Main I Will Teach You to Be Rich, Second Edition: No Guilt. No Excuses. No B.S. Just a 6-Week Program That..
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19 May 2019 (20:35)
Additional Praise for Ramit Sethi and I Will Teach You to Be Rich “Ramit Sethi is a rising star in the world of personal finance writing . . . one singularly attuned to the sensibilities of his generation. . . . His style is part frat boy and part Silicon Valley geek, with a little bit of San Francisco hipster thrown in.” —San Francisco Chronicle “. . . one of our favorite personal finance sites.” —Lifehacker “The easiest way to get rich is to inherit. This is the second best way—knowledge and some discipline. If you’re bold enough to do the right thing, Ramit will show you how. Highly recommended.” —Seth Godin, author of This is marketing “The common perception about personal finance books is that the advice is loaded with technical terms and jargon. On this front, I Will Teach You to Be Rich comes as a complete surprise. It is written in an extremely breezy style, but it doesn’t mean that it contains frivolous advice. On the contrary, it packs useful information for beginners on how they can manage their money.” —Economic Times “. . . particularly appealing to the younger generation with its easy-to-read, no-holds-barred language.” —Business Insider Real Reader Results Ramit’s teaching that frugality isn’t about “spending nothing” but rather about spending extravagantly on the things we love changed our outlook on life. My wife and I retired from full-time work at ages 33 and 35, respectively, and adventure around the country in an Airstream RV. We wake up every morning excited and energetic because we control every minute of our day.” —Steve Adcock “When I was 30, I had no 401k and a student loan of $16,000. Now I’m 35, I have no student-loan debt, a healthy 401k, an IRA, an additional investment account, and one secured credit card which I use to pay my monthly bills. I used IWT to do all of this and now spend most of my money on what I love, which is my kids, food, and ebooks.” —Ariel Stewart “Since implementing a fully automate; d system in 2011, my net worth went from zero to close to $450k. I never have to worry about money—I have enough for bills, any indulgence, and maxing out retirement accounts (Roth and 401k).” —Ross Fletcher “I read your book in 2010 when I was a 25-year-old executive assistant at a tiny book publisher making $28,000. I’m now leading a full team of writers in San Francisco and making $155,000.” —Claire Peacock “After reading your book, I negotiated a $175 monthly reduction in apartment rent by offering a long-term extended lease and putting the apartment as a preferred vendor. Landlord agreed immediately, and that saved me over $3,500!” —Sameer Desai “I’ve got over $100,000 growing for retirement, $8,000 in the personal investment account, and have next year’s Roth contribution already set aside in an interest-bearing account.” —David Chambers “I used the advice from IWT to set up my Schwab IRA, a personal investment account, and a checking account prior to starting my first job when I was 24. I’m now 30 and have over $300k saved between my personal investment account, 401k, and IRA.” —Hilary Buuck “At first your chapter on debt freaked me out—you can’t just get out of debt so fast! Then I realized making more money was not scary or daunting, but very doable. I went from making around $4,000 a month to $8,000 a month from my company. I had 4,500 in debt that is now down to $900 (soon it’ll be at $0).” —Reena Bhansali “I’ve used the IWT principles to pay down $40,000 in debt inside two years by negotiating a raise and taking on my first side-gig projects with the “1K on the Side” project. And with the automation principles, and paying ourselves first, my wife and I built close to $200,000 in savings in the last two years.” —Sean Wilkins “I took this book on a Caribbean cruise and couldn’t put it down. It led me to getting a $20,000 salary increase in my day job and starting a side business as a career coach, earning thousands each month. It helped me negotiate down bills and fees, increase my credit limit, grow a healthy retirement fund and savings, and fundamentally change my mindset about earning money.” —Mary Grace Gardner “I went from having nothing in my investment accounts to having over $55,000 to date.” —Alex Craig “I didn’t have any credit card debt so I was able to implement the whole book in about three weeks. After that, I kind of forgot about it. Eight years later I was worth close to $200,000 with no debt as a retail employee.” —Daniel Lee Reifenberger “I changed my student loans from 20-year loans to 10-year loans. I had no idea the difference, and it ended up saving me over $10k. . . . Just by paying an extra $50 a month.” —Lyla Nutt “When I was 25, I had $8,500 of credit card debt, and $3,000 of other debt. IWT gave me the manageable steps to get out of my hole, better use my credit cards, not live check to check, pay off what I owed, and start saving. At 28, I have $50,000 in savings, am debt-free, have automated my finances, and I am going to buy a house this year.” —Allison Reynolds “In four years after I read IWT, I’ve saved $40,000 using dollar cost averaging to contribute to my $20,000 index tracking fund. I received one promotion and four raises, increasing my earning potential by 70 percent :)” —Bevan Hirst “Without the book, I wouldn’t have started my retirement account. It showed me what to open and how to use systems to automatically save my money for future purchases. So far I have $40,000+ in retirement by maxing out my Roth every year.” —James Monroe Ŝtevko “I was 25 when I read the book. I had a crappy job, very little savings, and even less of a clue what to do with my money. I implemented IWT systems and I got a new job (with a 20 percent raise) at a company where I’ve flourished for the past five years. I have $100,000 in my retirement accounts and six months’ salary in an emergency account, along with other savings for various goals.” —Sheila Masterson “Before, I felt guilty because at 37 I should have had my stuff together. Now everything is completely automated. I feel more confident and can spend guilt-free with the money left over. Since reading your book, I maxed out my Roth IRA, made a $7,000 emergency savings account, have a growing investment account, and have multiple accounts for special purchases.” —Quinn Zeda I Will TEach You To Be RICH No Guilt. No Excuses. No BS. Just a 6-Week Program That Works Ramit Sethi SECOND EDITION workman publishing New York To my wife, Cassandra. You’re the best part of every day. Contents An Open Letter to New Readers Introduction Would You Rather Be Sexy or Rich? Why do people gain weight after college? The similarities between money and food ■ Counterintuitive but true: We need less personal-finance information ■ Common excuses for not managing money ■You’re not a victim—you’re in control ■ Stop debating minutiae and focus on the Big Wins ■ The key messages of I Will Teach You to Be Rich ■ “Rich” isn’t just about money: What does it mean to you? Chapter 1 Optimize Your Credit Cards How to beat the credit card companies at their own game Why Indian people love negotiating ■ Stop being intimidated by your credit cards ■ Picking the best card for airline miles, cash back, and rewards ■ The six commandments of credit cards ■ How to negotiate with your credit card company to get fees waived and receive lower rates ■ Secret perks your card offers ■ Why you should always buy electronics, travel, and furniture on your credit card ■ What not to do with your cards ■ The burden of student loans ■ When credit cards go bad ■ Five steps to getting rid of debt ■ Week One: Action Steps Chapter 2 Beat the Banks Open high-interest, low-hassle accounts and negotiate fees like an Indian How banks rake it in ■ The bank accounts I use ■ Why you really need a separate savings account ■ Opening high-interest, no-fee accounts ■ Why people stick with terrible bank accounts ■ Five marketing tactics banks use to trick you ■ Negotiate out of fees with your current bank (use my script) ■ Week Two: Action Steps Chapter 3 Get Ready to Invest Open your 401(k) and Roth IRA—even with just $50 Start investing, step by step ■ Why your friends are scared of investing ■ Investing is the single most effective way to get rich ■ Where should your money go? Introducing the ladder of personal finance ■ Mastering your 401(k) ■ Crush your debt ■ The beauty of Roth IRAs ■ What about robo-advisors? ■ The exact account I use ■Feed your investment account ■HSAs ■Beyond retirement accounts ■Week Three: Action Steps Chapter 4 Conscious Spending How to save hundreds per month (and still buy what you love) How to spend extravagantly on the things you love and cut costs mercilessly on the things you don’t—without making an annoying budget ■ The difference between cheap people and conscious spenders ■ How my friend spends $21,000 per year going out—guilt-free ■ Using psychology against yourself to save ■ The four buckets: fixed costs, savings, investments, and guilt-free spending money ■ The envelope system for not overspending ■ What if you don’t make enough money to save? ■ How to make more money ■ Handling unexpected expenses ■ Week Four: Action Steps Chapter 5 Save While Sleeping Making your accounts work together—automatically The power of defaults ■ How to spend only 90 minutes a month managing your money ■ Ways to use psychology to help you save money ■ Create your automatic money flow ■ Using your automated finances to fuel your rich life ■ Week Five: Action Steps Chapter 6 The Myth of Financial Expertise Why professional wine tasters and stock pickers are clueless—and how you can beat them Who should you trust? ■ Experts can’t guess where the market is going ■ How experts hide poor performance ■ You don’t need a financial adviser ■ Behind the scenes: When two wealth managers tried to recruit me ■ Active vs. passive management Chapter 7 Investing Isn’t Only for Rich People Spend the afternoon picking a simple portfolio that will make you rich The beauty of automatic investing ■ Asset allocation: more important than the “best stock of the year!” ■ Retiring in your 30s or 40s: The FIRE movement ■ Convenience or control? You choose ■ The many flavors of stocks and bonds ■ Creating your own portfolio: How to handpick your investments ■ Investing the easy way: target-date funds ■ Feeding your 401(k) and IRA ■ The Swensen model of asset allocation ■ Insane crypto “investments” ■ Week Six: Action Steps Chapter 8 HOW TO MAINTAIN AND GROW YOUR SYSTEM You’ve done the hard work. What’s next? Here’s how to maintain (and grow) your financial infrastructure to achieve your Rich Life. Feed your system—the more you put in, the more you’ll get out ■ Ignore the noise ■ The tricky part of managing your own portfolio: rebalancing your investments ■ Nutty beliefs about taxes ■ When to sell ■ For high achievers: a ten-year plan ■ Giving back—an important part of being rich Chapter 9 A Rich Life The finances of relationships, weddings, buying a car, your first house, and more Student loans—Pay them down or invest? ■ How to help parents who are in debt ■ The big conversation: talking about money with your significant other ■ Should you sign a prenup? ■ Why we’re all hypocrites about our weddings (and how to pay for yours) ■ Negotiating your salary, I Will Teach You to Be Rich style ■ The smart person’s guide to buying a car ■ The biggest big-ticket item of all: a house ■ The benefits of renting ■ Is real estate really a good investment? ■ Planning for future purchases ■ Your Rich Life: Going beyond the day to day Acknowledgments Index An Open Letter to New Readers If you listened to all the internet influencers telling you the things you “need” to do every morning, here’s what your day would look like: 4:00 a.m. wake up 4:01 a.m. meditate 5:00 a.m. drink 37 gallons of water 5:33 a.m. gratitude journal 10:45 a.m. eat (keto only) 11:00 a.m. track every penny of spending from the last 16 years 11:01 a.m. die I dunno, guys. I prefer advice that actually works. And when I took a hard look at the advice I gave in this book a decade ago, I realized one thing: I was right. If you bought this book ten years ago and followed the exact advice in it, here’s what you would have accomplished by now. ■ If you had invested just $100/month, that $12,000 would have turned into over $20,000 (The S&P 500 averaged around 13 percent annually over the last decade.) ■ If you had aggressively invested $1,000/month, that $120,000 you contributed would have grown to more than $200,000. ■ You would be spending less than 90 minutes per month on your money. ■ You would have been able to take multiple vacations and fly business class—completely free—using credit card points. ■ Money would have gone from a source of anxiety and confusion to one of calm and possibility. As you’ll see in this book, I do things differently than typical money “experts.” I won’t lecture you about cutting back on lattes (buy as many as you want). I won’t try to convince you to keep a budget (I have a better method). And one more thing: I’m a real guy. I post on Instagram and Twitter (@ramit) and I write for millions of people on my blog and newsletter almost every day (iwillteachyoutoberich.com). So let’s start off doing something different: I want to hear from you. Really! Send me an email (email@example.com, subject: new book reader) and tell me two things: 1. What made you decide to take control of your money today? 2. What does your Rich Life look like? (Please be specific!) I read every email and I try to respond to as many as possible. What has I Will Teach You to Be Rich allowed you to do? One of my greatest joys is hearing from you about how you’ve applied my material to change your life. I asked some of my readers to share their results. I paid off $10,000 in credit card debt that I accumulated while unemployed, bought a condo in San Francisco, and am now debt-free and building my retirement funds. —Juliana Brodsky, 38 I have $200,000 in retirement savings and countless vacations paid for by creating specific savings accounts for them; it’s hard to put a specific number on that. —Kyle Slattery, 30 I travel internationally for a month 1 or 2 times a year. Last year it was South Africa; this year, Korea. —Esli Ligaya, 34 The Rich Life is about freedom. In my case it allowed me to take 9 months off work and travel throughout Argentina, Colombia, and the US. And now it’s allowing my wife to take a 6-month break from work to figure out what’s next. —Sean Wilkins, 39 We were able to put three children into private school on one full-time income. —Bryan Dilbert, 32 All that said, I’ll admit that I wasn’t perfect. Ten years ago, I made three mistakes when writing the first edition of this book. My first mistake was that I didn’t cover the emotions around money. I spent time covering the nuts and bolts of personal finance—I gave you the perfect word-for-word scripts to get late fees waived, the exact asset allocation I use for investing, and even how to manage money with your partner—but if you don’t tackle your invisible money scripts, none of it matters. 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. Do any of these sound familiar? ■ “You’re throwing your money away on rent.” ■ “We don’t talk about money in this house.” ■ “Credit cards are a scam.” ■ “Stop spending money on lattes.” ■ “Money changes people.” ■ “You don’t get that level of wealth without making a few shady deals here and there.” ■ “The stock market is gambling.” ■ “Student loans are a scam.” In this edition, I’ll show you what the most insidious, powerful invisible money scripts are—and how to beat them. The second mistake I made was being too overbearing. The truth is, you can choose what your Rich Life is and how you get there. In the original book, I did write about the different definitions of a Rich Life, but I didn’t acknowledge that we might take different routes to get there. For example, your Rich Life might be to live in Manhattan. It might be to ski forty days a year in Utah, or to save and buy a house with a huge yard for your kids, or to fund an elementary school in Croatia. That’s your choice. But how you get there is also your choice. Some people choose the traditional route of saving 10 percent, investing 10 percent, and slowly working their way to a comfortable Rich Life. Others save 50 percent of their income and quickly reach the “crossover point” where their investments pay for their life—forever. (This is called “FIRE,” or Financial Independence, Retire Early.) You choose your Rich Life. And in this edition, I want to show you different ways to get there. To do that, I’ve included lots of examples of people who took unconventional routes to create their Rich Lives. Finally, the third mistake. Let me just say that I’ve messed up quite a few things in my life: I’ve hired and fired the wrong people. I ruined my chance at a TED talk by walking into the meeting unprepared. I was six feet and 127 pounds into my mid-twenties, looking like a hairy Indian Gumby. But nothing compares to my worst mistake of all: Writing the actual interest rates of banks in the original edition of this book. Here’s what I wrote back then: “Online banks pay a higher interest rate for savings accounts—about 2.5 to 5 percent, which would produce $25 to $50 interest per year on that $1,000, compared with $5 per year on the Big Bank savings account.” The information was right . . . at the time. The problem is, interest rates change, which I forgot to mention. And in the years after the first edition was published, they dropped—from 5 percent to 0.5 percent. I assumed people would run the numbers and realize that the interest rate doesn’t really matter much. For example, on a $5,000 balance, that means your monthly interest dropped from $21 to $2. In the grand scheme, not that big of a deal. But when facing lower interest rates on savings accounts, readers got mad—really mad. And they took their anger out on me. Here are a few emails I got: ■ “This book is a scam. Where are the 5% interest rates you talk about??” ■ “What bank has 3% interest rates??” ■ “Subj: WHERE ARE THE BANKS U WROTE ABOUT” For the last ten years, I’ve gotten over twenty of these emails every single day. Never again. See my favorite banks. But not their interest rates. WHICH WILL CHANGE, GUYS. In this edition, I’ve corrected these mistakes. And I’ve added new material. 1. New tools, new investment options, and new approaches to money. If you want to get more aggressive about investing, I’ll show you how. What do I think about robo-advisors? I’ll tell you. And what about pre-nups? I share my thoughts. 2. New money scenarios you’ll confront. How do you handle relationships and money? I’ve added new material. Once your financial system is set up, I want you to know what to focus on next. And finally, if you know people who complain about politics and baby boomers to explain why they can’t pay off their debt and get ahead, they should read my thoughts on victim culture. 3. Incredible stories from other IWT readers. I’ve included tons of new examples, including inspirational success stories from all different kinds of people: men and women in their twenties, thirties, forties, and fifties; people who started from nothing and people who built on success to grow even more. Plus, gut-wrenching stories about people who procrastinated on implementing the material in this book—and what it cost them. I added new material where appropriate, but I preserved techniques that continue to work. Many people want “new” advice—but the value in this book doesn’t come from novelty; it comes from usefulness. In ten years, I’ve also changed. I’ve gotten married, I’ve grown my business, and I’ve learned more about money and psychology. Now I get the chance to share what I’ve learned with you. Amidst the noise, the hype, the apps of the day, the IWT personal finance system works. Long-term, low-cost investing works. Automation works. Use this book to create your own Rich Life, just like thousands of others have. —Ramit Sethi Introduction Would You Rather Be Sexy or Rich? I’ve always wondered why so many people gain weight after college. I’m not talking about people with medical disorders, but regular people who were slim in college and vowed that they would “never, ever” let that happen to them. Yet, little by little, most Americans gain an unhealthy amount of weight. In the ten years since I wrote my book, weight and health have become such controversial topics that I was advised to delete my references to them. But after my own journeys with nutrition, fitness, and money, I now believe even more in the connections between them—and that you can take control. Weight gain doesn’t happen overnight. If it did, it would be easy for us to see it coming—and to take steps to avoid it. Ounce by ounce, it creeps up on us as we’re driving to work and then sitting behind a computer for eight to ten hours a day. It happens when we move into the real world from a college campus populated by bicyclists, runners, and varsity athletes who once inspired us to keep fit. But try talking about post-college weight loss with your friends and see if they say one of these things: “Avoid carbs!” “Don’t eat before you go to bed, because fat doesn’t burn efficiently when you’re sleeping.” “Keto is the only real way to lose weight.” “Drinking apple cider vinegar speeds up your metabolism.” I always laugh when I hear these things. Maybe they’re correct or maybe they’re not, but that’s not really the point. The point is that we love to debate minutiae. When it comes to weight loss, 99.99 percent of us need to know only two things: Eat less and exercise more. Only elite athletes need to do more. But instead of accepting these simple truths and acting on them, we discuss trans fats, obscure supplements, and Whole30 versus paleo. Why Are Money and Food So Similar? When it comes to food, we . . . When it comes to personal finance, we . . . don’t track calorie intake don’t track spending eat more than we know spend more than we realize—or admit debate minutiae about calories, diets, and workouts debate minutiae about interest rates and hot stocks value anecdotal advice over research listen to friends, our parents, and TV talking heads instead of reading a few good personal-finance books Most of us fall into one of two camps regarding our money: We either ignore it and feel guilty, or we obsess over financial details by arguing interest rates and geopolitical risks without taking action. Both options yield the same results—none. The truth is that the vast majority of people don’t need a financial adviser to help them get rich. 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. But that’s not as cool or exciting, is it? Instead, we read internet articles from “experts” who make endless predictions about the economy and “this year’s hottest stock” without ever being held accountable for their picks (which are wrong more than 50 percent of the time). “It’s going up!” “No, down.” As long as there is something being said, we’re drawn to it. Why? Because we love to debate minutiae. When we do, we somehow feel satisfied. We might just be spinning our wheels and failing to change anyone’s mind, but we feel as if we are really expressing ourselves, and it’s a good feeling. We feel like we’re getting somewhere. The problem is that this feeling is totally illusory.Think back to the last time you and your friend talked about finances or fitness. Did you go for a run afterward? Did you send money to your savings account? Of course not. People love to argue minor points, partially because they feel it absolves them from actually having to do anything. You know what? Let the fools debate the details. I decided to learn about money by taking small steps to manage my own spending. Just as you don’t have to be a certified nutritionist to lose weight or an automotive engineer to drive a car, you don’t have to know everything about personal finance to be rich. I’ll repeat myself: You don’t have to be an expert to get rich. You do have to know how to cut through all the information and get started—which, incidentally, also helps reduce the guilt. I knew I should save for retirement, but I didn’t really know how, besides “put some money in your 401(k).” I also thought saving was only about NOT spending money. As a result, I felt horribly guilty about spending money on *anything*, even if I had saved up for it. I had also never really thought about asking for a raise and didn’t know how to approach it. I had just treated the initial wage I’d been offered as set in stone. —Elizabeth Sullivan-Burton, 30 Why Is Managing Money So Hard? People have lots and lots of reasons for not managing their money, some of them valid, but most of them poorly veiled excuses for laziness or not having spent ten minutes on research. Let’s look at a few: Info Glut The idea that there is too much information is a real and valid concern. “But Ramit,” you might say, “that flies in the face of all American culture! We need more information so we can make better decisions! All the experts on TV say this all the time, so it must be true!” Sorry, nope. Look at the actual data and you’ll see that an abundance of information can lead to decision paralysis, which is a fancy way of saying that with too much information, we do nothing. Barry Schwartz writes about this in The Paradox of Choice: Why More Is Less: As the number of mutual funds in a 401(k) plan offered to employees goes up, the likelihood that they will choose a fund—any fund—goes down. For every 10 funds added to the array of options, the rate of participation drops 2 percent. And for those who do invest, added fund options increase the chances that employees will invest in ultraconservative money market funds. You scroll online and see ads about stocks, 401(k)s, Roth IRAs, insurance, 529s, and international investing. 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. As the table shows, investing early is the best thing you can do. Look carefully at the chart below. Smart Sally actually invests less, but ends up with about $80,000 more. She invests $200/month from age thirty-five to age forty-five and then never touches that money again. Dumb Dan is too preoccupied to worry about money until he’s forty-five, at which point he starts investing $100/month until he’s sixty-five. In other words, Smart Sally invests for ten years and Dumb Dan for twenty years—but Smart Sally has much more money. And that’s with just $200/month! The single most important thing you can do to be rich is to start early. How to Make $60,000 More Than Your Friends (with Less Work) Smart Sally Dumb Dan When beginning to invest, the person is . . . 35 years old 45 years old Each person invests $200/month for . . . 10 years 20 years With an 8 percent rate of return, at age 65, their accounts are worth . . . $181,469. Voilà—the value of starting early $118,589. Even though he invested for twice as long, he’s behind by $60,000 If you’re younger, your money will grow even more. If you’re older, don’t get discouraged. I recently got a message from a woman in her forties who was unhappy about these numbers. “What’s the point of writing that?” she asked. “It makes me feel bad that I’m already too far behind.” I understand how she feels. But we can’t hide from the math—so instead of sugarcoating the facts, I believe in showing you the truth, including ways to increase your savings. Yes, the best time to start investing was ten years ago. The second best time is today. The Media Is Partially to Blame (I Love Casting Blame) Open the typical financial site and I bet you’ll see an article called “10 No-Hassle Frugality Tips for Getting Ahead with Your Finances” or “How Today’s Senate Vote Affects Estate Taxes.” Reading those headlines, you intuitively know why online columnists wrote them: to get pageviews and sell ads. We know that because reading yet another frugality article is not going to change anyone’s behavior. And the estate tax affects less than 0.2 percent of people. But both of those headlines make people feel good—or angry. Enough! I don’t care about pageviews or stoking rage. If you’re like me, you care about knowing where your money’s going and redirecting it to go where you want it to go. We want our money to grow automatically, in accounts that don’t nickel-and-dime us with fees. We don’t want to have to become financial experts to get rich. The Rise of Victim Culture There’s a group of people—mostly young, disaffected people—who have decided it’s easier to be cynical than to improve themselves. “LOL! Invest? I can’t even save enough for pizza.” “LOL! Find a job? What world do you live in . . .” “Maybe if baby boomers hadn’t ruined it for all of us . . .” People actually compete to see who’s the bigger victim. Oh, you can’t afford a four-bedroom house at the age of 26? I can’t afford to live in a cardboard box! Oh, you like going to parties to meet new people? That must be nice, I have social anxiety so I can’t do that. (What? No, I didn’t see a doctor. I diagnosed myself.) You know who’s the real victim here? Me. I’m offended at you being offended. And at the stupidity of this entire victim culture. I refuse to play into the theatrics of how you can’t afford to save even $20 a month. When this book was originally published, I got hundreds of angry emails accusing me of being elitist for encouraging people to save and invest even a modest amount. Those cynics were wrong. They surrounded themselves with other naysayers, bought flimsy arguments, and incurred a staggering cost for their beliefs: They missed out on hundreds of thousands of dollars of gains. Meanwhile, my readers put in the work to create their Rich Lives. You choose. Be a cynic or carefully evaluate your options, knowing you’ll probably make a mistake here or there . . . but you’ll grow at each step of the way. I choose to move forward. I understand this is a complex issue. Yes, socioeconomic policy, access to technology, and pure luck matter. For example, if you start off with two parents and you graduate from college, you’re already luckier than most people on this planet. But we play with the cards we’re dealt. I believe in focusing on what I can control. For example, by the time I entered kindergarten, it was clear I would never be in the NBA—fine. On the other hand, it was clear I would dominate the shit out of my classmates in spelling bees. Also fine. Then there were the gray areas, like starting a business, becoming more fit, and learning to be better in dating. I had to learn those skills and work really, really hard. This is where the victim mindset comes in. So many people complain about politicians and sociological problems without looking around at their own behavior. They give up at the first sign of failure. If you want to be a passenger in life, fine—go with the flow. I’ve found it’s a lot more fun to be the captain of my own ship, even if I go off course sometimes. As you can see, I don’t have a lot of sympathy for people who complain about their situation in life but do nothing about it. That’s why I wrote this book! I want you to be empowered to take control of your situation, no matter where in life you started from. I want you to have a level playing field against these huge Wall Street firms, mindless articles, and even your own psychology. Here are a few examples of victim culture when it comes to money: “I can’t save any money.” Years ago, when the economy crashed, I launched something called the “Save $1,000 in 30 Days Challenge,” where I showed people tactical ways to save money using fresh psychological techniques. Thousands of people joined and worked to save thousands and thousands of dollars. Except a few people. While most people were supportive, I was surprised by how many people were actually offended by the very concept of a “Save $1,000 in 30 Days Challenge” because they didn’t even earn that much each month, or they found my recommendations to be “too obvious”—even though I defined “saving” as cutting costs, earning more, and optimizing spending. Here are some examples of their complaints: ■ “Doing this is impossible for me . . . I don’t make enough to try this exercise.” ■ “Nice idea, but the current median family income here in Ohio is $58,000/year. After taxes this means a monthly paycheck of about $3,400. Note that this is the median, so fully half of Ohio families live on less than this! I doubt many of them could save $1,000/month without selling off their children.” ■ “This’d be nice . . . If I even made $1,000 in a month, I might try it. But I’m in university . . .” First of all, notice that crazy people have a particular way of writing—they’re always trailing off at the end of a sentence. If someone writes you and says, “It must be nice . . .” or “That sounds hard . . .” odds are good that they’re a serial killer who will be knocking on your door very soon, then wearing your skin as a raincoat. Also, people love to use their particular situation—living in Ohio, or Malaysia, or not having gone to an Ivy League school—to explain why they can’t get the same results others can. I used to engage and show them examples of people in their own area who got amazing results. Their response? “Well, did they have [increasingly obscure criteria: moved around three times as a kid, eleven fingers, whatever]?” As soon as I said no, they said, “See? I knew this wouldn’t work for me.” Cynics don’t want results; they want an excuse to not take action. Ironically, even if they win their own manufactured argument, they lose overall, because they’re stuck in a prison of their mind. “The world is against me.” Yes, there are lots of societal problems right now. But when it comes to personal finance, I focus on what I can control. This idea escapes whiners, whose natural reaction when asked to actually do something about their situation is to create reasons why they can’t. It used to be personal excuses (“no time”). Now, with the rise of victim culture, it’s more politically correct to point to some external force, like median earnings or economic policy. Yes, getting your financial life in order does require some work. But the rewards far surpass the effort. The truth is that these whiners miss the point. While saving $1,000 in a month was eminently reasonable, it was also an aspirational goal. If you couldn’t save $1,000, what about $500? Or $200? Finally, the people who complained about money a year ago are probably still complaining, while many of the people who took the challenge saved hundreds and even thousands of dollars. Other People We Can Blame for Our Money Problems There are other common excuses for why we don’t manage our money. Most of them don’t stand up to scrutiny: ■ “Our education system doesn’t teach this.” It’s easy for people in their twenties to wish that their colleges had offered some personal finance training. Guess what? Most colleges do offer those classes. You just didn’t take them! ■ “Credit card companies and banks are out to profit off us.” Yes, they are. So stop complaining and learn how to beat the companies instead of letting them beat you. ■ “I’m afraid of losing money.” That’s fair, especially after global crises where front-page articles used words like “tanked” and “lost generation.” But you need to take a long-term view: The economy grows and contracts in cycles. If you withdrew your money from the stock market in 2009, you missed out on one of the longest sustained periods of growth in history. Fear is no excuse to do nothing with your money. Remember, you can choose among many different investment options—some aggressive, some conservative. It all depends on how much risk you’re willing to take. In fact, by automating your money, you can put yourself in a position to excel when others are scared—by continuing to consistently save and invest. When others are scared, there are bargains to be found. ■ “What if I don’t know where to get an extra $100 per month?” You don’t need to earn another penny. I’ll show you how to streamline your existing spending to generate that money to invest. Follow my CEO Method: Cut costs, Earn more, and Optimize your existing spending. ■ “I don’t want average returns.” Our culture stigmatizes being average. Who wants to have an average relationship? Or an average income? Financial firms have weaponized that fear of average: They suggest it’s bad to be average, that it’s boring, and that you can do better. There's actually an entire ad campaign based on this idea by a popular robo-advisor whose tagline reads “Be better than average.” The truth is, you likely can’t beat average returns. In fact, average 8 percent returns are actually very good. Ironically, people who fear “being average” do exactly the things that make them perform worse than average: trade frequently, make outlandish bets, incur high taxes, and pay unnecessary fees. Remember: In relationships and work, we want to be better than average. In investing, average is great. You’re not a victim, you’re in control. Once you truly internalize that, you can start to go on offense. No more being paralyzed by the thought that you have to get every single part of your personal finances perfectly organized before you can begin to manage your money. Do you need to be the Iron Chef to cook a grilled-cheese sandwich? No, and once you make your first meal, it’s easier to cook something more complicated the next time around. The single most important factor to getting rich is getting started, not being the smartest person in the room. Put the Excuses Aside Listen up, crybabies: This isn’t your grandma’s house and I’m not going to bake you cookies and coddle you. A lot of your financial problems are caused by one person: you. Instead of blaming circumstances and corporate America for your financial situation, you need to focus on what you can change yourself. Just as the diet industry has overwhelmed us with too many choices, personal finance is a confusing mess of overblown hype, myths, outright deception—and us, feeling guilty about not doing enough or not doing it right. If you’re not satisfied with your finances and you’re willing to take a hard look in the mirror, you’ll discover one inescapable truth: The problem, and the solution, is you. Let’s put the excuses aside. What if you could consciously decide how to spend your money, rather than say, “I guess that’s how much I spent last month”? 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? Guess what? You can! I’ll show you how to take the money you’re making and redirect it to the places you want it to go—including substantially growing your money over the long term, no matter what the economy is like. The Key Messages of I Will Teach You to Be Rich I believe in small steps. I want to reduce the number of choices that paralyze us. It’s more important to get started than to spend an exhaustive amount of time researching the best fund in the universe. I Will Teach You to Be Rich is about taking the first step—understanding the barriers that keep us from managing our money and then tearing them down and putting our money in the right places so we can achieve our goals. Frankly, your goal probably isn’t to become a financial expert. It’s to live your life and let money serve you. 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?” And instead of being driven by fear, you’ll be guided by what history has shown us about investing and growth. I’ll keep it simple: Too many books try to cover everything about money, leaving you holding a book that you “should” read but don’t because it’s overwhelming. I want you to know enough to get started setting up automated accounts and investing, even with just $100. So here are the essential messages of I Will Teach You to Be Rich: The 85 Percent Solution: Getting started is more important than becoming an expert. Too many of us get overwhelmed thinking we need to manage our money perfectly, which leads us to do nothing at all. That’s why the easiest way to manage your money is to take it one step at a time—and not worry about being perfect. I’d rather act and get it 85 percent right than do nothing. Think about it: 85 percent of the way is far better than zero percent. Once your money system is good enough—or 85 percent of the way there—you can get on with your life and go do the things you really want to do. It’s okay to make mistakes. It’s better to make them now, with a little bit of money, so that when you have more, you’ll know what to avoid. Spend extravagantly on the things you love and cut costs mercilessly on the things you don’t.This book isn’t about telling you to stop buying lattes. 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. Look, it’s easy to want the best of everything: We want to go out all the time, live in a great apartment, buy new clothes, drive a new car, and travel anytime we want. The truth is, you have to prioritize. My friend Jim once called to tell me that he’d gotten a raise at work. On the same day, he moved into a smaller apartment. Why? Because he doesn’t care very much about where he lives, but he loves spending money on camping and biking. That’s called conscious spending. (Learn how one of my friends consciously spends $21,000 per year going out.) There’s a difference between being sexy and being rich. When I hear people talk about the stocks they bought, sold, or shorted last week, I realize that my investment style sounds pretty boring: “Well, I bought a few good funds five years ago and haven’t done anything since, except buy more on an automatic schedule.” But investment isn’t about being sexy—it’s about making money, and when you look at investment literature, buy-and-hold investing wins over the long term, every time. Don’t live in the spreadsheet. I encourage you to 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. The idea that you could do this might seem far-fetched right now, but by the time you’re done with this book you’ll be extremely comfortable with your money and investing. I’ve known too many people who end up tracking every single fluctuation in their net worth, running different scenarios in Excel and modeling out how soon they can retire. Don’t do this. You’ll turn into a social weirdo and, more important, it’s unnecessary. If I do my job right, you’ll automate your money and live your Rich Life, which takes place outside the spreadsheet. Play offense, not defense. Too many of us play defense with our finances. We wait until the end of the month, then look at our spending and shrug: “I guess I spent that much.” We accept onerous fees. We don’t question complicated advice because it’s given to us in a language we don’t understand. In this book, I’ll teach you to go on offense with your credit cards, your banks, your investments, and even your own money psychology. My goal is for you to craft your own Rich Life by the end of Chapter 9. Get aggressive! No one’s going to do it for you. I Will Teach You to Be Rich is about using money to design your Rich Life. I’ll teach you how to set up your accounts to create an automatic financial infrastructure that will run smoothly with minimal intervention. You’ll also learn what to avoid, some surprising findings from financial literature (is real estate really a good investment?), and how to avoid common financial mistakes. And you’ll start taking action instead of debating minutiae. All this will take you just six weeks—then you’ll be on the road to being rich. Doesn’t that sound good? The Best Mistake I Ever Made When I was in high school, my parents told me that if I wanted to go to college, I’d need to pay for it with scholarships. So like a good Indian son, I started applying . . . and applying and applying. In the end, I’d applied for about sixty scholarships and had won hundreds of thousands of dollars. But my best scholarship was the first one—an award for $2,000. The organization wrote a check directly to me. I took it and invested in the stock market—and immediately lost half my money. Oops. That’s when I decided that I really needed to learn about money. I read the personal-finance books, watched the TV shows, and bought the magazines. After a while, I also started sharing what I’d learned. I taught informal classes to friends at Stanford (even though in the early days, nobody would ever attend). Then, in 2004, I began writing a blog called “I Will Teach You to Be Rich,” covering the basics of saving, banking, budgeting, and investing. The rest, as they say, is history. Why Do You Want to Be Rich? I’ve talked to more than a million people about personal finance over the last fifteen years through my website and speaking engagements. When I do, I always ask two questions: ■ 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. Here’s a hint: It’s different for everyone, and money is just a small part of being rich. For example, my friends all value different things. Paul loves eating out at Michelin-starred restaurants where a meal might cost $500. Nicole loves traveling. And Nick loves buying clothes. If you don’t consciously choose what “rich” means, it’s easy to end up mindlessly trying to keep up with your friends. I consider myself rich now that I can do these things: ■ Make career decisions because I want to, not because of money ■ Help my parents with their retirement, so they don’t have to work if they don’t want to ■ Spend extravagantly on the things I love and be relentlessly frugal about the things I don’t (e.g., live in a nice apartment in New York but not own a car) 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 Lives—is one of the most fun things we do together as a couple. Before you go further, I encourage you to think about your Rich Life. Why do you want to be rich? What do you want to do with your wealth? Get really specific. If your Rich Life is “I want to take a taxi instead of a bus,” write it down! I realized I live in New York but I hadn’t been taking advantage of all the cultural events here, so I decided that once every quarter, I’d go to a museum or Broadway show. Once I set the intention, it became a part of my Rich Life. Don’t be embarrassed about how small—or big—your vision is. For example, when I first wrote down my list of a Rich Life, one of the key goals was being able to order appetizers from a restaurant menu, which I never did as a kid. As time went on, my goals got bigger. When you picture your ideal life, what are you doing in it? 10 Rules for a Rich Life 1. A Rich Life means you can spend extravagantly on the things you love as long as you cut costs mercilessly on the things you don’t. 2. Focus on the Big Wins—the five to ten things that get you disproportionate results, including automating your savings and investing, finding a job you love, and negotiating your salary. Get the Big Wins right and you can order as many lattes as you want. 3. Investing should be very boring—and very profitable—over the long term. I get more excited eating tacos than checking my investment returns. 4. There’s a limit to how much you can cut, but no limit to how much you can earn. I have readers who earn $50,000/year and ones who earn $750,000/year. They both buy the same loaves of bread. Controlling spending is important, but your earnings become super-linear. 5. Your friends and family will have lots of “tips” once you begin your financial journey. Listen politely, then stick to the program. 6. Build a collection of “spending frameworks” to use when deciding on buying something. Most people default to restrictive rules (“I need to cut back on eating out . . .”), but you can flip it and decide what you’ll always spend on, like my book-buying rule: If you’re thinking about buying a book, just buy it. Don’t waste even five seconds debating it. Applying even one new idea from a book is worth it. (Like this one.) 7. Beware of the endless search for “advanced” tips. So many people seek out high-level answers to avoid the real, hard work of improving step by step. It’s easier to dream about winning the Boston Marathon than to go out for a ten-minute jog every morning. Sometimes the most advanced thing you can do is the basics, consistently. 8. You’re in control. This isn’t a Disney movie and nobody’s coming to rescue you. Fortunately, you can take control of your finances and build your Rich Life. 9. Part of creating your Rich Life is the willingness to be unapologetically different. Once money isn’t a primary constraint, you’ll have the freedom to design your own Rich Life, which will almost certainly be different from the average person’s. Embrace it. This is the fun part! 10. Live life outside the spreadsheet. Once you automate your money using the system in this book, you’ll see that the most important part of a Rich Life is outside the spreadsheet—it involves relationships, new experiences, and giving back. You earned it. What You’ll Get Out of This Book Most people think that investing means “buying stocks,” as if they should buy and sell random stocks and somehow magically make a profit. Because they’ve started with a mistaken assumption—that investing means picking stocks—the ones who decide to learn more go down the rabbit hole of fancy terms like “hedge funds,” “derivatives,” and “call options.” In reality, their fundamental assumption was incorrect. Investing isn’t about picking stocks. In fact, your investment plan is actually more important than any individual investment you make. Sadly, most people actually think you need this level of complexity to get rich because they see people talking about this stuff online each day. Guess what? For individual investors like you and me, these options are irrelevant. 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. Simple, long-term investing works. This idea gets nothing but yawns and eye rolls. But you decide: Do you want to sit around impressing others with your sexy vocabulary, or do you want to join me on my gold-lined throne as we’re fed grapes and fanned with palm fronds? I Will Teach You to Be Rich will help you figure out where your money is going and redirect it to where you want it to go. Saving for a vacation to China? A wedding? Just want to make your money grow? Here’s the six-week program that will let you tackle it. six weeks of action Steps IN WEEK 1, you’ll set up your credit cards, pay off debt (if applicable), and learn how to master your credit history and free credit rewards. IN WEEK 2, you’ll set up the right bank accounts. IN WEEK 3, you’ll open a 401(k) and an investment account (even if you have just $100 to start). IN WEEK 4, you’ll figure out how much you’re spending. And then you’ll figure out how to make your money go where you want it to go. IN WEEK 5, you’ll automate your new infrastructure to make your accounts play together nicely. IN WEEK 6, you’ll learn why investing isn’t the same as picking stocks—and how you can get the most out of the market with very little work. You’ll also learn to choose a low-cost automatic portfolio that beats typical Wall Street portfolios, and find out how to maintain your investments by setting up a system that lets you remain as hands-off as possible while your money accumulates automatically. Plus, I provide answers to many specific money questions, including how to buy a car, pay for a wedding, and negotiate your salary. After reading this book, you’ll be better prepared to manage your finances than 99 percent of other people. You’ll know what accounts to open up, ways not to pay your bank extra fees, how to invest, how to think about money, and how to see through a lot of the hype that you encounter online every day. There aren’t any secrets to getting rich—it just takes small steps and some discipline, and you can do it with a little bit of work. Now let’s get started. Chapter 1 Optimize Your Credit Cards How to beat the credit card companies at their own game You’ll never see an Indian driving a two-door coupe. Really, think about it. If you have a neighborhood Indian—let’s call him Raj—this guy is driving a practical four-door car, usually a Honda Accord or Toyota Camry. However, Indian people aren’t just fanatical about driving sensible cars. We’re absolutely nuts about hammering down the price to the last penny. Take my dad, for example. He’ll bargain for five straight days just to buy one car. I’ve been along for the ride on these weeklong negotiating sessions with him before. Once, as he was literally about to sign the papers, he stopped, asked them to throw in free floor mats (a $50 value), and walked away when they refused. This, after he’d spent five days bargaining them down. As he dragged me from the dealership, I stared straight ahead, shell-shocked. As you can imagine, by the time I went to buy my own car, I had been steeped in a rich tradition of negotiating. I knew how to make unreasonable demands with a straight face and never take no for an answer. I took a more modern approach, however: Instead of spending a week going from dealership to dealership, I simply invited seventeen dealers in Northern California to bid against each other for my business while I sat at home and browsed around the internet, calmly reviewing the emails and faxes (yes, really) as they came in. (For more about buying a car.) In the end, I found a great deal in Palo Alto and walked in ready to sign the papers. Everything was going smoothly until the dealer went to check my credit. He came back smiling. “You know, you have the best credit of anyone I’ve ever seen at your age,” he said. “Thanks,” I replied, actually wanting to say, “AWWW, YEAH, I KNEW IT.” That’s because I was a weird twentysomething Indian who chooses a four-door Accord for his dream car and prides himself on his credit score. Then the dealer said, “Hmm.” “Hmm?” I asked. “Well,” he said, “it looks like you have great credit, but not enough credit sources.” The bottom line, he told me, was that they couldn’t offer me the low-interest option we had talked about. Instead of 1.9 percent interest, it would be 4.9 percent. That didn’t sound like much, but I pulled out a notepad and did a quick calculation. The difference would be more than $2,200 over the life of my car loan. Because I was getting such a great deal on the car, I convinced myself that the higher interest rate was okay, and I signed the papers for the loan. But I was still pissed. Why should I have to pay an extra two grand when I had great credit? Most people weren’t raised like me, so I understand that you probably hate negotiating. Most Americans do. We’re not sure what to say, we get nervous about looking cheap, and then we look at ourselves and say, “Is this really worth it?” In a pool of sweaty discomfort, most of us conclude “No”—and we pay full price. I have a fresh perspective: It’s not worth negotiating everything, but there are a few areas of life where negotiation is a Big Win. In this chapter, I’m going to show you how to go on offense and squeeze as many rewards and benefits out of your credit cards as possible. You’re going to start winning against them. And for the first time, negotiating is going to be fun. The Usual Credit Card Scare Tactics Virtually every section on credit cards in every book starts with these three scare tactics. Scary stats. According to the Prosperity Now Scorecard, the median US household credit card debt is $2,241, and the median student loan debt is $17,711. The Fed Reserve notes that “Four in 10 adults in 2017 would have to either borrow money, sell something, or simply not be able to pay if faced with a $400 emergency expense.” Scary headlines. “The looming debt crisis will hurt these Americans the most,” reports CNBC. Or this one from the Washington Post: “A debt crisis is on the horizon.” Business Insider reports that “America’s student debt crisis is worse than we thought.” Scary emotions. Confusion, anxiety, and lies—the media knows that if they employ these, they’ll sell pageviews and ads. Reading these scare tactics, how do you feel? Most of us respond by shutting down and ignoring the problem. Debt was about fear. I didn’t talk about it, I didn’t look at the whole picture, I avoided any conversation or thought about it. —Warren Kopp, 36 Debt was always at the back of my mind. I couldn’t enjoy spending the money I had because it haunted me. —Chris Behrens, 45 I remember feeling embarrassed when I would apply for a credit card and get turned down . . . When debt collectors would call, I would feel embarrassed and stressed about ignoring the call, because I owed money, but couldn’t afford to pay it off. —Allison Reynolds, 28 The media thrives on creating fear and anxiety around debt, as if it’s inescapable and crippling. And they rarely suggest solutions—when they do, they’re along the lines of “eat out less.” Thanks, guys. The result is a tornado of negative emotions. We feel helpless. We feel outraged. Who should get the blame? I don’t know, but somebody should. Most of all, we do nothing. This is how “outrage culture” works—it makes you feel angry and exhausted . . . and then you go back to doing nothing. I have a different approach. The Way I See It Credit cards give you thousands of dollars worth of perks. If you pay your bill on time, they’re a free short-term loan. They can help you keep track of your spending much more easily than cash, and they let you download your transaction history for free. Most offer free warranty extensions on your purchases and free rental car insurance. Many offer rewards and points worth hundreds or even thousands of dollars. Credit cards are also convenient enemies. Almost everyone has a bad story about late fees, unauthorized charges, or overspending. Not surprisingly, many pundits have a knee-jerk reaction to credit cards: “Using credit cards is the worst financial decision you can make,” they shout. “Cut them all up!” What an easy battle cry for people who want simple solutions and don’t realize the benefits of multiple sources of credit. The truth about credit cards lies somewhere between these two extremes. As long as you manage them well, they’re worth having. But if you don’t completely pay off your bill at the end of the month, you’ll owe an enormous amount of interest on the remainder, usually about 14 percent. This is what’s known as the annual percentage rate, or APR. Credit card companies also tack on a whopping fee every time you miss a payment—usually around $35. It’s also easy to overuse credit cards and find yourself in debt, as many American credit card users have done. This isn’t meant to scare you away from using credit cards. In fact, instead of playing defense by avoiding credit cards altogether, I want you to play offense by using credit cards responsibly and getting as many benefits out of them as possible. To do so, you need to optimize your credit card(s) and use them as a spearhead to improve your overall credit. By the end of this chapter, you’ll know how to squeeze the credit card companies for everything they’re worth—without paying unnecessary fees—and you’ll know how to use your cards to boost your all-important credit score. I’ll show you how to negotiate with credit card companies and reveal secret perks that nobody talks about. And I’ll show you exactly how I maximize my credit cards for perks and cash back, including examples of how I use points for free flights and high-end hotel stays. When I was traveling with my fiancée to see her family in Dubai, I surprised her with a three-night stay at a resort in the desert that could only be described as 7-star. We had a private villa in traditional bedouin style overlooking the Dubai desert with a private pool, and all meals at the resort were provided. The whole experience easily would have cost $2,000-plus a night, but I did the whole thing for free with points. —Nathan Lachenmyer, 29 I recently booked 2 round-trip tickets from San Francisco to Italy for a 2-week vacation this fall. The flights were completely free with credit card points! —Jane Philipps, 30 In the past year I’ve flown business class to Spain and stayed at luxury hotels for a week, flown round-trip business class with my girlfriend to Thailand, and flown my mother to Germany business class to visit for her father’s 80th birthday. I’m also about to redeem miles to go to Budapest next spring! —Jordan Petit, 27 Student loans can be a great decision. Journalists love to write about the student debt “crisis.” Yet a student loan can be one of the best investments you ever make, with the average bachelor’s degree holder earning over $1 million more than people with only a high school diploma. Yes, debt sucks, and yes, many predatory colleges and graduate schools actively lie to young Americans about the actual value of their degree—a problem that’s completely inexcusable and supported by an educational-industrial complex. Many earnest but naive students were misled by their counselors, colleges, and even their parents about incurring student loan debt on degrees that will never pay off. But you can pay off your debt faster than you thought possible (to see how, flip to Student Loans—Pay Them Down or Invest?). And your college degree was almost certainly worth it—even if you’re only considering the financial return on investment and not including the benefits of making lifelong friends, building priceless habits of discipline, and exposing yourself to new ideas as an educated citizen. Ignore the scare tactics of the student loan “crisis.” If you have student loan debt, use the material in this book to create a repayment plan. Most people are playing the game wrong. I’ve spoken to literally thousands of people who are in debt. Some of them have had tough situations—unexpected illnesses, elderly parents who need support, surprise expenses. But, candidly, some of them are simply playing the game wrong. They’ve never spent a weekend reading a book on personal finance. They don’t even know how much they owe! Instead of doing the work to aggressively win at the game of debt, they complain. It’s like watching a four-year-old trying to play Monopoly, then realizing they can’t understand the rules (which they’ve never read), getting angry, and flipping the board over. I’ll show you how to win. When it comes to student loans and credit cards, my goal is for you to stop playing defense. I’m going to show you how to play offense instead. For student loans, make an aggressive plan and minimize the amount of interest you pay. For credit cards, I squeeze every single benefit out of them. Basically I want the credit card companies to hate you, as they hate me. The best part is how fast you can change your financial life once you switch from playing defense to playing offense with your money. In the 3½ years since I read the book, I paid off $14,000 in credit card debt and $8,000 in student loan debt. —Ryan Healey, 27 In the past year since I started this book, I opened a 401(k) and a Roth IRA, understand how they work, and have funded $7,200 toward my retirement. I also opened 2 credit cards to build my utilization and boost my credit score and am 100 percent a deadbeat customer who pays on time every month in full. —Jeff Collins, 35 I learned how to automate my credit card payments, set up flexible spending, and start investing in index funds. Today I have amassed over $40,000 in my “net worth,” having been out of school for less than 2 years. Thanks for the advice! —Emily Bauman, 24 Bank of America Hates Me Bank of America, one of the world’s shittiest banks, hates me because I’ve named them as one of the worst banks out there. Good news! Ten years later, they’re still on my list for screwing over my readers repeatedly. (Wells Fargo is also on my list.) I don’t cut deals with banks—I don’t need their money—and I call out the best, and worst, financial companies for my readers. As you can imagine, the worst companies don’t like being named in a New York Times bestselling book. I discovered Bank of America hates me because one of my friends works in their corporate office. One day, she reached out to me and said, “Did you know you’re on a Bank of America influencer list?” I was surprised. Me? Little old me? Then she added: “It’s a negative influencer list.” I have never been so proud. Playing Offense: Use Credit to Accelerate Your Rich Life People love to pick sexy investments and use fancy terms like “distressed securities” and “EBITDA” when they focus on getting rich. But they often ignore something that is so simple, so basic, that it just doesn’t seem important: their credit. Ironically, credit is one of the most vital factors in getting rich, but because it’s hard to wrap our minds around it, we often overlook it entirely. It’s time to wake up and pay attention to it, because establishing good credit is the first step in building an infrastructure for getting rich. Think about it: Our largest purchases are almost always made on credit, and people with good credit save tens of thousands of dollars on these purchases. Credit has a far greater impact on your finances than saving a few dollars a day on a cup of coffee. There are two main components to your credit (also known as your credit history): your credit report and your credit score. These boring terms can actually save you tens of thousands of dollars over your lifetime, so listen up. This is an example of a Big Win—worth paying attention to. Your credit report gives potential lenders basic information about you, your accounts, and your payment history. It tracks all credit-related activities (e.g., credit cards and loans), although recent activities are given higher weight. 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. It’s like an SAT score for the credit industry (higher is better). The lenders take this number and, with a few other pieces of information, such as your salary and age, decide if they’ll lend you money for credit like a credit card, mortgage, or car loan. They’ll charge you more or less for the loan depending on your score, which signifies how risky you are. It’s ridiculously easy to check your credit score and credit report—and you should do it right now. Once a year, by law, you’re allowed to obtain your credit report for free at annualcreditreport.com. It includes basic information about all your accounts and payment history. 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. Why are your credit report and credit score important? Because a good credit score can save you hundreds of thousands of dollars in interest charges. How? Well, if you have good credit, it makes you less risky to lenders, meaning they can offer you a better interest rate on loans. Maybe you don’t need a loan today, but in three or four years, you might need to start thinking about a car or a house. So please don’t scoff at or dismiss what you just read. One of the key differences Credit Score vs. Credit Report What your credit score is based on: What your credit report includes: 35% payment history (How reliable you are. Late payments hurt you.) ■ Basic identification information 30% amounts owed (How much you owe and how much credit you have available, aka your credit utilization rate) ■ A list of all your credit accounts 15% length of history (How long you’ve had credit) ■ Your credit history, or whom you’ve paid, how consistently, and any late payments 10% new credit (Older accounts are better, because they show you’re reliable.) ■ Amount of loans 10% types of credit (For example, credit cards, student loans. Varied is better.) ■ Credit inquiries, or who else has requested your credit info (other lenders) Get your credit score at myfico.com for a small fee. ■ Get your free credit report once a year at annualcreditreport.com between rich people and everyone else is that rich people plan before they need to plan. If you doubt that a loan’s interest rate really makes that much of a difference, check out the table on the next page. 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 (or more if you live in a high-cost-of-living area). While other people spend many hours cutting coupons, agonizing over generic brands at the grocery store, or beating themselves up over a morning latte, they’re failing to see the bigger picture. It’s fine to keep a close eye on your expenses, but you should focus on spending time on the things that matter, the Big Wins. So let’s dig into tactics for improving your credit, which is quantifiably worth much more than any advice about frugality. How Credit Scores Affect What You Pay On a $200,000 30-year mortgage, if your FICO score is . . . . . . your APR* (interest rate) will be . . . . . . with interest, you’ll pay a total of . . . 760–850 4.279% $355,420 700–759 4.501% $364,856 680–699 4.678% $372,468 660–679 4.892% $381,773 640–659 5.322% $400,804 620–639 5.868% $425,585 *APR calculated in August 2018. My credit mistake was I opened my account too late, I very quickly started using my card to stay out of my bank overdraft, and it got out of hand. Then I forgot I had to make a payment and missed a payment. I wish I’d understood how a credit card would help my credit score a decade ago, because then I would’ve already made, learned from, and recovered from my daft mistakes with it. —JC, 29 Building Credit with Credit Cards Credit comes in many forms (car loans, mortgages, and so on), but we’re going to start with credit cards because almost all of us have one, and most important, they’re the fastest and most concrete way to optimize your credit. Most people are making at least one or two major mistakes with their credit cards. The good news is that it’s incredibly easy to fix this by learning a little bit about how credit cards work. Guess How Much an iPhone Costs If You Finance It with a Credit Card? One of the biggest problems with credit cards is the hidden cost of using them. It may be incredibly convenient to swipe your card at every retailer, but if you don’t pay your bill every month, you’ll end up owing way more than you realize. Let’s say you buy this . . . Paying minimum payments, it will take this long to pay it off . . . You’ll pay this much in interest $1,000 iPhone 9 years, 2 months $732.76 $1,500 computer 13 years, 3 months $1,432.19 $10,000 furniture 32 years, 2 months $13,332.06 Assumes 14% APR and 2% minimum payment If you paid only the minimum monthly balance on your $10,000 purchase, it would take you more than 32 years and cost you more than $13,000 in interest alone, more than the purchase price itself. Remember, this doesn’t even factor in your “opportunity cost”: Instead of paying off a $10,000 sofa for over 30 years, if you’d invested the same amount and earned 8 percent, it would’ve turned into about $27,000! Try calculating how much your own purchases really cost at bankrate.com/brm/calc/minpayment.asp. Getting a New Card How do you choose the right credit card? I have a few simple rules that I use when choosing my own cards: ■ Don’t accept credit card offers that come in the mail or from retail stores like Gap or Nordstrom. ■ Squeeze every reward you can out of your credit cards. ■ Pick a good one, then move on with your life. Now here’s how to do it. Get rewarded for your spending. There are different levels of rewards cards. Some are very basic, while others offer hundreds of dollars in annual benefits—or even thousands, depending on how much you spend. First, decide what you want to get rewarded with—cash back or travel. I recommend cash back because it’s straightforward, there are excellent cash back cards, and it’s simpler than travel rewards, which require more sophistication to truly maximize. (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, which takes less than 5 minutes. Here’s a quick rule of thumb: If you spend thousands per month on your credit card, the rewards are usually worth it. But if you spend more modestly or you’re not sure whether you want to pay a fee, spend a few minutes doing a quick analysis by searching for “credit card rewards calculator.” Plug in your numbers and you’ll quickly see which rewards cards are worth it for you. Bottom line: It’s almost always worth getting a rewards card. Be sure to do your homework and pick one where you value the rewards. Don’t sign up for retail store credit cards. These cards might as well have “You Screwed Yourself” written on them in thirty-six-point type. I can’t count how many times I’ve been in line and seen someone buying $40 of socks or a cheap T-shirt or two. I just wait for the conversation I know is about to happen. “Would you like to open a credit card?” the salesperson asks, praying he meets his commission goal for the month. “You’ll save ten percent.” Yup! There it is! Between clenched teeth, it’s me muttering, “Shut your mouth, Ramit. Don’t say anything. They don’t want your unsolicit—” Person at the register: “Hmm . . . sure, I’ll open that card. Why not? It couldn’t hurt.” Two points for our friend who decided to open a retail credit card: 1. As a general rule, whenever you say, “It couldn’t hurt,” IT VERY MUCH COULD HURT. Every single time I’ve said that in my life, I’ve proceeded to make a huge mistake. 2. This person just opened one of the most predatory cards out there to save $4. Jesus. You might as well reach into a dirty gutter to find a few pennies. That would be cheaper than the financial beating you’re going to eventually take. Get some standards, people. 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? As for the credit card offers that come in the mail, generally you can find better options by researching online. (Sidenote: If you find yourself getting a ton of credit card offers and other junk mail, go to optoutprescreen.com to get off their marketing lists.) I forgot to pay a stupid $25 Gap bill. It was a big PITA over 25 bucks. They dinged my credit and almost sent it to collections. I followed the process to challenge it 6 months later. Told them it was a one-time mistake. I believe the phone agent gave me an address to send a letter. I did and a couple months later the remark was gone from my account. —Paul Frazier, 30 Searching for Credit Cards Online A secret of the credit card industry: When you compare credit cards online, you’re entering a murky world of SEO and affiliate fees where nearly all credit card listings are compensated. This means that virtually every site is being paid for showing you their “recommended” cards, and it’s not easy to see why certain cards are being recommended. You can usually find very good cards on these sites. But if you’re a high spender, be sure to take a few extra minutes searching around. For example, when I was beginning to plan my wedding, I looked for the best cash back card. Buried at the bottom of some forum post, I found a cash back credit card from Alliant Credit Union that paid 3 percent for the first year of spending, then 2 percent afterward. That was the best cash back reward on the market, but the card never showed up in my original searches. Don’t go card crazy. Now that you’re in the market, you might be tempted by any number of card offers. But don’t overdo it. There’s no magic number of cards you should have, but each additional card you get means added complexity for your personal finance system: more to keep track of and more places for things to go wrong. Two or three is a good rule of thumb. (The average American has four credit cards.) My online business profile didn’t have my latest address so I never received statements. For 34 months, my bank account got charged $60. I ignored it and didn’t investigate it, hoping it would go away. I was cocky I could force them to waive these charges because of the relationship. Then I finally willed myself to look into it, visited branches, called 5 different departments. No bid. Once all was said and done, I ended up paying ~$2,000 for a $3,000 initial balance. It completely smoked my confidence. I closed down all 11 of my cards except my CSP. Technically I’m still “ahead” but the thought of having paid $2,000 when I *didn’t have to* and it was *100% avoidable and in my control* was too much. —Hassan Ahmed, 36 Remember, there are other sources of credit besides credit cards. These include installment loans (such as auto loans), personal lines of credit, home equity lines of credit, and service credit (such as utilities). Your credit score is based on your overall sources of credit. “Take it slow,” Craig Watts of Fair Isaac Corporation says, cautioning against prescribing a specific number of credit sources. “It depends on how long you’ve been managing credit. The less information in your credit report, the higher the prominence of each new report. For example, if . . . you only have one credit card in your name, when you open another account, the weight of that action is more than it would be ten years down the line.” In short, pick two or three great cards, maximize rewards sensibly, and remember that these cards are just one part of your overall financial infrastructure. The Exact Credit Cards I Use Years ago, I decided to optimize my credit card rewards. I knew I was about 95 percent of the way there—I had cash back and travel cards for my business and personal spending—but I wanted to get truly dialed in for that last 5 percent. As my business had grown to dozens of employees, my spending had increased considerably. These rewards started to become meaningful and I wanted to be sure I was getting every benefit available. For example, at a certain point, we were spending over $40,000 on ads every month. I know most people don’t need to maximize points at this level. But I think it’s fascinating, and I want to share what I learned. I wanted to know: ■ Am I squeezing out every possible reward from my spending? ■ How should I handle large spending events, like a wedding or a team retreat? ■ When should I use a cash back card versus a travel card? Most important, what am I missing? What are all the cool things I should be asking for that I don’t even know about? Finding answers was harder than I thought. First, I posted on Facebook, asking if anyone knew an expert who could audit my spending and give me feedback on the cards I was using. Most of the people I initially talked to were focused on maximizing points for frugal traveling. That’s cool, but it’s not really my thing. Then I had an unusual call with a guy named Chris. “I had my credit cards in pretty good shape,” Chris told me. “But then I wanted to get really good. And I know guys like you and me don’t have a lot of time to play the credit card games of opening and closing cards all the time.” I was listening. Chris told me how he set up his cards to maximize rewards to the tune of millions of points. I was interested, but I wanted to see if he really knew what he was talking about. Then he said this. Chris: You want to know what I do to really squeeze the points out of my credit cards? Ramit: YES! Chris: Some hotels will give you five hundred points for every night you waive housekeeping. So if I’m traveling alone, I get a room with two beds. I switch beds, switch towels, and I get my five hundred points. When I heard this, I was sold. He was so detailed, so fanatical, that he had optimized down to the level of towel usage. I had met my hero. Chris Hutchins is the CEO of Grove (hellogrove.com), a financial planning service geared toward young professionals. He also happens to be extremely skilled in optimizing travel rewards. My goal was to build a “playbook” of how to use credit cards to maximize rewards for my personal and business lives. My assistant, Jill, spent weeks working with Chris, analyzing my spending and upcoming expenses. The goal was to boil it down to a simplified “playbook” that Jill could use when making purchase decisions. The entire document is 15 pages long. But here is the key takeaway: 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. The result of this is thousands of dollars in cash back each year, millions of rewards points, and a new life motto: MBWOSIS. My Body Will Only Sleep in Suites. The Six Commandments of Credit Cards Now it’s time to go on offense and take full advantage of your cards. You’ll improve your credit while automatically being rewarded for the purchases you’re already making. Optimizing your credit is a multistep process. One of the most important factors is getting out of debt, which we’ll tackle at the end of the chapter. But first, we’ll set up automatic credit card payments so you never miss a payment again. Then, we’ll see how to cut fees, get better rewards, and take everything you can from the credit card companies. 1. Pay off your credit card regularly. Yeah, we’ve all heard it, but what you may not know is that your debt payment history represents 35 percent of your credit score—the largest chunk. In fact, the single most important thing you can do to improve your credit is to pay your bills on time. Whether you’re paying the full amount of your credit card bill or risking my wrath by paying just part of it, pay it on time. Lenders like prompt payers, so don’t give your credit card company the opportunity to raise your rates and lower your credit score by being a few days late with your payment. This is a great example of focusing on what will get you rich, not on what’s sexy. Think about your friends who search every single website to get the best deals on travel or clothes. They might be thrilled after saving $10—and 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. Today, most people 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. Note: Don’t worry if you don’t always have enough money in your checking account to pay off the full amount on your credit card. You’ll get a statement from your card company each month before the payment goes through so that you can adjust your payment as needed. I totally forgot the due date for my credit card. So not only did they charge me a late fee, but they charged me interest on that month’s and the previous month’s purchases. I called up the customer service line of the card and told them that I had been a good customer in the past and asked if they could do anything for me with the fees. The representative removed the late fee and refunded $20 of the interest charge back to my account. They returned a total of $59 to me with one phone call. —Eric Henry, 25 Awful Consequences 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. (I find this fact amazing.) Don’t get too freaked out: You can recover from the hit to your credit score, usually within a few months. In fact, if you’re just a few days late with your payment, you may incur a fee, but it generally won’t be reported to the credit bureaus. Find out what to do if you miss a payment. 2. Try to get fees on your cards waived. This can be a great way to optimize your credit cards, because your credit card companies will do all the work for you. Call them using the phone number on the back of the card and ask if you’re paying any fees, including annual fees or service charges. It should go a little something like this: You: Hi, I’d like to confirm that I’m not paying any fees on my credit card. Credit card rep: Well, it looks like you have an annual fee of $100. That’s actually one of our better rates. You: I’d rather pay no fees. Can you waive this year’s annual fee? Earlier I mentioned that it can be worth paying annual fees for rewards cards. This is true—but why not ask? Remember, credit card companies compete ferociously with each other, which can benefit you. Call them a month before your new annual fee kicks in and ask them to waive it. Sometimes it works, sometimes not. If you decide that your credit card fee isn’t worth it, ask your credit card company what they’ll do for you. 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. 3. Negotiate a lower APR. Your APR, or annual percentage rate, is the interest rate your credit card company charges you. APRs fluctuate, but in general, they hover around 13 to 16 percent. That is very high! This makes it extremely expensive if you carry a balance on your card. Put another way, since you can make an average of about 8 percent in the stock market, your credit card is getting a great deal by lending you money. If you could get a 14 percent return, you’d be thrilled. You want to avoid the black hole of credit card interest payments so you can earn money, not give it to the credit card companies. So, call your credit card company and ask them to lower your 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. (See sample script.) In my experience, this works about half the time. It’s important to note that your APR doesn’t technically matter if you’re paying your bills in full every month—you could have a 2 percent APR or 80 percent APR and it would be irrelevant, since you don’t pay interest if you pay your total bill each month. But this is a quick and easy way to pick the low-hanging fruit with one phone call. Reading IWT, I’ve probably saved $15,000 to $25,000 in interest alone. I’ve negotiated car loans, student loans, home loans, etc. —Lyla Nutt, 30 4. Keep your main cards for a long time, and keep them active—but also keep them simple. Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score. Don’t get suckered by introductory offers and low APRs—if you’re happy with your card, keep it. Some credit card companies will cancel your account after a certain period of inactivity. To avoid having a card you rarely use shut down, set up an automatic payment on it. For example, I set it up so that one of my credit cards pays a $12.95 monthly subscription through my checking account each month, which requires zero intervention on my part. But my credit report reflects that I’ve had the card for more than five years, which improves my credit score. Play it safe: If you have a credit card, keep it active using an automatic payment at least once every three months. Now the one tricky part: If you decide to get a new card, should you close your old card? I’ve changed my view here over the years. 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. Some of my readers have opened over twenty-plus cards to “churn” rewards, and now they can’t keep track of all their cards. This is where you have to make a decision on risk versus reward and simplicity versus complexity. There’s lots of advice warning against closing credit cards, but as long as you’re paying your balances on time and have good credit, closing an old card will not have a major long-term impact on your credit score. Think balance: For most people, having two or three credit cards is perfect. If you have a special reason to have more cards—for example, if you own a business or are intentionally maximizing temporary sign-up rewards—great. But if you find yourself swamped with the number of cards you have, close the inactive ones. As long as you have good credit, the long-term impact will be minimal and you’ll sleep easier at night with a simple financial system you can easily keep track of. What to Do If You Miss a Payment Nobody’s perfect. Despite my warnings, I understand that accidents happen and you might miss a payment at some point. When this happens, I use my Indian heritage to beat the companies by negotiating with them, and you can, too: 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. (Note: Always end your sentence with strength. Don’t say, “Can you remove this?” Say, “I’d like to have this removed.”) At this point, you have a better-than-50-percent chance of getting the fee credited to your account. But just in case you get an especially tough rep, try this. Credit card rep: I’m very sorry, but we can’t refund that fee. I can try to get you our latest blah blah marketing pitch blah blah . . . 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? Credit card rep: Hmm . . . Let me check on that . . . Yes, I was able to remove the fee this time. It’s been credited to your account. You don’t believe me that it can be so simple? It is. Anyone can do it. 5. Get more credit. (Warning! Do this only if you have no debt.) This one is counterintuitive, and to explain it, I have to reach into personal finance lessons of yore. Many people don’t realize this, but in the classic ’80s Salt-N-Pepa song “Push It,” when they say that the dance isn’t for everybody—“only the sexy people”—they are actually detailing a sound personal finance strategy. Before I explain, I want to first acknowledge that, yes, I did just quote Salt-N-Pepa in an actual, published book. Anyway, when Salt-N-Pepa talk about “only the sexy people,” what they really mean is “This tip is only for the financially responsible people.” I’m serious about this warning: This tip is only for people who have no credit card debt and pay their bills in full each month. It’s not for anyone else. It involves getting more credit to improve something called your credit utilization rate, which is simply how much you owe divided by your available credit. This makes up 30 percent of your credit score. For example, if you owe $4,000 and have $4,000 in total available credit, your ratio is 100 percent (($4,000/$4,000) x 100), which is bad. If, however, you owe only $1,000 but have $4,000 in available credit, your credit utilization rate is a much better 25 percent (($1,000 / $4,000) x 100). Lower is preferred because lenders don’t want you regularly spending all the money you have available through credit—it’s too likely that you’ll default and not pay them anything. To improve your credit utilization rate, you have two choices: Stop carrying so much debt on your credit cards (even if you pay it off each month) or increase your total available credit. Because we’ve already established that if you’re doing this, you’re debt-free, all that remains for you to do is to increase your available credit. Here’s how: Call up your card company and ask for a credit increase. You: Hi, I’d like to request a credit increase. I currently have five thousand dollars available, and I’d like ten thousand. Credit card rep: Why are you requesting a credit increase? You: I’ve been paying my bill in full for the last eighteen months and I have some upcoming purchases. I’d like a credit limit of ten thousand dollars. Can you approve my request? Rep: Sure. I’ve put in a request for this increase. It should be activated in about seven days. I request a credit-limit increase every six to twelve months. Remember, 30 percent of your credit score is represented by your credit utilization rate. To improve it, the first thing you should do is pay off your debt. Only after you’ve already paid off your debt should you try to increase your available credit. Sorry to repeat myself, but this is important! When my husband and I were in college, we got a free T-shirt or something and got credit cards with reasonable limits ($500). Sure, I had no income, but that didn’t seem important at the time. Wouldn’t you know it, I was responsible enough to have my limit raised to $2,000 after a very short period of time! Except that I wasn’t actually responsible, and I paid thousands of dollars in interest and late fees and wrecked my credit rating for several years. It took many years for us to clear up this debt. I can’t name one purchase that was truly necessary. —Michele Miller, 38 6. Use your credit card’s secret perks!Before I get into rewards programs, let me say this: Just like with car insurance, you can get great deals on your credit when you’re a responsible customer. In fact, 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. Often, they can waive fees, extend credit, and give you private promotions that others don’t have access to. 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.” As discussed, credit cards also offer rewards programs that give you cash back, airline tickets, and other benefits, but most people don’t take advantage of all the free stuff they can get. For example, when I had to fly to a wedding in an obscure town in Wisconsin, I redeemed my credit card’s travel reward to save more than $600 on the flight. That’s an easy example, but there are even more rewards: Did you know that credit cards automatically give you amazing consumer protection? Here are a few examples you might not know about: ■ Automatic warranty doubling: Most cards extend the warranty on your purchases. So if you buy an iPhone and it breaks after Apple’s warranty expires, your credit card will still cover it up to an additional year. This is true for nearly every credit card for nearly every purchase, automatically. ■ Car rental insurance: If you rent a car, don’t let them sell you on getting the extra collision insurance. It’s completely worthless! You already have coverage through your existing car insurance, plus your credit card will usually back you up to $50,000. ■ Trip-cancellation insurance: If you book tickets for a vacation and then get sick and can’t travel, your airline will charge you hefty fees to rebook your ticket. Just call your credit card and ask for the trip-cancellation insurance to kick in, and they’ll cover those change fees—usually between $3,000 to $10,000 per trip. ■ Concierge services: When I couldn’t find LA Philharmonic tickets, I called my credit card and asked the concierge to try to find some. He called me back in two days with tickets. They charged me (a lot, actually), but he was able to get them when nobody else could. Most important, your credit card automatically tracks your spending, making it easy for software to download and categorize your expenses. For these reasons, I put almost all my purchases on a credit card—especially the large ones. Your key takeaway: Call your credit card company and ask them to send you a full list of all their rewards. Then use them! We paid for our entire 3-week honeymoon using points, including first-class, round-trip direct flights from NYC to Vegas, luxury suite at the Venetian, luxury car rental and all other accommodations, attractions, and food (yeah, even fo