David interviews Ramit Sethi, author of the newly released personal finance book I Will Teach You To Be Rich and blogger at the website that shares the same name (IWillTeachYouToBeRich.com).
Although the title Ramit chose for his website and book sounds like a scam, his book is full of practical advice on getting ahead and living a life where you’re making financial decisions that suit the life you want to live.
This is different than simply cutting expenses. His goal is to get people to cut mercilessly on expenses that don’t matter to you so you can feel comfortable spending lavishly on those things that do matter.
You can’t out-frugal your way to be rich
According to Ramit, most of what we hear in the personal finance realm is that we need to stop doing things. Stop going to Starbucks. Don’t go on vacation. Or Stop spending on things that matter to you. His advice is to cut everything you don’t really value so you can afford those things you do.
Frugality vs. being cheap
- Cheap people focus on cost while those who are frugal focus on the value of things.
- Cheap people have a fixed-pie mentality, think there’s only so much money out there. They don’t see that they can either earn more or adjust the pie so that it doesn’t fee as constrained or small.
- Cheap people go to a restaurant and put in $8.00 for a $7.95 meal.
- Frugal people focus on the value of something and ask whether the value and cost line up.
- Frugal people recommend going to a restaurant they can afford.
Personal finance is not about more and more will-power
Most people aren’t saying, “I want to be more frugal.” They’re saying, “I want to be more secure in my finances.” Many people say, “If I just try harder, I’ll be able to save more.”But how is that working for you?
We do need to change our behaviors and attitudes, but we need to realize we have too many choices. Because we have so many options, often we do nothing.
In order to combat this, Ramit suggests automating your financial life and to attack two areas of discretionary spending and reduce them by 25% to 33%. Over a period of six months, you may be able to re-direct several hundred dollars into savings or investments.
Buy a la carte
According to two researchers from Stanford and UC Berkeley, people over-estimate the frequency they use their gym memberships by 70%. The average person in the group spent $70 per month on these memberships and actually go to the gym 4.3 times per month (once a week, not every four days like they thought).
What’s interesting is that these people could have spent $10 each trip on a day pass and saved $32o per year.
Bank charges are a killer
Banks will negotiate on the fees they charge in order to keep you. It cost the bank a lot of money to acquire you as a customer, so losing you over a $25 charge doesn’t make sense to them.
You can download this episode of the FrugalPod Podcast Interview with Ramit Sethi by clicking this link or you can subscribe to the FrugalPod Podcast by using this link that opens iTunes and clicking on the “SUBSCRIBE” link on the page that opens.
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