What, exactly, is the best thing to do with our money? How do we control it instead of letting it control us? And how can we use our money to lead happier and more secure lives? These are big, complicated questions, and ones made even more intimidating by the feeling that there are experts with answers that, at least to me, seem opaque.
Ramit Sethi, who is 43, has successfully positioned himself as one such personal-finance expert. His 2009 book, the irresistibly titled “I Will Teach You to Be Rich,” now has more than a million copies in print. (It’s the kind of book that’s always on hold at your local library.) Since the book was published, Sethi has transitioned into streaming television, with a Netflix series called “How to Get Rich,” and podcasting, with his popular “Money for Couples” show, in which he plays the dual roles of financial adviser and de facto therapist for couples struggling with all manner of money problems.
So why are people listening to his advice? For one, he comes across as younger, hipper, more emotionally attuned and liberal (in multiple senses of the word) than stereotypical browbeating financial experts. For another, he says becoming rich, even in an economic moment that seems particularly tough for his fellow millennials, can be as much about spending money as it is about scrimping and saving. (I wish I’d known!) I spoke with Sethi about why that’s the case, how parents should financially help their adult children and the intertwining of money and emotions.
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When you talk about helping people become rich, you don’t just mean “rich” in a dollar-figure way. You mean it more holistically. Can you explain what “rich” means to you? The word “rich” is extremely loaded in our culture. When we think of “rich,” we have a very specific vision of what that looks like. In the ’80s and ’90s, it was a country club, a fur coat, a private jet. But it’s quite different now. “Rich” could be picking up your kids from school every afternoon. “Rich” can be traveling for a few months a year or buying a beautiful piece of clothing. It might even mean taking a small pay cut, but wanting the freedom and the flexibility. I hadn’t seen people talk about “rich” in a positive way. I saw it in this kind of Richie Rich vision, and that didn’t connect with me.
One of your key insights is that you encourage people to spend money on the things that they love and feel will enhance their lives in a meaningful way. But if they’re going to do that, they need to cut ruthlessly on the things that don’t enhance their lives. Where did the insight that we don’t have to be afraid of spending on certain things come from? I started my business from my dorm room, and I remember reading a ton of books on money at the time. The material that I read on personal finance did not connect with me at all. It was people who didn’t look like me, lecturing me about all the things I’m not allowed to do with my money. There was no vision of what I get. What do I get for all the work I’m doing, the risks I’m taking? It better be something cool! I started to ask people, “What do you love to spend your money on?” Their eyes light up. “I love travel,” or “I love clothes.” Then the next thing they’ll say is, “But I know I probably shouldn’t.” They shrink. I never let them. I ask, “Why do you love it?” Then I ask: “If you could spend more on that thing, what would it look like? What would it feel like?” This is a very powerful moment because the vast majority of people have never been asked this. They’ve never been treated, especially by a money person, non-judgmentally.
But people are not just going to say one thing. They might say, “I love to travel, I love to eat out, I love to buy new clothes.” How is someone supposed to know the point at which spending on what they love is counterproductive to their larger financial goals? First of all, people do not prioritize spending on the things they love. That’s not the way people act. This is one of the central mistakes that the financial industry makes, which is to treat people like they are rational robots. Oh, people believe that their children are the most important thing to them. Therefore, they are apportioning resources accordingly. No, they’re not. When we look at where their money is actually going, it is never aligned. So what they claim is important to them is not reflected in their spending plan. That’s where we get the opportunity to change things.
What are the other things people need to be doing to put themselves on more stable financial ground and to actually grow their wealth? OK, most of us do not know our basic numbers. When I ask, 50 percent of people do not even know their own household income. What people typically discover when they calculate their four key numbers is that they have way too much money going toward fixed costs. That would be things like their housing, their cars. Americans love to buy gargantuan $85,000 trucks. Then they also discover that they don’t have a lot in savings. What a blessing to be able to go, Oh, it’s very clear why we don’t have any savings: because we’re not saving. Now that we understand the basics, we can make some changes.
What are the four key numbers? The first is your fixed costs. So your rent or mortgage, your auto payments, debt, groceries, the things that you use every day and are going to stay. The next one is your savings, as a percentage of your take-home pay. The third is your investments. That’s where the real wealth is created. And finally, guilt-free spending. Eating out, traveling, anything that you like to do for you, for your family.
Have you always had a healthy relationship with money? It has evolved over time. It’s funny, I struggled with math when I was younger, but for some reason, compound interest just made sense to me. My dad helped me open up an investment account at age 14. Instantly, I’m putting in 20 bucks, 50 bucks, 100 bucks, and I’m already compounding it until 65. I go, Whoa, this is amazing. But I was also a utilitarian. In my early 20s, I was the kind of guy where if you looked in my apartment, there’s nothing on the wall, maybe one poster, no frame, because why would I? That’s just a waste of time and money, right? Just focus on efficiency. Now I’m the furthest from that idea.
You’re not one of these FIRE guys? No.
That’s “financial independence, retire early.” These are people who are relentlessly working their financial numbers so they know the point, as young as possible, at which they can stop working and just live off their investments. What do you think they’re missing? I appreciate that the FIRE community pushes people to think in a different way. They took the average American savings rate, which is less than 5 percent, and they said, How about 30 percent? How about 50 percent? That’s pretty bold. But I think if you build a life where you focus solely on a number in a spreadsheet, that’s a mistake. There are far too many people who go through life ultra frugal, and over time their ability to spend money meaningfully atrophies. For a lot of people it can be as simple as: Hey, every time I come home there’s a bunch of shoes on the floor. Let me spend $20 on a little organizer to put those shoes in there. Or let me spend a little bit of money to make my life slightly more convenient so I can have quality time. Or let me tip 30 percent everywhere I go. I want to be super generous to the people that are taking care of me at the coffee shop. I want us to get deeper than thinking that spending money is frivolous or somehow unimportant. It’s not.
You’ve been talking about money for 20 years. When did you decide to talk to couples specifically about the subject? My relationship focus started several years ago. My wife and I met, talked about money a little late. I broke my own rules on that one.
Your rule about what? Talk about money early. So we finally talked about it, went through a prenup process, which was challenging, and then we got married. And you don’t stop talking about money when you get married. It’s actually only the beginning. I discovered how challenging it was — the “I Will Teach You to Be Rich” guy! I’m like, if this is hard for us. … So I started asking couples: How do you talk about money? Who handles it? What do you disagree on? And it was like the earth started shaking because there are all these taboo stories that nobody talks about publicly.
Should every couple have a prenup? Most couples don’t need it. If one or both partners come into a relationship with pre-existing assets or any sort of complexity, then it may make sense. But the vast majority of people do not need it.
When you speak to couples, what are the most common problems that you come across where the problem is not the money but what the money represents? It usually represents something much deeper. A classic example is couples do not talk about money, but what they do talk about is this expense that just came up: “We’ve got to send her on a field trip.” “We’re taking a trip to Grandma’s next month. Where’s the money going to come from?” It produces and reinforces this feeling that we only talk about money when there’s a problem. So we have to rebuild this relationship. I ask them, Where are you today? They don’t know. I say, All right, do you know how much you’re going to have at 65? They have no clue. I do a little compound interest calculation for them, and I tell them how much they’re going to have. Sometimes they are shocked because the number, if you compound over 10, 20, 30, 40 years, becomes quite large. They realize that this argument they have about who spent too much at Target is completely absurd when you’re talking about having that kind of retirement.
But I’m interested in what’s underneath the “you spent too much money at Target” conversation. Maybe the person being critical is controlling and wants to oversee all the spending. Or maybe the person doing the spending feels like that’s a way of exercising power. What are the recurring dynamics that you see? There are psychological dynamics, gender dynamics, cultural dynamics. It is the most fascinating part of what I do. Target is actually a very real example. It’s common that in a heterosexual relationship, the wife will go to Target, and it’s almost a running joke that she will go in with the intention to spend $50 and come out having spent $250. That produces a lot of conflict, for several reasons. One, the husband, who’s often not involved in the daily tracking of anything or knowledge of what’s being spent, looks at a number and goes, “Why did you do that?” The person who spends the money — in this case the wife — becomes quite defensive. “What do you mean? I’m out here going shopping every day, taking care of things!” So now we have an entrenched conflict where there is no understanding of the dollars or the vision. It’s just, “Why did you do that?” It reverses in gender as well. We will often hear guys spending money at a gas station. They go every morning, they’re buying snacks, drinks. “Why did you do that? We can make it at home.” Over time, they come to realize that they can easily afford what they are spending, so why are we arguing about this? Or this is not the vision for our rich life. Sometimes I’ll just tell them: Is Target your rich life? I don’t think buying a bunch of commodities can be a core part of your rich life. I’ve never heard somebody say, “Target is my rich life.”
I see couples come on your show, and to outward appearances they look like they should be doing well, but they’re really struggling. They’re talking about losing their house or the specter of divorce because of tensions around money. And on the other side you have people on the show who have a lot of money but seem completely unable to enjoy it. It all paints a grim portrait. What do you think your podcast is saying about American society? It’s no surprise to me that money is fraught and that even the people I have on the podcast who are multimillionaires ——
Aren’t happy! Yeah, they’re not happy. You look at it from the outside and go, That is shocking. I have couples who are two months away from running out of money — and they have kids! They will lose their house, they will lose their multiple vehicles, they are months away from it, and they’re remarkably lackadaisical about it. They have never really faced any consequences. When I ask them, “What are the consequences that you have faced?” “Oh, I have $25,000 of credit card debt.” I ask, “How does that affect you day to day?” “Nothing. It’s just a number.”
It doesn’t help that we live in a society that thinks people who have money are better than people who don’t. It’s a bizarre relationship. We love the wealthy in America. We aspire to be them. But we hate them. We hate them for evading tax increases. We hate them for being evil capitalists. And these simple labels actually do us a disservice. We need to understand that just because you have money does not mean you are evil or bad. But if you have billions and you argue against paying a slight marginal tax increase — you might be an asshole.
One of the heavyweights in the personal financial advice space is Dave Ramsey, who has sort of a “good old boy” vibe and is publicly pro-Trump. Was there a point in your career in which you consciously thought, There is a lane for somebody to talk about money who seems politically different from Ramsey? Like, a left-coded version of that guy? No, my political outspokenness was more at my revulsion at what Donald Trump was saying — calling Mexicans rapists and saying other horrific things. I realized, at that moment, if I cannot speak up — somebody who runs their own business, who has a large platform, somebody who looks like me — then who can? The personal finance world, particularly in the media, has often been right-wing-coded. Personal finance personalities will bring people on their show who are making obviously poor financial decisions. They will subject them to mockery. Why did you do that? How could you spend that much? They will essentially present the message that it’s all your fault. Now, I believe that we should take personal responsibility for our money. That’s why I talk about savings rates, and I call people out when they’re spending more than they have. But we can simultaneously acknowledge the need for systemic reform. You will not hear the need for systemic reform on many personal finance media platforms. You will not hear them talking about why housing is so expensive. It’s not just “because.” It’s because of NIMBYism. It’s because of a political decision that we’ve made. You will not hear them talk about raising taxes on billionaires, even though taxes are historically low. No, you will hear them simply saying, You spend too much on oats every morning and you’re a bad person. When you understand that society is not simply a culmination of people making individual decisions, but there are structural reasons why we are the way we are, you become a lot more compassionate.
In “I Will Teach You to Be Rich,” you wrote about the problem of victim culture and suggested that people who complain about systemic or structural problems related to personal finance are whiners. Whoa, whoa, whoa. Hold on. I did talk about victim culture, which, when I initially wrote it in 2007, was a fine thing to say. Now it has become right-coded. But I never said that you’re a victim because you’re complaining about social structures. There is an amount of personal responsibility that we have to take with our money. We cannot simply say, “Life is too hard, I’m not going to read a single book about money or watch a free YouTube video, somebody solve it for me.” We’ve got to take personal responsibility.
So we can give credence to someone who says: “The game is rigged. I could follow every step that Ramit Sethi tells me to take and I’m still going to struggle”? Or would we look at that person and say, “You’re just not making the right moves”? I would not look at them and say, “You’re not making the right moves.” We need to acknowledge, for example, that jobs, even for college-educated graduates, are scarce, and the pay is not what they need to survive, and housing, of course, is the biggest one of all. We have systematically made it more expensive by letting people who bought a house then pull up the drawbridges around them, not allowing more housing to be built. We have a policy decision to let wealthy, typically older people protect their house value while younger people cannot afford a basic house. If some young person says, “I can barely afford my housing and I already live with a roommate,” it’s not fair to tell them, “You’re not doing enough.” No, this is something that happened around you. You were not even aware of it or a participant in it, and you are the one bearing the brunt.
If getting ahead financially is harder for millennials and Gen Z-ers than it was for older generations, what advice would you give to parents for how best to help their kids? Give them as much money as you’re able? Yeah, write a big fat check if you can. [Laughs] It’s actually not too far from it. In the old days, the idea was, I’ll pass whatever I have along when I die. More sophisticated financial planners now know that if you have something to give, giving is much more impactful when your children are younger, particularly when they’re 35, 40, 45. Those are really tough financial times for people. But the best thing that older parents can do is to actually ask their children and legitimately learn what is going on financially because it is not the same. I am tired of hearing these comments: “Oh, we bought a house when it was 17 percent interest.” Yeah, the houses were a fraction of what they cost today! And if you look at what they were as a percentage of income, they were way lower. It was achievable. We know this because there were a lot of people who bought a very nice house on one income. That is effectively impossible today. So actually asking your children: “What’s it like? How much are you spending on food and housing, and how does that break down?” There is power in acknowledging and validating. There are so many young people who would love to hear their parents say, “Wow, that’s got to be really tough, I had no idea.”
Ramit, if you could get every American to change one behavior around money, what would it be? Once a month, one hour, set it aside. If you’re solo or with a partner, look at your key numbers. Ask yourself: What’s my rich life? Has anything changed since last month? Am I on track? And what progress have I made? Then celebrate. That’s it.
This interview has been edited and condensed. Listen to or watch “The Interview” on Apple Podcasts, Spotify, YouTube, iHeartRadio or Amazon Music. Follow us on Instagram and TikTok.
Director of photography (video): Aaron Katter
David Marchese is a writer and co-host of The Interview, a regular series featuring influential people across culture, politics, business, sports and beyond.
The post A Personal Finance Star on What Millennials Need From Their Boomer Parents appeared first on New York Times.
