Moment 148: Guarantee Financial Freedom! The 4 Numbers You NEED To Be Tracking: Ramit Sethi

0:00This episode is brought to you by Me Undies. While Me Undies can't totally help your love life this Valentine's Day, they can offer you insanely comfy undies and loungewear to buy or gift. Me Undies has so many awesome Valentine's Day prints and styles. Plus, you can match with your partner, friends, or even your pets. This Valentine's Day, give the gift that'll keep them thinking of you and score huge sight -wide savings at meundies .com slash Spotify. That's meundies .com slash Spotify. Me Undies. Comfort from the outside in. Q1 is often when businesses start implementing new systems and processes in hopes of creating efficiencies for the year ahead.

0:36And over the course of my career, I've learnt just how crucial having the right systems in places, one which has helped me across many of my investments is NetSuite. They're also a sponsor of this podcast. NetSuite is the number one cloud financial system through their streamlined platform. You'll find all of your accounting financial management inventory and HR in one place. Their technology has been a real game changer, especially for my team at Flight Studio. As over the last year, we've moved out of startup mode and into scale at mode. We no longer have to juggle multiple systems and having everything together has reduced the number of manual tasks and errors.

1:11Over 41 ,000 businesses have chosen to future -proof their business with NetSuite. So if you'd like to learn how it can help your business, head to netsuite .com slash Bartlett and free download the CFO's guide to AI and machine learning. That's netsuite .com slash Bartlett.

1:30We need to talk about the language of money. What do you mean? I mean understanding the nuts and bolts of money. So just the same way that we all learn how to drive. We learn the rules of the road, when to use our turn signals. Most of us do not have even the equivalent knowledge of money. For example, the basic language of money would be what percentage of your income are you saving and why? What percentage are you investing and why? When will you have $100 ,000 or $500 ,000 or a million? And what will that money get you? Because just having a million dollars in the bank is pointless. What does it get you specifically?

2:11This is the basic language of money. You've got to know your key four, six numbers in your life, not many, just a few. But once you understand those numbers, it's like understanding the speed limit. Understanding the speed limit means you understand a lot. There's a rule of the road. If you go too fast, what's going to happen? Why do these rules exist? And these rules are similar in money. You can break them. That's okay, but you got to understand the rules first. What are those numbers that I need to know? There's four numbers that I really like to track. I track these myself and these are the numbers I encourage.

2:46The first is your fixed costs. Those would be your rent or your mortgage, your any debt payments, groceries, the money that you are spending every single month that is essentially fixed. And the number I recommend for that is 50 to 60 % of your take home pay. So that would be if you're spending 50 to 60 % of what you make, what you take home on your rent, your groceries, any debt payments, your car, you're a good shape. Okay, the next one is your savings. That would be roughly five to 10%. Savings would be things like an emergency fund, savings for a down payment, for a car, things like that. Third is investments.

3:29This is where the real wealth is created. And for this, five to 10 % of take home is fine. Of course, the more you put in, the more you're going to have. And then the fourth category, the one I love the most, is called guilt free spending. This is going out for cocktails in New York. It's buying a beautiful shirt. It's treating your friends. Whatever you love, yoga, 20 to 35 % of your take home pay. So if you're watching or you're listening to this, just take 15 minutes. Back of the napkin, jot down your approximate numbers. You don't even have to get them perfect. And you will be able to benchmark how you are spending compared to those numbers.

4:14I'll tell you that those numbers tell me a lot. It's almost if you just show me those four numbers of your spending, I can tell so much. I can tell what you love spending on. I can tell what you don't. I can tell what your priorities are. And I can also tell where you are out of alignment. So I'll give you an example. When I ask people, what is your rich life? One of the common answers they say is, I want to do what I want, when I want. I go, oh God, not this answer again. I hear it every day. I go, wow, that's so interesting. So what do you want? They go. Most people have never thought beyond a trite answer.

4:53So then the next answer I often get is freedom. I want freedom. I go great. That sounds good. What is freedom? I want to do what I want, when I want. I look at their numbers and I see a huge payment that they're making to a 30 year mortgage. I see debt payments. I see car payments. And I go, now this is interesting. You want freedom, but you have essentially anchored yourself down to not be able to travel or to pivot or to move. How can those two be? How can you reconcile those two? And that dissonance is actually a fascinating moment. I love when we experience dissonance, we all do. I say that I want to work out more, but I don't work out more.

5:35Why? And what you'll discover is people often, they simply have never thought about it. What our rich life is, these generic phrases, freedom, flexibility, it's just words. What I really want somebody to say, I want them to go a lot deeper is to say, I want to be able to travel for six weeks a year. I want to go to London. I want to go to New Delhi. I want to go to Thailand because I want to visit my family. That's a good start. If we get even more specific, they tell me what seat on the airline they're sitting on. They tell me where they're eating. They tell me who they're bringing with them.

6:13But to simply say, I want freedom is so vague that when I look at your numbers, there's often a huge incongruity with how you're spending versus what you claim your rich life is. How many people from your experience of interviewing people and doing this research are clear on what their rich life looks like down to, you know, what you described that I want to travel for a couple of months a year. And then even further down to which seat I'm going to be in, which class I'm going to be on as I travel less than one percent less than one percent of people know that most people literally say I want to do what I want when I want that is their the extent to which they've thought about a rich life.

6:54Why does it matter to be what did that one that less than one percent of people that have that planned out have as an advantage or benefit from that meticulous thought that the other 99 percent don't have because they can craft their rich life that is uniquely theirs almost like getting a handmade glove. And in fact, the more you craft your rich life, the more bewildering it looks to the outside world. So I'll give you an example from my own life. I love to travel. I spend a lot of money when my wife and I we go travel for months at a time. I love hotels. I love the hospitality. I love the details.

7:35I love it all. I don't really care about cars, not at this phase of my life. It's just not that important to me. So when I talk about my money dials or the things that I love to spend money on, I might spend a crazy amount on a hotel per night just because I love it. But I drive a car that's almost 20 years old. It's just not important to me. And I want that. I want to hear in your life what you spend extravagantly on. But then you cut costs mercilessly on because I want that duality which indicates you are intentional about your rich life.

8:16Q1 is often when businesses start implementing new systems and processes in hopes of creating efficiencies for the year ahead. And over the course of my career, I've learnt just how crucial having the right systems in places, one which has helped me across many of my investments is NetSuite. They're also a sponsor of this podcast. NetSuite is the number one cloud financial system through their streamlined platform. You'll find all of your accounting financial management inventory and HR in one place. Their technology has been a real game changer, especially for my team at Flight Studio. As over the last year, we've moved out of startup mode and into scale at mode.

8:51We no longer have to juggle multiple systems and having everything together has reduced the number of manual tasks and errors. Over 41 ,000 businesses have chosen to future proof their business with NetSuite. So if you'd like to learn how it can help your business, head to netsuite .com slash Bartlett and free download the CFO's guide to AI and machine learning. That's netsuite .com slash Bartlett.