So far, I'm only on the introduction, but I already like Ramit. He seems to ... My
goal for my first week of Ramit Sethi's 6-week programme to richness was to sort.
I Will Teach You To Be Rich Blog
Ben on his way to work…
Emma with her “exotic” boyfriend, Terry
Week 1 Ben Post 1 I’ve always considered myself to be pretty good with my personal finances. Maybe it’s because at the age of seven my Father made me account for my pocket money through double entry book‐keeping but I have always felt that I have a pretty good handle on things and am fairly sensible. However, with my overdraft getting increasingly bigger with every month that goes by and my wife and I planning to increase our mortgage borrowings to four times our salaries it is perhaps a good time to review my finances and see what I should be doing. Enter Ramit Sethi, and I Will Teach You to be Rich. The introduction to the books is ‘Do You Want to be Sexy or Rich’ and I am immediately thinking that I am on the wrong lines as my answer to this question is definitely that I would rather be sexy. Yes, I know that being rich can buy you all those things that come with being sexy but I do think that sexy would be better for my self‐esteem. As I read on I’m glad to see that the strict interpretation of sexy wasn’t what the introduction was referring to. It was actually talking about those who talk the talk about
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their stock market prowess and moving from this investment to another in order to gain a whole extra half a % on their initial investment and how they are soooo cool for being soooo financially savvy. Really the question should have been ‘Do you want to be a self important utter idiot or rich?’ I think my answer to this question is the right one…. Emma Post 1 ‘My other piece of advice, Copperfield,’ said Mr. Micawber, ‘you know. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and ‐ and in short you are for ever floored. As I am!’ Charles Dickens, David Copperfield, Chapter 12 This is something my father, perhaps not with utter accuracy but certainly with the same sentiment, has always quoted to me. My father, a trained accountant, it seems, knows and understands not only the practical need to live within your means, but also the emotional security it can offer. I flatter myself I am not too bad, but I live a very hand‐to‐mouth existence and I live from pay‐check to pay‐check, supplemented by near starvation stories that my parents fall for every month. I ALWAYS want to do better, but somehow consistently fail to do so. So I have big hopes for Ramit. Can he help me change my ways? Most of my life has been spent thinking about money – the planned use of it, the joy of transforming it into plastic bags full of well‐deserved brightly coloured items of clothing and the post payday‐week panic when I wonder what I am going to live off for the next three weeks. It comes as a regular surprise, but baked beans do loose their allure after five consecutive meals. So far, I’m only on the introduction, but I already like Ramit. He seems to understand me! He suggests that looking after your finances is a bit like trying to loose weight. There are so many people out there trying to tell us different approaches – I am the proud owner of several (hmm) miracle ‘only soup for 75 days’ diets, I’ve watched countless TV programmes, I’ve cut out magazine articles, listened and followed friendly ‘drink lots of coffee’ advice and really it is a bit pointless. It is just camouflaging fluff and really we all know this. They are just giant, blindly‐accepted stalling mechanisms – I’m listening, I’m reading, I’m planning – in fact I am doing lots of things without doing anything and yet somehow I feel like I am DOING something. It is a truth that appears not to be universally acknowledged there are only two things we need to do: eat less and exercise more.
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Ok, this seems very simple and it is utterly true. I feel like I am having a ‘Confessions of a Shopaholic’ moment – financial jargon, from a real person who understands about this stuff, is being explained to me in terms I understand. Hurray!!! So this is Ramit’s approach to money. Stop being dragged down by info overload, pretending to be addressing your financial issues, when really I need to look at how I spend my money and work out what to do with the money I save. Great. But I still feel an edge of panic– that is until I read “Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.” I have got the first part down pat, the second element may need a little work. But on the whole, I think this might be the beginning of a beautiful relationship. Ben Post 2 My goal for my first week of Ramit Sethi’s 6‐week programme to richness was to sort out my credit cards, get my credit report, and set up a plan to rid myself of debt. The only debt that I currently have is the mortgage so that’s that one sorted. Getting my credit report involves handing over some rather personal details and I am a firm believer that I am paranoid and everybody is likely to be out to get me I may pass this step over for now. Now onto the credit cards. I am in the fortunate position of not having any credit card debt. I do have a credit card that my bank gave me when I opened my current account but this is probably a bad thing as I don’t get any benefits from it and they are likely to have me on a very high interest rate. Plus I only have this card for emergencies and make very few purchases on it. This is a bad thing too as my not using means I don’t build up my credit rating and what I hadn’t realised that buying things with a credit card gives me all sorts of benefits such as extended warranties, insurance for mail order items not turning up and all this for free! I have had a thorough look through all the credit cards available and have just applied for a new one – two new ones in fact! I have gone for an airmiles duo card from Lloyds TSB. This gives me a Mastercard and American Express card and are both managed easily through one account. I can also earn airmiles with every purchase and from buying from lots of companies that I already shop with online. I don’t travel by plane a lot but I am now earning points on money that I would have spent any way and if this pays for a free flight in two or three years time then that will make me a little richer in the future. Score one for the book! 3
Emma Post 2 So the six week programme begins. I want my attitude to money to be healthy. Right so I’m going to be brave, keep calm and focus – I don’t have to be an expert here, there are simple things I can learn to do. Ok, so for my new mantra – credit cards aren’t scary, credit cards can be friends. Firstly the credit report. I took Ramit’s advice and used www.annualcreditreport.co.uk. I was brave, Ben – giving out my personal information doesn’t bother me! Ok, so it claims it is free, but actually in order to get any info I have to pay a fiver (in spirit of new responsibility will have to look into if that means I have set up an annual direct debit – I was caught out by Which magazine before) but am rather chuffed to see that I have a credit rating of 997 out of 1000! Go girl! So this means that I am on pretty good footing it seems should I need to take out a loan or anything. It also has the advantage that I can see exactly how much I owe to everybody who isn’t my bank – and my three store cards aren’t quite as horrendous as I thought they were. And for some reason I hadn’t even considered them as credit cards, so much for my phobia – I had been hanging out with the spiders the whole time. Although it does appear that with the one card I experienced a moment of sanity on and hid, I have now been paying it off for nearly 2 1/2 years on the dangerous ‘lets pretend you don’t exist monthly minimum direct debit system’ and only managed to pay off around £80 because of interest charges. Oh. My. God. I have nearly spent as much money as the debit itself! Damn that beautiful dress for making me believe my life would be happier if it belonged to me. But really, damn me for pretending my store card was magic money and wanted to do me a favour by making my dreams come true. I could have actually bought two of them for the money I’ve paid out. Right, so now for my credit card! I had no idea there were any advantages to using a credit card. My first knee‐jerk reaction is to get one to consolidate my debits: put them all on one card and pay it off, but these hardly seem to offer any perks really and I don’t think my debits are too high to justify. Ramit’s suggests getting a separate credit card – then assessing all of your debts and starting to pay them off separately. Ok, so I am going to start paying the cards off one by one, starting with the smallest one and am going to set up the direct debits as a safety net to pay off the minimum on the other two so I don’t get any more charges. Feeling better now. I’m thinking maybe £50 a month – but I can hear Ramit in my head ‘Be aggressive’ – so grrr … I’m going for £100. That way I should be clear in 6 months, which is probably about 20 years quicker than my present strategy and a load cheaper. 4
Credit card choices seem endless, but I am focussing on the rewards and finally go for the BMI’s Amex card, pays 1.5 ‘destinations miles’ for every £1 you spend and there is a huge introductory bonus of 20,000 miles when you spend £250 in the first 90 days. Not bad, but am also going to use the golden rule, and set up a direct debit to repay the card in full each month, so there’s NO interest. Week 2 Ben Post 1 Onto week two during which I will learn how to beat the banks. My goals for this week are to optimise my current account, open a savings account and start saving. My current Current Account is a high interest paying one. I say high – it was 6.45% two and a half years ago, since the financial meltdown I expect it is more somewhere like 0.25% so there could be some work done here. As for the savings account I was feeling quite smug because I already have a couple of savings accounts set up – just like Ramit said I should. This smug feeling has quickly ended though as Ramit also talks about actually putting money into them which up till now it could be said hasn’t been so much of a priority for me. Emma Post 1 Bank beating. Sounds potentially rude. Sadly isn’t, but I am hoping can result in the same after glow. I am on a gold account, which costs £12 a month (but gives me worldwide travel insurance, mobile phone insurance and quite a bit more so I think that’s worth it) and offers 1.34%. So I am reasonably happy here. But looking at my bank account is something that can make me cry. I have a big overdraft problem. I have managed to get it paid off a couple of times, with help, but it keeps creeping its sneaky evil way back up to the max again. So, even though I have had on‐line account access for a while now, I hardly ever look at it. And that day isn’t going to be today either. Ben Post 2 5
Well, I have done some investigating on the current account front. When logging onto my banks website I was immediately greeted with an offer of a current account that gives me £5 every month as a thank you. Wow how nice is my bank?! I have been a customer for the last 12 years so I guess it is fair enough that I deserve something back but it is so refreshing to see a big corporation being so forward about it. However, I have been warned about introductory offers that seem too good to be true so maybe I should read the small print. After some fitful minutes with the small print and my calculator I am now aware that my bank is a bunch of bastards just like the rest of them. First off they don’t give you a fiver every month they give you a fiver gross of tax so that’s 4 quid to me. Secondly they then casually ask “who knows how much they pay in interest on their overdrafts?” as if it was how many M&Ms does one get in a pack. “Wouldn’t it be easier if you were just charged a flat rate” they go on to say figuratively patting me on the head and telling me that everything will be alright. Well I DO KNOW how much interest I pay on my overdraft – it comes in somewhere between £9 and £20 depending on how much I’m overdrawn. The Halifax’s convenient flat fee is £1 per day – so £30 then. Yes I’m sure my bank would be more than happy to give me £4 a month to say “thank you” for me choosing to increase the amount I’m paying them every month. Mother F……. Anyway, onto the savings account. I already have an E‐saver, Ramit’s saving account of choice, but the interest rates have taken a bit of a pasting over the last few months so I’m going to hold off on starting to put money in this. What I am going to start putting money into though is my ISA. This has an interest rate only slightly lower than my e‐ saver but it is completely tax free so I make more money in the end. Emma Post 2 I took a deep breath and dived in to my on‐line account and tried to do a bit of detective work. It took several strong drinks and a play around on the BBC iplayer to get there, but I made it in the end. Now I realise I am paying an overdraft fee and pretty much, on a regular basis, overdrawn fees! I really don’t pay any attention to my spending at all do I? Some of these seem to be direct debits on my phone that have exceeded my estimates, but not all of them. So first promise to myself is to do a daily check‐in so I know how what is coming in and out. Next promise, savings account. Sounds a bit like a joke but … erm … Ramit is quite serious about it. So I have decided to follow Ramit’s advice (and Ben) on this one and go for an E‐Saver and going to put in £20 a month. 6
Ben already has an ISA. He is such a goody‐goody. Well, I think for the time being I am going to hold off on that and I am going to focus on paying back all my debts and once the decks are a bit more clear I am going to set one up. But I’ll get there Ben, I’ll get there. I am determined to pay off store cards, overdraft and my parents (I have abused their love) first, so I don’t suppose I can really put anything more in than the bare minimum but the steps are in the right direction – they may be small but they are sprightly. Week 3 Ben Post 1 Week 3 is where I get ready to invest. This sounds quite exciting, playing the stock market and whatnot, although having learnt the answer to the sexy or rich question I’m thinking that there might not be so much buy buy and sell sell. And it turns out that I’m right. The first thing I need to learn about is my pension. I’m one step ahead here as I am quite clued up on pensions already. This is because in my previous job as a bookseller a nice financial advisor came in to the shop and told me that if I didn’t start saving towards a pension NOW then I would have to put away the vast majority of my wages every month for the rest of my life to stand any hope of living off anything except fish fingers and super‐noodles. I did point out at the time that if I started saving for a pension I wouldn’t be able to afford to eat in the present but a change of jobs and move into publishing has meant that I can now afford to squirrel some money away. In the book Ramit talks about employers providing pensions and matching your contributions. My company is fantastic as I only have to put in 3% of my salary and they will put in 5%. I’ve had the pension for a couple of years now and although it took a bit of a beating in the stock market over the last few months I am convinced that when I retire in 36 years time I will have seen some nice growth (the book confirms this for me too!) Emma Post 1 Week 3 is all about being old. Well, thinking about being old. Most importantly pensions. I must confess I don’t want my old‐age (I am determined to get a Birthday card from the Queen – there is no way she is ever going to slip off the plate) to be filled with the occasional treat pot noodle (Ben they are so much better than super noodles you fool – there is no washing!) and community laid‐on day‐outings to Eastbourne. I 7
want a yacht and young men working it round the world for me. Maybe I want to be Joan Collins? Maybe I don’t. But maybe I want to live like Joan Collins, with classier hair and no shoulder pads! Yes that’s it. Perhaps this is where my plans for the future come a cropper – so far I my only really serious attempts at planning for the future has been buying a lottery ticket. Ben, you are younger than me, and you have been paying into the pension scheme for two years! What is wrong with you? (Ok, wrong attitude. Think JC and tanned men swabbing). Sorry Ben … well done. Who knew, 3% of my salary could earn me a return of 5% from our company? Well, apparently everybody did. No time for regrets. So as soon as I am done here, I’m on the phone to HR to set up my pension. Ben Post 2 My second goal this week is open a Roth IRA. This is an American term for a stocks and shares savings account and from doing a quick web‐search it looks like the UK equivalent is a stocks and shares ISA. I would love to set one of these up but just don’t see how I am going to find the money to fund it – I’ve already diverted some of my wages to the ISA last week and now I have to find more to save – not great considering I come in overdrawn pretty much every month. Luckily though the next chapter is on Conscious Spending (sounds like saving money to me) so I will revisit this when I have worked out how to spend less. Emma Post 2 There are another two things to look at this week. Ramit wants me to look again at my debt paying and setting up a stocks and shares ISA. So I think I am going to up the ante on my payback. I am going to trebling it up to £300 a month! Wow baby! Going to split it all even between the cards, bank and my folks. Then once I have cleared the cards, split the same amount between my parents and the bank. And all in the knowledge that I am saving money – no more going out on card interest, no more charges with the bank AND paying into a pension plan and a savings account. My halo is currently so big it is a bit like a hula‐hoop. Sadly feel the same way at the moment to stocks and shares ISA as I do about a regular one ‐ it will just have to wait. But on the plus side actually know what they are now and fully intend to set them up in the future. 8
Week 4 Ben Post 1 Right, this is the week where I get my spending under control. Where I begin the process of paying off my overdraft. I have been planning to pay my overdraft off for the last year but it just seems to get bigger every month rather than getting smaller. I have already set up my online banking so that I can see how much I am spending every day but hopefully Ramit can teach me some more techniques to control my spending. The first thing to do is to categorise my spending. According to Ramit you should spend 50‐60% of take home pay on bills and fixed costs such as food and transport. 10% on investments, 5‐10% on savings and 20‐35% on guilt‐free spending. I have just added up my fixed costs for the month, allowing £250 for my supermarket shopping (I’m not sure if this is lavish or not) and it comes to a jaw‐dropping 79% of my take home pay – no wonder I was struggling to save when I also want to spend 20% on guilt free purchases. With my new savings plans in place this would leave me somewhere between 1% and 6% for guilt free spending which simply isn’t enough for me. Ramit tells me I should work on a couple of ‘big wins’ to reduce my fixed costs in order to free up funds for savings. Emma Post 1 Conscious spending! I would say on the whole I am pretty conscious, apart from the very occasional bout of drunken shopping – but am thinking this is not what Ramit is really getting at. As I start the chapter, my suspicions are confirmed. It is about creating a Conscious Spending Plan, where you make sure you are saving/investing enough and the rest of your money can use guilt‐free, for WHATEVER you want. I just need to decide on what is important to me. That’s easy. Clothes. Clothes and bags. Maybe shoes. Eating out of course. Beauty treatments. Oh and holidays. I experience a sudden perk – Ramit, I like this! Apparently the secret is in the planning. So far I have always planned to spend as much money as possible and fallen into the “I feel bad for spending money and need to spend more money to feel better” cycle. Perhaps there is light at the end of the tunnel. 9
Ben Post 2 Looking at my monthly bills there are two potentially ‘big wins’ for me to take on. The first is my mobile phone. I’m currently paying £35 per month and signed up to the contract to get a shiny new phone that does loads of stuff. My contract is up for renewal in September and I don’t use all my minutes and texts so if I don’t upgrade my phone I will be able to change to a smaller package and make big savings. The only trouble is I really really want an iPhone. Yes, I know that I will just be another one of the masses who have gone out and purchased one of these now that they are within the grasp of the financially challenged and it will also mean that I am not reducing my bills….. but seriously….. they are SO COOL. Anyway, I have another 2 months before that dilemma raises it’s head and maybe by that point I will have come to terms with not having the latest piece of technology. The great news is that the second big win is the storage unit that I have. I am currently paying £120 per month on this because when I moved in with my wife we didn’t have enough space to fit all of my stuff in the one bedroom flat. As I mentioned at the beginning of this blog we are currently trying to move to a new flat. A new flat with more space. As soon as this happens I can ditch the storage unit saving me a nice wodge that can be put towards my guilt free spending…. Or maybe savings. Emma Post 2 Ramit suggests that roughly 20‐35% of your income can go to guilt‐free spending, and using it to focus on what you really want to get the most out of. I can’t entirely decide, so I am going to use his envelope system – whereby I estimate the money I’ve allocated to fun to my chosen avenues of pleasure. So my envelopes are clothes, eating out, going out and beauty stuff – and I can transfer the money between each of them, but when it has gone it has gone. Feel I am up to the challenge. In face feeling a lot more confident in general about money at the moment – I can actually think about my spending without having a mental black‐out. Decided to set up another account with my regular bank so that I can move my fun money about and monitor it, thereby helping me be a little bit more conscious of how much I have left. Who’s the goody‐goody now! Also the big‐wins, areas where spending can be cut. Ben has gone for mobile and storage charges – I’m going for subscriptions and contact lens charges. Currently member of Lovefilm.com – I’ve still got the films in the envelopes in my room, for 4 10
weeks now – and I subscribe to The Week magazine, which is brilliant, but I haven’t read it fully for roughly a year. My dreams to become a more educated, worldly and cultural person are seriously not really working well. Also got heaps of spare contact lens and think I can change the quantities I need and also go for a cheaper supplier. Week 5 Ben Post 1 This will be a pretty easy week for me – I have to create an automatic money flow. This basically means set up standing orders/direct debits for all bills and savings etc ideally coming out of your account as close to pay day as possible so that you don’t miss the money. My wife and I have a joint account for all our bills and my share of this goes out of my account a couple of days after I get paid. I will have to set up money to go to savings account but I need to do some work on my spending habits first. The other two bills that I don’t have standing orders set up for are my credit cards. I am not going to set up standing orders for these on the basis that I want to maximise the credit as much as possible. Each month the due date for payment varies by a day or two so I would much rather make sure that I make the payment on the very last day rather than paying immediately. That way I can make the most of any interest to be credited to my account or debited from it (which is the norm). Emma Post 1 A bit like Ben, I am feeling a bit smug about this week’s tasks too! I had already set up direct debits for all my bills a while back – a past experience with a threatening Bailiff when I had forgotten to pay a bill encouraged this approach – apart from my store cards, and I have just done that. One thing that would be a good idea is to time the payments to just after payday rather than relying on my bank to cover the demands and then have to pay for the privilege in overdrawn charges. Ben Post 2 I am taking this opportunity to get a head start on my week 6 activities when I will be learning all about investing and a good job too as it sounds like it could be a little complicated! 11
Emma Post 2 Now auto money flow! Ok, now my finances resemble one of those pages in a magazine where they show all the romances/engagements/affairs/hand‐holding moments between famous people using little red lines to connect them between photos, and then suddenly you realise that everybody has had it off with everybody. My money is currently holding more hands than Russell Brand (although to be fair, he probably gets to hold more than that)! I have got automatic money going into both of my savings accounts, to all my utilities, for my contact lens, towards my pension scheme, to my parents and to my store cards … I can no longer be tempted into pretending that I am going to pay things off later in the month when of course I don’t actually have any money to pay anyone anything and I should never miss a payment! It is the miracle of modern banking – I may never need to lie to myself again! Week 6 Ben Post 1 So, week 6 is all about investing. All about picking the right shares to perform for you. This isn’t sounding like Ramit at all. It is sounding like being sexy rather than being rich. Am I going to be taught how to play the market and be a deal savvy trader? The answer is no. I got half way through the investing chapter when I was presented with two options. One was the easy way the other was the slightly more labour intensive way. No prizes for guessing which I went with. You choose the level of risk that you want and then the fund invests your money in a variety of shares and bonds that match this level of risk. As you get closer to retirement you decrease the risk so that your money is safeguarded. I currently do this already with my pension which is invested in what Norwich Union calls 60:40. I don’t really know what this means but that’s ok because I’d rather be rich than sexy. But basically my investments are in medium‐high risk companies to get nice big returns now and then as I reach retirement I will swap to low risk investments. The most important thing is not to withdraw your money because the stock market goes down (or crashes). This is particularly relevant in credit crunch times. The most important thing to remember is if you give the stock market long enough you will eventually see growth and as I am 36 years away from retirement just because my pension has decreased in value over the last year there is no need to panic. Now I just need to open up that stocks and share ISA and invest similarly. 12
Emma Post 1 The final week is here. And my final task is investing. I have read the chapters and I think Ben sums up the core messages very well – so well, I’m not going to even try ‐ but sadly I just don’t have enough money to do any of this at the moment and will have to come back to it at a later stage. Ben Post 2 Well it’s the end of the 6‐week programme and am I now rich? The answer to that is no. I do not have bundles of cash that I can frivolously spend on drink, women, and gambling but that wasn’t really the point of the book so this is a good thing. The point of the book is to make sure that I am rich in the future. So the question is whether this will be the case or not? The answer is potentially yes. I have got my pension in place, once I have paid off my overdraft I will start saving, and I now have better plans to control my money with conscious spending. Essentially it is all up to me. If I want to retire early with a bucket load of cash I need to start saving now with a plan of how to get there – I don’t have to sell my soul and get a job that pays loads of money, I just need to save wisely. This book is absolutely invaluable for all young people who leave University and just don’t want to think about their pension for at least 5 to 10 years. I was one of them and I wish I could go back to get a head start on where I am now. Emma Post 2 Right I am now at the end of my 6 week getting rich bonanza! Do I feel richer? Actually I do. And I feel much calmer about my money too – I have looked into the abyss and actually it’s not that bad. I have set up safety nets for my wild spending, so that I can be as reckless as I like with the money I have left once I have paid towards my debts and into my electronic piggy‐banks each month. I am planning for my future with a pension and soon I will be able to start up my ISA – I will never admit this to my Dad, but he was right, it does give you a bit of peace of mind. It has all been quite easy and painless – and harnessing all the automatic systems in place at my bank, well it means I don’t have to do anything much really, it is all pretty much taken care of for me.
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So actually my life has changed very little, but each month I am going to be closer to getting back into black – which has always looked so much better on me than red. Money is a funny thing and although I knew I felt guilty about spending it, I had no idea how much – I was never totally in control, and I knew it. And so even though I have less to spend, I am enjoying it more. Something which I never thought could be possible. So thank you Ramit!
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