How To Become Rich | I Will Teach You To Be Rich | Lab Of Rich

How To Become Rich

In this blog, you will learn about How To Become Rich. This information is taken from the book, "I will teach you to be rich", written by Ramit Sethi.

The author studied, at Stanford University, psychology and technology. During that time, he made some money mistakes, and a wrong investment forced him to understand how money works after all, and how to make it work for yourself.

The author received advice over and over again, and he found that nobody follows that advice because it doesn't work. So he wrote this book. The author wants to share his knowledge and findings with as many people as possible. He believes that everyone has a chance to correct their money habits. His book immediately became a bestseller, which has claimed more than 20,000 success stories.

This book helps you to identify where your money is going, and how to make it work for you. This 6-week programme tells you how to make a system that improves your bill payments, savings, and investments, so that every month your money, in less than one hour of maintenance, goes into the right place.

This book is best for those who want to handle their finances better. This summary will explain the 6 weeks programme of this book.

1. In the first week, the focus will be on improving your credit cards.
2. In the second week, we will learn to beat the banks.
3. The investment will be covered in the third week,
4. In the fourth week, we will talk about conscious spending.
5. In the fifth week, the focus will be on savings.
6. And in the sixth week, the myth and idea will be discussed, that investment is for everyone and not just rich people.

So let's understand them in detail.

Week 1. Credit Card Optimization

In the journey of money, the first step you need to take is to make good credit. Personal credit considers your credit report and credit score. Most adults have one or two credit cards, but most people don't know how to use them. If used properly then credit cards can save you thousands of rupees in the long term.

Credit reports and ratings.

In the credit report, details of your credit history, current or recent transactions, or an account that you have, are included. This information is given to lenders, meaning those who lend, when you apply for a loan.

A credit score is a little different. You are given a number between 300 and 850. This number is used to explain to the lender that when it comes to giving credit, then what are your risk factors. If your credit score is high then you are seen as less risky, and a low credit score shows more risk. For things which are bought in the future, including homes and loans, for that, it's necessary to have a high credit score. Based on your credit score and credit report, lenders and banks will decide whether to lend to you or not.

If a credit card is used properly, then it can be very beneficial. You should pay your bills in full and on time. Never make these payments late, or you may have to face interest. When it happens, the credit card gives you that money that you don't have, and you want to avoid paying interest at any cost.

If you buy something using a credit card, and pay interest at the end, then you are actually paying more than its price. Making good credit is the first step to being rich.

Week 1 Top Tips

By using the given tips, you can improve your credit score and avoid common mistakes.

1. Request your credit score and reports. Understand the meaning of these numbers for your credit.
2. If you already have a credit card then check with the bank whether it is a no-fee card. If not then request it.
3. If you don't have a credit card then take one, and request to waive all the fees.
4. Set an automatic payment so that it is never missed, and is always paid in full. Make sure it happens every month.
5. If you have debt then make a plan to repay it. Talk to your lender so that it can be repaid as soon as possible. The goal is to repay debt as soon as possible so that you can take advantage of the rewards.

Week 2. Banks

It's necessary to choose the right bank and account when you are setting your finances. Your bank plays an important role, and you want to have a good relationship with them so that you don't waste money on unnecessary fees.

Cheque accounts.

Most people have a cheque account. It is a standard account, where money regularly comes in and goes out. You should use it as an email box. If all your money comes in this account, then you can filter it to send it to a side account, whether it is a savings or investment. For a cheque account, choose an account which pays interest and is free, and has no monthly, yearly, or transaction fees.

Saving accounts.

You should open a savings account for the short-term to mid-term. Here, consider putting your money from all the sources for 1 month to 5 years. Use this account as a vacation and a house deposit.

Week 2 Top Tips

1. If you don't already have one then open a cheque account.
2. Double-check that there are no fees. If your current account has monthly or yearly fees, then talk to the bank and request to waive it off, also keep in mind the minimum amount and transaction fees.
3. Open high-interest saving accounts.
4. Keep your spending amount separate from your saving money.
5. Make sure that your cheque account has money equal to 1.5 months of expenses. Transfer the excess amount to the savings account.

Week 3. Investing

Investment is something that many people want to avoid. You should understand it so that you feel confident to make investments. After the global financial crisis, many people stopped investing. But investing in such time is wisdom. By opening an investment account, you give yourself access to the world's biggest money-making tool, which is the stock market.

5 Simple Steps To Start The Investment Process.

1. Nothing can be better than an investment that gives you a 100% return. And this happens on every paycheque. Therefore you don't have to do anything by yourself, except the initial setup.
2. Pay your credit card debt. Once it's done, you will have more money to invest. Take time to make a plan to repay it.
3. You should also open a separate individual retirement account or an investment fund. The aim is to contribute as much as possible to your post-tax income.
4. If some money is left then put it in your savings account.

When these 4 steps are completed, you will have some money that you can use. Think about a non-retirement fund, which has money to start your business.

Week 4. Conscious Spending

This is advice that you may have often heard, that is to make a budget. However, it's easier said than done. No one has time to keep track of every rupee. Therefore you should spend it consciously. It's easy to spend consciously. When money comes, your priorities should be saved and an investment account. When it's done, you can think of spending the rest of the money without any guilt.

The best way to handle money is to decide where you want to spend your money. You should use a frugal approach, not a cheap approach. Frugality is preferred in everything because you can save money on most of your purchases, and you can spend more at some places.

Identify your priorities.

If you want to go to a movie weekly, try not to buy cock or popcorn every time. It's on you where you want to sacrifice and where not.

Week 4 Top Tips

1. When you get the next paycheque, then reduce your expenses, and find out where the most expense occurs.
2. Divide your income into fixed costs, long-term investments, saving goals, and guilt-free spending.
3. Pay attention to fixed costs, whether you are getting the best deal on insurance.
4. Try to shop around this cost, and see where you can reduce it.
5. Think of how your plan of conscious spending will be. Where will you save and where will you spend it?
6. Stick to your plan. Update it every week. When you receive receipts, include them in your plan, so that you understand what is happening.
7. Your system must be straightforward and quick. You have to maintain it for a long time.

Week 5. Save

The next stage is to automate your system for saving, investment, and spending. The aim is to automatically filter your income into the right account, without your interference. By spending some time in it's beginning, you can save a lot of time in the future. It means your bills will be paid automatically, and you don't have to worry about that.

Every week, fortnight, or month, you will receive your income. Your workplace should automatically deduct your savings part. The rest will directly go to your cheque account. Automate its portion for saving and investment. Pay your credit card bills automatically with your debit cards. It covers all your fixed costs such as utility, internet, etc. Whatever money is left, can be spent without any guilt.

Week 5 Top Tips

1. You should link all your accounts.
2. All your login information should be in one place, otherwise, you will waste time on different passwords and usernames.
3. Speed time for your automatic money flow. Once all the accounts are linked, it will be easy.
4. Setup an individual automatic payment for each account.

Week 6. Financial Expertise Myths

Many people, in the finance industry, are afraid of financial advisors and fund managers. When most people are capable of making their investments by themselves. You don't have to pay others for your investments.

The fund manager is not a magician, and they can't find out what the market is going to do. Fund managers fail in 75% of investments. Mutual funds often charge a fee, which is useless and is paid to the fund manager.

Index funds can give better results with lower fees. So ignore the predictions of Pandits. Also, ignore the past 1-2 years' performance of the fund. A fund manager can perform well in the short term. But they can never beat the market in the long term. It depends on fees, expenses, and mathematical probabilities, which are useful when choosing stocks.

Is investment only for rich people?

Everyone is capable of making investments. It's not only for rich people. It's possible to have a straightforward and low-maintenance portfolio. When it comes to investment, you should be diverse. You should not only buy different stocks, but also consider different assets, stocks, and bonds. When you are young, take some risks for investment. That time, it's easy to recover from possible losses. As you get older, you become more conservative and take fewer risks.

Where should you invest?

Index funds are a good option. These are less costly than mutual funds. However, its drawback is that you will have to invest in different funds. It will take more time and research than mutual funds.

Multiple funds mean you will have to regularly rebalance your funds. Almost every year. It is a difficult task where you have to again divide your money into different investments for your target asset.

Another low-cost option is a life-cycle fund. They consider your age and automatically diversify your investments. Life-cycle funds are funds of funds.

For example, a life-cycle fund may have large-cap, mid-cap, small-cap, and international funds. In other words, your life-cycle funds own many funds that own stocks and bonds.

Week 6 Top Tips

1. Before starting, you need to decide your investing style.
2. Remember, life-cycle funds are simple, and you have to give minimum input, but your control is less.
3. Index funds are a good option if you are confident to diversify your portfolio by yourself.
4. Spend time investigating your investments.
5. Do proper research and understand where you are investing. After deciding, buy your chosen funds.
6. If you don't have money now for investing, then make a saving goal for your investment account. As soon as you achieve your goal, you can purchase.
7. When all your accounts are in order, and investment is in control, then it's easy to maintain your system.
8. Pay attention to your conscious spending plan, and save any extra money that can be divided into savings and investment.
9. You don't have to log in to your investment account every day. This will only cause unnecessary stress. You made an automatic system for a reason. Check once a month, and wait for the money to grow with time.
10. Be cautious of too early selling your investment. In your 20s and 30s, there should be only 3 reasons to sell your investment: you need money for some emergency, you have made a wrong investment, which is performing badly in the market, or you have achieved your investment's goal.