Book SummaryI Will Teach You to Be Rich, by Ramit Sethi

1-Page Summary1-Page Book Summary of I Will Teach You to Be Rich

Personal finance can be confusing and overwhelming, but if you focus on taking one small step at a time, you can create a solid financial foundation. Once your finances are under control, you won’t have to worry about money, and you can focus on creating a life you love. The author of I Will Teach You to Be Rich, Ramit Sethi, is a self-taught expert in personal finance. His goal is to help you cut through the noise of conflicting and overly technical financial advice, get past your own hang-ups around money, and take small steps toward a “rich life”—whatever that looks like for you.

In this summary, you’ll learn how to make that “rich life” a reality by using credit cards wisely, choosing the right bank accounts and investment accounts, planning out how you want to spend your money, and ultimately creating a financial system that grows your money automatically.

Credit Cards

If you use credit cards responsibly (by always paying your bill on time, in full), they’re essentially free short-term loans that help improve your credit history, making it easier to get larger loans (like for a mortgage or a car) down the line. Here are the six most important rules for using credit cards the right way:

1. Pay your bills on time, preferably in full. Even just one late payment can lower your credit score, raise your annual percentage rate of interest paid (APR), and stick you with a late fee (usually about $35).
2. If you’re paying any fees, call your credit card company and get them waived.
3. Lower your APR. Ideally, you’re paying off your balance in full every month, but if you’re not able to do that yet, your APR determines how much more you’ll end up paying in total. Calling your credit card company to negotiate a lower APR can save you thousands.
4. Keep your accounts open and active. Credit history is an important part of determining your credit score—the longer you keep an account open and continue making on-time payments, the better your score.
5. Take advantage of your card’s perks, including automatic extended warranties, airline miles, and rental car insurance.

Paying Off Debt

Getting out of debt not only feels good emotionally, it also boosts your credit score and can save you thousands of dollars in interest. Here’s how to pay off your debt in five steps:

• Step 1: Total up your debt. Many people have no idea how much debt they actually have, which makes it impossible to make a solid plan.
• Step Two: Decide where to start. Focus on fully paying off one card at a time. You can either start with the card with the highest APR or the lowest balance.
• Step 3: Negotiate a lower APR. This will reduce how much you pay in interest.
• Step 4: Figure out how you can afford more aggressive monthly payments. Take a look at your spending habits—where can you afford to cut costs?
• Step 5: Get started. It’s better to get started on a plan that’s mostly solid than to spin your wheels trying to come up with a plan that’s 100% perfect.

Choosing the Best Banks

Together, your credit cards and bank accounts form the foundation of the rest of your financial system. To make sure that foundation is solid, look for accounts with low fees. Fees are how banks make a huge portion of their profits, so low fees are a good sign that a particular bank isn’t trying to squeeze more money out of you for their own benefit.

When you’re looking for a new bank, look for three things:

1. Trust. Start by asking your friends which banks they personally trust. Then, browse the websites of those banks. Keep an eye out for excessive fees, minimum required balances, or misleading descriptions of different accounts.
2. Convenience. If the bank’s website, app, or other services aren’t convenient to use, you’ll be far less likely to actually use them.
3. Features. Make sure the bank offers the basic features you’ll need most: competitive interest rates, free transfers to external accounts, and free bill pay.

Choosing Your Accounts

To start, you’ll need a checking account and a savings account. Here are the ones Sethi personally uses and recommends:

• Schwab Bank Investor Checking with Schwab One Brokerage Account through Charles Schwab Bank. This account boasts an impressive list of features, like zero fees, unlimited ATM fee reimbursements, overdraft protection, and free checks.
• Capital One 360 Savings. Aside from having no fees and no minimums, the main benefit of this account is that you can set up sub-accounts to save up for specific goals (like a wedding or emergency fund).

Investment Accounts

Now that you know how to optimize your credit cards and bank accounts, we’ll turn our focus to opening investment accounts.

The Power of Compounding

Investing is the most powerful way to grow your money because it offers a higher rate of return than even the best savings accounts. On average, the stock market’s annual net return is about 8% (after accounting for inflation). That number is an average from decades worth of data, which means that your money will earn an average of 8% per year over the long-term, even if that rate fluctuates in the short-term.

The reason why that 8% rate is so important is the power of compound interest. With compounding, the interest you earn in a given year is added to the principal (original) amount you invested; then, the following year, you earn interest on that new principal amount.

• For example, let’s say you invest $100 in the stock market (to make things easy, we’ll assume an exact 8% annual rate of return). That means that after one year, you’d have earned $8, for a new total of $108. In the second year, you then earn an 8% return on that new amount, so you’d earn $8.64 for a new total of $116.64. The longer you leave your money in the stock market, the more that principal grows, and the more you earn every year.

The power...

I Will Teach You to Be Rich Summary Introduction

Does thinking about your personal finances make your palms start to sweat? If so, you’re not alone. The sheer amount of information out there about managing your finances is overwhelming, especially for people in their 20s or 30s who are just starting their financial journeys. However, if you choose to focus on what you can control instead of giving in to that confusion or focusing on the flaws of our economic system, you can start building the financial habits that will put you on track to a healthy financial life.

The author of I Will Teach You to Be Rich, Ramit Sethi, is a self-taught expert in personal finance. Because he learned the ins and outs of money management through experience, he understands that traditional money advice—like “just stop buying lattes''—is completely unhelpful. His approach is different: Rather than focus on “sexy” strategies like obsessing over the hottest new investment opportunities, Sethi argues that most people just need to know a few basics in order to grow their personal wealth. His goal is to help you cut through the noise of conflicting and overly technical financial advice, get past your own hang-ups around money, and take small...

Shortform Exercise: Decide What a “Rich Life” Means to You

Being “rich” means something different to everyone. Take a moment to think about what a rich life would look like for you.

In general, what are the most important reasons you want to accumulate wealth? (For example, maybe you want to retire early, have more career flexibility, or eliminate the constant stress of making ends meet.)

I Will Teach You to Be Rich Summary Chapter 1: Credit Cards

Now that you know what a rich life looks like for you, you need to know how to get there. The first step is building healthy credit card habits. You’re probably familiar with the scare tactics other financial writers use to convince you to stay away from credit cards, but credit cards aren’t inherently bad—if you use them responsibly, they’re a great way to proactively improve your credit and get access to useful perks. In this chapter, we’ll learn the pros and cons of credit cards, how to use credit cards responsibly to build your credit, and how to pay off any existing debt you have.

The Pros and Cons of Credit Cards

Credit cards can be a powerful tool in your wealth-building arsenal, but if you already carry credit card debt, you may see them as more of a menace than a tool. The reality is this: If you use credit cards responsibly (by always paying your bill on time, in full), they’re essentially free short-term loans that help improve your credit history, making it easier to get larger loans (like for a mortgage or a car) down the line. On top of that, credit cards offer useful perks, like automatic warranty extensions on purchases you make using the card....

I Will Teach You to Be Rich Summary Chapter 2: Bank Accounts

Now that you have your credit cards set up, it’s time to choose the right bank accounts to back them up. Together, your credit cards and bank accounts form the foundation of the rest of your financial system. Taking a little bit of time to set up the right accounts now will save you time, money, and frustration down the line. In this chapter, we’ll learn how banks make money off their customers and how to tell the difference between trustworthy banks and predatory ones. Then, we’ll discuss the best checking and savings accounts, including the ones Sethi uses personally. Finally, we’ll learn how to optimize your accounts to avoid fees and earn more interest.

Choosing the Best Banks

What makes a “good” bank? Low fees are an important component. Fees are how banks make a huge portion of their profits—in 2017, banks made a cool $34 billion from overdraft fees alone—so low fees are a good sign that a particular bank isn’t trying to squeeze more money out of you for their own benefit. For example, Bank of America has a reputation for exorbitant fees on every kind of account (and has even taken customers to court over fees that the bank mistakenly levied).

**In addition to...

I Will Teach You to Be Rich Summary Chapter 3: Opening Your Investment Accounts

By now, you’ve optimized your credit cards and bank accounts and created a solid foundation for the rest of your financial system. Next, we’ll turn our focus to opening investment accounts. Investing is the best way to grow your money into more money, and starting early is crucial to maximizing that growth.

In this chapter, we’ll see why investing is such a powerful tool to grow your wealth and why starting to invest at a young age makes such a difference. We’ll also examine why so many young people miss out on those returns by not investing. Then, we’ll go through the initial steps of investing, which will help demystify investments and give you concrete action items to help you get started. Finally, we’ll cover the main types of investment accounts you should consider—401(k)s, Roth IRAs, and Health Savings Accounts (HSAs)—as well as how to choose a brokerage firm to help you open and fund those accounts.

The Power of Compounding

Investing is the most powerful way to grow your money because it offers a higher rate of return than even the best savings accounts. On average, the stock market’s annual net return is about 8% (after accounting for inflation). That number...

Shortform Exercise: Revisit Your Thoughts About Investing

If you’re new to investing, this chapter may have been a lot of information to take in all at once. Let’s take a moment to apply that information to your own situation.

Before reading this chapter, how familiar were you with the basics of investing? (For example, maybe you’d heard of 401(k) accounts but didn’t know about Roth IRAs—or maybe you already have a few investment accounts, but weren’t clear on the difference between investing pre-tax versus post-tax money.)

I Will Teach You to Be Rich Summary Chapter 4: Think About Your Spending Habits

Now that your savings and investment accounts are set up, you need to know how much you can afford to contribute to them every month. To do that, you’ll need a blueprint for spending your money in a way that works for your specific goals, values, and lifestyle. Having a plan like this lets you do the hard work of deciding how to allocate your take-home pay up front. Then, you can sit back, relax, and not have to worry about tracking every single dollar (like you would with a traditional budget) because you’ll know you already have your financial priorities in order.

In this chapter, we’ll learn more about spending money mindfully, including how you can spend even more than you currently do on the things you love while cutting costs on the things that aren’t as important. Then, you’ll learn how to create your own plan for expenditure that splits your money into four categories—fixed costs, saving, investing, and guilt-free spending—and how to use the envelope system to divide your money into those categories automatically. Finally, you’ll learn how to gradually adjust your current spending until it matches your plan.

What Is “Spending Money Mindfully”?

Most people are...

Shortform Exercise: Create Your Savings Goals

Determining your savings goals is an important step in deciding how to spend your money. Brainstorm some short-, mid-, and long-term goals here.

What are your short-term savings goals? These are your goals for roughly the next year, like vacations or holiday gifts.

Shortform Exercise: Identify Your High-Impact Financial Changes

Want to optimize your finances and create your rich life? Start by identifying the few areas where you can make the biggest impact on your financial life.

Let’s start with the “fixed costs” category (remember, these are basic necessities like rent and transportation). What one fixed expense can you reduce, and how will you do it?

I Will Teach You to Be Rich Summary Chapter 5: Automating Your Financial System

Now that you have a plan for how you want to spend your money, it’s time to start automating that plan so that your money divides itself up each month without you having to lift a finger. Automation isn’t just convenient—it’s crucial. When you automate your financial system, you bypass all the normal human flaws that get in the way of managing your money (like forgetting to pay a bill on time or not feeling motivated to think about investing), allowing your wealth to keep growing in the background while you focus on other things.

In this chapter, we’ll learn how to link all your accounts, create a system of automatic transfers between them to fund your investment and savings accounts, and schedule everything so that all your bills are paid on time—automatically.

How Automation Works

If you’ve ever tried to stick to a budget or keep track of your bills manually, you’ve probably noticed how hard it is to stay on top of your finances when you have to consciously think about where each dollar goes. It’s too easy to get distracted, bored, or overwhelmed, so we end up making costly mistakes or missing out on lucrative opportunities. **Automation is different: Instead of...

I Will Teach You to Be Rich Summary Chapter 6: Managing Your Own Investments—Without a Financial Advisor

Now that your pre-planned system of transfers is funneling money into your investment accounts each month, you can start thinking about how to actually invest that money. If you’re not a personal finance expert, managing your own investments might seem intimidating, and you may even be tempted to hire a professional financial advisor. However, unless your financial situation is especially complicated, you don’t need a financial advisor—you can get the same (or even better) results by managing your own investments, even without any special expertise.

In this chapter, we’ll see how financial “experts” are typically no better than amateurs when it comes to predicting the market or choosing where to invest—and how falling for their false expertise can cost you thousands of dollars in fees. Then, we’ll cover the basics of investing, including the difference between actively-managed mutual funds and passively-managed index funds.

Financial Experts Rarely Beat the Market

When you think of a financial expert (or, more specifically, an investing expert), who do you think of? Most people picture one of two things: media pundits who make their living loudly predicting stock...

Shortform Exercise: Reflect on Managing Your Own Investments

If you’re new to the world of personal finance, managing your own investments might seem intimidating. This exercise will give you a chance to reflect on those feelings.

Before reading this chapter, what were your thoughts on financial advisors? Have you ever met with (or considered meeting with) a financial advisor? Why or why not?

I Will Teach You to Be Rich Summary Chapter 7: Getting Started With Investing

Now that you know that investing is the surest and simplest way to grow your wealth (and that you’re totally capable of managing your own investments), it’s time to actually get started investing. There are two main investment strategies to choose from, and how you invest will ultimately depend on your financial needs as well as your risk tolerance.

In this chapter, you’ll learn more about different asset classes, which are the building blocks of investing. Then, you’ll learn how to allocate and diversify your investments based on your age and risk tolerance. Finally, we’ll discuss the two main investment strategies: choosing your own portfolio (which gives you full control over your investments) and target date funds (which automatically adjust your portfolio based on when you want to retire). However you choose to invest, remember that you don’t have to do it perfectly, you just have to get started.

Asset Classes

Before you can start investing, you’ll need to understand the different asset classes that will make up your investment portfolio. Asset classes are simply types of investments (like stocks or bonds), and each asset class has varied assets within it. For...

I Will Teach You to Be Rich Summary Chapter 8: Keep Your Financial Momentum Going

So far in this summary, we’ve covered all the basics of personal finance, from credit cards to investing—and if you’ve been following along with the action steps in each chapter, you now have a solid financial foundation and an automated system that grows your money for you while you sleep. Now, we’ll learn how to optimize that system if you want to enhance your finances even further. Sethi calls this “extra credit” because these steps are optional—you don’t need them to have a healthy financial infrastructure.

In this chapter, you’ll dig down into the concrete reasons why you want to grow your wealth and learn how to feed your financial growth even further. Then, we’ll debunk some common myths about taxes. Finally, we’ll discuss selling your investments (and why selling should be your last resort).

Think About Your “Why”

If you’ve followed the advice in the earlier chapters of this summary, you’ve created a financial infrastructure that pays your bills, funds your future, and leaves you with guilt-free spending money left over. At this point, you could easily sit back and enjoy the Rich Life you’ve worked hard to create. If you do want to keep working on your...

Shortform Exercise: Find Your “Why”

Before you make a plan to grow your wealth even further, take a moment to think about the specific way you plan to use that money to live a Rich Life.

What high-level ideals (like freedom or security) do you associate with wealth? How could you turn those abstract ideas into concrete goals? (For example, if you associate money with freedom, a concrete goal might be earning enough money to be able to travel wherever you like, whenever you like.)

I Will Teach You to Be Rich Summary Chapter 9: Financial Milestones

You may be wondering how your new financial system will fit into the rest of your life. In particular, there are a few financial milestones that most people in their twenties and thirties need to consider—like paying for a wedding, negotiating a salary at a new job, and buying a house. In this chapter, we’ll learn the best way to approach those milestones, starting with managing investing while paying down your student loans. Then, we’ll see the best way to talk about money with your loved ones, including how to handle tricky financial issues with your partner. After that, we’ll talk about how to grow your wealth by negotiating a higher salary and saving money on big purchases like a car or a house.

Student Loans

Most people who graduate from college do so with a hefty amount of student loan debt. That debt can feel demoralizing, but don’t worry: Studies show that investing in your education is a solid financial decision because it significantly increases your earning potential over a lifetime. Beyond that, student loan debt tends to have a much lower interest rate than credit card debt, which means **you can (and should) start investing even before fully paying off your...