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

 

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Smoking is bad for your wealth: Quit today!

Today, everyone can repeat the Surgeon General’s warning that smoking is terrible for your health.  Given the high costs in terms of everyday spending, insurance rates, quality of life, and other effects, smoking is also extremely harmful to your wealth.

Direct costs of smoking – the high price of cigarettes

According to a 2002 study, the average smoker smokes 13 cigarettes per day.  If we assume that a pack is 20 cigarettes, and the average pack costs $5, that’s $3.25 per day (= 13/20 * $5) or $1,187 per year.  Obviously, the more you smoke, the more it’s costing you.  With the federal tax per pack having been raised to over $1 combined with many state taxes at $2 (including Washington’s), the cost of cigarettes seems to only be going up ($6.33 per pack in Washington state as of this writing.)

For reference, a person in the 15% tax bracket could quit smoking their 13 cigarettes per day and contribute nearly $1,400 per year (pre-tax) to a 401k.  If this person quit smoking at age 30 and retired at age 65, their 35 years’ worth of cigarette savings would’ve grown to $206,000 (in real dollars) given historical stock market returns of 7%.

Indirect monetary costs of smoking – insurance, job prospects, resale values

In an article on the high costs of smoking, MSN Money “pulled some online quotes on 20-year term life insurance (a $500,000 policy) for a healthy 44-year-old male … The lowest quote for a nonsmoker was $1,140 in premiums per year; for someone smoking a pack a day, the lowest price more than doubled to $2,571 per year.

[…] According to eHealthInsurance.com, the monthly premium for a policy from Regence Blue Shield with a $1,500 deductible for a 44-year-old male nonsmoker is $552 more a year [for smokers].

A few state governments also charge their employees extra for health insurance if they smoke, and others are gradually joining the trend.”

Additionally, home owner’s typically receive a 10% discount for being non-smokers, tacking on about $85 per year for smokers, given average home insurance premiums of $850.

“Numerous studies find that smokers earn anywhere from 4% to 11% less than nonsmokers. It’s not just a loss of productivity* to smoke breaks and poorer health that takes a financial toll, researchers theorize; smokers are perceived to be less attractive and successful as well.”

Add on higher dry cleaning bills, lower resale values of homes and cars (or money shelled out to clean them), and perhaps the occasional teeth whitening service, and you’re looking at a few to several thousand a year to smoke.

[* – I should note that in fairness to smokers, I’ve read assertions that other than early death, there are no appreciable losses in job productivity attributed to smokers.  However, if employers believe there are anyway, smokers will still receive lower salaries, everything else being equal.]

Indirect non-monetary costs of smoking

Besides bad breath, yellow teeth and smelly personal effects, smoking seriously reduces one’s quality (and length) of life.  The average smoker dies 7-8 years sooner than a non-smoker.  In addition, they are way more likely to live an unhealthy (and therefore uncomfortable) old age, suffering higher incidences of various cancers, heart diseases and strokes:

“The number of people under the age of 70 who die from smoking-related diseases exceeds the total figure for deaths caused by breast cancer, AIDS, traffic accidents and drug addiction.”

There are other side effects as well due to reduced blood flow: “For men in their 30s and 40s, smoking increases the risk of erectile dysfunction (ED) by about 50 per cent.”  For both men and women, smokers’ skin develops more wrinkles and looks paler.

The sooner you quit, the better

The benefits of quitting become immediately apparent (including more cash in your pocket):

From Wikipedia: “The immediate effects of smoking cessation include:

  • Within 20 minutes blood pressure returns to its normal level
  • After 8 hours oxygen levels return to normal
  • After 24 hours carbon monoxide levels in the lungs return to those of a non-smoker and the mucus begins to clear
  • After 48 hours nicotine leaves the body and taste buds are improved
  • After 72 hours breathing becomes easier
  • After 2–12 weeks, circulation improves

Longer-term effects include:

  • After 5 years, the risk of heart attack falls to about half that of a smoker
  • After 10 years, the risk of lung cancer is almost the same as a non-smoker.”

While quitting is difficult due to the addictiveness of nicotine, there are several methods that greatly increase your chances of succeeding.  Try to surround yourself with those who have quit smoking, or are non-smokers:  “A study found … that smoking cessation by any given individual reduced the chances of others around them lighting up by the following amounts: a spouse by 67%, a sibling by 25%, a friend by 36%, and a coworker by 34%.”  So if your significant other, friends or coworkers smoke, try to get them to quit too.  You’ll both help each other succeed.

The best approach using pharmacological aids seems to be use of “[t]he Nicotine Patch plus [as needed] use of gum or spray” which “increased quit rates to 36.5%, the largest quit rate reported.”  In addition, joining a social ‘support’ group seems to help.  “Programs involving 8 or more treatment sessions can double success rates.”  Use support lines like 1-800-QUIT-NOW (1-800-784-8669), to talk to an expert and increase your likelihood of success even further (live IM chat is available too.)

Despite all these methods, it often takes people more than one attempt to quit, so keep at it if it doesn’t work out the first time.  Set a date to quit, then use the above resources to stick to it.  You can get started by tossing your cigarettes & buying some nicotine patches and gum.  Then, check out this free quitting guide at smokefree.gov.

Good luck, your bank account and body will thank you!

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