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Podcast Episode Summary: Prof G Markets - "How to Build a Rich Life — ft. Ramit Sethi"
Episode Overview In this episode of *Prof G Markets*, hosts Scott Galloway and Ed Elson welcome Ramit Sethi, New York Times bestselling author of "I Will Teach You To Be Rich." The discussion focuses on the common financial challenges people face, along with actionable advice for couples navigating finances, the decision of buying versus renting a home, and teaching children about money.
Key Themes & Discussions
- Understanding Wealth and Home Ownership
- Controversial Views on Home Buying:
- Ramit asserts that owning a home is not a necessary component of being rich. He encourages individuals to run the numbers to determine if buying is a financially sound decision.
- He cites high costs of home ownership, which often exceed 30%-33% of gross income, making renting more financially viable in high-cost cities.
- Phantom Costs of Home Ownership:
- Other costs, often overlooked, include repairs, maintenance, and opportunity costs associated with not investing down payment funds.
- Navigating Finances in Relationships
- Common Financial Problems Between Couples:
- A lack of shared vision for what a "rich life" means can lead to conflict, with couples often fixating on minor expenditures instead of discussing overarching financial goals.
- Advice for Young Couples:
- Regular financial meetings (at least monthly) are suggested to foster open communication, share compliments, review finances, and establish a shared vision of financial goals.
- Raising Financially Savvy Children
- Teaching Children About Money:
- Parents should engage children in discussions about household finances from a young age to demystify money.
- Responsibilities can gradually increase, leading to tasks like planning a family vacation to instill financial awareness and responsibility.
- The Art of Meaningful Spending
- Spending vs. Saving:
- Ramit emphasizes that a rich life is about meaningful spending rather than hoarding wealth. He encourages individuals to spend on what genuinely brings joy while cutting costs on less meaningful expenditures.
- Gender and Money Management:
- The episode delves into how traditional gender roles affect financial decision-making and the importance of acknowledging these dynamics in relationships.
- Investing and Financial Planning
- Investment Basics for Young Adults:
- Young people are encouraged to start investing early, utilizing tools like 401(k)s and Roth IRAs.
- Ramit highlights the power of compound interest, encouraging individuals to consistently increase their investment contributions over time.
- Avoiding High Fees:
- Fees from financial advisors and investment funds can substantially eat into wealth. Ramit advises using low-cost index funds and being wary of financial products that obscure costs.
Key Takeaways
- Run the Numbers: Always calculate the true cost of buying vs. renting a home before making a decision.
- Shared Vision: Couples should cultivate a shared understanding of their financial goals to minimize conflict.
- Teach Financial Literacy Early: Engaging children in financial discussions prepares them for future responsibilities.
- Spend Meaningfully: Focus on spending that aligns with personal values and goals instead of succumbing to societal pressures of ownership.
- Invest Early and Wisely: Begin investing early, utilize tax-advantaged accounts, and be mindful of fees to build wealth over time.
Conclusion Ramit Sethi's insights in this episode provide practical advice for navigating personal finance challenges. By focusing on meaningful spending, communication in relationships, and proactive investment strategies, individuals can work towards building a rich life defined by their own values and goals.
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For more insights or questions, reach out to the hosts at [markets@profgmedia.com](mailto:markets@profgmedia.com). Follow them on social media for daily updates and discussions!
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:00This episode is brought to you by On Investing, an original podcast from Charles Schwab. I'm Kathy Jones, Schwab's Chief Fixed Income Strategist. And I'm Lizanne Saunders, Schwab's Chief Investment Strategist. Between us, we have decades of experience studying the indicators that drive the economy and how they can have a direct impact on your investments. We know that investors have a lot of questions about the markets and the economy, and we're here to help. Join us each week as we explore questions like, how do you evaluate corporate bonds? And what sectors of the stock market are outperforming?
0:31So Kathy will analyze what's happening in the bond market and at the Fed, and I'll give you our latest analysis of the equities market and the U.S. economy. And we often interview prominent guests from across the world of investing and business. So download the latest episode and subscribe at schwab.com slash oninvesting or wherever you get your podcasts.
0:55Support for this show comes from strawberry.me. Be honest. Are you happy with your job or are you stuck in one you've outgrown? or never wanted in the first place? Sure, you can probably list the reasons for staying, but are they actually just excuses for not leaving? Let a career coach from strawberry.me help you get unstuck. Discover the benefits of having a dedicated career coach in your corner. Go to strawberry.me slash unstuck to claim a special offer. Today's number, 6.23 metric tons. That's how much cocaine the Ecuadorian police found in a banana shipment en route to Germany. True story, Ed.
1:37I'm thinking about going dressed up as cocaine this Halloween, hoping someone will do me in the bathroom.
1:53Welcome to Prop G Markets. Today, we're speaking with Ramit Sethi. Sethi. And you're a big fan. Man, you watch his Netflix show, right? Huge fan. Very glad we're having him on. New York Times bestselling author of The Personal Finance Guide, I Will Teach You to Be Rich. We speak with Ramit about how to spend money, how to talk about money with your spouse, and how to build a rich life. I got the first one down. I got the first one down. Okay, I like this guy. I thought he was very practical. I'm a little bit jealous. I see what I could have been. If I were more handsome, a little bit more articulate, I too could have a Netflix show on personal finance.
2:28Instead, I'm here with you talking about like some Acorns app bullshit or something. Anyways, so with that, enjoy our conversation with Ramit Sethi. Ramit, thank you so much for joining us. Thanks for having me. Let's start with the most controversial topic in personal finance, which is homes. Home prices are at record highs, continuing to climb. young Americans increasingly boxed out of owning a home. You talk a lot about what it means to be rich and what it means to get rich. Do you think owning a home is an essential part of that? No, not necessarily. And you would think that a simple phrase, which I encourage people to do, is run the numbers on the biggest single purchase of your life would not be controversial.
3:17But whenever I suggest that people simply run a very basic calculation to decide whether it makes financial sense to buy versus rent. I get thousands of angry comments accusing me of being a secret landlord, accusing me of being in bed with the landlord conspiracy, and on and on. In America, real estate is religion. And if you dare to question it, even to simply run a calculation, you enrage millions and millions of people. Can you give us just some basic metrics for a first-time home buyer around loosely speaking the analysis around whether they should continue to rent or think about buying? Well, a very, very back of the napkin calculation, especially from the old days, would be that your total cost of ownership, that includes your mortgage, your sprinklers, your roof repair that you're gonna make 11 years from now, but you haven't even counted that in, all of it, transaction costs, all of it, should equal less than 28 % of your gross income.
4:17Now, that's not realistic anymore, especially in high cost of living areas. So we can stretch that number. We can stretch it to 30, 32, 33. But beyond that, it becomes very risky, and you are incurring massive risk, particularly if one person loses their job or something unexpected happens. There are also things like saving 20 % for a down payment. Again, incredibly difficult these days. I encourage it. I don't necessarily think you have to put 20 % down, but by saving 20%, you demonstrate that you have the effective ability to save money for what may come. And when you own a home, that is exactly what you need to be able to do.
4:52What's the math on renting? And by the way, how did you land on that 28 % to 30 % to 33 % number? And if you're renting, is the number the same? Is the calculation the same? It's the same for renting versus buying, which is why in expensive cities like New York, San Francisco, LA, it almost never makes financial sense and financial sense alone to buy. For example, I've been renting for 20 years in the biggest cities in America, San Francisco, LA, New York. I carefully run my numbers. And I'll give you an example. I lived in New York. I had a nice apartment in a great part of town. And I was very insistent on looking on what was going on with other real estate properties.
5:35So there was a building right next door, same view, same square footage, same number of bathrooms, functionally identical. it would have cost me 2.2 times more to own than to rent. So just for easy math, let's say I spent $3 ,000 a month on rent, I would have spent$6 ,600 a month owning. Same place. So what did I do instead? I rented. It means I didn't have to repair anything. If something happened, I called the landlord. Meanwhile, I took the extra$3 ,000 a month and invested it. Now you do that over years and years. You have to be disciplined about investing. But if you do that, you can make far more in certain cases than you would owning.
6:13Again, I'm not saying owning is bad or renting is good. I'm not saying that. I'm saying simply run the numbers because just buying a house is not the same ticket to an upper middle class life that it used to be. What are some of those, you mentioned like home repairs, what are some of those other associated costs with buying a home that perhaps people don't really think about that much? Well, I call them phantom costs and Americans are extremely bad at calculating phantom costs. They just take the big number and subtract the small number. And that is not the way it works. They don't factor in basic transaction costs, which is why buying and selling a house in less than 10 years typically almost always loses you money.
6:52They don't understand opportunity costs. So that down payment that you put down for your house, if you had simply invested it in the S &P 500, they don't understand how much that actually would have made because most people don't understand compounding. They don't factor in repairs, the big ones, but also the small ones, the twice a month trip to Home Depot. They certainly don't factor in their time, gas. Who would do that? It takes a lot of work. We would much rather be satisfied with the idea that I bought this thing. I entered the upper middle class because I own. And then one day when I sell, I made$150 ,000.
7:30I always ask him, did you factor in taxes, interest, all the other phantom costs? They almost never do. They don't want to. I've thought for a long time, or I think there's evidence, that the biggest cause of marital agitar angst is actually rooted in finances. You work with a lot of couples to help them manage their finances. What are the most common financial problems you encounter with couples? And what advice would you have for young couples starting out in terms of their approach to money and how it fits to their relationship? When I speak to couples on my podcast, the most common problem is that they simply have no shared vision of a rich life.
8:09And so what you see is this very peculiar set of behaviors that emerges and calcifies over 30 years. It's one person arguing with the other. I can't believe you spent this much at Target. It's even become a punchline. You look at these reels on social media. I went into Target to spend 50 bucks. I walked out with$300. He he he he. That's not funny. That actually is not funny. it actually is playing small because if you're fixated on a$50 purchase at the grocery store or Target, you are missing out on what a truly rich life is. So that's number one is no shared vision. They never actually sat down and had a conversation about what does money mean to us?
8:47What is our ideal vision of a rich life and how do we use money to live it? The second thing is no connection or understanding of how, where they came from affects their decisions today. I speak to a lot of folks who have big amounts of debt,$500 ,000 of debt, etc. But I also bring on multimillionaires on my podcast. And if you think about it, most of us have never, ever been in the room and listened to a couple with$8 million of net worth talking about money. We've never heard a couple who has that much money talk about it. But I do. I bring them on, and you will hear that they are worried about money.
9:23You will hear that they still comparison shop for blueberries. Rich people are obsessed with getting a good price on blueberries. They still drive extra for gas. And they do not truly internalize the idea that I won the game of money. And now I get to turn the page and engage in the next chapter of our rich lives. What does a rich life actually mean? That's the question, isn't it? We're going to need a bigger boat, Ed. You must really think of a lot of our meat here to think you could answer that. What is the meaning of life for me? Now, let's start with an easier question. Is there a God? Anyways, that's right.
10:01Scott's one of the only guys, Scott, you're one of the only guys who talks about the value of spending money. And I think that that is a huge problem in our culture, which is everybody teaches you how to save money, but nobody actually teaches you how to spend it meaningfully. And that's the purpose of a rich life is not to hoard money and accumulate it. That's not the point. The point is to spend your money meaningfully on a rich life, whatever that is for you. You know what really bothers me? This is going to sound arrogant. I have so many rich friends that don't know how to spend their money.
10:31They still have anxiety and all that, or they just spend it really poorly. They live in shitty homes, take shitty vacations. And I'm like, Jesus Christ, dude. You spend so much time learning how to make money and no one has taught you how to spend it. They don't take nice vacations. They don't give money away. They don't. Anyways, I'm totally on board here. Let me get back to the question here. I'm very curious how you think gender roles or even specifically masculinity plays into money management. Well, gender roles are a huge deal and they're not talked about. It's so taboo. It's taboo to talk about money and relationships in the first place.
11:06We'd rather talk about our sex lives, but gender, huge deal. I will bring on couples on my podcast or on my Netflix show. And sometimes, for example, we will have a higher earning woman than her heterosexual partner, the man. and this typically, not always, but typically produces some really interesting dynamics. I saw once, for example, there was a young woman, she was around 40. She made 100 times what her partner made. She made$200 ,000 per month. She was an entrepreneur doing extremely well. So she wanted her partner to occasionally pay for dinner. Sounds reasonable. He did. He said, I'm happy to pay for it.
11:51But when he did, she would say, no, I want you to put your credit card away because I want you to actually invest that money in a Roth IRA. He hadn't grown up like she had, being educated about investments, et cetera. And so what they did was they created a dance. The dance was before they went out, she would give him her credit card and he would then pull it out and pay at dinner. Now, a lot of people think this is totally absurd. I can't believe they're doing this dance when in reality, she makes more, she should just pay, et cetera. But the fact is gender roles are very deep. They're very real.
12:24We can't ignore them. They've existed for thousands of years. With that said, I think that things have changed quite a bit even in the last 20 years, particularly with more women earning higher wages in major cities. Women earn more than men in their 20s. It's quite remarkable. And that's causing a major crisis of understanding of how to spend money. Even the simple question of who should pay on a first date becomes much more complex with the socioeconomic environment that we have. So for me, the best way to do it is to actually share stories of couples. Bring them on, listen to how they actually talk about it because right now we just have this caricature in our mind of how gender roles play out.
13:02No, I wanna listen to them for three hours talking about exactly who should pay, why, what does it make them feel like? And that to me is so insightful. So first off, I love your stuff and there's some really interesting stats. around what happens when the woman starts making more than the man. The guy becomes three times more likely to have to use erectile dysfunction drugs, not necessarily because the woman shames him, but because he loses his sense of confidence. And I hate to say this, but the data shows that once the woman starts making more money than the man, they become twice as likely to get divorced.
13:33I mean, these gender roles are really, really baked into us. One of our theses is that all young people should have a financial plan, but without a really solid financial plan as a man, you're going to have trouble attracting a mate and that it is especially important for young men. How do you balance advice to young men around, quote unquote, finding something that they love and they'll find emotional reward as opposed to the way I was? I was just an economic animal. My 110 % objective was how do I get more money? Full stop. That was it. I didn't want to save the world. I didn't want to be a good person.
14:10I didn't give a shit about the dolphins or the whales. I I just wanted Benjamins. What's the balance and how do you coach young men around this? Inspiring. Yeah, there you go. You're welcome. You're welcome, young people. There's a reason Ramit has a Netflix show and I'm here with you, Ed. On next season, how to be unhappy, angry, and depressed. Wait a minute. Am I getting brought down here? Scott's like, welcome to my lair where we talk about the most taboo subject. Your show's over. I'm getting canceled after this. No, Ramit, you're straight to Vice Network after this. Oh, my God. Advice to young men.
14:44There is something pure about the way that you were, as you put it, an economic animal. I think that's pretty rare. I think unless you live in New York or a few cities, most people are not thinking that long term. Just to put it bluntly, most of the people I talk to do not think beyond the next month with their money. It's as simple as that, bar none. And that is true for both genders, by the way. I do think that there are certain expectations of men in our culture. When I speak to couples, almost 100 % of the time, when I ask a man, what is your role when it comes to the finances? He will always use the same word.
15:21It starts with a P, provider. It's as simple as that. And when he cannot be a provider, whether he's laid off temporarily, something happens, or his partner earns more, I ask him, you were a provider. What about now? and he's lost. And I think that that's a tragedy because I do think money is an important part of a rich life, but it's a small part. If you have a partnership where the two of you are earning money, one may temporarily step back, one may become a young parent, et cetera, et cetera, et cetera. If you can negotiate those changing roles, which every couple has, in any given relationship, there will often be a time where one earns more than the other earns more.
16:01This is typical, But you got to be able to talk about it. And most men are not taught to talk about it. It's shameful to bring up the fact that they are not earning as much as their partner in some cases. We're supposed to be accidental ballers that no one needs to think about. Yes. And it's not cool to talk about planning and to talk about this is how I feel. And I feel better when I make this much money or I feel better when I can provide X, Y, Z. It's not cool. It should just happen. And I don't believe that. You know, I talk a lot about, I was a really skinny kid. I called myself a skinny Indian guy.
16:34And I wish I hadn't used those words because it became a self-fulfilling prophecy. And when I decided I wanna change my body and learn how to eat properly and train properly, it took me years just to get out of my own head. We have to be able to articulate our views of who we are. Am I actually just a provider? Does a provider only relate to how much money I bring in? Can I provide in other ways? These are questions that women have been asking for a long time, but men are not expected to ask them. They don't have the skills to ask them. And frankly, a lot of them don't have the interest to ask them.
17:07That is what I'm trying to change. What are some of the practical, actionable steps that couples can take? Do you recommend, for example, that maybe couples sit down once a month and discuss their finances or something like that? Absolutely. So at least once a month, when you start off, it might be once every two weeks. It's a 60-minute meeting. You always start off with a compliment always. You know why? Because most people, they only talk about money when they're fighting about it. They literally never talk about it when things are good. They only talk about it when things are bad. How could you?
17:37I go, no, we're not going to do this. We're going to recalibrate. So it's as simple as saying, every time we travel, I love that you book our flights. You do such a great job. And I know that we're going to have comfortable seats. Thank you. I love you. Simple as that. You start off with a compliment. You review a couple of key numbers. These are very simple. You know, I don't budget down to the level of tracking how much I spent on asparagus. What a waste of time. I don't use a budget, nor should anybody. In fact, they don't. Nobody uses a budget. It's just this puritanical guilt that we love to berate ourselves for not tracking, which is pointless anyway.
18:09So anyway, you need to know four numbers. You track those numbers carefully. There are a couple of variable costs that people have. Typically, it's eating out and travel. Kids sometimes, depending on what you're spending on. You pick the numbers. You track it according by the month. Each person owns a little bit, which by the way is a key mistake couples make. There's the money person and there's the non-money person. This is a big mistake. When your money person gets hit by a bus one day, the other person is left bereft. They are grieving and they're going to be preyed on by the vultures from those shitheads at Goldman Sachs.
18:42This is what we do not want. So you want them both to be engaged and you talk about your numbers. Then you talk about what's exciting coming up next month. What do we need to plan for? And then you call it a day. hey, you don't need to solve everything in this meeting. You just need to be on the same page and move on until you talk next time. So just along those lines, Ed, I just want to point out how much I appreciate you selling your ass down on the Bowery to pay our payroll. I really appreciate you. I haven't heard anything you said for the last 30 seconds from me thinking about that joke. That makes me so happy saying, I don't care if our listeners sound that funny.
19:17It just makes me really, really happy. He sounded gleam in his eye. I also saw your face glow up. And I don't have a Netflix show. I just, anyway. We'll be right back after the break.
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22:24We're back with Prof G Markets. I'd love to know, what are some of the worst spending habits you've ever seen? Easy. It's always the same two things. Housing and cars. Always. Americans love housing and cars, and they make the biggest financial mistakes with those two categories. Number one, housing, they overspend dramatically on because in their religion, which is housing, they have a very simple way of looking at the world. It's simple, almost childlike. I need to own because housing always goes up. So therefore I'm going to own. It's as simple as that. They don't care to know about interest or phantom costs or anything.
23:05It's just, I'm gonna buy a house. it's going to go up and I'm therefore going to be rich. Huge mistake. And that's number one. Number two is cars. Oh my God. Americans love cars and it shows up in peculiar ways. The minute they have kids, what's the first thing they do? They go, I need to go buy a seven seat SUV because I have a baby. And I also need to buy a house with a backyard for the baby. And so we transfer all of our anxieties to our baby. Huge mistake. When I see couples that fight about things like, I can't believe you spent that much on energy drinks at the gas station. I already know it's never about the energy drinks.
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23:43It's not about Target. It's not about eating out. It is that they are spending too much on their housing and cars. There's nothing left over. And yet they don't know that. They can't make the connection. So they fight about how much they ate out and spent on appetizers. Ramit, what do you think of the notion of, quote unquote, with the number of having a number at which point you feel like you'll be done can exhale i from a very young age had a number i don't know if it's a good idea and i kept doubling it every you know my appetites would get bigger well isn't that the point that just shows you it never works it's delusional and it's it's always men that have a number by the way men who are who love to spend their entire lives living in a freaking spreadsheet going oh okay 4.2 million at four percent that's going to be really nice and then they just they don't realize because i had a number two when i was in college.
24:30We all sat around, all my guy friends. And then you realize, oh,$100 ,000 is probably not the kind of lifestyle I want to live. And then you up it and up it. And then ultimately, if you are smart, you realize it's not about a number. Sure, you need some amount to be able to live the kind of lifestyle you want. But the actual point of a rich life is not a number. It's never going to be found in a spreadsheet. It is about the journey. It's also about defining what a rich life is for you. And then when you know that, you can spend extravagantly on the things you love and cut costs mercilessly on the things you don't.
25:03If you love a Ferrari, God bless. If you love it and you can afford it, I support it. I want you to buy it. But what most of us do is we pick this number totally arbitrarily. We have no context for it. We don't know what a million, 2 million, 6 million, 12 million means. How could we? And then as we start to earn more and invest more, we simply chase bigger and bigger numbers. It's a pointless. Yeah, it's pointless. Well, as someone who engaged in that pointless activity, just a couple observations. We talk about houses and cars where people make mistakes. I think a lot of that is signaling. That is the most explicit means of communicating to your peers and friends and potential friends that I'm successful, you should be my friend.
25:45And or you should respect and admire me or I made a good choice with my spouse or what have you. So what, and granted, this is the mother of all good problems, but say you are shallow and had a number and you hit that number. How do you think, if and how do you think your mentality should change is in terms of your approach to work or approach to finance or managing your personal finances? This is what I love talking about. So I've had a lot of friends who became wealthy from selling a company or they just were investing for the last 15, 20 years with a high income. Some of my friends spend very poorly.
26:21Like they take a lot of pride in how little they spend on certain things when I don't actually think you should be proud of living a smaller life than you have to. I actually consider it a tragedy. In America, we have a very puritanical strain that runs through us. And this idea that I don't wanna get too big for my britches. So I don't, again, I'm not encouraging everybody to go out and buy expensive handbags and very expensive clothes. Although if you love it and you can afford it, I support it. But I do think that you shouldn't consider it virtuous to live a smaller life than you have to. So what I have tried to do, I reached out to some of my friends.
26:57I said, hey, come to New York. Let me take you out. We'll go try all kinds of nice things. And you can decide what's important to you. What do you like? Because when I was a kid, I grew up very middle class. My parents are immigrants. I had to learn all of this on my own. And I used to scoff. Why would somebody go to a nice restaurant. I'll go to Taco Bell. They're paying a hundred times when I, and I'm more full. And I really looked down on people who spent money. What I should have done was get more curious. Why would somebody who can afford it sit in the front of the plane? What are they getting that I don't understand?
27:29And, and yet, so most of us, I call it the D to C principle. We need to go from disparagement to curiosity, but most of us don't. We simply absorb what the media tells us, which is those rich people are evil. But at the same time, we simultaneously want to be rich. So we have this tortured relationship with money. Anyway, I invite them to come to New York and spend money. Not one of them has ever taken me up on it. Not one. And I'll do it for free. Why? We don't really want to learn the skill of spending. In fact, deep down, we don't even believe it's a skill. It makes us deeply uncomfortable to think about spending more money.
28:05So again, another problem or a good problem. I often say I wouldn't have what I have if I had what my kids have. And that is I grew up without a lot of money and it created a real drive, a real sense of grit. And I think that's been hugely beneficial for me. And my kids aren't going to have that, or they're just not going to have the same need. Do you have any advice in terms of if and when to pass on wealth to kids and what good money habits are in terms of raising productive sons and daughters? I do. I've spoken to many, many thousands of parents, and the most common question that, there's two common questions.
28:48The first is, should we give them an allowance? Which is so micro and irrelevant. Give them an allowance, don't give them an allowance, it makes no difference. That's not the point. I was on my list of questions to ask you. Well, it's just, it's something that we fixate on, but it's actually irrelevant. We do give you an allowance, Ed. I give you an allowance and healthcare. and healthy. Yeah, that's very generous. The second thing is most parents, I'll get these messages every week. It's always the same. I just had a son. I just had a daughter. What kind of account should I open up? Should it be a 529 or this or that?
29:25And they're always the same. They're 38 to 42 years old. And I slow them down. I say, hey, congratulations. Before I answer that question, tell me about your own finances. And they go, oh, well, not too good. We started off late. I wish I had started off early. And what they are really saying is, I've lost the game of money for myself, but I'm not gonna let my son or daughter lose the game. First of all, that's a huge mistake. Parents should put yourself first. And I say that as someone who grew up in a very collectivist culture. I understand what it's like to give everything to your kids, but your kids have time.
29:58You have far less, okay? They can take out loans and there's nothing that wrong with taking out a little bit of educational loans. It's not tragic, it's not horrible, but you don't have that ability in retirement. So that's number one. Number two, most parents are not aware of the messages they are sending out to their kids. So when I speak to people on my podcast, I'll ask them, what did you learn from your parents about money? And they'll say things like, all they said was, we can't afford it. We can't afford it. If you hear that 5 ,000 times by the time you're 18, you start to believe it, even if you have millions of dollars.
30:29So for parents, here's what I would suggest. When your kids are young, really young, pull them up to the computer with you. Say, hey, we're about to pay this bill. Can you help me push this button? This button is what helps us keep a roof over our head and eat all this food. Make them see the excitement of engaging with money. As they get older, have them go to the grocery store, say, we have$100, here's what we need to get, help me do this. Even if they make mistakes, they're gonna forget about taxes, fine. Then, by the time they're in their teen years, late teens, they should have planned a full vacation for the family.
31:01That means understanding everything like taxes, tips, transportation, all of it. that is how you take a child and turn them into an adult with money. You don't leave them defenseless. You build those skills along their childhood. Your show is so interesting because you play this role of financial advisor. Wait, hold on, hold on. All the financial advisors listening to this are getting mad already because number one, I'm not a financial advisor. And number two, I always tell people, never pay AUM. Never. And then they really hate me when I say that. Anyway, sorry, I just had to clarify that. I have nothing against advisors, just AUM.
31:35But you play that role, and then sort of, and then you're also playing this role of therapist in a way. And I also know you're not a licensed therapist. But like the point being, these conversations, they're very personal and they're very emotional. And I'm just wondering, to what extent do you believe that money and personal finances and mental health are related? And what have you kind of learned about human psychology through doing this show and writing your books? Money is deeply emotional. And what's ironic is that many of the people who are most emotional about money, they will criticize themselves.
32:10They'll literally say, I know I'm too emotional with money. And the subtext there is being emotional is bad. I'm bad. I need to take who I am and stop doing that. And first thing I do is I go, money is emotional. There's nothing wrong with that. It will always be emotional. And they've never heard somebody talk like that. The second thing I say is it's okay to be emotional with money. And we also have to know our numbers. You know, most people simply do not have a facility with their numbers. From the people I've spoken to, 50 % do not know their household income. 50, a full 50%. You can hear it all the time.
32:49I'll bring them on. They filled out a form themselves. And I look at the number. I go, okay, you make 75 or 120 or 680. I go, did you know that? Fully half of them go, no, I had no idea. It's crazy. Is that not shocking? Yeah. So the emotions will always be there. But the problem is, if you don't know your numbers, your emotions can go out of control. Your emotions may be true, but they may not be telling you the truth. And suddenly you're worried. I talked to multimillionaires who are constantly worried, but they don't understand the numbers. You know, 90 % of the people I talk to in debt do not know how much debt they owe.
33:26Why would they? They don't want to open up the envelopes or the emails. and 95 % of them do not know their debt payoff date. Again, why would they? We don't like to feel bad, so we simply ignore it. So money is emotional. We have to engage with that. We can't deny it. We can't pretend that it's simply a bunch of spreadsheets, which is one of my main critiques of the financial industry. It is so, it's like an automaton, like people are robots and they're not. We got to meet them where they are, paint a vivid picture of what's possible and then yes, teach them how to engage with the numbers. On the other side of that, I could imagine a lot of people listen to your podcast and watch your show and they're saying, okay, I'm going to go get super diligent about money right now.
34:07It's all I'm going to think about. Is there a recommendation for people who maybe are thinking about it too much? Like, is there a way that you can kind of overdo it and be overmanaging your finances? Well, there's four types of people that I've identified. And one of them, one you're mentioning is an optimizer. I'm an optimizer as well. Given enough time, I would simply sit in a spreadsheet and run a Monte Carlo analysis every single day for the rest of my life. I love it. I love planning. I love thinking about what could go wrong. Like, that's me. I'm an optimizer. Now, the benefit is if you're an optimizer, which I suspect Scott is as well.
34:41Scott is, you're probably a combination of an optimizer and a worrier, which is a very interesting combo. It actually serves you very well because you optimize and you save and you invest and you earn more and you go, oh, so cool. I'm so good at this. The problem is that most people don't know how to turn it off. They don't even realize they are an optimizer. They just think I'm great. I love analyzing my investments. So optimizers one avoider is a very classic one. That's so classic in America. A worrier loves to worry. In fact, if you ask them, what would it feel like to not worry about money?
35:18They are simply that they don't know how to answer because they've only worried about money, typically which they inherited from their parents. And then finally, there's the dreamer. The dreamer is like, you know, some of these folks who invest in Bitcoin, and they speculate all the time, and they think like success is right around the corner. This MLM, this one opportunity, if I just get this one deal, it's always about the dream. They never want to do the boring vanguard compounding. Those are the four categories, avoider, worrier, optimizer, and dreamer. And for optimizers, one of the things they need to learn is actually to give themselves a pat on the back, accept that they won this part of life, and that they actually have a new chapter of their life, which is to enjoy money.
36:00It's to connect. It's to be more generous. We'll be right back.
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39:00We're back with ProfitU Markets. I'm curious for me, what do you do with your money? What's your approach to investing? The vast majority of my net worth is in simple index funds. I did a bunch of angel investments several years ago. I lost money on almost every single one. And the one or two that I made money on, I'm like, this is it? I could have basically made the same in the S &P, so I stopped. Angel investing is consumption, is the way I describe it. It's there to learn about small business, help young people. I do think there's some psychic reward, but it should be sequestered to rich people looking for something to do to help out younger people.
39:36So what about, I'd love to hear your rap on how fees, I mean, one of the things about index funds is I imagine it's Vanguard or low fees. Can you talk a little bit about how mendacious fees can be in terms of building wealth? Yeah, I mean, fees are the vampire of the industry, and many of us don't understand the effect of it. I talk about fees on your investments and from a financial advisor frequently, and most people are simply dumbfounded. I'll give you an example. I had a young woman, she was 30, and she wrote me an Instagram DM and she said, I can't tell if I'm being ripped off by this financial advisor.
40:10I said, tell me your numbers. So she told me what she was paying, which was something like 1.25%. Again, if you've never heard this number, you go 1%, 1.25%. Yeah, no big deal. Oh, somebody looks over my money. That sounds great. And I said, okay. I asked her a couple of questions. I said, how much do you think that that will cost you over the course of your lifetime? She had no idea. And she was actually steadfast. she refused to answer my question. I said, just guess. I'm not going to hold you to it. She guessed something like$30 ,000. I calculated that she would actually end up paying over$315 ,000 in fees.
40:45And I still have the screenshot of what she said. She said, OMG, WTF, is this a joke? And I love this moment of realization where the way you looked at the world through one set of lenses is actually replaced by an entirely new set of lenses. She had worried about the price of potatoes at the grocery store. She had agonized over ordering a second lemonade. And here she is invisibly paying hundreds of thousands of dollars of fees and not even knowing it. In fact, thinking she was doing the right thing. These fees, if there's a value for them, like I stay at nice hotels, that's one of my money dials, the things I love to spend money on.
41:25I know that they cost a lot more than another hotel. I know that it's a pure luxury. I get it. But there is no equivalent with financial advisors. You can get amazing financial advisors paying an hourly or project fee. You can get amazing index funds compared to some mutual fund. You will not beat the market, especially anyone watching this. You don't have access to the investments that would beat the market. And so when you're buying a commodity or you're buying something that is cost means a huge difference, you want to focus on cost. The cost of my overall portfolio is something like 0.05%.
42:01It's effectively nothing. That will make me millions of dollars over the course of my lifetime. Even if you don't have as large of a portfolio, costs matter to the tune of hundreds of thousands of dollars. Do you have any recommendations for how people should figure out who to listen to? I'm just thinking about that woman that you interacted with. Why should people listen to you, for example? Why should anyone listen to anyone else about what they should do with their money? Ed, it's clear that anyone on CNBC, Cathie Wood, Chamath Palapattaya, those are the people we should be listening to for financial advice.
42:36Anyone who listens to Chamath obviously has the worst decision-making on planet Earth. All right, this is a great question, Ed, because to the average person, it is effectively unknowable. You listen to somebody on TV, you have literal scammers going on TV and they're blessed with the credibility of something like a major TV show. Then you go on TikTok and you have a guy wearing shorts, writing on a whiteboard, talking about some fancy new way, which is really just a wrapped up bullshit version of whole life insurance, which you should always avoid. And saying like, this is tapping into the frailties of American culture saying, I will help you grow tax-free.
43:22Americans hate taxes more than anything. They would rather lose money tax-free than make millions and pay a little bit of taxes. Oh my God. Like when I talk to people, you know, one of the things I try to do is use myself as an example. I tell them I'm rich. I'm happy to pay my taxes. And in fact, I should pay more in taxes. I tell them I'm happy to tip more. And these are things that wealthy people should be thrilled to do because only in this country could I have been as successful as I've been. They're shocked when I say that. So who should you listen to is a really difficult question because some of the folks who are giving advice are actually pretty credible, but their advice is based on what was happening in the 70s, 80s, and 90s, which is quite different than today.
44:08Housing prices are different, etc. It's not just avocado toast. It's structural for young people. I don't know. I don't know how to tell you who to listen to except to be the example of someone who I hope is credible. And you can start with me and you don't have to agree with me on everything. You probably shouldn't. You should be listening to multiple people, but you should kind of know, beware of anyone who's promising something that is highly confusing. Money is actually quite simple at its core. Focus on low-cost, long-term investments, avoid fees, define your rich life, and then use your money to spend it.
44:42But when you're talking about things that have all kinds of confusing words, tax-free, estate planning, et cetera, I start to get very nervous. That's what I would say. Yeah. Just a thought that has occurred to me during this interview. I love when you talk about the idea of the religion of homes, even maybe the religion of cars. There are just these things that we go, oh, well, other people, it's what other rich people do. It's sort of a symbol of richness and wealth that I can rely on. And therefore, I'm going to take that route. And it feels like what you're kind of empowering people to do is actually look at their lives and be like, wait, what do I actually want?
45:20Like, what do I think is the best decision for me? And I wonder if maybe that could apply to listening to financial advisors too, having the empowerment and the agency to say, okay, well, I've listened to these people and these people, and I agree with this guy, and I don't agree with this guy. But it's the idea of making that choice. It feels like that you're really empowering people to make that choice. Would you say that that's sort of what you're doing? Yeah, well, I thank you very much for saying that. You know, I appreciate that. And I think the rarest thing in the universe is having a strong point of view.
45:56It can't be bought. It has to be developed from the inside and it's incredibly rare. So I want everyone to develop their own point of view on what a rich life is. And your rich life will be different than mine. And that's how it should be. My rich life, the more I turn that dial and it fits me like a handmade glove, the more confusing and even bewildering it is to the outside world. That's exactly how it should be. They go, how can a guy who makes that kind of money still rent? That makes no sense. Why does he do this? Why does he not care about that, but he spends extravagantly on this thing?
46:30Makes no sense. Good. That's what a rich life is. It fits you like a glove, and it doesn't necessarily make sense to other people on the outside. My sense is one of the toughest things about investing for young people is just getting started. It's like writing a book. I always thought, just open your laptop and write a page. It doesn't even matter where it is in the book. Just start writing. Can you give us some concrete steps? You're 24. You've been working for a couple of years. You think you can start to figure out a way to spend less than you make. What are some tangible first steps to get going on investing and building a financial future?
47:05Step one, I just want people to actually see a couple of numbers that will blow their minds. Go online, search for compound interest calculator, and plug in your numbers. You're 24 years old. You have 41 years to compound this money if you retire at 65. Probably longer, right? Yeah, probably longer, but plug it in. Be conservative. I always assume a 7 % return rate just to factor in inflation, but actually, just do that. Don't change. You're not going to get higher than that. Just put 7%. When you plug in the numbers, you'll be quite frankly shocked. Now, what most young people do is they sandbag.
47:40They don't realize that their income will go up and it will peak in their late 40s or even 50s. So they think that the salary they have in their 20s is max. Please don't do that. But just pick a number. You can play around with the numbers and you start to see, oh my gosh, putting$100 a month is great. $500 a month, which is quite reasonable over the course of a lifetime, is even better. and then more and more. And don't forget, most people get married, et cetera. So now you realize, oh my gosh, I'm a millionaire. I just need time. Cool, what do you do? There's two things you wanna do. First of all, if you have a 401k at work, contact your HR person and ask them, how do I do this?
48:18Okay, they'll walk you through it. That's what they do. Set it up. I suggest you take five, take the amount of your salary that you get matched, set that up to be contributed automatically to your 401k. Now, a lot of people go, how can I do this? I'm living paycheck to paycheck, et cetera. Let's remember, first of all, the vast majority of people are not living paycheck to paycheck. There's been a concerted effort in this country to make people think that the economic situation is worse than it is. It's actually the median net worth for a household is$193 ,000 with$8 ,000 in checking and savings.
48:51So we have to remember that this paycheck to paycheck thing, we gotta stop using that phrase. It means nothing, okay? Most people will be able to take money, whether it's$50,$100,$500 a month, set it aside automatically. You will not miss it after two or three months. It's like magic. The second thing is, if you have the opportunity, open up a Roth IRA. Put as much as you can in there. If you can only put$100 a month, do that. But just remember this, at the end of every year in December, turn that number up. My suggestion is if you increase your investment rate and your savings rate 1 % every year from your 20s, you will be a multi, multi-millionaire.
49:28So this year you're investing 4%. At the end, make it 5%. Just 1 % every year, you will be a huge multimillionaire. And when you're my age, you're going to be spending or saving 110 % of your salary? Yeah, you have to stop at some point. But usually the problem is not stopping. The problem is starting and even turning that number up once. Okay. I never have to tell people, oh, well, the occasional FIRE member, I have to tell them like, hey, you're investing 70 % of your income. It's fine. Take 10%, have some fun. But almost never. I'd love to know what got you into this. Like, how did you get into the world of personal finance?
50:08What inspired you to write your book and create this show? What, you mean it's not normal for an 18-year-old kid to be writing about compound interest when I started. Is that when you started? 18? Well, I started when I was in high school, and I started this business 20 years ago. I'm actually 20. The business is 20 years old this year. And the reason that I started it was when I was going to college, my parents said, like, of course, you're going to college. You're Indian, but we have no money. So you need to find a way to pay for it. Apply to scholarships. I said, great. I love systems. I applied to about 65 scholarships and I started getting these checks.
50:47The first check, they wrote it to me, not to the college, but to me. I took that money and I invested in the stock market. This is around 1999, 2000. I thought I was a genius. I put the money in the stock market, promptly lost half of it. And I was like, oh shit, maybe I'm not as smart as I thought. So while I'm studying human psychology and persuasion, I was also learning about personal finance. I tried to teach my friends in school about personal finance, but kids in college don't want to learn about money, at least not freshmen, juniors, and sophomores, maybe seniors, but most people don't want to learn, especially from me, a guy who was their friend drinking beer with them.
51:23So I started a blog and I figured maybe these lazy college kids will just enjoy reading online. And that was one of the best bets I ever made. 20 years later, you know, I have a business with a book and the Netflix show and all of it. And I feel very grateful for sticking with it for 20 years. But to me, it's just because there's so many layers of a rich life that it never gets old. So last question, more of a personal question. What are your favorite hotels? Oh, man, I could talk about this forever, Scott. I'm literally the same way. I travel to hotels, not to cities. Yes. OK, well, I'll tell you my favorite hotel is Uday Velas, which is the Oberoi hotel in Udaipur in India.
52:05I love the Oberoi properties in India. Amanpuri is another one in Phuket was absolutely beautiful. And we have a lot of fond memories of that. And then I'll give you another one in Kenya, Angama Mara, which we really loved as well when we were there on safari. But I love hotels because to me, they are the Olympics of hospitality. And really, when there's a candle that's lit outside my room. It just reminds me somebody's looking over me. Somebody's taking care of me. In a way, it's very childlike. It reminds me of my childhood. Someone is there watching over me. And in this case, it just means that I'm paying a lot of money for it, but I love it.
52:41I appreciate it. And I know it sounds like freakishly weird to most people. They're like, why the hell would this guy spend money on this stuff? But that's me. That's my rich life. And that's what I love. Scott's Rosewood, Arman, Six Senses. What am I missing, Scott? I think Ramit is, I mean, he's clearly a gangster here. The stuff he mentioned is not even on my radar screen, but it sounds very luxe. Anyways, Ramit Sethi is the New York Times bestselling author of the Personal Finance Guide, I Will Teach You to Be Rich. He also hosts a podcast by the same name, as well as the Netflix show, How to Get Rich, and is, sounds like living a very rich life.
53:17Ramit, this has been really interesting. I can see why you've been so successful in Netflix. You take what is an intimidating concept and you make it very friendly and very approachable. Thanks for your good work and congrats on all your success. Thanks, Scott. Thank you, Ed. Thank you, Ramit. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producer is Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network.
53:47We'll be back with a fresh take on markets every Monday.
53:54Lifetimes
54:00You have me In kind reunion
54:11As the world turns
54:17And the dark light In my life
54:32By the way, I'm really good at this game. The Beverly Hills Hotel, the Waldorf Astoria in LA. I can go by city. In London, the Chiltern, if you like a good bar. The best gym in Europe is probably the Soho House in Berlin. the best hotel in Europe is the Hotel Ducap Eden Rock. Keep recording, Claire. I think Bachelor's Camp in Kenya is right up there with what you're talking about. Bachelor's Camp. And, I mean, obviously the Singida properties, but there's a new property in Capri, the Siena, which is owned by the same people as Hotel Ducap, which is spectacular. I'm a bigger, the newest Four Seasons in Bangkok is spectacular.
55:12I think the almonds actually in Vietnam are better than ones in Thailand right now. This is top 10 douchiest conversations. It is, but I absolutely love hotels. I think it's just, I mean, if you give me a city, I'll tell you where you can stay based on what you're looking for. I love it. I love it. I like especially your European ones. I haven't heard of a lot of these, so I'm going to be looking them up. That's awesome. Limu, Limu! And Doug. Limu and I always tell you to customize your car insurance and save hundreds with Liberty Mutual. But now, we want you to feel it. Cue the emu music, Limu.
55:50Save yourself money today. Increase your wealth. Customize and save, we say. That may have been too much feeling. Only pay for what you need at libertymutual.com. Liberty, Liberty, Liberty, Liberty. In Prime Big Deal Days, this 7 and 8 of October, take advantage of great offers in a new spa of pies. It will transform you in the queen of relaxation. Wait, it's a lot of bubbles. Take advantage of 40 % less in Prime Big Deal Days, 7 and 8 of October.
From the publisher
Ramit Sethi, New York Times Best Selling author of “I Will Teach You To Be Rich,” joins the show to discuss the most common money problems people face. He offers actionable tips for navigating finances with your partner, buying vs. renting your home, and raising your kids to appreciate money. Ramit and Scott also discuss the skill of spending money well.
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