Everything You’ve Been Told About Money is WRONG | Ramit Sethi on Impact Theory

we have to be humble enough to recognize you do not want to be a professional money manager you even said you have somebody you call most people just want their money to grow they want it to be relatively safe they're willing to take a little up and down but they don't want to think about it they spend more time looking at a yelp review for dinner on sunset than they do picking their investments that is terrifyingly true yeah and so instead of fighting that let's just acknowledge it hey i am never going to sit here and read all this stuff and by the way even if i did that doesn't predict better returns so i'm going to pick a simple investment strategy i'm going to automate it and i'll spend one hour per month on my money done i hope you guys enjoyed the episode brought to you by our sponsor blinkist go to blinkist.com impact theory to get 25 off a blinkist premium membership and a seven-day free trial all right enjoy the episode hey everybody welcome to another episode of impact theory i am here with best-selling author and the most practical financial advisor i have ever met ramit sethi ramith welcome to the show man thanks for having me back dude this is round three yeah so round two began at the beginning of the pandemic correct and i had brought a bunch of financial advisors on that were like super high level i feel like now as we're maybe coming out of the pandemic but maybe not that a lot has changed from gamestop to crypto to wall street bets all that stuff do you think that we're living through a unique moment right now or are people just confused by something and really it's all the same it's definitely a different situation if you think about where we were in 1999 2000 with the tech boom 2008 2009 with the housing bubble and now people will look back at this time as well so we have um super low interest rates we have a bunch of people on reddit moving markets literally they shut uh an investment firm down yep we have uh crypto making huge news up and down and we also have a lot of people with changing jobs so what does it mean for the average person most good advice doesn't change over time so should you be saving and automatically investing yes should you be thinking about the long term and choosing low cost investments yes of course low cost means low fees low fees yeah yeah so for example a lot of people don't know this but anybody watching if you go ask your parents this you're going to have a very shocking conversation if you pay one percent in fees like to a financial advisor a lot of people think one percent no big deal over the course of your lifetime guess what percentage of your gains go to the person you're paying the fees guess i actually don't know i know the answer is high it's not one percent people think oh one percent one percent compounding correct if you're paying one percent in fees 28 of your returns are going to that advisor's pocket over what period of time it's about over like 30 plus years it's a long term if you pay 2 in fees that's over 50 of your gains going straight into their pocket so this math is really counter-intuitive a lot of people really counter-intuitive yeah i know it's true and i still get tripped up by that so i'll give you a a quick story of a young woman who wrote me on instagram and she's read my book and she goes ramit i think i'm overpaying for this financial advisor but i'm not sure i said okay tell me your information she's 31 she makes about 80k a year and she was paying one percent i said cool how much do you think over the course of your lifetime you will pay in fees and she had no idea i said just take a guess she goes 30 grand i said okay how do you feel about that she said 30 grand over the next 30 years i feel okay about it sounds fair i said great let's do a couple quick calculations so we run the numbers and i told her you know your income will probably increase a bit da da da da your investments it turns out she thought she was paying 30k in fees she would actually pay 315 000 in fees so i tell her this and on instagram she's like no no way this cannot be real i go it's real and so this is one of those things that sounds really boring oh fees i'm you know who really cares one percent but you could take 300 000 and use it to go out and have a blast buy a house invest more spend it on the things you love and so we want even in a time like this where everything seems so crazy it's actually not that crazy we know what to do when there are low interest rates we know that what do we do well i actually don't know like i am horrendous at investing money yeah and i always i'm good at making money yeah i'm not good at investing money well you don't have to be that good are you good at like breathing oxygen yes okay i practiced anyway exactly because you've done it a ton of times you don't think about it great investing is not sitting there looking at some bloomberg terminal and and choosing the right stock it's actually quite boring it is setting up automated investing it's having the money flow where it needs to go automatically and if you do it right you don't even think about it you spend less than one hour per month on your investments so here's what i find interesting about you and this is the reason that i always love spending time with you you're very practical it's the advice that people should do you also have a psychology background so you know why people don't end up doing it yeah the theme that i find most interesting right now is how much things have changed so it's interesting to hear you echo that they really have changed from the things that i get involved in it may seem even more sort of dramatically different than it really is but i'll walk you through some of the things that i think you're up against with this very sage advice yeah but we're living in a moment now where investing is attracting younger and younger people they have a sense the system is broken they don't know what that means but that something doesn't work and so people are trying to find that like quick flip that quick buck you get crypto coming which i heard you say you may have changed you may have doubled down that people that invest in crypto are crazy i think crypto is interesting yeah as the self-professed guy that is not good at investing so take that um but there's something happening now between crypto between gamestop wall street bets the way that like the collective of people can up hedge funds like there's something going on right now where there's a casino mechanic and people are getting really into this casino mechanic even nfts which i don't think of as an investment vehicle but i am very excited about as a technology but that's drawn me into this world where i see just a gaggle of people treating it like a casino essentially yeah and now that it's sort of high risk high reward lots of fun ding ding ding flashing lights how many people do you think are getting pulled in in a way that's exciting like hey now you've got 17 year olds creating youtube content around investments which is real and i am utterly shocked by that and how much of this is like oh my god we're heading towards a cliff um that's a great question okay let me start off with what happened with my first investments so here it is it's around 1999 2000 everybody thinks they're a tech genius you put money in any stock it goes up 26 the next day so what do i do i take my college scholarship money and i put some of it in the stock market thinking this is easy guaranteed 20 yeah guarantee and every day it's going up and down but mostly up was there a massive euphoria i wasn't focused yet at all yes everybody was um everybody believed they're a genius so in a bull market everybody believes they're a genius and um they all say the same phrase this time it's different so far it's it's such a funny phrase that in the investment world people make fun of it it's a they're mocked because it's never different it's actually the same thing bubbles expand uh but over time they mathematically cannot continue so here we have people making millions of dollars who would otherwise be working in a parking garage and they are giving stock tips out and telling everybody you got to get into this jdsu this you know all kinds of stuff so i take my college scholarship money put it in the market and i very quickly lose half the money because of the crash yeah or because of the crash and so what happens is i realize oh my god i'm not as smart as i thought it's not easy to become a millionaire through investing in two weeks and so here is where there was a pivotal moment one i could have doubled down and said i just picked the wrong stock let me pick another stock this is very similar to what you're here with people in the crypto world well my investment quote investment dropped 50 percent but you know i got to do this coin or that coin etc what i chose to do is go different and say you know what i don't think i'm that smart about investing and i actually want to learn how fundamental basic investing works so things like low cost long term things like reading about john bogle's philosophy etc and i started to learn about it and i realized you could spend your entire life trying to trade but traders hardly ever make money over the long term and if we were going to define trade timing the market yeah it's like i understand this stock yeah it's undervalued yeah i'm gonna buy because i know it's going and i'm gonna do it short term right so i'm gonna create this narrative that oh this stock look at the trading look at the chart and i'm gonna try to make quick money in in four weeks everybody now knows somebody who trades those people almost all lose money you'll notice they're your best friend when they're making tons of money hey bro i made uh 600 in this stock when it goes down you don't really hear from them okay that's called survivorship bias those people simply disappear but they're really loud when they're making money and you learn that mathematically even top wall street investors over 80 of them don't even beat the market what does that mean it means that you watching this show right now can pick a simple vanguard fund and you can be over 80 percent of these fancy wall street suits these guys were paid over a million dollars a year this stuff is really hard to believe it's really hard to believe because it's counterintuitive like one percent fees can be 28 out the door um people also don't understand compound growth so for example people a lot of people right now are really dissatisfied hey i don't have enough money i'm not gonna ever be able to afford a house and so therefore i'm gonna have to invest in these high risk investments that are pure speculation what what's really happening there is they don't understand how compound interest works in one year than the last 20 years combined because of the because of compound interest yeah because of how it works so is it really as simple as one doubling to two isn't very interesting two doubling to four is not very interesting but when you start getting to a thousand doubling that becomes real interesting real fast and it happens and we know the math if you plug in your numbers to a compound interest calculator you can predict essentially down to the month and year when you will become a millionaire and the does that calculate a doubling every seven years or is that a made-up thing no that's you can choose change your assumptions i generally choose a seven percent return rate seven to eight percent because historically that's what we know happens and that factors inflation in so at roughly seven to eight percent your money's doubling approximately every ten years and people are going to get that by putting in the stock market and letting it get about it and just contributing to it every single month dollar yeah 50 bucks 500 bucks 5 000 bucks whatever works for you that's how it works that's simple boring so a lot of people watching this going oh this old guy this luddite i prefer crypto it's really exciting listen investing is not about excitement you want excitement get a dog get watch a tnt drama investing is boring it's like watching concrete dry and it should be the real fun is what you do with your money how you live a rich life all right before we get to that yeah i want to like really drill down so i'm currently not taking your advice okay and you can legitimately just point out all the things that are stupid okay but this is my this is my fantasy all right go ahead i'll give you my sort of thesis the way that i think about it so um the because we're printing so much money that scares the life out of me i'm super ignorant when it comes to economics and money so now i'm just operating on emotion and i'm like okay people are printing just like metrics tons of money that does not seem like a sustainable thing so i tell my money manager hey i want to be as close to my money buried in the backyard as humanly possible she's like this is a terrible strategy because of inflation like you don't understand your money's going to get cut but i was thinking sort of that same thing one to two percent a year whatever like i have plenty of time to figure this out then i start listening to michael saylor who's like a that might not be the real inflation rate it might be substantially higher and when you get to i forget the exact number of inflation but if it's like at 15 you cut your money in half in like seven years or something ridiculous and i was like what so then i was like okay now i'm paranoid about that but when i look at the stock market and it's and i don't know where we are today but it's like it was at the time that my money manager was like you need more exposure to the stock market i just kept thinking i've made a lot of money i believe i will make a lot more i just want to protect my downside i'm not trying to grow my money i'm just trying to like maintain my money and the idea of buying into the stock market even dollar cost averaging when it seemed so clear to me this has to be a bubble like you said it just cannot go up forever so there has to be some sort of correction and the economy shut down so i was like how the could this possibly but of course now because i didn't have much exposure to the stock market i had some but yeah i didn't have much exposure to the stock market it's like up 28 yeah you missed that on millions 100 okay let's talk about this so but am i about to like be the one who's laughing when this finally all corrects well nobody knows first of all nobody knows and if you bring anyone on the show who tells you what's going to happen in the stock market they're an idiot and and or they're lying so i'm not going to do that nobody knows and you'll find this in politics and money a lot of people want to be comforted by essentially a parental figure somebody who comes in here and tells you it's all gonna be okay or conversely it's all going to and they prey on people's weaknesses as to what's going on the best investors are humble they know that nobody knows anything what do we know we know that over time the market continues to return approximately seven to eight percent and that's over a hundred plus years we know that there are always people on reddit and twitter who've got these fanciful narrations of what's going on in the world and they all disappear once the narrative is proved incorrect so people have been talking about inflation forever this is very low inflation and in fact even the recent inflation numbers are i think over 30 percent of his due to used car prices okay if you try to peg your investments to macro economics you will be potentially losing out on lots of money now let's talk about your situation your situation is different than the people watching this you already have a lot of capital so if you're somebody who's 25 30 35 and you're trying to grow your wealth that strategy is going to be different than your strategy tom so let's break them both down for the person who's in the wealth accumulation phase right they have a job they want to make some more money great the best strategy for them is low-cost long-term investing take some percentage i'd recommend at least 10 preferably 20 percent of your gross income if if you can gross free tax well i like to be aggressive if you can't do 20 go ahead and do 10. we're going to point them to a vanguard just something real simple really simple no i've got feelings no individual investors should be using rob is that how robinhood works like their day trading on your behalf or they're encouraging you to day trade like they are encouraging you to trade um and you can see this through a variety of the design principles you use they give you free shares we don't want to be engineered into trading trading is the enemy for real investment returns we want boring simple that's where the real money's made so when i talk to my friends who are high income earners and i ask them you know we talk about their investment strategy and they go yeah i just have it all in vanguard i'm like these are the people who have serious money because the others have a lot of earnings but they're trading at all and as we know even one percent fees can reduce it trading taxes those dramatically reduce your returns so back to our 35 year old friend they want to accumulate some money they say okay i'm gonna automatically contribute 10 15 20 whatever they can do aggressively and at first it seems really boring oh i'm putting like 100 bucks a month or a thousand bucks a month that's not that much but what they forget is that not only do you keep adding that but over time the market tends to go up and we know what happens so your money isn't just doubling every 10 years it's actually much faster than that because you're contributing more and suddenly they wake up and they go oh my god that's a lot of money and in three years i'm gonna have more money from that than i get from my job wow now you have some serious opportunity you can choose whether to work there start a business go part-time are there different vanguard account types so the thing that i really like for simple investment is called a target date fund if you're 35 you know that you can just assume you're going to retire at 65. you might retire earlier later but just assume and so you would pick a vanguard fund like a 2050 fund what is that imagine you have a pie chart in that pie chart you have basically two different kinds of investments equities or stocks and fixed income or bonds equities are more aggressive they tend to outperform uh bonds what a target date fund does is you just pick one fund that's it just one put all your money in there and it automatically reallocates over how did i pick that fund is it just like just by ap no no it's just by age so they do it yeah so youtube i just say hey i want to retire by 65 i'm currently this age bingo and then they will say i'm gonna put you in china no no no they say i'm gonna put you in the vanguard 2050 fund so 2050 means you're going to retire in 2015. but how are they thinking about that is this like the world's most diversified portfolio is that sort of their basic automatically diversified so it has uh internationally automatically diversified there's a human in this somewhere even if it's just a human programming ai well they have chosen to diversify in these target date funds based on this criteria what they do is they model yeah yeah so they include value investing no it's not it's not necessarily value investing it is a 30-second breakdown so when you invest a lot of people will pick some stock that's like me going over to your house for dinner and you go getting some specific stuff yeah they'll pick like this stuff yeah they'll pick tesla that's like me going over to your house and you go tonight we're eating salt what that's not a meal a meal includes your proteins and all kinds of other things in your investment portfolio if you just have tesla you might feel really good you might say hey ramit nice investment strategy but my investment's up 400 percent cool i'm glad but over time that cannot sustain itself and so when that goes down you want to have other investments that that are going up and diversify and again yes you may lose out on a little bit of gains like if you had picked apple or amazon that would have been nice but you have to remember most people don't pick apple they don't pick amazon and so the people who pick it you're usually too lazy something dumb yeah they were hyped on it for some reason that's why they're called mom and pop investors that's an insult ma and pa are the dumb money the dumb money are random retail investors who are sitting in their basement using e-trade or robin hood the sophisticated people are on wall street and even they can't pick the winners more than 20 of the time so a target date fund automatically diversifies internationally really fast so follow the incentives this is very good advice for people if i'm the guy on wall street like i'll let this person remain nameless but there's somebody in my life that i know and love care about think they're amazing and they like to day trade it gives them a sense of purpose they do a lot of research and all this and i remember one day i just thought are you up or down all time you're like down and i was like what are you doing like if and they had been in it for 15 years yeah so it wasn't even like a brief period of time and i just thought that's so interesting it's like adult baseball cards yeah you know what gives me a sense of purpose having a huge investment portfolio what does that mean i want a portfolio that takes basically no time huge from a dollar perspective yeah huge so i put it in something really simple target date fund or a series of index funds what percentage of your net worth is in the target date fund uh i would say not a target day fund now i have index funds a series of index funds as well as i've had a target index meaning people don't day trade it yeah it's like a group of companies and grouped in some way 500 or whatever yeah it's basically what's inside of a target date fund but just taken outside of it simple low cost etc over 90 of my net worth is in index funds so many different ballpark index funds are you in less than 10. now is that because ramit is more clever than other people and you know it's because it's because i have a larger net worth so at home so you don't want to cram it all into one thing that's correct because at for 99 of people a target date fund is a fantastic investment why it's one place that you invest you do not have to choose all kinds of crazy stuff two and this is really important it automatically gets more conservative as you get older now if you're watching this right now you're like i don't care about that down the road but think about it when grandma and grandpa were in 2008 and we all heard these stories of people losing 50 percent of their net worth overnight those older folks should have never been invested that aggressively a target date fund will protect high risk things into equities they should have had more conservative investment bonds yeah and so you would you do not like the kiss of death right now no there's a big debate about whether or not people should even buy bonds or have cash or whatever but you have to remember the average person watching this right now is not reading all the intricacies of bonds versus cash and yields they're like i just want my money to go where it should go so we have to be humble enough to recognize you do not want to be a professional money manager you even said you have somebody you call most people just want their money to grow they want it to be relatively safe they're willing to take a little up and down but they don't want to think about it they spend more time looking at a yelp review for dinner on sunset than they do picking their investments that is terrifyingly true yeah and so instead of fighting that let's just acknowledge it hey i am never gonna sit here and read all this stuff and by the way even if i did that doesn't predict better returns so i'm gonna pick a simple investment strategy i'm going to automate it and i'll spend one hour per month on my money done and over time i'm going to accumulate a very very substantial portfolio and i can take amazing vacations i can provide for my family i can have fun that's a rich life do you ever just want to be a better version of yourself a more confident knowledgeable you the fastest way to do it is to get learning my whole obsession is what i call abl always be learning learning about a new topic or skill revisiting one you learned about in the past or getting up to speed on something everyone is talking about right now can not only broaden your horizons but also boost your self-esteem and your success too that's where the blinkist app 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blinkist.com impact theory to start your free 7-day trial and get 25 off a blinkist premium membership that's spelled b-l-i-n-q blinkist.com impact theory to get 25 off a blinkist premium membership and a seven-day free trial all right guys take care and be legendary okay this stuff gets really interesting but i think there is a layer of complexity that it's wise for people to begin to pull back so um all right low cost means low fees so that's an important thing vanguard funds are the place to start vanguard is great i don't want to i'm not pitching vanguard it's where i have a lot of my money why not pitch vanguard i like them i just don't i want everybody to know i don't have a deal with them fair no there are other companies that are also great you can choose you know fidelity has a lot of great low-cost funds um makes them great that they have the same theory as the vanguard fund um no vanguard in my opinion the reason i have my money there is that the firm is built on low cost so the entire dna of the firm is low cost um there are other firms like fidelity that did not start off like that they started off charging high net worth investors a lot of money now because of vanguard they had to lower their fees because they were getting eaten alive and so they did add these things but they always have this dna of let's charge higher fees for high net worth people now if you want to pay let's talk about fees for a second because i think this is interesting i have no problem if you want to hire an advisor and pay a premium price 500 bucks an hour 5 000 bucks for a review i have no problem pay it for for if you have a specific complex situation or your high net worth you want a second set of eyes great most people would rather pay 250 000 in hidden fees than pay 10 000 out of their pocket do you realize how insane that is yeah they would rather pay 250 grand in hidden fees and even when i tell them hey look at that one percent let's do a little bit of math and i'll show you how much it adds up to it's on paper it's math they go ah one percent he's a nice guy i go you know i'm sure he's a nice guy take him out to a baseball game and save 240 000 and go out with your husband or wife that's how crazy our psychology is around fees so what's broken what what are people doing wrong there psychologically well they do not understand the complexity of fees fees and return rates do you think it's just that like i'll tell you why i'd make this very important well you want to delegate out to somebody else think about it yeah exactly well you don't have to think about it though i do though there are realities to be faced i mean that's the crazy thing this is this is the root of my obsession with you is that here's what i want people to understand i am i am clinging to your every word yeah but you're still like there's something that is not hitting you here what's interesting is is it takes seven touches to get a conversion so this is the third time i've had you on and now i'm like man like every time that i sit down with you i'm like there's a there's a way so first i have to understand my own psychology okay i don't want to think about it that's rule number one rule number two is i need a gamified element so part of what got me into crypto was i i had an employee shout out to david kim and he would relentlessly drip on me and he's like tom are you looking at crypto this is height of the bull market tell me you're looking at crypto i'm like david i don't give a about investing every second that i spend thinking about the money that i already have i'm not building something new my obsession is building yeah so i'm literally like getting to the point where i'm like hey dude stop bringing this up and but i know that that's not a wise strategy so he's like dripping on me and i'm like goddamn and then finally nfts becomes a thing and i realize it's going to be hugely important for my business i dive into nfts as a technology which forces me to learn about cryptocurrency and blockchain and all that and so all of a sudden i'm like wait a second this is actually really interesting so that gave me the the impetus i needed to get over the initial hurdle of okay what is it which ones are legit yeah how does one get a wallet all that stuff so i do all of that then i get into the gamification part of it of like okay dollar cost averaging which i think is smart because i don't think of myself as clever when it comes to investing so i start dollar cost averaging into this and since i'm looking at any investment as like a 10 to 30 year horizon so momentary ups and downs i literally don't care i only invest the amount of money i'm prepared to lose so i put it in and instead of looking at how much is my money going up i started looking at how much is the average price at which i have bought in going down and so that became my obsession like buying the dip like as long as the thesis isn't broken you know you buy the dip you buy the dip so um that's where this gets interested so as you're talking about vanguard i'm like okay how do i gamify this so that i'll actually do it let's let's add some context around your investment desires um i think that one of the mistakes that a lot of financial people make is they try to make everything about math hey tom let me tell you all the reasons what you just said is wrong and let's look at the return rates and you might listen to me politely but deep down you're like i don't like what this guy's saying let's actually start with psychology okay what you just told me is hey i like gamification i don't want to think about it and i have a long long time horizon okay let's start there perfect and you also said something really important which is you like to create that's what drives you just managing what you've got is not exciting are all those things accurate all right so here's what bad advice would be and then here's i think what would be better advice bad advice would be tom sell all that it's all like crackpot stuff put it in a simple target date fund and get on with your life come on tom that's what the investment returns say and you're going to be like get the hell out of here better advice would be hey tom it sounds like you want to have some control over your investments it sounds like it actually drives you to see you know at what price you're purchasing it but it also sounds like you don't want to think much about the basic mechanics so why don't we do something like this why don't we take 80 90 of your portfolio and put it in low-cost funds and take 10 and say this is total play money in fact you have to play with it or invest it or spend it in some way and if it's gonna be on nfts or bitcoin or whatever great suddenly now you have a real thesis which is this is long-term stuff we kind of know the returns there great i'm going to be safe no matter what happens but i'm also going to be making giving room for my psychology my need and desire to track things and gamify and play with it yeah that um clarity knowing what you want getting people it's one of the things that you do really well getting people to be hyper specific we all have to go on our own investment journey i did when i thought i was a genius in 2000 and i put it all in the you know in the market picking individual stocks and i realized oh man i got to learn how this works and so there are some basic investment truths and there are some basic truths in you know every industry for example you have people you know they struggle to lose weight for example in my case i struggled to gain weight i was a really skinny guy and you could have sat there and told me hey ramit you need to eat more calories and i would have said no no no no you don't understand like i have a fast metabolism blah blah blah and i had to go through this journey i had to ask friends to help me train at the gym i had to watch other people read a bunch of books and get trainers and eventually i realized oh my gosh it's actually pretty simple but to get there i had to go like this so i actually have a lot of compassion for um anyone who's on their investment journey or financial journey whether it's talking about investments and some pretty technical stuff like recovery whether it's talking about money with your partner because this stuff is not easy once you really get good at it it's quite simple and you realize oh my gosh i only need to sort of set up 20 automated savings i need to have these kind of basic ratios but the rest of it's just like easy to get there is not easy so i totally understand that and for anyone watching we all start at different places whether it's on our fit fitness journey money journey spiritual journey and you know the goal i think is to find something that fits us is simple and helps us lead a rich life yeah i love that and i encourage people to watch episodes one and two we talk more about the rich life the love and money stuff that you're doing now i find really really interesting i've watched you with couples like almost like a therapy session it's really good by the way um i've really fallen in love with a lot of the content you've done through the pandemic that sort of really intimate stuff but what do you find in the love and money section where couples are coming together maybe for the first time what are some common issues that they struggle through and how do you help them get to the other side of that the most common issue of all is that one partner is a spender and one is a saver there are other issues which a lot of people will say i can't seem to get on the same page and when i ask them tell me about a specific time in the last 30 days where you two were not on the same page they're like like they instantly know and it hits them very deeply is this like a personality type thing like what's driving these disconnects well we have to remember that most of us don't even understand money for ourselves and then when we get with a partner it's like one plus one equals 20. we really don't understand how to bring our perspectives together and so here we have one person who says hey we have a lot of money like we can actually afford to go out to a nice vacation or dinner and the other person says i don't feel safe and so one person's saying what look at the math that was pretty much me early on in my relationship with you i don't feel safe no no i was like look at the math i was like look at the compound interest we have a growth rate assumption here i was like living in the spreadsheet and my wife she said i want to use money to feel safe i was like wow what does that word mean safe because to me the word i use to describe money is growth i would guess that that's similar for you growth i want to grow i want to have an impact and so when we originally started talking we started to rewind and and we would talk about you know what were the things our parents said around the dinner table and it was striking everyone has money beliefs that they learned as a kid so their parents might have said we don't talk about money in this family or oh those rich people that's for rich people not for people like us do you have any things that you remember hearing as a kid about money i don't okay i thought about that when i was researching i thought god what did my parents say about money it was just more we couldn't afford that that i heard a lot that's a huge one so think about when you grow up hearing we can't afford that we can't afford that one day when you have actually a pretty decent amount of money a lot of people still tell themselves we can't afford that so they still go on the same type of vacations they would have gone on 15 years ago they still tell their kids we can't afford that but when we look at the numbers actually you can afford that and a lot more but everybody talks about how to save and nobody talks about how to spend so when i'm speaking to these couples it's really fascinating they will come to me and we do this podcast and they'll fill out all their information it's full dossier i know their net worth i know their income and i talk to them about their problem and i go on a scale of one to ten how big of a deal is this and they go ah you know like maybe a four out of ten in their relationship yeah in their relationship i go you came on this show we're using your real numbers and name and voice and you're telling me this is a four out of ten and they go yeah they minimize the problem so what i say to them is okay the two of you don't see eye to eye on how much to spend on a car now imagine fast forwarding 30 years you've got two kids you've got a mortgage you've made 10 000 financial decisions how big of a deal do you think this disagreement is and they instantly go oh that's a nine out of ten because most of us in the moment we minimize our financial problems with our partner but we can easily see how people get divorced over money when it calcifies and amplifies over the next 25 years and that's really what i want to work with these folks on this new podcast where people come in and for the first time ever you can hear real couples sharing real stories with real numbers behind closed doors so as you help them work through this is step number one all right let's figure out what your money narrative is let's get to the things that your parents said i always ask them what's your rich life and i start there because when people come in to talk about money they're really nervous and apprehensive guess what they think i'm going to tell them the first thing in this conversation either you can't afford it you have to save yeah just like a series of shitty restrictive things that make them feel bad you can't go out to eat you can't afford that car no your kids can't go to school and so they're already like this when they come in i go all right i know your numbers that's cool what's your rich life and this is striking you can almost hear it they're visibly affected they go i want to do what i want when i want i go okay what do you want to do they've never thought about it they're just stuck or they go i want to have a million bucks i go okay what does a million get you i don't know they just pick that number or they say we're in debt and we just want to get to zero i don't find that very motivational it's like getting to zero that's your rich life so i push them and a lot of people will say something like i want to travel you know we want to travel i say great where do you want to go i want to go to bali which seat on the airplane do you want to sit on and there's looking at me like i'm crazy because no one has actually ever taken an interest in what they want to do with their money it's always no no no where do you want to eat who do you want to take with you what are you going to show your kids when you go there and their face is lighting up you can hear it everybody deep down knows something they want to do with their money one woman told me i want to go to whole foods and be able to spend without having to look at the price tag that was a very modest goal i said okay and by the way she already had like hundreds of thousands of dollars of net worth she could already do it whole foods was expensive maybe if she was going a few times a week you're right but i said what then and she was stumped here we have somebody in their late 30s who's been very financially successful and her dream her dream is to go to whole foods and not look at the price tag what do you do though when the couple's like they each have this really vivid sense of what they want once you pull it out of them but that they really are different okay the good news is that you don't have to always agree with your partner on certain things he might want to spend money on a certain thing it's fine if you can if you can jointly afford it or he can individually afford it oh what do you mean so these are couples do you have them separate their money well some of them they just come to me as is i'm first most interested in their story so some of them have a joint account some of them are totally separate or what i like to recommend for couples is they have a joint account and they have their own independent dude word yes what do you do that's well we don't now but when lisa and i first got married that's exactly what we did we said all right we have one account yeah where this is for all the bills then we each get an equal amount of spending money in a separate account so now you can do whatever you want you can save your money you can spend your money and that was the saving grace like figuring that out early on was what did that do for you it freed us up because the things i wanted to spend money on she thought was dumb anything she wanted to spend money on i thought was done yes so i was just like hey you do you but look at the approach you took it's so important for everybody to catch this you could have fought about it you could have discussed it and we started there yeah yeah but people do this for their entire lives and they're they're basically asking three dollar questions the thirty thousand dollar question they should really be asking is how do we set up a system that lets us honor each other's financial desires so again you could sit there and fight about cosmetics or cars or suitcases or whatever and you do that for the rest of your life that's what most people do oh my god it's horrible it's awful to sit there and you're fighting the same battle you fought 20 years ago you're doing it today or what you and lisa did which is amazing you set up a system okay joint now we got our mortgage or rent covered etc independent accounts and now the problem vanishes so money always is going to be complicated especially when you have two people different earnings different money philosophies but the solution is not to simply fight and talk each other into seeing your perspective yes you should talk about it but sometimes you need to add some systems and psychology which really solves the problem let's get into a problem that i have to imagine is becoming a thing where the woman is making more than the guy yeah and he's not feeling great about it is that a thing yeah oh yeah more than ever in fact in urban areas in their 20s women earn more than men which is a little known fact yeah it's very interesting it's very interesting and more women graduate from college so that number will continue to become skewed um so i think that there are a lot of different issues that get brought to bear in these couples conversations and a lot of times we're not aware of them so i spoke to a couple and they both were earning about 150 k each so they're a high earning couple no kids and he had decided as he put it he said i'm the man of the house and so he was paying for everything so i said to him even though she's making the same correct that's interesting very interesting so i said and he's young they're both young i said what does man of the house mean to you okay and he stop he'd never thought about it he said well i guess it means you know providing financially for my family and yeah that's it i said okay man of the house means you provide financially okay and then i asked his partner what do you think about this she goes i want to contribute i make basically the same amount i've tried to he won't let me and now he's anxious about money because every month he's in the red so let's get this he created a scenario that he now has to live in where because he's the quote man of the house he's got to pay for everything he can't afford to and so each month he's going red and now he's really anxious about money so okay what's the obvious solution it's for them to uh you know have a joint expense break it down she contributes basically equally to what he does that's the easy part that's what most people think okay done were they married or dating um i believe they were married they had a mortgage together yeah but the more complicated thing which we talk about in this episode that's on my podcast is how did you get there why did you think that you have to be the quote man of the house where'd that come from so what we unwind it and i ask him a lot of questions guess what he tells me he goes his parents were immigrants they didn't speak very good english he said that he had to help deal with the collection calls that were coming in because his dad would overspend i asked him what age he was dealing with collection agencies you know he told me elementary school whoa so since elementary school he's been fielding off these collectors he sees money as a series of problems he has to fix no joy there's no joy in money for him i asked him you know would when you go on a trip would you ever stay at a place that's a little bit nicer he goes why would i i can stay at like basically a motel 6. this guy has a substantial asset base so does she and i find that heartbreaking you know they're both working so hard they're very diligent they spend less than 11 percent on their mortgage and there's no joy so she wanted to go on a trip and we worked and worked and finally he agreed to let her take the lead on it when you listen to this episode you realize it's not just the math and the spreadsheet that's the first temptation is well they should just split their assets and expenses okay that's easy it's really saying how did we come to thinking about money like this how did you grow up with it when you describe money is it a sense of joy or purpose or is it something i'm scared of and anxious of these are the things that nobody really talks about because you have to know money and psychology at the same time man that is really interesting when lisa and i first got together i definitely wanted to i wouldn't have said be the man of the house but i liked that i was able to make enough that i could take care of both of us i mean we were dirt poor but at least we had a roof over our heads and you know as she became more interested in business and like really got into it it's a really big transition like if you come in with a certain mindset it's going to be hard to shift but she in the beginning anyway couldn't work i don't if she were making money i never would have said oh i'm gonna still pay for everything and be stressed the out all the time wow so do you think just hypothetically you would have had a conversation or a series of conversations how do you think that transition would yeah well so one i can tell you what we did is so we'd been married for about eight years when she stepped into a true entrepreneur role um and it was very difficult because it went from she would facilitate my entire life so she set my clothes out she made my food she like paid the bills she just made sure that i didn't have to think about anything other than building a business yeah and that was extraordinary i cherish that gift more than you can imagine and so when she stepped into being an entrepreneur she very quickly realized i cannot do both this isn't fun and so she was just like look i'm not going to be able to keep taking care of this stuff for you and she put like a timeline i don't remember how long but like for the next month i'll still help but hey at the end of that like you're really gonna have to deal with all this stuff on your own yeah and there was friction in the marriage through that moment like really changing roles changing like what this dynamic is going to be but we're very communicative and i have very strong rules in my life and so one of my rules around my wife is that i only do things that elevate her so i don't shut her down i don't make her feel less than so it was like if she wants to be an entrepreneur first of all she's quite good at it and by the time she made that decision it's pretty apparent she's got some skills on it so i just said look by my own code of ethics like i want you to live whatever life you want to live and to become like the most joyful powerful version of yourself and so if this is direction you want to go in then you know we'll figure this stuff out but then i also put limits on it and said look i don't mind you not cleaning anymore but don't expect me to clean so we'll create areas and if it's a common area i will do my half of it you do your half but there are going to be areas that are mine and they're going to be as messy as i want them and as long as you never come give me a hard time about my own areas and i never you up in common areas then i will expect that we are fine yeah and so that was stuff where i think for a while there was friction there for her where it was like well i don't like that your part of the closet is messy and i'm like hey homie like i we both have to come to a shared understanding of you know what works for you and what works for me so so many things i heard in that example thanks for sharing that i didn't know that but i think every couple has gone through some sort of financial series of conversations not as elegantly as you did honestly i think the things that i hear are one there was a pivotal moment where something changed at least i decided to become an entrepreneur two it caused some pain it had to cause pain in order for you to make a change three you sat down and had a series of conversations doesn't sound like it was just one no no no yeah it was probably months or even years of conversation same as my wife and i have continued to have um and then for you came up with some agreements you mentioned that you have a rule for for how you relate to your wife i love when people have rules for their life i don't even have to agree with them but when they tell me you know i have four rules for parenting or three rules for eating in my case i have ramit's ten money rules that shows that someone has a really thought about it and by the way i love that you elevate your wife i think that's i think that's awesome so lots of examples in there that i would love for others to learn from and this is some of the stuff we talk about on the podcast which is when when partners think about money the way that they usually relate to it is they know something that they disagree about they try to band-aid over it paper over it until it blows up and then they try to basically extinguish the fire and then they just go back to living life the way they were and it works it works for a while many of us have parents or relatives that have been fighting the same fight for 50 years but i don't really think that's a joyful way to live with money i think that when you and your partner in your case you and your wife are financially aligned then instead of you know i'm a spender she's a saver or vice versa you're both rowing in the same direction and life becomes way more fun you can live the kind of life you want you can have a beautiful house take eat it the places you want spend money in the way you like that is a really joyful way to use money to live your life so after you have the rich life definition and you've got one person is a spender and one's a saver how do you help them so separate spending accounts sounds like one thing well i again i spend 70 percent of the time listening to their story i want to first understand it they don't even understand their own story most people are behaving a certain way about finances and when you ask them why do you do that they actually have no idea and in less than 10 minutes we can trace it back to something they learned in college or as a child and they go oh my god for example i had uh i spoke to a young woman who um was obsessed with buying a house she was obsessed in america real estate is religion a lot of us believe gotta buy a house it's the best investment ever that's not true but i started probing her how come and first of all i said what kind of house you want to buy she lights up this is in new york she goes um i want to have an apartment on the upper east side two bedrooms she had the whole thing lay down her head great and i said you know tell me more what do you want to do with your money she said well i want to be able to go out i want to eat travel et cetera so i the house thing really interested me because she was so deep on what type of house she wanted and she felt frustrated because she couldn't afford it i asked her why it turns out that she she grew up fairly upper class and in high school during the recession her dad lost everything and they lost their house so what do you think a house represents to her safety security and so she was sacrificing all kinds of things she could have been doing today so that she could buy a house and when i asked her why do you want a house she didn't even connect that with safety now that she understood that she said oh my gosh now i can make better financial decisions i can save and project exactly when i'm going to get a house i don't need a two-bedroom i could have a one-bedroom it's fine so i spend time unpacking their story and often almost always you find that there's some way they're behaving that when it's pointed out to them they go oh my god i never realized that yeah the story of money right there yeah dude i could talk to you about this stuff all day so the new podcast where can people find it what's it called it's called i will teach you to be rich with ramit sethi and you can find it on apple spotify any podcast place and i think you will love to hear these stories because i mean we've never none of us have ever been given permission to sit in a room and hear a couple talk about their money disagreements share the amount they have and i have people on the show who have thirty thousand dollar incomes i have people who have over eight million dollars in net worth and they're sharing everything so it's an opportunity to listen and see what others are doing and then reflect on how you think about money in your relationships word dude i'm so glad you're doing that like your content is fantastic thank you so much again for coming on guys when it comes to money i'm telling you i have talked to some of the most famous people in the space of finance and there are a few people that can ground it the way that he can in terms of what you should do right now today and speaking from experience like this applies no matter what your net worth so uh take his advice put it to action i know i'm going to be it took me three three times but we have three episodes now so make sure that you watch all three and speaking of things you should do immediately to improve your life if you haven't already be sure to subscribe and until next time my friends be legendary take care peace it's so important to be to be really incorporating your own psychology when you think about money and part of that is what do i want where did i get these beliefs from whether it's a movie or a family friend and then what can i do today to start moving along and developing my rich life

Channel: Tom Bilyeu

Views: 349,729

Keywords: Tom Bilyeu, Impact Theory, ImpactTheory, TomBilyeu, Inside Quest, InsideQuest, Tom Bilyou, Theory Impact, motivation, inspiration, talk show, motivational speech, Ramit Sethi, Live Your Rich Life, income, how to become rich, how to build wealth, finance, personal finance advice, rich life, financial expert, investment strategy, crypto, cryptocurrency, talk about money, married couple finances, automating finances, Vanguard, Vanguard Funds, target date funds, Robinhood, wallstreet

Id: uSgY_PxL_Zo

Length: 57min 48sec (3468 seconds)

Published: Tue Aug 03 2021