fees waived. IN WEEK 2, you’ll set up no-fee, high interest bank accounts that won’t gouge you
for every penny. IN WEEK 3, you’ll open investment
accounts (even if you only have $50 to start). IN WEEK 4, you’ll figure out how much
spending. And then you’ll learn how to you’re make your money go where you want it to go. IN WEEK 5, you’ll automate your new
IN WEEK 6, you’ll learn why investing
the same as picking stocks—and how isn’t you can get the most out of the market with very little work. BOOKLAND EAN
RAMIT SETHI is the founder and writer of
iwillteachyoutoberich.com, which hosts over 200,000 readers every month. He is a recent graduate of Stanford University and a co-founder of PBwiki, an online collaboration company. He lives in San Francisco, and can be reached at
[email protected].
Workman Publishing, New York www.workman.com ISBN 978-0-7611-4748-0 • $13.95 U.S.
SETHI
to make your accounts play infrastructure together nicely.
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m ts co ee h . us h i c on ads it b e r s, b re Vis u t o l tip e sp o a iv h y tic act a c ac er t e y t nt i l l ail d i i w r d an fo ds, loa
WEEK 1, you’ll optimize your credit IN cards and learn exactly what to say to get
itty, entertaining, wise, and practical, Ramit Sethi is an irresistible force for learning how to master money with the least amount of effort. He explains how to automate your money flow— i.e., earn while sleeping. Why your new best friend should be named Roth—the IRA, that is. How to beat banks and credit cards at the fee game. How to negotiate for a raise. How to manage student loans. Why you can enjoy daily lattes or buy those Manolo Blahniks you adore if you practice conscious spending. You don’t have to be perfect to be rich. Or the smartest person in the room. Or a type-A personality. Just do 85 percent of what Sethi says, and then get on with your life.
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Down Wall Street
do
It contains serious advice on personal-finance decisions from budgeting and G. Malkiel, savings to spending and investing.” —Burton author of A Random Walk
I WILL TEACH YOU TO BE RICH
Don’t let the breezy, “irreverent style of this book fool you.
“A unique voice on money, one singularly attuned to…his generation.”
I WILL TEACH YOU TOBE —SAN FRANCISCO CHRONICLE
by
RAMIT SETHI founder and writer of
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Get the full book at Amazon.com
About the book At last, for a generation that's materially ambitious yet financially clueless comes I Will Teach You To Be Rich, Ramit Sethi's 6-week personal finance program for 20-to-35-year-olds. A completely practical approach based around the four pillars of personal finance—banking, saving, budgeting, and investing—and the wealth-building ideas of personal entrepreneurship.
Additional Praise for Ramit Sethi and I Will Teach You to Be Rich “Ramit Sethi is a rising star in the world of personal finance writing. . . one singularly attuned to the sensibilities of his generation. . . . His style is part frat boy and part Silicon Valley geek, with a little bit of San Francisco hipster thrown in.” —SAN FRANCISCO CHRONICLE
“The easiest way to get rich is to inherit. This is the second best way— knowledge and some discipline. If you’re bold enough to do the right thing, Ramit will show you how. Highly recommended.” —SETH GODIN, AUTHOR OFTRIBES
“You’ve probably never bought a book on personal finance, but this one could be the best $13.95 you ever spent. It’ll pay for itself by the end of Chapter 1 (check out the box on page 24 to see what I mean).” —PENELOPE TRUNK, AUTHOR OF BRAZEN CAREERIST: THE NEW RULES FOR SUCCESS
“Most students never learn the basics of money management and get caught up in the white noise and hype generated by the personalfinance media. Ramit’s like the guy you wish you knew in college who would sit down with you over a beer and fill you in on what you really need to know about money—no sales pitch, just good advice.” —CHRISTOPHER STEVENSON, CREDIT UNION EXECUTIVES SOCIETY
“Smart, bold, and practical. I Will Teach You to Be Rich is packed with tips that actually work. This is a great guide to money management for twentysomethings—and everybody else.” —J.D. ROTH, EDITOR, GETRICHSLOWLY.ORG
“Ramit demystifies complex concepts with wit and an expert understanding of finances. Not only is this book informative, it’s fun and includes fresh tips that will help anyone master their finances.” —GEORGE HOFHEIMER, CHIEF RESEARCH OFFICER, FILENE RESEARCH INSTITUTE
INTRODUCT ION
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WOULD YOU RATHER BE SEXY OR RICH?
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WOULD YOU RATHER BE SEXY OR RICH?
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What You’ll Get Out of This Book
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I Will Teach You to Be Rich
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CHAPTER 1
OPTIMIZE YOUR CREDIT CARDS Ahpmh[^Zmma^\k^]bm\Zk]\hfiZgb^lZmma^bkhpg`Zf^
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I Will Teach You to Be Rich
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How Credit Can Help You Be Rich
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CREDIT SCORE VS. CREDIT REPORT What your credit score is based on:
What your credit report includes:
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I Will Teach You to Be Rich
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OPTIMIZE YOUR CREDIT CARDS
HOW CREDIT SCORES AFFECT WHAT YOU PAY On a $200,000 30-year mortgage, if your FICO score is . . .
. . . your APR* (interest rate) will be . . .
. . . with interest, you’ll pay a total of . . .
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Building Credit with Credit Cards
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I Will Teach You to Be Rich
GUESS HOW MUCH AN iPOD COSTS IF YOU FINANCE IT WITH A CREDIT CARD?
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Let’s say you buy this . . .
Paying minimum payments, it will take this long to pay it off . . .
You’ll pay this much in interest . . .
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OPTIMIZE YOUR CREDIT CARDS
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I Will Teach You to Be Rich
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Avoid cash-back cards, which don’t actually pay you much cash.1FPQMF HFUSFBMMZNBEBUNFXIFO*TBZUIJT CVUDBTICBDLDBSETBSFXPSUIMFTT ²(FUQFSDFOUCBDLPOBMMZPVSTQFOEJOH³8PX JG*TQFOE QFS
Getting a Credit Card When You Have No Income
A
while ago, one of my friends called me and asked if she could borrow my credit card to buy something online. “How come?
Don’t you have a credit card?” I asked. Given all the benefits of having a card (assuming you use it wisely), you can imagine how angry I was when I learned that she didn’t have a card of her own. In my mind, this was the equivalent of one of Dr. Koop’s friends being morbidly obese because of eating only butter. Anyway, I told her to get a credit card and start building her credit. Her response: “I can’t get approved for a credit card because I have no income.” Okay, fair enough. Getting your first credit card can be tricky, especially if you’re young. But there’s an easy solution: Get a secured credit card. These are cards that require you to put down a few hundred bucks in a savings account, and then the bank uses that as collateral to issue you credit. After a few months, assuming you’ve behaved responsibly, you can graduate to a regular (“unsecured”) credit card. To get one, call your bank and ask about it.
OPTIMIZE YOUR CREDIT CARDS
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Compare cards online. 5IFCFTUXBZUP¾OEBDBSEUIBUJTSJHIUGPSZPVJT CZSFTFBSDIJOHEJGGFSFOUPGGFSTPOMJOF USZXXXCBOLSBUFDPN *ONPTU DBTFT UIFTJNQMFTUDSFEJUDBSETBSFPGGFSFECZZPVSCBOL TPUIJTJTPGUFO BHPPEQMBDFUPMPPL5IFZµMMDPOOFDUXJUIZPVSCBOLBDDPVOUBOEZPV DBODIPPTFGSPNBWBSJFUZPGPQUJPOT JODMVEJOHDSFEJUMJNJU SFXBSET BOE NPSF0OUIFQMVTTJEF UIFZµSFFBTZUPHFUXJUIPVUNVDISFTFBSDI5IF EPXOTJEFJTUIBUUIFSFXBSETBSFVTVBMMZGBJSMZNFEJPDSF
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I Will Teach You to Be Rich
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The Six Commandments of Credit Cards
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1. Pay off your credit card regularly. :FBI XFµWFBMMIFBSEJU CVUXIBUZPVNBZOPULOPXJTUIBUZPVSEFCU QBZNFOUIJTUPSZSFQSFTFOUTQFSDFOUPGZPVSDSFEJUTDPSF±UIFMBSHFTU DIVOL*OGBDU UIFTJOHMFNPTUJNQPSUBOUUIJOHZPVDBOEPUPJNQSPWFZPVS
Awful Consequences
I
f you miss even one payment on your credit card, here are four terrible, horrible, no good, very bad results you may face:
1. Your credit score can drop more than 100 points, which would add
$240/month to an average thirty-year fixed-mortgage loan. 2. Your APR can go up to 30 percent. 3. You’ll be charged a late fee, usually around $35. 4. Your late payment can trigger rate increases on your other credit
cards as well, even if you’ve never been late on them. (I find this fact amazing.) Don’t get too freaked out: You can recover from the hit to your credit score, usually within a few months. In fact, if you’re just a few days late with your payment, you may incur a fee, but it generally won’t be reported to the credit bureaus. Turn the page to find out what to do if you miss a payment.
OPTIMIZE YOUR CREDIT CARDS
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2. Get all fees waived on your card. 5IJTJTBHSFBU FBTZXBZUPPQUJNJ[FZPVSDSFEJUDBSETCFDBVTFZPVSDSFEJU DBSEDPNQBOZXJMMEPBMMUIFXPSLGPSZPV$BMMUIFNVTJOHUIFQIPOF
I Will Teach You to Be Rich
What to Do If You Miss a Payment
N
obody’s perfect. Despite my warnings, I understand that accidents happen and you might miss a payment at some point. When this
happens, I use my Indian heritage to beat the companies by negotiating with them, and you can, too:
YOU: Hi, I noticed I missed a payment, and I wanted to confirm that
this won’t affect my credit score. CREDIT CARD REP: Let me check on that. No, the late fee will be
applied, but it won’t affect your credit score. (Note: If you pay within a few days of your missed bill, it usually won’t be reported to the credit agencies. Call them to be sure.) YOU: Thank you! I’m really happy to hear that. Now, about that fee . . .
I understand I was late, but I’d like to have it waived. CREDIT CARD REP: Why? YOU: It was a mistake and it won’t happen again, so I’d like to have
the fee removed. (Note: Always end your sentence with strength. Don’t say, “Can you remove this?” Say, “I’d like to have this removed.”) At this point, you have a better-than-50-percent chance of getting the fee credited to your account. But just in case you get an especially tough rep, here’s what to say. CREDIT CARD REP: I’m very sorry, but we can’t refund that fee.
I can try to get you our latest blah blah marketing pitch blah blah. . . . YOU: I’m sorry, but I’ve been a customer for four years and I’d hate
for this one fee to drive me away from your service. What can you do to remove the late fee? CREDIT CARD REP: Hmm . . . Let me check on that. . . .Yes, I was able
to remove the fee this time. It’s been credited to your account. You don’t believe me that it can be so simple? It is. Anyone can do it.
OPTIMIZE YOUR CREDIT CARDS
OVNCFSPOUIFCBDLPGUIFDBSEBOEBTLJGZPVµSFQBZJOHBOZGFFT JODMVEJOH BOOVBMGFFTPSTFSWJDFDIBSHFT*UTIPVMEHPBMJUUMFTPNFUIJOHMJLFUIJT YOU:)J *µEMJLFUPDPO¾SNUIBU*µNOPUQBZJOHBOZGFFTPONZDSFEJUDBSE CREDIT CARD REP:8FMM JUMPPLTMJLFZPVIBWFBOBOOVBMGFFPG
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3. Negotiate a lower APR. :PVS"13 PSBOOVBMQFSDFOUBHFSBUF JTUIFJOUFSFTUSBUFZPVSDSFEJUDBSE DPNQBOZDIBSHFTZPV5IFBWFSBHF"13JTQFSDFOU XIJDINBLFTJU FYUSFNFMZFYQFOTJWFJGZPVDBSSZBCBMBODFPOZPVSDBSE1VUBOPUIFSXBZ TJODFZPVDBONBLFBOBWFSBHFPGBCPVUQFSDFOUJOUIFTUPDLNBSLFU ZPVS DSFEJUDBSEJTHFUUJOHBHSFBUEFBMCZMFOEJOHZPVNPOFZ*GZPVDPVMEHFUB QFSDFOUSFUVSO ZPVµECFUISJMMFE±ZPVXBOUUPBWPJEUIFCMBDLIPMFPGDSFEJU DBSEJOUFSFTUQBZNFOUTTPZPVDBOFBSONPOFZ OPUHJWFJUUPUIFDSFEJUDBSE DPNQBOJFT 4P DBMMZPVSDSFEJUDBSEDPNQBOZBOEBTLUIFNUPMPXFSZPVS"13*G UIFZBTLXIZ UFMMUIFNZPVµWFCFFOQBZJOHUIFGVMMBNPVOUPGZPVSCJMMPO UJNFGPSUIFMBTUGFXNPOUIT BOEZPVLOPXUIFSFBSFBOVNCFSPGDSFEJU DBSETPGGFSJOHCFUUFSSBUFTUIBOZPVµSFDVSSFOUMZHFUUJOH*ONZFYQFSJFODF
I Will Teach You to Be Rich
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4. Keep your cards for a long time and keep them active. -FOEFSTMJLFUPTFFBMPOHIJTUPSZPGDSFEJU XIJDINFBOTUIBUUIFMPOHFS ZPVIPMEBOBDDPVOU UIFNPSFWBMVBCMFJUJTGPSZPVSDSFEJUTDPSF%POµUHFU TVDLFSFECZJOUSPEVDUPSZPGGFSTBOEMPX"13T*GZPVµSFIBQQZXJUIZPVS DBSE LFFQJU"OEJGZPVµSFHFUUJOHBOFXDSFEJUDBSE EPOµUDMPTFUIFBDDPVOU POZPVSPMEPOF5IBUDBOOFHBUJWFMZBGGFDUZPVSDSFEJUTDPSF"TMPOHBT UIFSFBSFOPGFFT LFFQJUPQFOBOEVTFJUPDDBTJPOBMMZ CFDBVTFTPNFDSFEJU DBSEDPNQBOJFTXJMMDBODFMZPVSBDDPVOUBGUFSBDFSUBJOQFSJPEPGJOBDUJWJUZ 5PBWPJEIBWJOHZPVSBDDPVOUTIVUEPXO TFUVQBOBVUPNBUJDQBZNFOUPO BOZDBSEUIBUJTOPUZPVSQSJNBSZDBSE'PSFYBNQMF *TFUJUVQTPUIBUPOF PGNZDSFEJUDBSETQBZTBNPOUIMZTVCTDSJQUJPOUISPVHINZDIFDLJOH BDDPVOUFBDINPOUI XIJDISFRVJSFT[FSPJOUFSWFOUJPOPONZQBSU#VUNZ DSFEJUSFQPSUSF¿FDUTUIBU*µWFIBEUIFDBSEGPSNPSFUIBO¾WFZFBST XIJDI JNQSPWFTNZDSFEJUTDPSF1MBZJUTBGF*GZPVIBWFBDSFEJUDBSE LFFQJU BDUJWFVTJOHBOBVUPNBUJDQBZNFOUBUMFBTUPODFFWFSZUISFFNPOUIT
5. Get more credit. (Warning! Do this only if you have no debt.) 5IJTPOFJTDPVOUFSJOUVJUJWF BOEUPFYQMBJOJU *IBEUPSFBDIJOUPQFSTPOBM ¾OBODFMFTTPOTPGZPSF.BOZQFPQMFEPOµUSFBMJ[FUIJT CVUJOUIFDMBTTJD µT4BMUµ/1FQBTPOH²1VTI*U ³XIFOUIFZTBZUIBUUIFEBODFJTOµUGPS FWFSZCPEZ±²0OMZUIFTFYZQFPQMF³±UIFZBSFBDUVBMMZEFUBJMJOHBTPVOE QFSTPOBM¾OBODFTUSBUFHZ #CFGPSF*FYQMBJO *XBOUUP¾STUBDLOPXMFEHFUIBUZFT *EJEKVTURVPUF 4BMUµ/1FQBJOBOBDUVBM QVCMJTIFECPPL"OZXBZ XIFO4BMUµ/1FQBUBML BCPVU²POMZUIFTFYZQFPQMF ³XIBUUIFZSFBMMZNFBOJT²UIJTUJQJTPOMZGPS UIF¾OBODJBMMZSFTQPOTJCMFQFPQMF³*µNTFSJPVTBCPVUUIJTXBSOJOH5IJT UJQJTPOMZGPSQFPQMFXIPIBWFOPDSFEJUDBSEEFCUBOEQBZUIFJSCJMMTJO GVMMFBDINPOUI*UµTOPUGPSBOZPOFFMTF *UJOWPMWFTHFUUJOHNPSFDSFEJUUPJNQSPWFTPNFUIJOHDBMMFEZPVSDSFEJU VUJMJ[BUJPOSBUF XIJDIJTTJNQMZIPXNVDIZPVPXFEJWJEFECZZPVSBWBJMBCMF DSFEJU5IJTNBLFTVQQFSDFOUPGZPVSDSFEJUTDPSF'PSFYBNQMF JGZPVPXF BOEIBWF JOUPUBMBWBJMBCMFDSFEJU ZPVSSBUJPJTQFSDFOU
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OPTIMIZE YOUR CREDIT CARDS
Always Track Your Calls to Financial Companies
U
nfortunately for you, credit card companies are very good at using B.S. late fees to increase their revenues. Unfortunately for
them, I’m giving you lots of tactics for getting these fees reversed. One of the best ways to improve your chances of getting fees waived is by keeping track of every time you call your financial institutions, including credit card companies, banks, and investment companies. This is especially true of credit card companies, whom you should treat just slightly better than you would an armed militia coming after your younger sister. It’s tempting, when calling, to be really nasty, but because I was raised right, I don’t scream or threaten violence. Instead, when I call to dispute anything, I open a spreadsheet that details the last time I called them, whom I spoke with, and what was resolved. If only all criminals were as diligent as I am.
The Pocket Tracker for Tracking Credit Card Calls Call Date
Time
Name of Rep
Rep’s ID#
Comments
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Whenever you make a call regarding a dispute on your credit card, you wouldn’t believe how powerful it is to refer back to the last time you called—citing the rep’s name, date of conversation, and your call notes. Most credit card reps you talk to will simply give in because they know you came to play in the big leagues. When you use this to confront a credit card company or bank with data from your last calls, you’ll be more prepared than 99 percent of other people—and chances are, you’ll get what you want.
I Will Teach You to Be Rich
The Cards I Use
I
have two credit cards. My primary credit card is a Citibank Premier Pass Elite. Citibank offers no-fee and for-fee versions of this card
(the no-fee card offers half the rewards). I ran the calculations and decided to pay the $75 annual fee because I spend enough to justify the cost. With this card, I earn one point for every dollar I spend and one point for every mile I fly, plus free companion fares for domestic flights over $379. You can check this card out, along with the free version, at www.citicards.com. I also have a United Airlines student card that I got many years ago. I use this card only to maintain my credit history, so I’ve set up an automatic charge of $12.95/month for a music subscription site (see page 26 for why this is important). You can learn more details about this card at www.united.com.
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OPTIMIZE YOUR CREDIT CARDS
*SFRVFTUBDSFEJUMJNJUJODSFBTFFWFSZTJYUPUXFMWFNPOUIT 3FNFNCFS QFSDFOUPGZPVSDSFEJUTDPSFJTSFQSFTFOUFECZZPVS DSFEJUVUJMJ[BUJPOSBUF5PJNQSPWFJU UIF¾STUUIJOHZPVTIPVMEEPJT QBZPGGZPVSEFCU*GZPVµWFBMSFBEZQBJEPGGZPVSEFCU POMZUIFOTIPVME ZPVUSZUPJODSFBTFZPVSBWBJMBCMFDSFEJU4PSSZUPSFQFBUNZTFMG CVU UIJTJTJNQPSUBOU
8IFO NZIVTCBOEBOE*XFSFJODPMMFHF XFHPUBGSFF5TIJSUPS TPNFUIJOH BOE HPU DSFEJU DBSET XJUI SFBTPOBCMF MJNJUT 4VSF *IBEOPJODPNF CVUUIBUEJEOµUTFFNJNQPSUBOUBUUIFUJNF 8PVMEOµUZPVLOPXJU *XBTSFTQPOTJCMFFOPVHIUPIBWFNZMJNJU SBJTFE UP BGUFS B WFSZ TIPSU QFSJPE PG UJNF &YDFQU UIBU * XBTOµU BDUVBMMZ SFTQPOTJCMF BOE * QBJE UIPVTBOET PG EPMMBST JO JOUFSFTU BOE MBUF GFFT BOE XSFDLFE NZ DSFEJU SBUJOH GPS TFWFSBM ZFBST*UUPPLNBOZZFBSTGPSVTUPDMFBSVQUIJTEFCU*DBOµUOBNF POFQVSDIBTFUIBUXBTUSVMZOFDFTTBSZFJUIFS —MICHELE MILLER, 38
6. Use your rewards! #FGPSF*HFUJOUPSFXBSETQSPHSBNT MFUNFTBZUIJT+VTUMJLFXJUIDBS JOTVSBODF ZPVDBOHFUHSFBUEFBMTPOZPVSDSFEJUXIFOZPVµSFBSFTQPOTJCMF DVTUPNFS*OGBDU UIFSFBSFMPUTPGUJQTGPSQFPQMFXIPIBWFWFSZHPPE DSFEJU*GZPVGBMMJOUIJTDBUFHPSZ ZPVTIPVMEDBMMZPVSDSFEJUDBSETBOE MFOEFSTPODFQFSZFBSUPBTLUIFNXIBUBEWBOUBHFTZPVµSFFMJHJCMFGPS 0GUFO UIFZDBOXBJWFGFFT FYUFOEDSFEJU BOEHJWFZPVQSJWBUFQSPNPUJPOT UIBUPUIFSTEPOµUIBWFBDDFTTUP$BMMUIFNVQBOEVTFUIJTMJOF ²)JUIFSF*KVTUDIFDLFENZDSFEJUBOEOPUJDFEUIBU*IBWFBDSFEJU TDPSF XIJDIJTQSFUUZHPPE*µWFCFFOBDVTUPNFSPGZPVSTGPSUIFMBTUGPVS ZFBST TP*µNXPOEFSJOHXIBUTQFDJBMQSPNPUJPOTBOEPGGFSTZPVIBWF GPSNF*µNUIJOLJOHPGGFFXBJWFSTBOETQFDJBMPGGFSTUIBUZPVVTFGPS DVTUPNFSSFUFOUJPO³ $SFEJUDBSETBMTPPGGFSSFXBSETQSPHSBNTUIBUHJWFZPVDBTICBDL BJSMJOFUJDLFUT BOEPUIFSCFOF¾UT CVUNPTUQFPQMFEPOµUUBLFBEWBOUBHF PGBMMUIFGSFFTUVGGUIFZDBOHFU'PSFYBNQMF XIFO*IBEUP¿ZUPB XFEEJOHJOBOPCTDVSFUPXOJO8JTDPOTJO *SFEFFNFENZDSFEJUDBSEµT USBWFMSFXBSEUPTBWFNPSFUIBOPOUIF¿JHIU5IBUµTBOFBTZPOF CVUUIFSFµTCFUUFS%JEZPVLOPXUIBUDSFEJUDBSETBVUPNBUJDBMMZHJWFZPV
I Will Teach You to Be Rich
Disputing a Charge: How to Mobilize Your Credit Card’s Army for You
O
nce, when I canceled my Sprint cell phone service, they told me my account had a $160 charge. For what? I asked. Wait for it. . . .
“An early cancellation fee.” Yeah, right. I knew I didn’t have a contract, and I had negotiated
out of an early cancellation fee a long time before that. (Cell phone companies make a lot of money from trying these shady moves, hoping customers will get frustrated, give up, and just pay.) Unfortunately for them, ever since Sprint had started trying to rip me off three years before, I had kept records of every phone conversation I’d had with them. The customer-service rep was very polite, but insisted she couldn’t do anything to erase the charge. Really? I’ve heard this tune before, so I pulled out the notes I had taken the previous year and politely read them aloud to her. As soon as I read them, I experienced a miraculous change in her ability to waive the fee. Within two minutes, my account was cleared and I was off the phone. Amazing!!!!! Thank you, madam!!! Wouldn’t it be great if that were the end of the story? Although they told me they wouldn’t charge me, they did it anyway. By this point, I was so fed up that I called in the big guns. Many people don’t know that credit cards offer excellent consumer protection. This is one reason I encourage everyone to make major purchases on their credit card (and not use cash or a debit card). I called my credit card company and told them I wanted to dispute a charge. They said, “Sure; what’s your address and what’s the amount?” When I told them about my experience with Sprint, they instantly gave me a temporary credit for the amount and told me to mail in a form with my complaint, which I did. Two weeks later, the complaint was totally resolved in my favor. What happens in disputes like this is that the credit card company fights the merchant for you. This works with all credit cards. Keep this in mind for future purchases that go wrong.
OPTIMIZE YOUR CREDIT CARDS
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.Z EJHJUBM DBNFSB CSPLF BCPVU FJHIUFFO NPOUIT BGUFS * CPVHIU JU 5IF NBOVGBDUVSFSµT XBSSBOUZ FYQJSFE BGUFS UXFMWF NPOUIT CVU * LOFXUIBU"NFSJDBO&YQSFTTFYUFOEFEXBSSBOUJFTPOFMFDUSPOJDTGPS BOFYUSBZFBS*DBMMFE"NFSJDBO&YQSFTTBOEFYQMBJOFEUIFQSPCMFN 5IFZKVTUBTLFEIPXNVDI*IBEQBJEGPSUIFDBNFSB BOEPOFXFFL MBUFS*IBEBDIFDLGPSUIFGVMMQVSDIBTFQSJDFJONZNBJMCPY —RAVI GOGIA, 26
I Will Teach You to Be Rich
Mistakes to Avoid Avoid closing your accounts (usually)."MUIPVHIDMPTJOHBOBDDPVOU EPFTOµUUFDIOJDBMMZIBSNZPVSDSFEJUTDPSF JUNFBOTZPVUIFOIBWFMFTT BWBJMBCMFDSFEJU±XJUIUIFTBNFBNPVOUPGEFCU 'PSFYBNQMF IBWJOH JOEFCUBOE JOBWBJMBCMFDSFEJUJTCFUUFSUIBOIBWJOHUIF TBNFEFCUXJUIPOMZ JODSFEJU5IJTJTZPVSDSFEJUVUJMJ[BUJPOSBUF GSPNQBHF 5IFCPUUPNMJOFJTUIBUJUµTVTVBMMZBCBEJEFBUPDMPTFZPVSDSFEJU DBSEBDDPVOUTVOMFTTZPVLOPXZPVSTFMGBOEZPVLOPXZPVµSFHPJOHUP TQFOEBOZDSFEJUZPVIBWFBWBJMBCMF )FZ JUIBQQFOT"UMFBTUZPVµSF CFJOHIPOFTUXJUIZPVSTFMG
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Manage debt to avoid damaging your credit score.²*GZPVDMPTFBOBDDPVOU CVUQBZPGGFOPVHIEFCUUPLFFQZPVSDSFEJUVUJMJ[BUJPOTDPSFUIFTBNF ³ TBZT$SBJH8BUUTPG'*$0 ²ZPVSTDPSFXPOµUCFBGGFDUFE³'PSFYBNQMF JG ZPVDBSSZ EFCUPOUXPDSFEJUDBSETXJUI DSFEJUMJNJUTFBDI ZPVSDSFEJUVUJMJ[BUJPOSBUFJTQFSDFOU EFCU UPUBMDSFEJU BWBJMBCMF *GZPVDMPTFPOFPGUIFDBSET TVEEFOMZZPVSDSFEJUVUJMJ[BUJPO SBUFKVNQTUPQFSDFOU x #VUJGZPVQBJEPGGJO EFCU ZPVSVUJMJ[BUJPOSBUFXPVMECFQFSDFOU x BOEZPVS TDPSFXPVMEOPUDIBOHF
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Don’t play the zero percent transfer game.4PNFQFPQMFIBWFTUBSUFE QMBZJOHUIFQFSDFOUUSBOTGFSHBNFUPQSP¾UPGGPGDSFEJUDBSETCZNBLJOH CBMBODFUSBOTGFSTPSUBLJOHDBTIBEWBODFT5IFZUBLFUIFJOUSPEVDUPSZ[FSP QFSDFOU"13UIBUZPVHFUXIFOZPVPQFONBOZDSFEJUDBSET XIJDIVTVBMMZ POMZMBTUTGPSTJYNPOUIT 5IFOUIFZCPSSPXNPOFZGSPNUIFDBSEBUUIJT
OPTIMIZE YOUR CREDIT CARDS
Oh No! My Credit Score Just Dropped
S
ome of my Type-A readers worry too much about their credit scores. If your credit score suddenly drops, first you should figure
out why by getting a copy of your credit report and score (see page 15). Then what’s important is how you deal with it going forward. Your credit score can start recovering immediately as more positive information is reported, like paying your bills on time. So work to manage your credit wisely and consistently. As FICO’s Craig Watts notes, “The natural movement of these scores is to slowly grow. How do you think people end up with scores in the mid-800s? It’s through years and years of consistently boring credit management.”
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I Will Teach You to Be Rich
Rate Chasers: Wasting Time Earning $25/Month
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ne of my blog readers, a guy named Mike, wrote in to tell me about his rate chasing. In this case, it was savings accounts, not
credit cards, but they’re very similar: It’s just moving money around from one account to another to eke out a few additional percentage points. Mike admitted, “I’m one of those rate-chasers, so [with $40k in emergency savings], I’ve consistently been earning anywhere between 0.65 and 0.85 percent higher than my operating money market account. . . . That’s an extra $300/year in interest, which is definitely worth changing banks every four to six months for me.” MY RESPONSE: “Mike, if you were smart enough to sock away
$40k in an emergency fund (which is really impressive, by the way), I bet you’re smart enough to spend your time doing something better than earning $300/year—something that will let you earn much more sustainably. You’re only earning $0.82/day doing that! How about spending the same time optimizing your asset allocation? (see page 170) That step alone is probably worth thousands per year. Or starting a side business? Or even spending those few hours with your family? I don’t know what you value, but in my eyes, any of those things would produce more value than $300/year . . . especially for someone who’s so far ahead of everyone else, like you are. This is just my two cents . . . about 1/40th of what you earned today (sorry, couldn’t resist).” Focus on the big wins to get the big results. They may not be as obvious or sexy as jumping from account to account and getting a few extra bucks, but the big wins will make you rich over the long term.
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OPTIMIZE YOUR CREDIT CARDS
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I Will Teach You to Be Rich
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OPTIMIZE YOUR CREDIT CARDS
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I Will Teach You to Be Rich
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I Will Teach You to Be Rich
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Five Steps to Ridding Yourself of Credit Card Debt
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OPTIMIZE YOUR CREDIT CARDS
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1. Figure out how much debt you have. :PVXPVMEOµUCFMJFWFIPXNBOZQFPQMFEPOµUEPUIJTBOEDPOUJOVFCMJOEMZ QBZJOHPGGBOZCJMMTUIBUDPNFJOXJUIOPTUSBUFHJDQMBO5IJTJTFYBDUMZ XIBUUIFDSFEJUDBSEDPNQBOJFTXBOU CFDBVTFZPVµSFFTTFOUJBMMZKVTU EVNQJOHNPOFZJOUPUIFJSNPVUIT:PVDBOµUNBLFBQMBOUPQBZPGGZPVS EFCUVOUJMZPVLOPXFYBDUMZIPXNVDIZPVPXF*UNJHIUCFQBJOGVMUP MFBSOUIFUSVUI CVUZPVIBWFUPCJUFUIFCVMMFU5IFOZPVµMMTFFUIBUJUµTOPU IBSEUPFOEUIJTCBEIBCJU*OGBDU ZPVDBOHFUUIFDSFEJUDBSEDPNQBOJFT UPIFMQZPV-PPLBUUIFCBDLPGZPVSDSFEJUDBSETGPSUIFJSOVNCFST DBMM UIFN BOEMFUUIFNUFMMZPVUIFBOTXFSTUP¾MMJOUIJTTQSFBETIFFU
HOW MUCH DO YOU OWE? Name of credit card
Total amount of debt
APR
Monthly minimum payment
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2. Decide what to pay off first. /PUBMMEFCUTBSFDSFBUFEFRVBM%JGGFSFOUDBSETDIBSHFZPVEJGGFSFOU JOUFSFTUSBUFT XIJDIDBOBGGFDUXIBUZPVEFDJEFUPQBZPGG¾STU5IFSFBSF UXPTDIPPMTPGUIPVHIUPOIPXUPHPBCPVUUIJT*OUIFTUBOEBSENFUIPE ZPVQBZUIFNJOJNVNTPOBMMDBSET CVUQBZNPSFNPOFZUPUIFDBSEXJUI UIFIJHIFTU"13 CFDBVTFJUµTDPTUJOHZPVUIFNPTU*OUIF%BWF3BNTFZ 4OPXCBMMNFUIPE ZPVQBZUIFNJOJNVNTPOBMMDBSET CVUQBZNPSF
I Will Teach You to Be Rich
PRIORITIZING YOUR DEBT Snowball method: lowest balance first
Standard method: highest APR first
How it works
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Why it works
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3. Negotiate down the APR. *µNBIVHFGBOPGUBLJOHPEETJGUIFVQTJEFJTCJHBOEJUUBLFTPOMZ ¾WFNJOVUFTPGNZUJNF"DDPSEJOHMZ USZOFHPUJBUJOHEPXOZPVS"13*U XPSLTTVSQSJTJOHMZPGUFOBOEJGJUEPFTOµU TPXIBU +VTUDBMMZPVSDBSE DPNQBOJFTBOEGPMMPXUIJTTDSJQU YOU:)J *µNHPJOHUPCFQBZJOHPGGNZDSFEJUDBSEEFCUNPSFBHHSFTTJWFMZ
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OPTIMIZE YOUR CREDIT CARDS
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4. Decide where the money to pay off your credit cards will come from. 0OFDPNNPOCBSSJFSUPQBZJOHPGGEFCUJTXPOEFSJOHXIFSFUIFNPOFZ TIPVMEDPNFGSPN#BMBODFUSBOTGFST 4IPVMEZPVVTFZPVS L NPOFZ PSZPVSTBWJOHTBDDPVOU )PXNVDITIPVMEZPVCFQBZJOHPGGFWFSZ NPOUI 5IFTFRVFTUJPOTDBOCFEBVOUJOH CVUEPOµUMFUUIFNTUPQZPV
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of th e I aske d som e st bl ogge rs I tru add th ei r two and adm ire to ok. Look ce nt s to th e bo ribution s for th ei r cont u gh out. sc atte re d th ro — Ram it
I Will Teach You to Be Rich
A DVI CE F ROM T HE B LOG OSP H ERE
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SO, YOU’VE DECIDED TO GET OUT OF CREDIT CARD DEBT Here’s How to Do It Right
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By Flexo of www.consumerismcommentary.com
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FIRST, YOU NEED THE CASH FLOW.5PFSBEJDBUFEFCU ZPVOFFEUPIBWF
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OPTIMIZE YOUR CREDIT CARDS
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I Will Teach You to Be Rich
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OPTIMIZE YOUR CREDIT CARDS
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5. Get started. 8JUIJOUIFDPNJOHXFFL ZPVTIPVMETUBSUQBZJOHNPSFNPOFZUPXBSE ZPVSEFCU*GZPV¾OEZPVSTFMGUBLJOHNPSFUJNFUIBOUIBUUPHFUTUBSUFE ZPVµSFPWFSUIJOLJOHJU3FNFNCFSUIFQIJMPTPQIZCFIJOEUIF1FSDFOU 4PMVUJPO5IFHPBMJTOPUUPSFTFBSDIFWFSZMBTUDPSOFSUPEFDJEFXIFSF UIFNPOFZXJMMDPNFGSPN JUµTBDUJPO'JHVSFPVUIPXNVDIEFCUZPV IBWF EFDJEFIPXZPVXBOUUPQBZJUEPXO OFHPUJBUFZPVSSBUFT BOEHFU TUBSUFE:PVDBOBMXBZT¾OFUVOFZPVSQMBOBOEBNPVOUMBUFS
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BOEBQMBOUPBDIJFWF¾OBODJBM GSFFEPN —MELISSA BROWN, 28
I Will Teach You to Be Rich
ACTION STEPS
WEEK
ONE
1
Get your credit report and credit score (one hour).$IFDLUIFNUPNBLFTVSFUIFSF
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2
Set up your credit card (two hours). *GZPVBMSFBEZIBWFPOF DBMM BOENBLFTVSFJUµTBOPGFFDBSE*GZPVXBOUUPHFUBOFXDSFEJUDBSE DIFDLPVUXXXCBOLSBUFDPN
3
Make sure you’re handling your credit cards effectively (three hours) 4FUVQBOBVUPNBUJDQBZNFOUTPZPVSDSFEJUDBSECJMMJTQBJEPGGJOGVMM FWFSZNPOUI &WFOJGZPVµSFJOEFCU TFUVQBOBVUPNBUJDQBZNFOUGPSUIF MBSHFTUBNPVOUZPVDBOBGGPSE (FUZPVSGFFTXBJWFE"QQMZGPSNPSFDSFEJU JGZPVµSFEFCUGSFF.BLFTVSFZPVµSFHFUUJOHUIFNPTUPVUPGZPVSDBSET
4
If you have debt, start paying it off (one week to plan, then start paying more)./PUUPNPSSPX OPUOFYUXFFL UPEBZ(JWFZPVSTFMG
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About the book At last, for a generation that's materially ambitious yet financially clueless comes I Will Teach You To Be Rich, Ramit Sethi's 6-week personal finance program for 20-to-35-year-olds. A completely practical approach based around the four pillars of personal finance—banking, saving, budgeting, and investing—and the wealth-building ideas of personal entrepreneurship.
