Buy what you love
Personal finance blogger says extravagance healthy as long as other costs get mercilessly cut
Traditional budgets are for the birds,
says author Ramit Sethi in his book, I Will Teach You to Be Rich: No Guilt. No Excuses. No BS. Just a Six-Week Program That Works.
Sethi, 37, a Stanford University graduate now living in New York City, began writing a finance blog while in his 20s — not your usual university student pursuit. He observed that most people equated finances with budgets, something most finance books advise the reader to do immediately.
“It didn’t make sense, since budgets are always restrictive,” Sethi says. “It’s no surprise that most people in North America have such poor financial habits.”
That said, he’s made it his mission to change those bad habits, one reader at a time. Sethi recently took time to share some of his insights.
So, what’s the big deal about conscious spending? I’m always awake and alert when I buy something.
You may be physically conscious when you shop, but if I were to ask about the things you love to spend extravagantly on and those where you should cut costs mercilessly, most people would struggle with the answer. People should spend more extravagantly on the things they love as long as they cut costs mercilessly on the things they don’t.
The first chapter of most books on finances is about budgeting. Instead, I ask people what they love spending money on and what if they could quadruple that amount? We need to spend more on what we love, but we also need to be conscious about what we don’t care about. Why the vendetta against traditional banks? I don’t like predatory companies that take advantage of my readers, and banks prey on the average American and Canadian. I like companies that give me benefits for being a loyal customer. I decided that I would always tell the truth about the best companies and the worst, so I name names. Why on Earth would I want to chuck all of my subscriptions when I love going to the gym and watching sports cable?
If you like them and use them, keep them. However, once a year, I like to review my finances and decide if I still like spending money on various items so I can fit them into a conscious spending plan. We all have little
expenses that creep up on us, like trial subscriptions that we’ve forgotten to cancel. You can redirect that money flow to something you really want.
Are you serious about being able to save while sleeping?
Automating your finances is one of the most powerful ideas in personal finance. It is worth more than an entire lifetime of education about personal finance. I spend less than 60 minutes each month on my finances, because they’re automated and the money just flows to the areas where it needs to go: chequing, savings, investments and guilt-free spending. You shouldn’t be spending a lot of time on these things. What is the Crossover Point? Is it possible to reach it?
The Crossover Point is when your investments start to pay more than your salary and give you the option of whether you want to work or not. It’s a seminal moment, and it’s absolutely something you can work toward and can calculate. It’s a very empowering moment, but it’s not magic, just math.
Toronto prides itself on its diversity, so should it be easier for those of us here to diversify our investments?
Diversification is one word you hear tossed around but people don’t understand how important it really is. If one of your investments goes down, it doesn’t hit your overall portfolio in a way that you’ll lose lots of money.
It’s not about picking random stocks. You want to find a fund that automatically diversifies for you.
It’s boring, not sexy, and that’s how it should be.
You shouldn’t get your excitement from the drama of your personal finances; that’s what cable TV is for.
Is “living the spreadsheet” akin to “living the good life?”
No! Get out of the spreadsheet habit. There are too many internet nerds out there who want to fiddle with spreadsheets and tinker once they have their accounts and finances set up. Start thinking about what a rich life means to you — whether it’s about charitable giving, travel or fine dining. Playing with spreadsheets won’t get you there. Why shouldn’t we worry about increased taxes if we earn more money?
People are primed to complain about them. I’m happy to pay my taxes, because it means I’m doing well and I know I can always earn more. I’d rather have an abundance mindset.
I am self-employed. Can I create a conscious spending plan if I have a fluctuating income?
Yes — and this is a big topic, because a lot more people have irregular incomes. You can modify the automated system in Chapter 5 of my book. It will take time, but you can use the great earning months to stimulate a stable salary and eliminate the ups and downs.
Your book is clearly geared toward the U.S. market. Can Canadians also get good value from your lessons?
Yes. I have thousands of Canadian readers who adapt my advice. I hear from them every day by email and a big shoutout to all of them. Keep asking for a Canadian version of this book and I’ll send your requests to my publisher. I’m listening.