go in and set up your transfers. Here’s how to arrange your Automatic Money Flow, assuming you get paid on the 1st of the month.

2nd of the month

Part of your paycheck is automatically sent to your 401(k). The remainder (your “take-home pay”) is direct-deposited into your checking account. Even though you’re paid on the 1st, the money may not show up in your account until the 2nd, so be sure to account for that.

Remember, you’re treating your checking account like your e-mail inbox— first, everything goes there, then it’s filtered away to the appropriate place. Note: The first time you set this up, leave a buffer amount of money—I recommend $500—in your checking account just in case a transfer doesn’t go right. And don’t worry: If something does go wrong, use the negotiation tips above to get any overdraft fees waived.

5th of the month

  • Automatic transfer to your savings account. Log in to your savings account and set up an automatic transfer from your checking account to your savings account on the 5th of every month. Waiting until the 5th of the month gives you some leeway. If, for some reason, your paycheck doesn’t show up on the 1st of the month, you’ll have four days to correct things or cancel that month’s automatic transfer.

Don’t just set up the transfer. Remember to set the amount, too. Use the percentage of your monthly income that you established for savings in your Conscious Spending Plan (from Chapter 4 of my book; typically 5 to 10 percent). But if you can’t afford that much right now, don’t worry—just set up an automatic transfer for $5 to prove to yourself that it works. The amount is important: $5 won’t be missed, but once you see how it’s all working together, it’s much easier to add to that amount.

  • Automatic transfer to your Roth IRA. To set this up, log in to your investment account and create an automatic transfer from your checking account to your investment account. Refer to your Conscious Spending Plan to calculate the amount of the transfer. It should be approximately 10 percent of your take-home pay, minus the amount you send to your 401(k).

7th of the month

  • Auto-pay for any monthly bills you have. Log in to any regular payments you have, like cable, utilities, car payments, or student loans, and set up automatic payments to occur on the 7th of each month. I prefer to pay my bills using my credit card, because I earn points, I get automatic consumer protection and little-known benefits, and I can easily track my spending on online sites like Mint, Quicken, or Wesabe.

But if your merchant doesn’t accept credit cards, they should let you pay the bill directly from your checking account, so set up an automatic payment from there if needed.

  • Automatic transfer to pay off your credit card. Log in to your credit card account and instruct it to draw money from your checking account and pay the credit card bill on the 7th of every month— in full. (Because your bill arrived on the 1st of the month, you’ll never incur late fees using this system.) If you have credit card debt and you can’t pay the bill in full, don’t worry. You can still set up an automatic payment; just make it for the monthly minimum or any other amount of your choice. (Incidentally, paying your bills on time is the one of the top factors in determining and improving your credit score.)

By the way, while you’re logged in to your credit card account, also set up an e-mail notification (this is typically under “Notifications” or “Bills”) to send you a monthly link to your bill, so you can review it before the money is automatically transferred out of your checking account. This is helpful in case your bill unexpectedly exceeds the amount available in your checking account—that way you can adjust the amount you pay that month.

Top 10 Inspiring Quotes by Ramit Sethi

Are you looking for inspiring quotes by Ramit Sethi? Here are the top 10 Ramit Sethi quotes about entrepreneurship, finance, and life.

There is a limit to how much you can cut but there is no limit to how much you can earn.

The single most important factor to getting rich is getting started, not being the smartest person in the room.

The 85 Percent Solution: Getting started is more important than becoming an expert.

Most people never realize that 80% of the work is done before you step in a room. That’s why they spend their entire lives grasping for magical tactics instead of changing their entire mindset.

In the end, managing your finances well is a lot like developing a strong personal productivity system: You keep track of everything without making it your full-time job; you set goals; you break them down into small bite-size tasks; you save yourself time by automating manual work, and you spend your time and brainpower focusing on the big picture. That’s what I try to do with my time and money.

But ultimately, expertise is about results. You can have the fanciest degrees from the fanciest schools, but if you can’t perform what you were hired to do, your expertise is meaningless.

Focus more on being decisive and less on trying to make the “right” decision. You’ll never know until you try, and if you’re wrong, you can always try again.

It’s more important to get started than to spend an exhaustive amount of time researching.

If something isn’t working, don’t try harder or do more. Do something DIFFERENT.

Make the right decisions in life and you’ll never have to worry about saving $3 a day on lattes.

One thought on Automating your finances (Ramit Sethi-style)

  1. Pingback: Ramit Sethi will teach you to be rich – 4 links to wealth: negotiate, automate, cut costs & earn more « Words of Ward: Ward's Guide to Personal Finance and Investing

Final Thoughts on Ramit Sethi Net Worth

Ramit doesn’t believe in saving $5 on lattes as he thinks a $5 coffee or latte is not going to change your financial life. Instead, he believes one can change their life by learning how to invest, how to negotiate a $5,000 raise, and so on.

If you want to follow a different approach to finance, and looking to learn money or grow a successful business, you should follow Ramit.

So what do you think about Ramit Sethi’s net worth and financial advice? How did Ramit Sethi inspire you? Share your thoughts in the comments below.

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