🎥  The Diary of a CEO: How To Make Money..."Do Not Buy A House!"

🎥  The Diary of a CEO: How To Make Money..."Do Not Buy A House!" 10 Ways To Make REAL Money: Ramit Sethi

Conscious Spending, Wealth Psychology, and Designing Your Rich Life

In this illuminating episode of "The Diary of a CEO," host Steven Bartlett engages in a transformative conversation with Ramit Sethi, financial expert and author of the New York Times bestseller "I Will Teach You To Be Rich." Sethi, who has documented over 20,000 success stories, challenges conventional wisdom about wealth building and offers a refreshing perspective on how anyone can live a rich life regardless of their income or background. This discussion reveals the psychological foundations that shape our relationship with money and provides practical frameworks for building genuine wealth while enjoying life today.

The Rich Life Philosophy: Beyond Generic Financial Advice

The conversation begins by addressing a fundamental problem in financial education: the vagueness with which most people define their financial goals. Sethi explains that when he asks people about their "rich life," they typically respond with generic phrases like "I want to do what I want when I want" or "I want freedom." These undefined aspirations lead to financial decisions that often contradict their stated goals.

"Less than 1% of people know what their rich life looks like down to the details," Sethi reveals. This lack of clarity creates a disconnect between how people spend their money and what would actually bring them fulfillment. The rich life philosophy isn't about following a rigid formula but about intentionally designing a life that aligns with your personal values and desires.

The Four Numbers: Your Financial Language

Sethi introduces a framework he calls the "conscious spending plan," built around four key numbers that everyone should track:

These four numbers create what Sethi calls "the language of money", a framework for understanding and directing your financial life with intention rather than operating on autopilot.

The Homeownership Myth: Questioning Conventional Wisdom

One of the most provocative segments of the conversation challenges the deeply ingrained belief that buying a house is always the best financial decision. Sethi, who rents by choice, explains that homeownership can be a poor investment when you factor in all the costs:

"Buying a house can be an investment, but oftentimes it's not. And there are far better, far simpler investments," Sethi states. He emphasizes that when people calculate the returns on real estate, they often overlook:

• Maintenance costs over time
• Inflation's impact on returns
• Opportunity costs (what the down payment could have earned if invested elsewhere)
• Transaction costs and fees
• Property taxes and insurance

Sethi shares that when he was living in New York, owning would have cost him more than twice what he was paying in rent. By renting and investing the difference, he came out ahead financially. This isn't to say that buying a house is always wrong. It can be the right decision for lifestyle reasons, but it shouldn't be viewed as a guaranteed path to wealth.

Simple Investing: The Path to Real Wealth

For listeners intimidated by investing, Sethi breaks down a straightforward approach that anyone can implement:

"The simplest simplest way that I advise my family is I say, 'Get a target date fund,'" Sethi explains. "It's one fund, just one, and you pick it based on the year that you're going to retire."

To demonstrate the power of this approach, Sethi and Bartlett use a compound interest calculator to show how investing just $5,000 annually starting at age 16 could grow to over $700,000 by age 50 at a conservative 7% return. If they increase the annual contribution to $30,000 (reflecting higher earnings in later years), the amount grows to over $12 million by retirement age.

Ramit's 10 Money Rules: Personal Finance Principles

Sethi shares his personal money rules that guide his financial decisions, emphasizing that these are his rules, not prescriptions for everyone:

These rules reflect Sethi's philosophy that money should be used intentionally to support the life you want to live, rather than following generic advice that doesn't account for personal values and goals.

The Psychology of Money: Understanding Your Money Story

A significant portion of the conversation explores how our childhood experiences shape our relationship with money. Sethi explains that phrases like "We can't afford it" or "Money doesn't grow on trees" create lasting psychological patterns that affect our financial behavior as adults.

"Our childhood sticks with us and we can change, but it's so important for us to acknowledge that it sticks with us," Sethi notes. He shares the story of his wife viewing money as "safety" while he sees it as "growth", a difference that stemmed from their childhood experiences and initially caused conflicts in their financial decisions.

Understanding your money story like how you were raised to think about money, what it represents to you, and what emotions it triggers, is essential for making conscious financial decisions rather than reactive ones.

Money and Relationships: The Importance of Communication

Sethi emphasizes the importance of discussing money with partners, noting that most couples only talk about money when there's a problem. He recommends having proactive conversations about money during natural transition points in a relationship:

• When you first take a trip together
• When you move in together
• When you get engaged
• When you get married
• When you have children

He also shares his experience discussing a prenuptial agreement with his wife, acknowledging that while these conversations can be difficult, they're essential for establishing transparency and alignment around financial values and goals.

"The partner you choose will affect where you live, what you spend on a day-to-day basis, what type of house you buy if you do, how often you travel, the values if you have children that you pass down to kids," Sethi explains. This is important.

Defining Your Rich Life: The Most Important Work

Throughout the conversation, Sethi returns to the importance of defining what a rich life means to you personally. This isn't about achieving a specific net worth or following a prescribed lifestyle, but about identifying what brings you fulfillment and then using money as a tool to support that vision.

"A rich life is lived outside of the spreadsheet," Sethi states. He encourages listeners to dream about money without shame or scarcity, asking questions like:

• What does your perfect Saturday look like?
• What problems can money solve for you?
• What experiences would bring you joy?
• What would you do if money weren't a constraint?

By answering these questions and designing your rich life with intention, you can make financial decisions that align with your values rather than following societal expectations or generic advice.

The Path to Financial Freedom: Practical Steps

For listeners wondering where to start, Sethi offers clear, actionable advice:

Sethi emphasizes that building wealth isn't about deprivation or following restrictive rules, but about spending extravagantly on the things you love while cutting costs mercilessly on the things you don't care about.

Conclusion: The Transformative Power of Intentional Finance

Ramit Sethi's conversation with Steven Bartlett emerges as a masterclass in personal finance that transcends traditional money advice. By challenging conventional wisdom about homeownership, investing, and wealth building, Sethi offers a framework that could genuinely transform listeners' financial futures.

The episode's power lies in its synthesis of psychological insights with practical financial principles. Sethi demonstrates that building wealth isn't about complex strategies or exceptional intelligence. It is about understanding your relationship with money, defining what a rich life means to you, and making intentional decisions that align with your values.

Perhaps most valuable is Sethi's emphasis on the personal nature of financial success. Rather than prescribing a one-size-fits-all approach, he encourages listeners to design their own rich lives based on their unique values, desires, and circumstances. This personalized approach, combined with practical tools like the conscious spending plan and simple investing strategies, provides a roadmap to financial freedom that is both accessible and transformative.

In a world of financial noise and get-rich-quick schemes, this conversation offers a signal of clarity and wisdom that could help listeners build not just wealth, but a rich life in every sense of the term.

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