I Will Teach You to Be Rich – Ramit Sethi

All the notes were taken directly from the source mentioned.

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Invisible scripts are the messages you’ve absorbed from your parents and society that guide your decisions for decades and often without even being aware of it.

We either ignore it and feel guilty, or we obsess over financial details by arguing interest rates and geopolitical risks without taking action.

We need to set up accounts at solid banks, automate our day-to-day money management (including bills, savings, and, if applicable, debt payoff). We need to know about a few things to invest in, and then we need to let our money grow for thirty years.

Where do you start? Are you already too late? What do you do? Too often, the answer is nothing and doing nothing is the worst choice you can make.

investing early is the best thing you can do.

For example, if you start off with two parents and you graduate from college, you’re already luckier than most people on this planet.

I’ve found it’s a lot more fun to be the captain of my own ship, even if I go off course sometimes.

CEO Method: Cut costs, Earn more, and Optimize your existing spending.

Be better than average. The truth is, you likely can’t beat average returns. In fact, average 8 percent returns are actually very good.

What if you could build an automatic infrastructure that made all your accounts work together and automated your savings? What if you could invest simply and regularly without fear?

I believe in small steps. I want to reduce the number of choices that paralyze us.

So instead of saying, “How much money do I need to make?” you’ll say, “What do I want to do with my life and how can I use money to do it?”

Getting started is more important than becoming an expert.

Instead, it’s about being able to actually spend more on the things you love by not spending money on all the knucklehead things you don’t care about.

Pick your financial system and move on with your life, which means not living in the spreadsheet, or obsessing over every tiny change in your spending and in the market.

Why do you want to be rich? What does being rich mean to you? Most people never spend even ten minutes thinking through what rich means to them.

“Help my parents with their retirement, so they don’t have to work if they don’t want to”

Every December, I sit down with my wife and we get intentional about the next year. Where do we want to travel? Who do we want to invite with us? What can we imagine doing in the next year that we’ll remember for the next fifty years? This planning process where we get to intentionally design our Rich Livesis one of the most fun things we do together as a couple.

Get the Big Wins right and you can order as many lattes as you want.

So many people seek out high-level answers to avoid the real, hard work of improving step by step.

Sometimes the most advanced thing you can do is the basics, consistently.

It sounds sexy, but when individual investors talk about complicated concepts like this, it’s like two elementary school tennis players arguing about the string tension of their racquets. Sure, it might matter a little, but they’d be much better tennis players if they just went outside and hit some balls for a few hours each day.

It’s not worth negotiating everything, but there are a few areas of life where negotiation is a Big Win.

The truth about credit cards lies somewhere between these two extremes. As long as you manage them well, they’re worth having.

Establishing good credit is the first step in building an infrastructure for getting rich.

Your credit report gives potential lenders basic information about you, your accounts, and your payment history.

Your credit score (often called your FICO score because it was created by the Fair Isaac Corporation) is a single, easy-to-read number between 300 and 850 that represents your credit risk to lenders.

Once a year, by law, you’re allowed to obtain your credit report for free at annualcreditreport.com.

Lots of people use Credit Karma (creditkarma.com) to get a free credit score, but I prefer the official credit score from MyFico (myfico.com), which is more accurate even though it has a small fee.

Good credit score can save you hundreds of thousands of dollars in interest charges.

Look at the differences in what you’d pay for a 30-year mortgage based on your credit score. As you can see, a high credit score can save you tens of thousands of dollars over your lifetime

(For more on maximizing travel rewards, look up forums on credit card churning.)

Once you decide on the primary reward you want, use a site like bankrate.com to sort through your options.

Most of the best rewards cards have fees. Are they worth it? You should run the numbers to decide,

You wouldn’t marry the first person who touched your elbow. Why would you sign up for a retail store card that has high fees, near-extortionate interest rates, and terrible rewards?

Two or three is a good rule of thumb.

If you’re booking travel or eating out, use a travel card to maximize rewards. For everything else, use a cash back card.

The card I use for travel and eating out is the Chase Sapphire Reserve. For everything else, I use an Alliant cash back card. And for business, I use a Capital One cash back business card. For extra benefits, I have an Amex Platinum card.

One of the most important factors is getting out of debt,

Pay off your credit card regularly.

They might be thrilled after saving $10and they can brag to everyone about all the special deals they get but you’ll quietly save thousands by understanding the invisible importance of credit, paying your bills on time, and having a better credit score.

Pay their credit card bills online, but if you haven’t set up automatic payment yet, log on to your credit card’s website to do so now.

if you haven’t set up automatic payment yet, log on to your credit card’s website to do so now.

If you miss even one payment on your credit card, here are four terrible, horrible, no good, very bad results you may face: 1. Your credit score can drop more than 100 points, which would add $227/month to an average 30-year fixed-rate mortgage. 2. Your APR can go up to 30 percent. 3. You’ll be charged a late fee, usually around $35. 4. Your late payment can trigger rate increases on your other credit cards as well, even if you’ve never been late on them.

Try to get fees on your cards waived.

They waive your fees, great! If not, switch to a no-fee card.

If they waive your fees, great! If not, switch to a no-fee card. I suggest you do this at the same credit card company to simplify your life and so you don’t have to close one account and open another, which will temporarily affect your credit score.

Negotiate a lower APR.

If they ask why, tell them you’ve been paying your bill in full on time for the last few months, and you know there are a number of credit cards offering better rates than you’re currently getting.

Keep your main cards for a long time, and keep them active but also keep them simple.

The typical advice is to keep cards open for as long as possible, which is generally smart. But if you have lots of cards that you never use, reconsider this.

Script:

YOU: Hi, I noticed I missed a payment, and I wanted to confirm that this won’t affect my credit score.

CREDIT CARD REP: Let me check on that. No, the late fee will be applied, but it won’t affect your credit score. (Note: If you pay within a few days of your missed bill, it usually won’t be reported to the credit agencies. But ask to be sure.)

YOU: Thank you! I’m really happy to hear that. Now, about that fee… I understand I was late, but I’d like to have it waived.

CREDIT CARD REP: Why?

YOU: It was a mistake. It won’t happen again, so I’d like to have the fee removed.

Always end your sentence with strength. Don’t say, Can you remove this? Say, I’d like to have this removed.)

YOU: I’m sorry, but I’ve been a customer for four years and I’d hate for this one fee to drive me away from your service. What can you do to remove the late fee?

Get more credit.

Getting more credit to improve something called your credit utilization rate,

Lower is preferred because lenders don’t want you regularly spending all the money you have available through creditit’s

There are lots of tips for people who have very good credit. If you fall in this category, you should call your credit cards and lenders once a year to ask them what advantages you’re eligible for.

Call them up and use this line: Hi there. I checked my credit and noticed that I have a 750 credit score, which is pretty good. I’ve been a customer of yours for the last four years, so I’m wondering what special promotions and offers you have for me… I’m thinking of fee waivers and special offers that you use for customer retention.

Car rental insurance: If you rent a car, don’t let them sell you on getting the extra collision insurance. It’s completely worthless!

When I call to dispute anything, I open a spreadsheet that details the last time I called them, whom I spoke with, and what was resolved.

Whenever you make a call regarding a dispute on your bill, you wouldn’t believe how powerful it is to refer back to the last time you called citing the rep’s name, the date of the conversation, and your call notes.

Think ahead before closing accounts. If you’re applying for a major loan for a car, home, or education don’t close any accounts within six months of filing the loan application.

I called my credit card company and told them I wanted to dispute a charge. They said, Sure, what’s your address and what’s the amount? When I told them about my experience with the cell phone company, they instantly gave me a temporary credit for the amount and told me to mail in a form with my complaint, which I did.

Dr. Brad Klontz (yourmentalwealth.com), a professor in financial psychology, coined the term invisible money scripts to describe typically unconscious, trans-generational beliefs about money that are developed in childhood and drive your behavior today.

I want to encourage you to put at least $50 more each month toward any debt you have. Not only is it a psychological victory to know that you’re consciously working to pay off your debt, but you’ll also be able to focus on investing sooner.

The key to using credit cards effectively is to pay off your credit card in full every month.

Pay Your Debt Off Aggressively

Bottom line: Always pay more than the minimum on your credit card debt.

You can’t make a plan to pay off your debt until you know exactly how much you owe.

In the standard method, you pay the minimums on all cards, but pay more money to the card with the highest APR, because it’s costing you the most. In the Dave Ramsey snowball method, you pay the minimums on all cards, but pay more money to the card with the lowest balance first the one that will allow you to pay it off first.

Negotiate down the APR.

YOU: I’ve decided to be more aggressive about paying off my debt, and that’s why I’d like a lower APR. Other cards are offering me rates at half of what you’re offering. Can you lower my rate by 50 percent, or only 40 percent?

Like I mentioned, other credit cards are offering me zero percent introductory rates for twelve months, as well as APRs of half what you’re offering. I’ve been a customer for X years, and I’d prefer not to switch my balance over to a low-interest card. Can you match the other credit card rates, or can you go lower?

You’d be surprised that many people don’t even have to cut much spending to pay off debt quickly.

paying off debt just takes a plan and the patience to execute it.

Fundamentally, banks earn money by lending the money you deposit to other people. For example, if you deposit $1,000, a Big Bank pays you a small amount in interest to hold on to that money, then turns around and lends it out at a much higher percent for a home loan.

Think of savings accounts as places for short-term (one month) to mid-term savings (five years).

Stop focusing on picking up pennies and instead focus on the Big Wins to craft your Rich Life.

Checking accounts are built for frequent withdrawals:

Savings account is really a goals account, where every dollar is assigned to a specific item you’re saving up for, like a house, a vacation, or an emergency fund.

Opening accounts at two separate institutions: a no-fee checking account at your local bank and a high-yield online savings account.

For cash expenses, I use the Schwab ATM card to withdraw money at any ATM nationwide.

Use my Capital One 360 account as a receiver, not a sender:

Schwab Bank Investor Checking with Schwab One Brokerage Account

Capital One 360 Savings

It lets you create virtual sub-savings accounts,

You can also set up automatic transfers to other accounts (Transfer $100 on the 1st of every month from my checking account to my savings account, and send $20 to my investment account on the 5th of every month).

REQUIRING MINIMUM BALANCES to get free services like checking and bill paying. No, I’m not going to agree to a minimum amount. I’ll just go somewhere else.

You shouldn’t be paying fees or minimums.

Script:

YOU: Hi. I noticed that my current checking account has fees. I’d like my account to have no annual fees, free checking, and no minimum balance, please.

BANK REP: I’m really sorry, but we don’t offer that kind of account anymore. YOU: Really? That’s interesting, because [competitor] is offering me that exact deal right now. Could you check again and tell me which comparable accounts you offer?

YOU: Hi. I noticed that my current checking account has fees. I’d like my account to have no annual fees, free checking, and no minimum balance, please.

YOU: (Repeat argument from the beginning. If the supervisor doesn’t give you an option, add this:) Look, I’ve been a customer for X years, and I want to find a way to make this work. Plus, I know that your customer-acquisition cost runs hundreds of dollars. What can you do to help me stay a customer?

(I keep about $1,000 in my checking at all times).

Be aggressive in threatening to leave if they don’t switch you.

Open an online high-interest savings account (three hours).

Open an online high-interest savings account

Optional: Open an online checking account

Fund your online savings account

Leave one and a half months of living expenses in your checking account, or as close to it as you can manage. (The little extra prevents overdrafts as you’re getting used to transferring money between accounts.

Over the twentieth century, the average annual stock market return was 11 percent, minus 3 percent for inflation, giving us 8 percent.

(Long-term investors should love when the market drops: You can buy more shares for the same price.)

Remember, knowing how to invest isn’t obvious. And that’s the problem. When it comes to money, it’s actually very easy to end up like most other people: You just… do nothing.

If you don’t want to learn how money works, nothing I can tell you will help.

They collected their significant wealth through controlling their spending, regular investing, and, in some cases, entrepreneurship.

The real problem, and the solution, is you. Your psychology, your emotions, your invisible scripts… all of it.

The real problem, and the solution, is you. Your psychology, your emotions, your invisible scripts… all of it. Without understanding why you behave the way you do with money and deciding why you want to change any information

Rung 1: If your employer offers a 401(k) match, invest to take full advantage of it and contribute just enough to get 100 percent of the match.

Rung 3: Open up a Roth IRA

For current contribution limits, search for Roth IRA contribution limits.)

Rung 5: HSA: If you have access to a Health Savings Account (HSA),

Rung 6: If you still have money left to invest, open a regular non-retirement (taxable) investment account and put as much as possible there.

Also, pay extra on any mortgage debt you have, and consider investing in yourself: Whether it’s starting a company or getting an additional degree, there’s often no better investment than your own career.

It’s a retirement account because it gives you large tax advantages if you agree not to withdraw your money from the account until you reach the retirement age of 59Â½. (You don’t actually have to start withdrawing your money until you’re 70Â½ years old,

A 401(k) is different. It’s tax-deferred, meaning you can invest the entire $100 and let it grow for about thirty-plus years. Sure, you’ll pay taxes when you withdraw your money later, but that extra 25 percent turns out to make a huge difference as it gets compounded more and more.

If you withdraw money before you’re 591/2 years old, you incur severe penalties, including income taxes and an early-withdrawal penalty of 10 percent.

There are allowances for hardship withdrawals, including paying medical expenses, buying a primary residence, paying educational costs, and the like.

What about a Roth 401(k)? Some companies now offer a Roth 401(k), which allows you to contribute after-tax money to a 401(k) instead of pre-tax money like a traditional 401(k). Why would you do this? If you expect your tax rates to be higher later in life, a Roth 401(k) is a great option for you. Two unexpected benefits here: If you use a Roth 401(k), there are no income restrictions, so if you earn too much to contribute to a Roth IRA, a Roth 401(k) is a great way to get after-tax benefits.

Roth IRA is another type of retirement account with significant tax advantages. It’s not employer sponsoredyou contribute money on your own. Every person in their twenties should have a Roth IRA, even if you’re also contributing to a 401(k).

Whereas a 401(k) has an array of funds that you must choose from, a Roth IRA lets you invest in anything you want: index funds, individual stocks, anything. A second difference has to do with taxes: Remember how your 401(k) uses pre-tax dollars and you pay taxes only when you withdraw money at retirement? Well, a Roth IRA uses after-tax dollars to give you an even better deal. With a Roth, you invest already-taxed income and you don’t pay any tax when you withdraw it.

In a Roth IRA, you pay taxes on the amounts you contribute, but not the earnings.

Treat a Roth IRA as a long-term investment vehicle, and you’re penalized if you withdraw your earnings before you’re 591/2 years old.

As with a 401(k), you’re expected to treat a Roth IRA as a long-term investment vehicle, and you’re penalized if you withdraw your earnings before you’re 591/2 years old. Notice that I said earnings. Most people don’t know this, but you can withdraw your principal (the amount you actually invested from your pocket) penalty-free. There are also exceptions for down payments on a home, funding education for you or your partner/children/grandchildren, and some other emergency reasons.

You qualify for these exceptions only if your Roth IRA has been open for five years or more.

You’re allowed to invest in your Roth IRA is $5,500 a year, but you can find the most current amount by searching Roth IRA contribution limits.

Contributing as much as possible is almost as important as starting early.

Every dollar you invest now is worth much, much more later.

I use a password-management tool called LastPass.

Tax-loss harvestingwhich is basically selling an investment that’s down to offset tax gains

I believe Vanguard has the edge, and I invest through them.

If you didn’t set up automatic contributions, do so now, even if it’s just $50/month. It’s a good habit to get into and will help you accrue any necessary minimum.

So far, you have only invested enough to get your employer match, so you likely still have the ability to invest more in a 401(k) and reap the huge tax benefits. Cool thing to note: Your employer match isn’t counted toward your contribution limit, so if you contribute $5,000 and your employer matches $5,000, you can still contribute another $14,000 for a total of $24,000 annually in your 401(k).

HSAs let you set aside pre-tax money to pay for qualified medical expenses, including deductibles, copayments, coinsurance, and some other health-related expenses.

The truth is that an HSA can be an incredibly powerful investment account because you can contribute tax-free money, take a tax deduction, and then grow it tax-free.

Before you get excited about investing through your HSA, you should find out if you’re even eligible. If not, don’t waste your timeskip this section

Cutting costs mercilessly on the things you don’t love, but spending extravagantly on the things you do.

Everybody talks about how to save money, but nobody teaches you how to spend it.

Your friends’ spending directly affects yours.

Conscious spending means you decide exactly where you’re going to spend your money for going out, for saving, for investing, for rent and you free yourself from feeling guilty about your spending.

In reality, the 2010 study by Deaton and Kahneman found that emotional well-being peaks at $75,000. But if you take another measure, life satisfaction, you find no plateau, not at $75,000, or $500,000, or even $1 million.

Instead of getting caught on a spending treadmill of new phones, new cars, new vacations, and new everything, they plan to spend on what’s important to them and save on the rest.

You could wave a magic wand and divide that pie into the things you need and want to spend your money on, what would it look like?

A Conscious Spending Plan involves four major buckets where your money will go: fixed costs, investments, savings, and guilt-free spending money.

A good rule of thumb is that fixed costs should be 50 to 60 percent of your take-home pay.

A good rule of thumb is to invest 10 percent of your take-home pay

the 85 Percent Solution, which focuses on getting most of the way there until it’s good enoughrather than obsessing about achieving 100 percent, getting overwhelmed,

Gifts for friends and family.

The average wedding costs over $30,000and

A good rule of thumb here is to use 20 percent to 35 percent of your take-home income for guilt-free spending money.

You can do an 80/20 analysis, which often reveals that 80 percent of what you overspend is used toward only 20 percent of your expenditures. That’s why I prefer to focus on one or two big problem areas and solve those instead of trying to cut 5 percent out of a bunch of smaller areas.

I’m often asked what tools I use to manage my finances. The simplest way to start is to use Mint (mint.com), which will automatically sync with your credit card and banks to categorize your spending and show you trends.

To get more prescriptive about your spending, I recommend using a piece of software called You Need a Budget (youneedabudget.com) or YNAB

Some people use Personal Capital (personalcapital.com) but I just use my Vanguard account. Every major brokerage account lets you add outside investments for a unified view.

And… then what? If you can’t keep it up and you bounce right back to your normal spending habits, what did you really accomplish?

If you have free time at home, you can sign up to be a virtual assistant on sites like upwork.com.

if you know you’ll have to spend about $500 on Christmas gifts, start saving $42/month (that’s $500 divided by twelve months) in January.

I see beauty in systems, like the one I lovingly built to apply to sixty-five scholarships and pay my way through undergrad and grad school at Stanford. Or the system I built to read two thousand emails a day, or to make sure my plants get watered when I go on vacation.

I plan to do less and less work as I go through my life.

Sure, setting up an Automatic Money Flow will take you a few hours. It would be easier to do nothingbut that would mean you’d have to manage your money constantly for the rest of your life.

The key to taking action is, quite simply, making your decisions automatic. You think you’ll actually do the work each week? No, you won’t.

Fixed costs Rent, utilities, debt, etc… 5060% of take-home pay.. Investments 401(k), Roth IRA, etc… 10%.. Savings goals Vacations, gifts, house down payment, cash for unexpected expenses, etc… 510%.. Guilt-free spending money Dining out, drinking, movies, clothes, shoes, etc.Â

The money that remains in her account is used for guilt-free spending money. She knows that no matter what, she’s already hit her savings and investing goals before she spends a cent of her guilt-free money so she can truly enjoy buying what she wants.

She knows from her spending trend that she tends to spend $100 a month in cash on coffee and tips, so she includes that in her guilt-free spending. No tracking receipts or manually entering data.

In the middle of the month, Michelle’s calendar reminds her to check her financial software to make sure she’s within her limits for her spending money. If she’s doing fine, she gets on with her life. If she’s over her limit, she decides what she needs to cut back on to stay on track for the month.

I only have a little money to start with. It doesn’t seem worth it... Start now and build the habit. As your income increases, your habits will be aligned and your system will automatically grow with you. Â

As I mentioned, I use a LastPass account to securely store all of this information.

Add a savings goal of three months of bare-bones income before you do any investing. For example, if you need at least $3,500/month to live on, you’ll need to have $10,500 in a savings buffer, which you can use to smooth out months where you don’t generate much income. The buffer should exist as a sub-account in your savings account.

(To go the extra mile, work toward a six-month emergency fund.)

look into a Solo 401(k) and SEP-IRA, which are great alternatives.

One final note on taxes: As a freelancer, you’re responsible for your self-employment tax,

As a rule of thumb, you should set aside 40 percent of your income for taxes. Some people save 30 percent, but I prefer to be conservative: It’s better to end up over saving than owing money at the end of the year.

I also recommend using You Need a Budget as a planning tool if you have an irregular income.

you can tell a lot about your own values by where your money goes.

You can have the fanciest degrees from the fanciest schools, but if you can’t perform what you were hired to do, your expertise is meaningless.

Here are three money columnists and one forum that I love. MORGAN HOUSEL writes one of the most interesting blogs on psychology and money out there.

DAN SOLIN, author of a number of great investing books, writes a terrific newsletter where he names names and calls out the BS of the investing industry.

RON LIEBER writes the Your Money column for the New York Times.

Finally, I love the BOGLEHEADS FORUM,

Some companies call them target date funds, while others call them target retirement or lifecycle funds. They’re all the same thing. Some companies require you to invest a minimum amount usually $1,000 to $3,000but that fee can often be waived if you agree to automatic investing, which you should.

Divide the number 72 by the return rate you’re getting, and you’ll have the number of years you must invest in order to double your money. (For the math geeks among us, here’s the equation: 72 Ã· return rate = number of years.) For example, if you’re getting a 10 percent return rate from an index fund, it would take you a little more than seven years (72 divided by 10) to double your money.

The first thing you want to do when picking index funds is to minimize fees. Look for the management fees (expense ratios) to be low, around 0.2 percent, and you’ll be fine.

The first thing you want to do when picking index funds is to minimize fees. Look for the management fees (expense ratios) to be low, around 0.2 percent, and you’ll be fine. Most of the index funds at Vanguard, T. Rowe Price, and Fidelity offer excellent value.

I log in to Vanguard and I can see what percentage of my portfolio is in equities vs. bonds or international vs. domestic. You can do the same for any fund you’re considering. (Every major investment company offers this. If yours doesn’t, use the online site Personal Capital.)

Dollar-cost averaging is a phrase that refers to investing regular amounts over time,

If you have a big pile of money to invest, what’s the better option: Dollar-cost averaging it or investing the entire lump sum all at once? The answer might surprise you. Vanguard research found that lump-sum investing actually beats dollar-cost averaging two-thirds of the time. Because the market tends to go up and stocks and bonds tend to outperform cash, investing all at once produces higher returns in most situations. But and there are several but this isn’t true if the market is going down.

Finally, if you opt for investing in your own index funds, you’ll have to rebalance about once a year, which will keep your funds in line with your target asset allocation.

There are many different investments besides stocks, bonds, and index and target date funds. You can invest in precious metals, real estate, private startups, cryptocurrency, or even art; just don’t expect very good returns. And despite all my dire warnings, you can also buy a couple of individual stocks in companies you really like.

home is their biggest investment, and yet, as investments go, your primary residence is not a very good one for individual investors. Why? Because the returns are generally poor, especially when you factor in costs like maintenance and property taxes which renters don’t pay for, but homeowners do.

I set aside about 10 percent of my portfolio for fun money,

Research funds using a fund screener like the one at Vanguard (search Vanguard fund screener).

Once the money is ready and has been transferred to your investment account, log in to your account, enter the ticker symbol, and you’re finished. If you’re buying individual index funds, you’ll usually need to buy one at a time and set up savings accounts for the others.

I also see the dark side of blindly following the idea of being the best without reflecting on why you’re working so hard.

Why do you want more? the common answers are freedom or security. Those are fine, but I want to challenge you to go deeper. The problem is that high-level, vague visions never motivate us as much as we’d hope.

Why do you want to earn the next $1,000 or $10,000 or $25,000? Don’t worry about an answer that’s in the clouds. Get brutally honest and bring your answer down to the street.

If you want to FIRE (become Financially Independent and Retire Early) in fifteen years, you know to double down and save/invest aggressively.

Because compounding works so effectively, the more you save now, the more you’ll have later

When you have a diversified portfolio, some of your investments, such as international stocks, will outperform others. To keep your asset allocation on track, you’ll want to rebalance once a year so your international stocks don’t become a larger part of your portfolio than you intended.

The best way to rebalance is to plow more money into the other areas until your asset allocation is back on track.

Don’t forget to set a calendar reminder to resume your automatic payments for the asset class you paused once your portfolio is rebalanced.

I’m happy to pay my taxes. I take advantage of every legal tax advantage I have, like using tax-advantaged accounts, but I know that my taxes contribute to an overall system of stability. I also know that I can always earn more, so I don’t use taxes as the primary factor in my decisions.

Because retirement accounts are tax advantaged, you’ll enjoy significant rewards. Your 401(k) money won’t be taxed until you withdraw it many years down the line, and your Roth IRA earnings won’t be taxed at all.

Every year, I spend a few hours re-reviewing my system and making any changes necessary.

The government has created incentives for long-term investing: If you sell an investment that you’ve held for less than a year, you’ll be subject to ordinary income tax, which is usually 25 to 35 percent.

Since you presumably made a good investment, why not hold it for the long term?

When you’re young, there are only three reasons to sell an investment: You need the money for an emergency, you made a terrible investment and it’s consistently underperforming the market, or you’ve achieved your specific goal for investing.

What’s next? My answer: Just ask people five to ten years older than you what they wish they had started earlier, then do that.

CREATE AN EMERGENCY FUND.

Eventually, your emergency fund should contain six to twelve months of spending money

2. INSURANCE. As you get older and more crotchety, you’ll want more and more types of insurance to protect yourself from loss.

Just as Roth IRAs are great retirement accounts, 529 educational savings plans with significant tax advantages are great for children’s education.

Ramit, you might say frantically, this stock sucks! I need to sell it before I lose all my money! Not so fast. You have to look at the context before you decide what to do. For instance, if the example is a consumer goods stock, how is the rest of the consumer goods industry doing? By looking at the stock and the surrounding industry, you see that the entire industry is in decline. It’s not your particular investment. They’re all doing poorly.

I want to emphasize that I almost never have to sell investments, because I rarely make specific stock investments.

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Thanks for reading. Did you like the content you just read? You can help me spread these ideas by sharing this blog post through your social media channels or sending it as a direct message to your friends.

“Everybody is a genius. but if you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid” – – Albert Einstein

I Will Teach You to Be Rich – Ramit Sethi

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“Happiness is equal to or greater than your perception of the events of your life minus your expectations of how life should behave”

Mo Gawdat