Edmond Chan

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

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I Will Teach You To Be Rich by Ramit Sethi

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.

Advice to my mate for climbing Mt. Kilimanjaro

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My trekking group with Kilimanjaro in the background. I’m in the red tshirt and flat cap in the right foreground.

One of my close friends is climbing Kilimanjaro this November.

Over a recent curry, he sounded pretty relaxed about it.

I asked him what training he was planning to do.

He said, ‘A bit of cardio.’

Is that all?

‘Yeah, bit of running. What else do I need to do?’

I thought I’d write this for him and anyone else looking for advice.

I climbed Kilimanjaro in 2012.

I did the Lemosho Route.

lemosho_route

Kilimanjaro is easy to underestimate and that’s why I’m writing this.

She’s just under 6,000m, which is high, but no technical climbing is needed.

There’s even a route disparagingly called ‘The Coca Cola Route.’

So people of above average fitness think it’s a walk in the park.

It’s true that if you hike regularly and run a few times a week, you should be absolutely fine in terms of fitness needed.

But summiting is still not a given.

My group had 14 members.2 didn’t summit.

However, one of my good friends who didn’t, he returned the following year to retry and this time, he successfully summited. Big respect to him.

So it’s not a cakewalk. It’s a real challenge.

1 in 7 didn’t make it on my trek.

I barely made it as did several others on the trip.

So how can you maximise your chances of summiting?

There are two big hurdles.

1) Altitude

You can be super-fit and still get affected by altitude sickness.

This manifests in headaches and fatigues.

Altitude causes the brain to swell, which pushes the brain against the cranium.

It’s temporary and is relieved by moving to lower altitude.

I’ve seen it affect fit people on Machu Picchu at 4,000m as well as at Huayna Potosi around the 5,000m mark.

It also affected me massively on Kilimanjaro.

I was at 5,600m.

It was daylight already.

We were walking around the edge of the volcanic crater.

I couldn’t walk.

I kept falling over.

It was like I was drunk.

I couldn’t keep my balance.

I kept falling over in the snow.

Luckily, my friend Sue helped me walk to the summit.

I remember the Steve the doctor trying to get me to come off the mountain.

I think to my regret I swore at him and said I wasn’t going to waste the 2 grand I’d paid for this.

As soon as I reached the top and posed for photos I don’t remember, I was whisked by a guide down the mountain as soon as possible.

What would I recommend if you can’t prepare for altitude sickness?

Firstly, it is possible to acclimatise to altitude. Slowly.

You can stay longer in places up your ascent but the time restrictions of most trekking suppliers mean that you will have to stay with the group.

If you can, go to mountains in the same height bracket beforehand.

The tallest mountain in Western Europe is Mt Blanc.

My best recommendation which I would do if I had to do it again would be to visit an altitude centre and acclimatise.

Setting up camp in the lowlands of Kilimanjaro

2) The final push to the summit

Aside from altitude, the biggest obstacle to successfully summiting is the final push to the top.

You get to the camp beforehand at 6pm, then have dinner. Then you’re supposed to get some sleep.

But no one ever does.

Everyone is in sombre mood. Very apprehensive and very nervous.

This is what you’ve been working towards and you want to get it right.

At midnight, you all walk off.

Up the mountain, you can see other groups looking like a procession with their headlamps on their heads as they make their up.

It’s already 5,000m and the climb is steep for the first 5 hours.

It’s exhausting and it would be so easy to quit.

You want to sit down but you know that sitting down would mean that you don’t carry on.

You move slowly, focusing on one step at a time.

You’ll get there. Just keep going.

You’re sleep deprived and altitude sick. You’re so tired.

This is where people don’t make it.

My advice here is to stay close to the person in front of you.

Make sure they’re keeping up and watch their heels.

Just keep moving one foot in front of the other.

You’ll get there.

Keep going!

Me looking completely punch drunk on altitude sickness at the top.

 

Any questions, let me know in the comments below.

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

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The Richest Man in Babylon

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.

Try this breathing exercise for stress release and getting rid of cortisol

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Anxiety is the scourge of our generation.

As I mentioned in a previous article, I’m pretty damn happy most of the time, but I do get anxious and stressed.

Stress is linked to the hormone cortisol, which is produced by the body in fight or flight mode.

When you’re on a losing streak, or anxious about stuff, your body will produce cortisol.

Cortisol is perfectly normal and has served us well for millennia.

But it’s only supposed to be in the body for short amounts of time.

In the last century however, cortisol stays in the body for longer at low-levels, due to the lifestyle we now have.

This is not good.

In fact, this will kill us.

I accidentally discovered this breathing exercise when out and about recently.

Stand up tall (a bit like power posing as we saw in the earlier article on Amy Cuddy).

Tilt your head back a bit and breathe in fully slowly and under control through your nose, all the way in, as much as you can take in.

Hold the breath at the end of the inhale for a few seconds, until you want to exhale.

Then exhale under the same full control as you did on the inhale, and completely exhale.

Wait a few seconds before inhaling again, then start the process again.

You’re looking for deep, deep, slow breaths.

If you do this inhale/exhale a few times, you’ll feel your body relaxing.

For me, I feel my shoulders drop to a relaxed position.

My mind becomes quieter.

My breathing slows.

It sounds so simple, but has such positive effects.

It’s a great tool to have at the ready whenever you’re feeling stressed and anxious.

Give it a go now. Let me know in the comments if it works for you.

What stress release techniques do you use?

What are the seismic forces that we can’t see?

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icebergIn the last month since Brexit, I’ve been through some of the stages of shock and trauma.

Stage 1 – Anger/Disbelief

When Brexit first happened, I was in a daze.

I remember getting up at 5am that Friday and feeling sick to the pit of my stomach.

Angelique told me that on hearing the news, I punched the bedroom door really hard. I don’t remember.

On my commute, I was dazed and looking at everyone with almost hate. Like they voted to leave.

Stage 2 – Denial

“We can have a second referendum.”

“We don’t need to follow through.”

“Parliament can overrule the will of the people.”

Stage 3 – Blame

“We’ve been robbed by the old.”

“The old stole our opportunities.”

“Chavs have burned the whole house down.”

Stage 4 – Looking at the causes and what can we learn?

This is where I’m at right now.

Why did people vote to leave?

And why did the pundits, pollsters, bookies get it so wrong?

Brexit has revealed forces that were previously given little heed.

This is clear from the fact that everyone got it wrong.

Remain was predicted to win up until 12.30am on Referendum night.

Now, weeks after the event, we sagely explain it in terms of rising nationalism, opposition to migration and huge gulfs in inequality.

This all seems obvious now.

But it certainly wasn’t obvious in May 2016.

It was post-Brexit that these forces revealed themselves to the public consciousness.

It reminds me of Nassim Taleb’s Black Swan theory. (glossary here)

Where we have an event like the 2008 recession, which we didn’t see, but we rationalise and explain after the event as if we knew what caused it all along.

So now we see the forces that were previously unseen.

  • Resistance against immigration.
  • Fears about security.
  • Resistance against globalisation.
  • Huge inequality.

If a force is too big, then it’s better to accept that we can’t push against it.

It’s not to say that we can’t try to solve inequality but we should be ready for its consequences.

Takeaway from this:

If we’re looking around at the end of July 2016, what’s in our blindspot?

What can’t we see that’s there already?

I think of it like being a mouse on top of a wooden crate that’s floating on the water of the sea.

Except that’s not what’s going on.

In fact, the wooden crate is on top of a whale.

The mouse has the illusion of floating peacefully on the sea.

He has no idea of the much bigger forces at work that he can’t see.

Maybe he doesn’t want to see or more likely he can’t extend his range of vision.

Alongside, the whale, there might be other whales.

The water might be polluted, harming the whale.

The whale might be swimming at night towards freezing waters, with icebergs.

What can’t we see that’s there already and how do we become better at seeing it?