Ramit Sethi will teach you to be rich – 4 links to wealth: negotiate, automate, cut costs & earn more

Ramit Sethi is my favorite financial blogger and advice-giver for the ‘basics’ (which can still be complicated) of personal finance: spending, saving and earning income.  He recently railed against those who worry about things that they can’t control, yet fail to do the simple steps that will really matter.

His quoted question below to these people (and everyone else who needs to take control of their money) have 4 excellent starting points (links) for personal financial freedom.  Check out each of these and apply them to your financial life.

“Have you negotiated? Automated? Earned more? Taken the 30-day challenge to save $1,000?”

Negotiation

Ramit stresses the importance of negotiating all things financial, from credit card interest rates, getting out of bank fees, to your next salary raise.

Automation

The best way to save is to automate the process so that no active effort is required on your part.  This can be anything from setting up direct deposits on your paycheck (most employers allow you to split the check into multiple accounts, the better to target your savings goals), having 401k deductions come out of your check, or using Vanguard (or whoever your mutual fund provider is) to invest money from your bank account on a regular schedule.  (If you already have a Vanguard account, go here.  If you need to set up a Roth IRA or other financial account, go here.)

Earn More

Expenses are only half of the financial coin of savings.  Earning a healthy salary is also a big help along the road to wealth.  Here’s a few ideas on how to make more money:

Get an education (academic or vocational, formal or informal) that increases the worth of what you know, and your ability to apply that knowledge and make money (or other benefits) from it.

Ask for a raise at work.

Start your own business on the side, or find a part-time or freelance job that you can do in your spare time.  (Make it something you enjoy and that energizes you, otherwise it’ll be hard to force yourself to do it given your other work/life commitments.)

Save Money – Enter Ramit’s ’30 day challenge’

Ramit put together a fantastically useful list of 30 tips (described in each of the links below) to save money.  These aren’t the typical ‘stop buying lattes’ ideas generated on so many financial blogs.  Instead, they’re likely to save you big bucks without taking away the things that you really enjoy in life.

While I’ve copied Ramit’s entire list below (with his links for the details of each tip), his original post can be found here.

Full list of Ramit Sethi’s tips from iwillteachyoutoberich.com
Tip #1: Pack lunches for the rest of the week
Tip #2: Turn your thermostat down 3 degrees
Tip #3: Sell something on eBay today
Tip #4: Involve your friends in your savings challenge
Tip #5: Optimize your cellphone bill
Tip #6: Use gas prices to become your own hedge fund
Tip #7: Create a “No Spending” day once a week
Tip #8: Implement the A La Carte Method
Tip #9: Only buy new things when replacing something old
Tip #10: Use the free rewards from your credit card, car insurance, and workplace
Tip #11: Never pay full retail price for clothes or eyeglasses again
Tip #12: How I’m saving $2,000+ on eating out in 2009
Tip #13: How to negotiate your car insurance
Tip #14: Use self-persuasion to share how much you’ve saved so far
Tip #15: Forget going to a bar — ask people over for dinner
Tip #16: Cancel any large purchase this month
Tip #17: Buy generic for the stuff you don’t care about
Tip #18: No Christmas gifts this year
Tip #19: Save Money, Eat Well and Look Hot in Less Than an Hour
Tip #20: Change the date of Christmas
Tip #21: Save thousands by pre-paying your debt
Tip #22: Analyze your progress in the 30 Day Challenge (plus, see how I’m doing)
Tip #23: Go cash only for 15 to 30 days
Tip #24: Cut your commute expenses by 40%
Tip #25: Earn more money using your God-given skills
Tip #26: Gardender? Cleaning lady? DIY instead
Tip #27: Use barriers to prevent yourself from spending money
Tip #28: Use price-protection guarantees to always get the lowest price (travel, retail)
Tip #29: Stop being a loser and spend money to save money
Tip #30: How I’m saving $25,000+ in 2009

 

10 tips on how to get rich from Warren Buffett

Okay, the tips are technically from Buffett’s biographer… as told by Parade magazine.  STILL, it’s a decent list, and as a HUGE Warren Buffett fan, I can’t help but share them.  The original Parade story is HERE.

I’ve copied the 10 items below with my own take on how to make them actionable in your life.

1. Reinvest your profits
This is key.  When your income goes up, invest/save a large portion of that increase (like, 75% of the gross!)  This keeps your lifestyle in check while allowing you to build more wealth.  For youngish people, continuing to basically live like college students after graduating and getting a ‘real’ job is brilliant.  You don’t feel like your neglecting yourself because you’re used to living cheap, and you can get a great start on retirement, saving for a house, paying off debt, etc.

Another corollary to this rule is to do what I call ‘banking windfalls’.  This just means that when you run into unexpected cash (a bonus at work, an inheritance, or a tax refund check), save it or pay off debt, don’t blow it.  To celebrate, treat yourself to something small like a nice dinner out with your significant other rather than immediately take a vacation or buy a big screen TV.  This allows you to feel good while preserving most of the windfall.

2. Be willing to be different

Buffett talks frequently about the importance of having an ‘Inner Scorecard’, “judging yourself by your own standards and not the world’s”.  This is really key to being financially successful (or successful in many other ways) because success by its very definition usually means doing something that the majority of people have not and will not do.

For personal finance, this means saving a large chunk of your income and investing in a smart-yet-unflashy way (hint: stock index funds!)  It also means forgoing what others might think of as ‘normal’ or at least highly desirable: spending a lot of money going out, driving an expensive car, not talking about money, etc.  Instead, take control of your own money by deciding exactly what’s important to you AND what’s not.  You should splurge on things you love, but make it up by cutting costs aggressively on things that are less important to you, and always keep track of how this spending relates to your financial goals.

3. Never suck your thumb
“Thumb-sucking” is Buffett’s phrase for not taking action when you should be.  Personal finance is full of this behavior.  People ignore their debt, investments and other parts of their financial lives because of mental blocks they have dealing with these areas.  Instead, take action on the areas of your personal finance that you know deep down need work.  If you’re not even sure where to start, read through this blog, talk to a friend who you know is on the way to wealth (it may not be who you think; ask for balance sheets as proof 🙂 ), or contact a professional advisor like me who can help you.

4. Spell out the deal before you start
This means always knowing the price, rates, and any other terms of any financial agreement, formal or informal, small or large.  On the small scale, this means simple stuff like knowing how much drinks or that delicious-sounding special on the menu is going to cost you (AFTER factoring tax and tip.)

(A personal aside: I HATE it when waiters rattle off the specials without telling you how much they are!  I suspect this is because 1) they know you’ll feel like a cheapskate if you ask how much they are and 2) they are usually much more expensive than the ‘regular’ items on the menu.  Same thing with bars that don’t list prices next to alcoholic drinks, what the hell is up with that!?  I want to know what beer is going to cost BEFORE I order it damn it!!)

Large scale financial deals require proportionally more caution.  Understand all the terms of any loan, investment (check expense ratios and other fees), credit card, real estate purchase, job offer, insurance, etc that you buy.

For me, the key things to ALWAYS be aware of are 1) Price, 2) Fees, 3) Interest rates/historical rates of return (investment sellers try to trick you here, so be careful accepting what they seem to indicate you should expect), and 4) periods of payment or any timelines associated with getting or giving a good or service.

5. Watch small expenses

I would note that while this is true, pay even more attention to LARGE expenses and small, recurring expenses that add up to large expenses (think, your cable or cell phone bill.)  An extra $50 per month for a cell phone data plan may not sound like a ton, but that’s $600/year, which is roughly $12,000 in present value (a fancy term for adding up all future payments and discounting them back to the present.)   For comparing recurring expenses to one-time purchases, I use a rule of thumb of multiplying the yearly expense by 20.  So, saving $20/month on your heating bill by turning the thermostat down 3 degrees amounts to $240/year or ~$4,800 in present value (assuming you keep it up for the rest of your life.)

Improving your credit score to secure a lower mortgage interest rate in the future will similarly save you dramatic amounts of money in interest payments saved.  Buying a cheaper model of used car vs an expensive used or new car will similarly make a huge difference in your finances.

6. Limit what you borrow
Try to never incur high-interest debt like that associated with credit cards or car loans.  I recommend always paying cash for cars, and never financing a house with less than 20% down.  In both instances this forces you to avoid buying things that cost too much relative to your saving ability, and to keep interest payments low.  Keep lower-interest debt like that associated with student loans and mortgages to the bare minimum too.  You want to have your money making interest for you by investing in stocks and bonds, rather than letting someone else (bank, credit card company) use their money to keep you paying them.

7. Be persistent
Stick to financial goals.  The easiest way to do this is through automatic investing and debt-paying.  Use direct deposit and paycheck withdrawals to fund savings and retirement.  401k plans are great for this.  Set up automatic transfers that take money out of your paycheck BEFORE the rest of it goes into an account for you to spend on discretionary items.  (You’ve probably heard of this rule as ‘pay yourself first’.)

Being persistent also means continuing with a well-thought out plan in the face of adversity.  When the stock market tanked in 2008 and 2009, did you keep you money in there and keep investing?  I and many others did, and it paid huge dividends.

8. Know when to quit

Just like a bad relationship, you need to break off financial deals when they aren’t working.  This might mean giving up smoking to improve your health and wealth, switching to a no-fee credit card or checking account, or moving your money from high-priced, broker-pushed mutual funds or annuities into index funds, perhaps with the help of a no-commission financial advisor.  It could also mean asking for a raise, leaving a job where you’re underpaid (find out if you are here), or getting a new job where you’re paid more.

9. Assess the risks
Know the potential risks of decisions you make.  This does NOT mean avoid risks.  On the contrary, it means taking appropriate risks for your situation.  My entire retirement portfolio is in stocks.  Is this risky?  For me, absolutely not.  I don’t plan to retire for at least 20 – 30 years, so what do I care when the market dives in between this period?  (In fact, I viewed ‘bad markets’ as great opportunities for youngish investors like me to buy more of the market at a cheap price.)  On the other hand, if I was a widow(er) living on a social security and some small personal savings, having ANY amount of money in the stock market might be too risky.

Take risks that you can afford that have large upside and only moderate downside (or downside that can be mediated) given your situation.  When you’re young and living well below your means, you can afford to take more risks to make you even better off.

Just make sure you’re being honest about the upside of your investments and not just abusing the notion of ‘taking risks’ to gamble in negative expectation situations (casino gambling, lotteries, penny stocks, picking individual stocks, etc.)  Even though I’m in an all-st0ck retirement portfolio, that money is safely invested across thousands of companies and in the hands of a secure financial company.

10. Know what success really means

For me, being wealthy doesn’t mean having a huge house, expensive car, wine collection, etc.  It means being able to live in comfort and security and do the things I really care about doing: spending time with my family & friends, traveling (on a modest budget), eating well for cheap, reading, and savoring the world’s greatest beers.  This essentially boils down to being able to control how I spend my time, rather than slaving away at some job I don’t like just to pay for an expensive lifestyle that doesn’t make me any happier than I would be without it.

Lest you think wealth has to only be about you, I also would like to have efficiently given away a large sum of money to help those most in need by the end of my life.  Whatever your philanthropic impulses, I encourage you to factor them into your financial plan as well.

I’ll leave you with a great quote by Mr. Buffett himself on this subject (bolding mine):

“I know people who have a lot of money,” he says, “and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. When you get to my age, you’ll measure your success in life by how many of the people you want to have love you actually do love you. That’s the ultimate test of how you’ve lived your life.”

Missing some cash? Search for unclaimed property to find out

Ever had the feeling that you didn’t get a check or payment you were due, or just want to see if anyone owes you money that you forgot about?  Search your state’s unclaimed property records to see if there’s some ‘found money’ just waiting for you to pick it up.

Go to http://www.unclaimed.org/ and select your US state(s) &/or Canadian province(s) of past & present residence, and  search for any unclaimed property in your name (or the names of family/friends).

It’s quick, easy, and who knows, something may turn up!

P.S.  For those in my native state of Washington, you can go straight to this link to skip directly to Washington’s unclaimed property search.  Click here if you’re an Oregonian, and here to search California.

Find out how much money your Seattle-area neighbors make

I stumbled upon a slick salary tool on the Seattle PI’s website:

http://www.seattlepi.com/data/databases/wage_comparisons.asp

 

Maybe this guy used a wage comparison tool to decide to get into that rap game

 

From the above link, just pick the job position you want to compare (i.e.: hip hop singer/song-writer) and get mean and median salaries.  They have all kinds of positions ranging from actuaries and accountants to veterinarians and writers.  The data is culled from the Bureau of Labor Statistics (currently May 2008 data, about 2 years old) and does NOT cover the self-employed.

This should be a good starting place for determining your worth and what you should expect for a typical salary in various jobs around the Seattle/Tacoma/Bellevue area.  Use it to motivate yourself for negotiating your next raise, or deciding upon a career change.

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Here’s some sample date for a couple of careers:

1) Metropolitan Area Seattle-Tacoma-Bellevue, WA
Occupation Registered nurses
Median Annual Wage $74,880
Mean Annual Wage $74,890
Employees in Region 29,940
Median Hourly Pay $36.00
Mean Hourly Pay $36.00
2) Metropolitan Area Seattle-Tacoma-Bellevue, WA
Occupation Engineers, all other
Median Annual Wage $92,560
Mean Annual Wage $90,650
Employees in Region 5,810
Median Hourly Pay $44.50
Mean Hourly Pay $43.58
3) Metropolitan Area Seattle-Tacoma-Bellevue, WA
Occupation Advertising sales agents
Median Annual Wage $49,290
Mean Annual Wage $57,680
Employees in Region 2,110
Median Hourly Pay $23.70
Mean Hourly Pay $27.73
4) Metropolitan Area Seattle-Tacoma-Bellevue, WA
Occupation Bartenders
Median Annual Wage $28,530
Mean Annual Wage $27,690
Employees in Region 6,460
Median Hourly Pay $13.72
Mean Hourly Pay $13.31

Working for yourself: how to get started as an entrepreneur

As a financial advisor who launched his own business, I have a strong interest in entrepreneurship.  Contrary to what you might think, no huge life-changing leap is required to start your own business.  I still kept my ‘day job’ while doing what I’m really passionate about during the other waking hours of my life.  In this post, I’ll discuss why you might want to work for yourself, the typical barriers that keep people from doing this, and how to discover what you can make money at.

Motivation

As a physics student in college, I had a kindly old professor that would start every lecture with what he called, in a funny Russian accent, ‘moh-teee-vaaaayyy-shun’, or why what we were about to learn was going to be valuable to us.  To me, the two key reasons for starting your own business are 1) freedom to do what you want, when/how/where you want and 2) money.

The first reason, freedom, is multi-faceted.  If you work for yourself, you get to set your own hours, write your own job description, pick your office space, and work in a way that makes the most sense to you.  The second reason, money, means that a side job can allow you to do things financially (retire sooner, pay off debt, plate yourself in gold) that you might not have been able to do otherwise.  Your own business can even eventually replace or surpass your current income, if that’s your goal.  Some schlub toiling away at a box factory isn’t likely to get rich, but many (though few per capita) hardworking entrepreneurs have.

Overcoming barriers to starting your own business

Many reasons, also known as ‘excuses’, are cited as making entrepreneurship difficult.  Some are valid, but others are just rationalized laziness (mental and physical.)  Because it’s fun to blame people, let’s start with the nonsense:

“I don’t have enough time to start a side business!”

I have a general premise that if you really want to do something, you can make time for it, regardless of how ‘busy’ you are.  The trick to good time management is to eliminate activities to make room for more important ones, and to focus on getting one important thing done at a time.  There are a number of good books and blogs on ‘personal productivity’. One book that I highly recommend everybody read (not just the entrepreneurs) is ‘The Power of Less‘ by Leo Babauta (he also has a blog.)  Tim Ferris also has some great posts on controlling your time and getting important things done.  His book, ‘The Four Hour Workweek‘, is already a classic treatise on how to live an accomplished life (however you define it.)

Let’s say you spend 50 hours per week at your full-time job (including lunch.)  Let’s also assume it takes you 45 minutes to commute each way, 5 days a week.  That’s 7.5 hours per week + 50 = 57.5 hrs for work.  Add in 8 hours of sleep per night (56/week), and that brings the total to 113.5.

There are 168 hours in a week, leaving you with 54.5 hours to do what you please.  Of these, maybe 3/day go to personal stuff like eating, bathing and getting ready for the day.  That leaves 33.5 hours.  Spending 2 hours per day with family & friends leaves 19.5 hours.  Even if you give yourself an hour of free time each day to read, watch TV, surf the internet, etc, that leaves you 12.5 hours.

So, even if you work more than 40 hours, have a long commute, spend lots of time with family & friends, sleep a full 8 hours, take time for meals, and sit on the couch an hour each night, you have at least 12.5 hours per week to spare, and nearly 20 if you cut out free time spent alone (be honest; you’re getting some of that web-surfing time in at work anyways.)

This is more than enough time to get a part-time freelance project going.  I started my business while working full-time and pursuing a graduate degree in business in the evenings.  Did I do this by cutting contact with family & friends while simultaneously stressing myself out?  No!  I still saw family & friends for a few hours at least once per week, got plenty of sleep, read, cooked, and got all my homework done.  I even took an awesome 11 day trip to the Czech Republic while on break from my MBA classes.

I DID make a conscious effort to set and complete small (written) goals each day that would get me closer to where I wanted to be.  These might have been designing a page of my website, filing my sole proprietorship business license online, or contacting & meeting with potential clients.

What I DID NOT do is just as important:  I didn’t spend much free time browsing the internet (when I was on the internet, it was to get something specific done), watching TV, playing video games or just lounging around.  I stopped going to the monthly meetings of an organization I had joined (and let everybody in the group know that I had to be firm on that.)  In a nutshell, I prioritized getting important things done at the expense of letting small things slip (I use this strategy at my ‘day job’ too; see the above-linked Tim Ferris articles for more on this idea.)

Even though I made sure to see friends & family, especially on weekend nights, I hung out with them less than I would if I had all the time in the world.  If you have something important you need to finish, you have to learn to say ‘no’ to requests for your time.

“I don’t have any money”

While it’s true that certain types of businesses require large upfront capital expenditures (like manufacturing), many can be started with no more than a phone, computer and some office supplies.  I have a friend who started a bakery in Seattle without investing much upfront by renting kitchen space by the hour (including the expensive equipment) and selling wholesale.  If, like me and many other people, you’re going to supply a service, you really don’t need much to get started.  If you do need cash, finance your venture out of your (non-retirement) savings or income, hit up relatives or friends for loans, or start saving a bit each month to get what you need.  Avoid buying anything you don’t absolutely need for the business.

Focus instead on generating cash from customers.  Ramit Sethi, my favorite personal finance blogger, recommends getting paid by at least 3 customers (1 could be a fluke) as a sign that your venture is viable.  Start marketing your services to friends, family, co-workers and the acquaintances of these folks, build a simple website, and stay focused on taking action towards your goals.

“But I don’t know what to do?”

After setting aside time and money (or lack thereof), many would-be entrepreneurs are stymied by not knowing what services or products to offer.  Sethi has posted a great video about this discovery process.  In general, you want to come up with a business venture that combines three things: 1) Interest – what you’re passionate about, 2) Skill – what you’re good at (you don’t have to be an expert), 3) Marketability – what people will actually pay for.

Digest Ramit’s video and start setting your entrepreneurial goals today:  ‘How to figure out what to do’ video

Here’s another video from Ramit on entrepreneurial goal-setting.

Find out what salary your co-workers are making (then ask for a raise)

I’ve talked about saving money on this blog, but not a whole lot about making more money.  Often the quickest and most significant way you can earn more money is by asking for a raise, or finding a job that pays more.  In order to do this successfully, it helps to know roughly what you’re ‘worth’, and what salaries are typical (or atypical) for your given position, company and location.

Glassdoor.com has excellent data to do this.  You’ll need to take 5 minutes to fill out your own salary & create a login (you can choose to omit the company you work for if you want, but that makes your input less valuable to others!)  Once you do that, you’ll have full access to all the glorious salary details on many major companies.  I live in Seattle, so I took a snapshot of this Boeing salary chart for Seattle, WA to give you an idea of what you can find out:

You can also drill down to get more detail about a specific job title:

Arm yourself with this info when negotiating salary (which you should ALWAYS do) for a new job, or at your next performance review when negotiating a raise.  Here’s a very useful (and short) book on how to negotiate your salary: Negotiating Your Salary: How to Make $1,000 a Minute.   It’s a must read (and re-read) before any job or performance review.

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