Apr 2, 2024
Personal finance expert Ramit Sethi gets fired up when confronted with the view of home ownership being the ultimate wealth-building investment.
“This is driving me insane!” he shouted during a guest appearance on entrepreneur Steven Bartlett’s “The Diary of a CEO” podcast in July.
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Homebuyers, already confronted with elevated prices, are also dealing with stubborn mortgage rates. The average 30-year, fixed-rate loan jumped to 6.77% from 6.64% last week, according to Freddie Mac. It's the highest level since mid-December.
"On the heels of consumer prices rising more than expected, mortgage rates increased this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season.”
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While many Americans are waiting for the right moment to buy a house, Sethi has a different mindset altogether when it comes to homeownership and living a rich life.
He contends that owning a house “can be a very bad financial decision — and there are far better, far simpler investments.”
Those investments, it turns out, have as much to do with personal values as financial moves; some even involve smart spending.
Here we sum up Sethi’s personal money rules, taken from his bestselling book “I Will Teach You to be Rich.” Keep in mind that these apply to him, but can be adapted if need be.
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1. Always have one year of emergency funds
One year of emergency fund savings “is more conservative” than most finance experts might recommend, Sethi acknowledged. But it helps him (and could help you) sleep better at night.
“It’s in a savings account, totally liquid and that’s what it’s for,” he said.
2. Save 10%, invest 20% of gross annual income
Sethi is a fan of investing in the S&P 500, which tracks the stock performance of the 500 largest companies. While it’s had ups and downs, investors in the S&P 500 have seen gains of around 80% since February 2019.
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
3. Pay cash for large expenses
Sethi says big holidays, weddings and engagement rings fall under this category.
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“This one is controversial,” he noted, but it also builds delayed gratification and avoids unsecured debt. Sethi sets goals for these expenditures and saves monthly.
4. Never question spending money on books, appetizers, health or contributing to a friend’s charity fundraiser
Sethi has a book-buying rule that if he thinks it’s possible to learn even one transformational thing, he’ll buy it.
But appetizers? Sethi says in his youth his family couldn’t afford them, so allowing the indulgence is something that “feels incredibly rich” to him.
5. Book business class for flights more than for fours long
Yes, the seats are more expensive than flying economy. But the idea behind this counterintuitive strategy is to go “from disparagement to curiosity,” he said.
Ask yourself whether your company will pay for it and/or whether flying business will help you arrive feeling less physically stressed.
Read more: Thanks to Jeff Bezos, you can now cash in on prime real estate — without the headache of being a landlord. Here's how
6. Always buy the best and keep it as long as possible
That doesn’t mean spending a ton. Sethi takes pride in his four-door Honda Accord, which is 17 years old and a very reliable model. Any savings he has from keeping his car can also be applied elsewhere.
7. Don’t limit spending on health and education
Growing your knowledge base sets you up for greater success.
“I want to learn from great [finance] teachers by taking accounting classes,” Sethi said.
Tending to your health yields a better quality of life. Sethi says that getting help from a personal trainer, for example, can help with your workout and nutritional regimens.
8. Earn enough to work only with people you respect and like
“Whom you surround yourself with matters profoundly,” he noted. “Ideas seep into your consciousness, values seep in.”
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If you feel stuck with a jerk at work, explore transferring to another department and a different boss.
9. Prioritize time outside the spreadsheets
“Yes, you should know your numbers,” Sethi said of money matters.
But at a certain point, he stresses, it’s time to turn the page and live a rich life with friends and family.
“I spend less than one hour per month on my finances.”
10. Marry the right person
Bet you never thought of this as a financial decision, right?
“Maybe the most important one of all,” Sethi said.
The partner you choose, he contends, “will effect where you live, the house you’ll buy and how much you spend.”
Talk about money early and often with your partner to create harmony around one of life’s most crucial matters.
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Lou Carlozo is a freelance contributor to Moneywise.
