Book Notes

I Will Teach You To Be Rich by Ramit Sethi – key takeaways

chanman · Sep 2, 2016 · 1 Comment

I read I Will Teach You To Be Rich by Ramit Sethi before I read The Richest Man in Babylon (see previous post). However, I Will Teach You To Be Rich (IWT) can be taken as building on many of the principles in The Richest Man in Babylon (RMB). IWT is RMB for the 21st century.

Summary of the book

IWT is split into 6 sections:

1. Get out of debt first

Don’t save or invest until you’ve got out of debt. Interest rates on credit card debts far outweigh any possible gains from high-interest savings accounts or investments in equities or bonds. Eg. a 26% interest rate on your credit card balance is going to be bigger than the interest of 2% you might get on your savings account or the 10% annual return you might get from your investments.

Sethi gives the reader exact scripts for negotiating lower credit card interest rates to help you pay off your debts faster.

2. Set up no-fee, high-interest bank accounts

This is much harder to do now in the post-2008 low-interest rate world. Still you can find no-fee accounts and accounts with more attractive rates. As of writing, check out the Santander 123 current account which pays 3% on balances up to £20,000.

(Update from May 2020, Marcus by Goldman Sachs probably has the best savings interest rate at the moment at a paltry 1.20%)

3. Open an investment account

Savings will only get you so far. You need a return above inflation to keep your money. In the UK, that’s about 2%.

Historically, over the long-term, equities return around 8% per year.

The enemies of good long-term investing are things that eat into your profits.

Fees,
Taxes and
Poor investments.

Pick a low-cost investment account (like Hargreaves Lansdown).

Pick a tax-free account like a Stocks and Shares ISA (again see Hargreaves Lansdown)

Most managers lose against the market. Instead, beat 85% of managers by just ‘buying the market’. This means investing in index tracker funds which have the advantage of being lower cost than active managers. Again, remember that fees eat into your returns.

4. Conscious spending

Track where your money is going. Stop spending money on things you don’t want. Spend money on things that you value.

5. Automate your financial system

We aren’t rational creatures. We have limited willpower. Take this fallibility out of the equation by setting up automatic mechanisms to move money through your system, from salary to investments.

6. Get your investments right

Invest your hard-earned savings wisely. Invest according to your age. When you’re young, lean more heavily to equities, and reduce your exposure when you’re older.

Follow successful asset allocation (i.e. the split between your asset type – equities, bonds, cash, property).

Sethi recommends David Swenson’s asset allocation split. Swenson is the legendary Chief Investment Officer of Yale’s Endowment Fund.

What can we learn from I Will Teach You To Be Rich?

I Will Teach You To Be Rich is filled with practical and genuinely helpful, detailed advice.

I took two main insights from IWT.

First off, the overarching framework for getting rich.

(1) Get out of debt.

(2) Save as much as you can.

(3) Invest these savings according to a proven asset allocation like David Swenson’s.

(4) Rebalance the asset allocation periodically.

Secondly, and more importantly, how Sethi recognises the reality of how we as humans are irrational and often our own worst enemy in working towards our goals.

So the overarching framework makes sense. We know it makes sense. So why isn’t everyone rich? Because it’s hard and requires discipline. We’d rather spend the money. Sethi’s advice doesn’t rely on willpower and self-discipline. He advocates automating and systematising.

Set up your bank accounts to automatically transfer money to a savings account and your investment account. This way, it’s not relying on you to remember to transfer the funds across.

I’ve automated my savings and investments. Every month, I get paid into my current account. The next day, I’ve set an automatic rule for the next day to sweep £500 to my investment ISA, which then has automatic instructions to invest in equity funds and bonds. (Read about how I’ve set up my automatic investing through Hargreaves Lansdown here.). I follow the David Swenson asset allocation that Sethi recommends.

His argument for following a great like David Swenson is persuasive. In essence, why would I think I was more qualified to allocate assets than an investing great?

I definitely recommend this book. My biggest problem was having a ‘head in the sand’ approach to my personal finances. This book gave me the framework to take control of my money and peace of mind was worth way more than the cost of a paperback. I’ve actually bought more copies to give to friends and family.

What I learned from The Richest Man in Babylon by George S. Clason

chanman · Aug 15, 2016 · 2 Comments

I first heard of The Richest Man in Babylon from Fighting Mediocrity who made a fantastic animated video review of it. (Check it out here.)

I bought it on Kindle for next to nothing: £1.99!

It’s a short book and reads like an allegory similar in style to The Alchemist.

Synopsis

In ancient Babylon, an ordinary family man is struck one day that he is not rich and in all likelihood never will be rich.

He and his friends decide to ask the richest man in Babylon for his secrets to becoming rich.

Takeaways and analysis

The overall objective recommended is the image of ‘fattening up your purse’. It’s a great image to have in your mind when you’re reading this book. Imagine your wallet slowly getting fuller and fuller.

Rule 1

Pay yourself first. Save 10% of your income and spend the rest.

Clason makes the point that most people don’t pay themselves first. They spend what they earn or worse, spend more than they earn.

Keep one out of every 10 pounds.

Pay yourself first.

Interestingly, MJ DeMarco in The Millionaire Fastlane makes the point that most people do not pay themselves first even when they think they do. If you are employed, then the Government takes most of your gross pay first anyway.

DeMarco says truly paying yourself first would be by getting paid into a company structure, attributing expenses to the company, then finally paying tax on the profits. So the Government eats last.

Rule 2

Control your expenditure

This sounds obvious but it’s not. Or at least, most people don’t act like it’s obvious. Clason alludes to Parkinson’s Law whereby your expenditure fills to meet your income. So as your income rises, so does your expenditure.

Most of what we think are necessary expenditures are nothing of the sort.

We don’t need to go on holiday. We don’t need Netflix. We don’t need to go out to dinner twice a week.

Those are wants and desires.

Clason has a great line regarding this: Confuse not the necessary expenditures with thy desires.

Rule 3

Make your 10% you saved work for you. Create income streams.

Whether that’s investing in loans generating interest or ventures to generate earnings and capital appreciation.

Rule 4

Guard your treasures from loss

Don’t put your hard-saved money into high-risk ventures.

Rule 5

Make of thy dwelling a profitable investment.

Rule 6

Ensure a future income.

Make sure to look after yourself when you can’t work.

Rule 7

Increase thy ability to earn.

Good luck tends to go to honest, hard work and industry and not to speculators and gamblers.

Clason makes the point that fortunes were never truly made at the gambling tables. The only people to get rich in gambling is the house.

What can we learn from The Richest Man in Babylon?

If you earn £48,000 a year, your monthly gross salary is £4,000.

Of this, taxes in the UK will leave you around £2,500 in your pocket (take home pay).

Clason says that we should save £250 of this. The rest is for us to spend as we wish.

We might say that it’s difficult to live without that £250. Wouldn’t life be boring without little treats and expenses here and there?

Pay yourself first.

Think about fattening up that purse.

Next, make that 10% saved every month work for you.

I put mine into an equity fund called Aurora.

You might simply put the 10% into a savings account and earn interest on it.

Don’t touch this treasure. Let it grow and grow.

In 10 years, instead of nothing, you’d have £25,000 minimum in your wallet.

In all likelihood, you’d have much more because of the extra earnings of your 10% treasure and the power of compounding.

The Richest Man in Babylon is an absolute classic of personal finance. It’s as applicable today as it was in the 1920s.

I highly recommend it.

What I learned from The Rise of Theodore Roosevelt by Edmund Morris

chanman · May 9, 2016 · Leave a Comment

Unlike most of the books on this site, what I took from The Rise of Theodore Roosevelt isn’t so much about learning, but much more about inspiration.

Theodore (Teddy) Roosevelt led one of the most action-packed lives in history, filled with vigour, achievement, joy, suffering and overcoming.

This incredible biography of Roosevelt by Edmund Morris is heavily detailed and a work of intense scholarship but is as readable as a novel.

This is actually the first of a three part series by Morris on Roosevelt. (The second being Theodore Rex and the final being Colonel Roosevelt)

The Rise of Theodore Roosevelt charts the period from birth to the Presidency.

What can we learn from The Rise of Theodore Roosevelt?

That life is more than long enough

Most people complain that life is too short. They can’t fit everything in. There’s never enough time etc.

Teddy’s life shows that all to be bullshit. He found time to be a prolific writer and author, ranch-owner, pioneer, politician, naturalist, policeman, soldier, war hero, conservationist and President of the United States.

He would have been in full agreement with Seneca’s treatise On the Shortness of Life.

Life isn’t too short.

60 or 70 years is a lot of time.

But how most of us waste the time given to us.

How much time is wasted on pointless web-surfing, mindless TV marathons and shopping?

4 hours a day in the evening watching Netflix adds up.

Say you do this 5 times a week.

That’s 20 hours a week.

80 hours a month.

Imagine using 80 hours a month to your side projects.

To working out.

To reading more.

To doing the things you’ve always wanted to do but put it off like writing a novel, learning an instrument, learning a language.

Don’t waste time. Allocate it consciously and wisely.

That we can always change our destiny

Roosevelt was born with a weak body. His mind and spirit were bright and strong.

His father recognised this and gave young Teddy early bodybuilding equipment.

Roosevelt rose to the challenge and built up his asthmatic, frail body into a strong, muscular physique.

He then boxed, swam, wrestled, rode, throwing himself into physically demanding activities, constantly testing and developing his masculinity.

Roosevelt, through hard work and determination, turned himself into the epitome of physical vigour.

The importance of social confidence

Roosevelt was famous for his loud voice, ramrod straight posture and strong handshake.

He could walk into every room and say hello to everyone with a smile and strong eye contact.

The importance of moral courage

Roosevelt wasn’t afraid to stick to his guns and have the strength of his convictions.

He would go against his Party when their views differed from his, even under pain of censure and humiliation.

This undoubtedly helped him with winning the trust of the American public. They knew he would do what he believed to be the right thing.

The importance of physical courage

When the Spanish-American arrived, Roosevelt was Secretary of the Navy and had no need to put himself in harm’s way.

Of course, instead, Roosevelt raised a regiment known as the Rough Riders and saw action in Cuba, posthumously winning the Congressional Medal of Honour, the highest military honour in the United States.