Five Money "Lies" and What Ramit Sethi Says They Cost You
I Will Teach You To Be Rich
Ramit Sethi, author of I Will Teach You to Be Rich and host of Netflix's How to Get Rich, argues that politicians and the culture around them keep repeating five pieces of money wisdom that sound like common sense but lose ordinary people thousands of dollars. The five are: tax cuts for the rich create jobs, buying a home is the best investment, stocks are only for the rich, you just need to work harder, and you just need to cut back. Sethi's claim is that the problem is usually not people's discipline but the rules they were taught. For each myth, Sethi explains why the belief persists, gives the numbers to set against it, and suggests what to do instead.
Myth 1: "Don't tax the rich, they'll leave"
Sethi opens with what they see in their own comment sections: men earning around $45,000 a year, many struggling to pay for gas, who insist that raising taxes on billionaires will drive them out of New York. Sethi, who lives in New York and Los Angeles and describes themself as wealthy, answers from personal experience. A one-percentage-point increase on marginal income would not make them leave the cities they love, and Sethi says that is exactly how wealthy people think.
Sethi offers two reasons to doubt the idea that the rich flee. The first is a question: if billionaires simply chased low taxes, why aren't most of them living in Wyoming? Instead they cluster in New York, Los Angeles and San Francisco. Sethi's explanation is that wealthy people can live wherever they like, and they choose places with plenty to do, educated workers to hire, and restaurants and amenities to enjoy. The second reason is research. Sethi cites the book The Myth of Millionaire Tax Flight, which they say shows that wealthy and ultra-wealthy people move far less than middle-class and poor people. Middle-class and poor people tend to be younger and move for jobs. The wealthy tend to be older, have roots in their communities, often own businesses, and are not going to relocate over an extra $55,000 a year in taxes.
Why Sethi rejects trickle-down economics
Behind the "don't tax the rich" argument, Sethi sees a belief in trickle-down economics: if the wealthy get tax breaks, the benefit will reach everyone else. Sethi rejects this based on how they run their own business. A tax cut, even a 90% cut, would not lead them to hire a single person. They would save or invest the money. In Sethi's view, no CEO hires because taxes went down. Companies hire for one reason, which is more demand. Sethi calls the jobs argument a story created by the ultra-wealthy to win more tax cuts.
For historical support, Sethi points to Ronald Reagan's tax cuts for the wealthiest Americans and says the promised jobs and wealth never trickled down. Sethi also notes that during America's strongest period of growth, top marginal tax rates were above 50, 60, even 70%. Looking at how wealth has accumulated over recent decades, Sethi says the ultra-wealthy have taken a disproportionate share while everyone else has been left trying to get by. Sethi believes it is easy to make Americans angry about taxing the rich, even though that money could fund public transportation, social services and free meals for poor children at public elementary schools. In Sethi's words, if people truly saw how the wealthy had "rigged the game," "there would be a revolution."
Sethi compares this to growing up religious. Repeat "God will provide" often enough and people stop questioning it. The money version is the belief that the ultra-wealthy must deserve what they have, and that someone struggling to pay for gas is just a "temporarily embarrassed millionaire" who will join them once taxes and regulations get out of the way.
What Sethi is asking for
Sethi says they have no problem with people becoming wealthy and wants that for viewers. Sethi credits their own wealth to hard work and sacrifice, but also to a lot of luck: growing up with two educated parents, in a safe country, where paying your taxes meant nobody would take your house. What Sethi wants is a fairer game, one where losing a job for two months does not mean losing your home, and where the wealthiest country in the world has a social safety net.
Sethi's alternative theory of job creation is a strong middle class with money to spend. Middle-class people spend most of what they earn, and that spending creates demand for sheets, towels, vacations and more, which in turn creates jobs. Sethi also says the American middle class has actually become wealthier, pointing to long lines at Disneyland and crowded Amex lounges as signs that what used to be for the elite is now widely accessible. Even so, the ultra-wealthy have captured an even larger share, and the people left behind are the poor: single parents, people caring for sick relatives, children without stable homes. Sethi says the goal is not to hand out a billion dollars to everyone but to "raise the floor just a little bit." If that costs the wealthiest a marginal amount, Sethi welcomes it.
Personal steps: know your numbers, and vote
Sethi turns to what individuals can do. They say 50% of people do not know their own household income, let alone the four numbers Sethi considers key: fixed costs, savings, investments and guilt-free spending. Sethi recommends putting 5–10% of take-home pay into investments and the same amount into savings. If that seems impossible, start at 2%, or even 1%, but automate it. Sethi's reasoning is that you will get older either way, so you might as well have more money when you do.
Over the longer term, Sethi urges people to think carefully about how they vote. Sethi says they vote for progressive candidates willing to tax the rich and fund social services, and specifically looks for YIMBY candidates who want to build more housing. Sethi stresses that they would be among those paying more, and that people like them can afford it.
Myth 2: "Buying a home is the best investment"
Sethi describes the standard American dream as owning a single-family home, ideally in the suburbs, with anyone who doesn't treated as a loser. Sethi offers themself as a counterexample. They say they could buy a house in cash today but choose to rent. Sethi likes the flexibility and likes being able to text a landlord when the AC stops working and have someone sent over that night. Sethi also says that over the past 20 years, including in San Francisco, Los Angeles and New York, they have made more money renting than they would have by owning. Later Sethi puts the difference at "millions."
Sethi's main complaint is that Americans treat the biggest purchase of their lives the way a child treats chicken fingers, as if there were no downside. Most people, Sethi says, have never run a buy-versus-rent calculation and do not know the guideline that total housing costs should ideally stay below 28% of gross income. Sethi then walks through the numbers:
- A $60,000 down payment, invested instead of put into a house, would grow to nearly $900,000 over 40 years.
- A $500,000 house will cost more than $1 million once interest is included.
- Buyers usually ignore "phantom costs": rising property taxes, maintenance, the opportunity cost of the down payment, and the transaction costs of buying and selling.
Answering the usual objections
Sethi says people react angrily to this because homeownership is America's "number one religion," and they hear the same two objections again and again.
The first is that rent keeps rising while a mortgage locks in your payment. Sethi replies that only the mortgage is fixed. The total cost of ownership still rises as taxes and maintenance go up.
The second is that renting throws money away while owning builds equity. Sethi asks what equity actually is and how you get it out. To get it, you have to sell and pay large transaction costs. Then you have to live somewhere, and if prices have risen in your area, you may have to leave the city where your roots are and buy another expensive house.
The example Sethi calls most startling is how a mortgage payment is split. On a house bought today, Sethi says, you will pay more toward interest than principal for about the next 20 years, and you build very little equity in the first 15 to 20 years, longer than most people stay in a home. So Sethi suggests that "I'd rather not throw money away on rent" would be more honestly phrased as "I'd rather not throw money away on interest."
Sethi also argues the comparison itself is usually wrong. When someone says they would rather pay $1,000 toward a mortgage than $1,000 in rent, Sethi responds that owning currently costs more than renting in all of the top 50 US metro areas. Sethi also puts it this way: "Your rent is the maximum you will pay. Your mortgage is the minimum you will pay." Sethi says they have paid over a million dollars in rent and are happy about it, because they didn't have to worry about the apartment and invested the difference between the cost of owning and renting.
Not against buying, but against not doing the math
Sethi says clearly that buying is not always the wrong choice, and that at some point they and their wife will probably buy a house. The objection is to letting parents and society push people into the decision without running the numbers. Sethi points to people who say financial freedom is their top goal and then commit 140% of their net worth to a 30-year mortgage that ties them to one place, making it harder to move for a better job or a different school district. Sethi says that may be the opposite of freedom. They encourage people to ask why they want a house and to compare other ways of building wealth, such as low-cost index funds or starting a business.
Sethi also points to structural pressure. Homeownership is heavily subsidized in the US, for example through 30-year fixed-rate mortgages, which Sethi notes are not standard in other countries. Whatever the original goal of building strong communities, Sethi says real estate is now one of the biggest industries in America and spends heavily on lobbying, and the money it makes comes from buyers.
Sethi talks openly about renting partly to remove the stigma: if someone who writes books about money and can afford a house chooses to rent, renting isn't just for "losers who made mistakes." Some people have good reasons to own, such as wanting stability or a particular location for their children, or simply loving to decorate, and Sethi supports that as long as they run the numbers. But Sethi says many people, when questioned, don't really want to own and only feel something is missing because they've been told so. With prices historically high, which Sethi partly blames on "a bunch of old NIMBYs" blocking construction, Sethi's advice is to "go on offense": rent with open eyes and invest the savings aggressively.
Myth 3: "Buying stocks is for the rich"
Sethi says it drives them "insane" that people think investing is only for the rich. People imagine it like the Kentucky Derby, with expensive outfits and big hats, when it is really more like buying lettuce at Safeway. The barrier to entry is almost zero and investing is essentially free. Sethi says parents usually teach their children "we can't afford it" and almost never teach them about investing, because the parents don't understand it themselves.
To the objection that investing feels like gambling, Sethi says that comes from picturing investing as picking individual stocks, and sophisticated investors don't do that. Sethi describes their own approach: a set of index funds that buy automatically every month, which they rarely check. If Sethi were hit by a car or took three months off, the investments would keep going. Sethi calls it "boring," and says chapter six of their book explains that even highly paid professional investors fail to beat the market about 80% of the time. Low-cost index funds from Vanguard, Fidelity or Schwab let you buy the market and beat those portfolio managers.
On worrying about whether it's the right time to buy, Sethi mocks taking advice about Nvidia from an Uber driver. What matters, Sethi says, is "not timing the market, but rather time in the market": buy automatically every month. If $5,000 a month is too much, make it $500, or $100, or $50. For the simplest option, Sethi recommends a target-date fund. Pick the year you'll turn 65, say 2050, choose a fund like Vanguard's 2050 fund, and set up automatic monthly contributions. Sethi says the fund handles diversification and gradually becomes more conservative, and compares it to ordering the same Chipotle bowl every Friday on autopilot, except this can make you over a million dollars. Sethi also takes aim at the WallStreetBets crowd and social media accounts that only post their wins.
The cost of waiting
Sethi's numbers: investing $500 a month from age 25 to 65 produces about $1.2 million, which Sethi says is already adjusted for inflation into today's purchasing power. Starting the same plan at 35 produces about $585,000. So waiting ten years costs roughly $650,000.
To people who don't want to wait until 65 and want money now, Sethi says they want that too: a rich life today and a richer one tomorrow. But when Sethi asks what their alternative plan is, the answer is often something vague like buying some crypto coins. Sethi's alternatives are earning more, starting a business, or cutting costs and redirecting the savings into investments. Sethi also points out that most people have never bought a single book on personal finance and urges them to get educated, even through the library, comparing money to a language that has to be learned.
Politicians, Wall Street and retirement
Sethi notes that politicians rarely talk to the public about stocks because it doesn't connect with their audience, and instead talk about affordability and the middle class. Sethi supports that focus, calling the middle class "my entire political philosophy," but points out that most Americans already invest through accounts like 401(k)s. Sethi prefers to raise the bar rather than appeal to people's lowest desires.
To people who say they don't trust Wall Street, Sethi says they agree. But Sethi argues that buying low-cost, long-term index funds is itself a rejection of Wall Street, which would much rather sell whole life insurance, expensive mutual funds, or financial advisors charging 1.25% of assets under management. The last thing Wall Street wants, Sethi says, is a simple automated portfolio that pays them almost nothing.
Sethi describes a painful moment from their podcast with couples: people who have worked and worried about money their whole lives realize for the first time that their retirement income will be something like $35,000–$45,000 a year. Sethi says you can see the fear on their faces as they understand there's no easy way out. Close to retirement, Sethi says, it is very hard to change your situation. Sethi dislikes the half-joke "I'll just work till I die," because many people become unable to work as they age or have to care for sick relatives. Sethi asks viewers to respect money the way they respect the people they love or their own bodies: learn how it works, and start investing now and aggressively.
Myth 4: "You just need to work harder"
Sethi introduces the last two myths as more personal, ones that make people feel guilty and that, in Sethi's opinion, may cost the most. Sethi says the belief that hard work leads to success is mostly a good one. Their parents, immigrants from India, taught hard work, and their mother took the kids to the public library for hours every Saturday. But in college Sethi encountered a different way of thinking that successful people used and that nobody had taught them growing up middle class. For people raised poor or middle class, Sethi says, the answer to every money problem is to work more: nights, weekends, second jobs. Sethi hears this especially from men raised poor who say they'll ignore their own health to provide for their families. Sethi says that works until it stops, and many people are discovering there's a limit to how much they can work.
The missing piece, Sethi says, is strategy: not just how hard to work, but what to go after. Most people have seen a less hardworking coworker get promoted. Sethi compares working two extra hours a day, which is exhausting and hard on the body, with alternatives:
- Negotiating salary. A $5,000 raise in your 20s, invested every year, is worth more than $1 million over 40 years, according to Sethi.
- Changing jobs. Sethi says this can bring a 10–20% raise, while a 1–2% raise doesn't even keep up with inflation.
- Asking your boss directly what skills you need for the next level, such as "project manager two."
- Starting a side income by charging $20, $30 or $50 an hour for something you already do well. Sethi says they have helped tens of thousands of people do this.
Sethi links this to class consciousness: the people who benefit when workers only think about working harder are the wealthy people who employ them. Sethi gives an example of a man in a rural area whose job involved driving residents of some kind of housing facility, and whose personal gas spending was very high as a result. When Sethi suggested he ask his employer to cover the gas and ideally provide a work vehicle, the idea "just didn't really compute" for him. Sethi says that if you grew up in a place or culture where those at the top decide everything and you're just lucky to have a job, this advice can sound like "Martian." Sethi says they didn't grow up knowing all of this either, picked it up along the way, and wants people to stop putting the wealthy on a pedestal and recognize their own power.
On negotiating, Sethi tells viewers bluntly that they are bad at it, because Americans are never taught it and the culture is uncomfortable with it. But it's a learnable skill, and in a few key areas of life it can be worth hundreds of thousands of dollars. Sethi illustrates with a story: their four-year-old nephew complained that a pepper was spicy, and Sethi's sister just told him to drink some water. Sethi says that's how kids learn to eat spicy food, and it's why Sethi can eat habaneros for fun. It's cultural, not genetic. Sethi argues negotiating should be treated the same way: instead of being told it's okay to avoid it, people should practice until they're good at it.
Myth 5: "You just need to cut back"
The final myth is the one Sethi thinks people have heard most: skip the latte, avocado toast and Netflix. Sethi mocks it with an exaggerated lecture about never buying pickles. Sethi recalls hearing this advice in 2004, when they started their blog, mostly from older men lecturing young people about what they couldn't do with their money. Sethi wanted taco Tuesdays and trips with friends and wanted advice on how to have that life, not advice built on deprivation.
On the math, Sethi says skipping a $5 coffee every day saves about $1,800 a year. Meanwhile housing is at historic highs, healthcare costs more, and wages, especially for the middle class and poor, haven't kept up, yet the advice hasn't changed. Sethi also says many people in the personal finance world don't keep budgets or skip coffee themselves, because that isn't how they built their wealth.
Sethi's alternative starts with asking people what their rich life looks like and actually listening. If someone loves clothes, Sethi asks which brands and what they'd buy if they could, lets them dream, and then shows them how to afford, say, a beautiful cashmere coat. Sethi criticizes the American habit of saying "I'm so bad" and spending anyway, and tells viewers to stop asking to be treated like children. Spending even large amounts on something you love, like Japanese scissors bought purely for their beauty and sharpness, is fine as long as you deliberately decide it's part of your rich life and plan your money around it.
The $3 questions versus the $30,000 questions
Sethi ends by saying people are trained to focus on $3 questions when they should be focusing on $30,000 ones: What am I paying in investment fees? When will I be debt-free? How much will I have at retirement? What would an extra $100 or $200 a month in investments be worth in 25 years? Sethi's conclusion is that if you get three to five big decisions right, you never have to worry about whether you can afford a slice of pizza, and that these money lies keep people thinking small while the big moves go ignored.
You know and I know that politicians have been lying to you about money for decades. And you are probably losing thousands of dollars because you believe these lies. Things like buying a house is the American dream. It's always better than renting. And hey, loser, you need to pull yourself up by your bootstraps.
I have spent 20-plus years studying how people handle money. You may have seen me on Netflix or my best-selling book that sold over a million copies. Today, I'm breaking down the five biggest money lies that politicians keep repeating and how they are costing you money. Let's start with one that's been going around for decades.
The amount of men making $45,000 a year who bend over backwards to lick the boot of billionaires in my comments is truly unbelievable. Many of them struggle to pay gas and yet they insist, "Don't raise taxes on billionaires. They will leave New York." Are you out of your f***ing mind? I live in New York and LA. If you raise my taxes a percentage point on the marginal amount, I'm not leaving the cities that I love. That is exactly how wealthy people think.
There's a myth created by the ultra wealthy, and a lot of you believe it, that if you raise taxes a tiny amount on the ultra wealthy, they will simply pack up and leave. Hey everybody, if that's true, why aren't the most billionaires in Wyoming? Have you ever stopped to think about why they tend to live in New York City, LA, San Francisco? Because the ultra wealthy and wealthy can choose where they want to live. And in fact, the wealthy like to be around places with a lot of things to do, with a lot of educated people that they can hire for their businesses and frankly, a lot of restaurants and places that they can enjoy.
This myth that if you raise taxes on the wealthy, they will simply pack up and go is also not proven by the data. There's an excellent book called The Myth of Millionaire Tax Flight. And it shows conclusively that wealthy and ultra wealthy people move way less than middle class and poor people. Do you know why? Because middle class and poor people move for jobs and they tend to be younger. Wealthy and ultra wealthy people tend to be older. They have community roots. They also probably have a business and they're not trying to move because they're paying an extra $55,000 in taxes per year.
Beneath all of these angry men on TikTok posting how you shouldn't tax the wealthy is a deep belief in trickle-down economics. The idea that if we give the wealthy all these tax benefits, then that wealth will trickle down to me. I'm wealthy and I'm going to tell you right now, if you give me a tax cut, I am not going to hire a single person in my business. That is not how it works. No CEO hires people because their taxes got cut. CEOs only hire people for one reason: more demand.
So you can give me tax cuts. You can cut my taxes by 90%. You know what I'm going to do with that money? Save it, invest it perhaps, but not hire people. That is a myth created by the ultra wealthy, so they get more and more tax cuts. You can look at the data to see this. Go back to our devil in America, Ronald Reagan, who started cutting taxes on the wealthiest people in America. Do you think those jobs trickle down? Do you think the wealth trickle down? No, that's not how it works. In fact, in America's strongest period of growth, the marginal tax rates were over 50, 60, 70-plus percent.
It is surprisingly easy to rile up Americans against increasing taxes for the wealthy, even though those very taxes would likely help the middle class and poor with public transportation, with social services, with all kinds of benefits like feeding poor children at public elementary schools. But you know what? If you can keep the American public angry, then they will simply be distracted at what is really going on.
And if we look at the difference in wealth accumulation for the middle class and for the wealthy and ultra wealthy over the last few decades, you can simply see it is as plain as day. The ultra wealthy have taken a disproportionate amount of wealth, while everybody else has been left just trying to get by. Now you can keep people angry. You can keep them distracted because if they actually looked at what was going on and how the wealthy and ultra wealthy have truly rigged the game in their own favor, there would be a revolution.
If you have grown up religious and you heard certain things like "God will provide" over and over from your family, from your church, from the people at school, then you start to believe it. You actually don't even question it. Imagine the same thing happening, but with money. The idea that the ultra wealthy are some sort of almost omniscient people in our society, because if they're wealthy, surely they must deserve it. And me, even though I'm not wealthy, in fact, I'm struggling just to pay for my ARCO gas, well, I'm just a temporarily embarrassed millionaire. Free me of the shackles that prevent my success and I too will join them in nirvana. That's basically how American culture works.
When in reality, the game has been rigged to take the wealth that is created in America and disproportionately advantage the wealthy. I actually don't mind if you become wealthy or ultra wealthy. I want that to happen. I have become wealthy in part through hard work, through a lot of sacrifice, but also through a lot of luck. I grew up in a country with two educated parents where it was safe, where I could go and know that if I pay my taxes, nobody's going to come and steal our house. Those things, we got to admit them.
What I do want is a more fair playing board. I want you to know that if you lose a job for two months, you are not going to lose your house. You're not going to be destitute. That maybe, just maybe, in the wealthiest country in the world, we have a social safety net that makes life just a little easier. What actually creates jobs is a strong middle class, a strong middle class that can afford to spend their money.
And this is critical because when the middle class makes money, they tend to spend it. They need to use that money to live. That creates jobs because there's more demand for sheets and towels and vacations and all kinds of things that a strong American middle class creates. We've had a strong middle class in America. And in fact, believe it or not, our middle class has actually become wealthier. So that's the reason that there are so many long lines at Disneyland and all these lounges, these Amex lounges have lines out the door. That's because what used to be elite is now accessible to a lot more people because they make a lot more money.
But even though that is true, the ultra wealthy have taken even bigger amounts of the wealth created in this country. And you know who that leaves behind? The poor. We're talking about people who are single parents. We're talking about people who may be taking care of an ailing parent. We're talking about children who grew up orphans or grew up without a stable household. And for them, what I'm asking is simply to raise the floor just a little bit. I'm not trying to hand out a billion dollars to everybody.
I'm simply saying if you are a poor child who cannot afford to eat, perhaps our public schools in the wealthiest country in the world could provide food for you. If it costs the wealthiest people in America a marginal amount, good, good. They should enjoy the privilege of being able to provide for a strong middle class, which actually makes their lives even better.
You can take action right now with your own money. The first thing you can do is look at where your money is going. You have to remember 50% of people don't even know their own household income. They certainly do not know their four key numbers: fixed costs, savings, investments, and guilt-free spending. They pretty much spend whatever's in front of them. You can be the exception. Know your numbers, set aside an amount. I recommend five to 10% of take-home pay for investments and the same amount for savings. Now, if you're immediately going, "Hey, Ramit, that's impossible. I could barely afford gas," then make it 2%. If you can't afford that, make it 1%, but you've got to set the money up automatically because one way or another you're going to get older. You might as well have accumulated a lot more money.
Next, on a longer scale, you can start to actually look critically at who you vote for. I vote for progressive candidates who specifically are willing to tax the rich and provide social services. I look specifically for candidates who are YIMBYs, meaning they want to build more housing, yes, in my backyard, and they openly state they're willing to tax the rich. Remember, I'm going to be the one who gets taxed more. Guys like me can afford it. I want the middle class and poor people in America to be able to have food, healthcare, transportation that works for them, making their life just a little bit easier.
The first lie tells you to wait for money to trickle down. "Hey, where's my money, rich people? I've been waiting since Ronald Reagan. Anybody? Anybody?" The next one tells you to lock up your own money for 30 years and call it the best investment of your life.
The American dream that has been sold to you is that you must buy a single-family home, ideally in the suburbs. If you don't, you're a f***ing loser. I'd like to invite you to take a look at a different type of American dream. For some people, like me, homeownership is not the dream that I have right now. I could go and buy a house in cash today. I choose not to. I rent because I enjoy the flexibility. I enjoy being able to text a landlord and say, "Hey, the AC screen stopped working. Can you send somebody?" Sure, send somebody tonight. Finally, I actually have made more money renting than I would have owning for the last 20 years. That includes renting in cities like San Francisco, LA, and New York.
In America, we treat the biggest financial decision of our lives, buying a house, like a kid treats chicken fingers. Delicious. There's literally no downside or ramifications to this. That's not how the biggest purchase of your life works. The vast majority of people in America have never run a buy versus rent calculation. They don't even know what I'm talking about. They have never understood that you're ideally supposed to keep your total housing costs below 28% of your gross income. What the f*** is this guy talking about? These are just numbers. They literally go into this huge purchase going, "Buy a house? Wait? Become rich." They don't understand any of the math behind it. I would like to share some of it with you.
When you buy a house, let's just assume you put down 20%, which is a lot of money. If you took a $60,000 down payment and instead of buying the house, you just kept renting and you invested that $60,000 down payment, just let it sit. Over 40 years, that would turn into nearly $900,000. As another example, if you buy a $500,000 house, it's going to cost you over a million dollars once you factor in interest. Most of you are not factoring in any of those other phantom costs, including taxes, which go up. You're not factoring in maintenance. You're not factoring in opportunity costs of investing that down payment. Finally, you're not factoring in transaction costs, like how much it costs to buy and sell.
Now, when I talk about these things, especially when I tell you that I have made way more money, millions more renting than I would have buying, people get very angry because in America, our number one religion is homeownership. They will always say the same things to me. "Yeah, Ramit, but rent keeps going up, but when you own a house, you lock in your payment." "Oh, really? Okay, you lock in your mortgage, but your payment is not locked in. TCO, total cost of ownership, goes up." Once you think about maintenance, once you think about property taxes, and all kinds of other phantom costs that you are not factoring in.
The next thing they say is, "Rent is throwing money away, but at least I'm building equity." Okay, let's talk about it. What is equity? Where do I get it? I've put money into my house. How do I get it out? Oh, I have to sell it, which means I have to incur massive transaction costs. Oh, and then in order to get the equity, I have to go somewhere. So because housing has also gotten more expensive in my area, I have to move out of the city that I love where I have roots, and I have to somehow go and buy another house? Where's the money?
And here is the most startling example of all. Let's say you buy a house today, and as you know, when you pay your mortgage, some of it goes to interest and some of it goes to principal, where you build equity. How many years do you think it's going to take for you to pay more towards principal than it is to pay towards interest? The answer is not one or two years. Here's the shocking truth. For the next 20 years, you are going to be paying more towards interest than principal. What does that mean? It means that all those people who say, "I'd rather not throw money away on rent," you might as well more realistically say, "I'd rather not throw money away on interest." You build very little equity for the first 15 to 20 years of your house. Most people don't even stay in their house that long. So what are you talking about?
Now, I am not saying that buying a house is the wrong decision. In fact, at some point, I'm sure my wife and I will buy a house. What I am saying is that if you do not run the numbers on the biggest purchase of your life, then you're a fool because simply letting mom and dad and society nudge you into making this decision without even thinking about what you want is crazy. How many people do I know who tell me, "My number one goal with money is financial freedom," and then they spend 140% of their net worth on a 30-year mortgage geographically locking them down in one place so they cannot move to get a better career, change their school district, or anything like that? That's not financial freedom. It might actually be the opposite.
Again, I want you to think carefully. What is my rich life? Do I want to buy a house? Great. Why? That's what everybody does. Why? Well, I'd like to become wealthy. Okay. Is that the only way to become wealthy? What are the other options? What if I took that money and invested in low-cost index funds? What if I started a business? What if I bought a house? We need to factor all of these things in. Do not become myopic about what your life has to be. You get to choose what your rich life is. Society does not get to tell you.
Homeownership is not just something that your parents tell you about. It is actually officially encouraged by the government. Homeownership in America is highly subsidized. We have things like 30-year fixed mortgages, which are not the case in other countries. So there is a structural incentive for you to buy a house. Now, back in the day, there was this kind of idea of, "Hey, we'd like to create strong community roots." But over time, that is not what happens now. The fact is that today, the real estate industry is one of the biggest industries in America. In fact, look at the amount that the real estate industry spends on lobbying. It is huge.
Do you know where all this money is being made? It's from you. I need you to stop thinking that paying rent is somehow you losing. Because if you actually understood that if you buy a house, you have to commit massive amounts of cash upfront, plus huge amounts of money that goes to interest for 20 years, you might start thinking twice. But until you learn this stuff, you're just going to be repeating the same old phrase, "I'm throwing money away on rent."
Look at me. I have paid over a million dollars in rent, and I am thrilled about it. When I paid, it meant that I did not have to worry about anything in my apartment. It meant that I could take the extra money because it would have cost way more to own than to rent, and I invested it, making me more money. Do you even know if it's cheaper for you to rent or buy in your own neighborhood? The vast majority of people do not know. Let me tell you why. Most people simply believe that buying is better and renting is bad. It's as simple as that. That is the childlike approach that they take to the biggest financial purchase of their lives. So when people say, "Hey, if it's $1,000 to rent and $1,000
to buy, I'd rather buy and build equity,” I want you to think about two different answers to that. First, it is more expensive to own than to rent in 100% of the top 50 US metro cities right now. Your rent is the maximum you will pay. Your mortgage is the minimum you will pay. So important for you to start thinking about these numbers in a deeper way.
One of the reasons that I am so open about renting is that I want to de-stigmatize it because after all, if a guy like me who's written all these books on money and can afford it chooses to rent, maybe renting is not just for losers who made mistakes in their life. I don't think renting is for people who are losers.
I think that we should all carefully choose what is part of our rich life. And for some people, they want to own. Maybe they have children and they want a certain type of stability or location. Maybe they just love to decorate or maybe they just want to do it. Amazing. All I ask is that they think deeply and run the numbers.
But for other people, for a lot of people, if you probe them, they don't even really want to own. They've simply been told this over and over and they feel like a part of them is missing, that they are a loser. Never feel like a loser because you rent. Even if you can't afford it, prices are historically high right now. It's not your fault that a bunch of old NIMBYs have prevented housing from being built.
Instead, go on offense. Rent, eyes wide open, knowing that it would cost you more to own. And so instead of paying that, you're going to take some of the money that you are saving and invest it aggressively. Give yourself the gift of being wide-eyed and conscious of what is going on in the housing market and invest aggressively so that at some point you have more options for your rich life.
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Buying a house can trap your money inside your walls. But the next lie is even worse because it scares people away from one of the easiest ways to build wealth. Buying stocks is for the rich.
One of the ideas in money that drives me insane is this idea that investing is only for rich people. People think investing is like going to the Kentucky Derby. “Oh, I got to buy a $5,000 outfit. One of these big hats that doesn't even look good.” No, it's much more like going to Safeway and buying lettuce. Everybody can invest in the stock market. The barrier to entry is almost zero. It is basically free to invest in the stock market and you can build huge amounts of wealth.
Has anyone ever talked to you like this? I bet not. In fact, the most common advice parents give their kids is, “We can't afford it.” They almost never teach their children about investing. How could they? They don't even understand it themselves, but you can. You are watching this video. You have an obligation to learn how investing works, and I'm going to break it down for you right now.
Investing is not gambling. A lot of people, typically uneducated about investing, will say, “Well, it just feels like gambling to me.” In their head, they think that investing is somehow magically picking these individual stocks and then you become rich and they don't have the skills to do that. So they go, “I can't do that. That's gambling.”
Sophisticated investors do not pick individual stocks. Do you know how I pick investments? I have a bunch of index funds. They are set up to automatically buy every single month. I barely ever log in. If I was hit by a car, my investments would keep going. If I took a three-month vacation, my investments would keep going, and that's it. It's boring. It's not entertaining. I don't watch TV talking about stocks. It's boring and dumb.
In fact, when you read chapter six of my book, I Will Teach You to Be Rich, you will learn that even highly compensated investing professionals fail to beat the market about 80% of the time. Guess what? You can go and buy the market. It's basically free. You can get a Vanguard, Fidelity, or Schwab index fund, and you can beat all these New York fancy portfolio managers.
Another thing that people have a misconception about is, “Oh, I don't know if it's the right time to buy. It seems expensive right now. The guy who drove me in an Uber told me that stocks are crazy right now.” What the is wrong with you? Why are you listening to an Uber driver tell you about Nvidia? You need to focus on not timing the market, but rather time in the market. That means you just buy every single month automatically.
And if you're going, “I don't have $5,000 a month,” then make it $500. If you don't have $500, make it $100 or even $50. These are amounts of money you will not miss, but they turn into serious wealth over time.
Finally, it can even be simpler than you think. One of my favorite types of investments is something called a target-date fund. You literally pick the year that you are going to retire. What year are you going to be 65? Let's just say it's 2050. Great. There's a Vanguard 2050 fund. You go and get it. All you got to do is set it up to draw from your bank account every single month. It automatically handles diversification. It handles becoming more conservative over time. It handles all this stuff. It's so simple.
It's basically like deciding, “Hey, every Friday I'm going to order the same chicken bowl from Chipotle, and I'm actually going to have it automatically set up to do it over and over.” Except in this case, it's going to make you over a million dollars. Real investing, guys, is not entertaining. It's boring. Look at my face. Get in tight on this.
That's me investing. Do I look like I have a single ounce of joy in my life looking at my Vanguard? Look again. That's my revulsion at you, who's going on these stupid WallStreetBets, dumb Twitter account guys who only post when they win, and then the minute they lose, they close their account. I'm revolted at you, actually. I never thought that I would get to the point where on my own YouTube videos, I would be looking at you. I see you right now. I could see through this camera and just going, “I'm disgusted, disgusted because of how you think about investing.” But fortunately, I actually want to help you.
Let's look at some freaking math. If you invest $500 a month just from age 25 to 65, you're going to have about $1.2 million. Yes, I already factored inflation and do not leave a comment that says, “How much is it going to be worth then?” That's the amount in today's purchasing power. If you invested the same amount, but instead of starting at 25, you started at 35, you would only have $585,000. In other words, waiting 10 years cost you about $650,000.
Now, I know that a lot of people go, “Hey, I don't want to wait until I'm 65 to have a million, $2 million, $5 million. I want some money now.” Good. Me too. I want you to live a rich life today and a richer life tomorrow. But when I ask those people, “Okay, what's your alternative?” they go, “Oh, I don't know. Maybe I'll just buy some coins.” No, that's not how it works.
What you can do if you want to have more money now and even more later is you can increase your income. I talk about that in many of my videos. You can start a business. You can cut your expenses and redirect some of that to investments. What you can't do is simply go, “Hey, I don't want to be 70 and have $3 million.” Okay, then what's your alternative? You need a plan now.
In other words, do not fall prey to these misconceptions about investing. It's really easy to invest. It's not hard. But if you don't know how, here's the simple truth. You have probably never bought even a single book about personal finance. Not one. Get my book or get it from the library. I don't care, but you've got to get educated on this. Just the same way you got educated about how to speak English, money is another language and I want you to learn it.
Politicians are pretty smart in what they share with the general public. They don't really go out to the general public and talk about stocks because for the good old boys, that's not really going to resonate. Personally, I'm not really of the mindset that I want to pander to people at their lowest base desires. I would actually rather set the bar and bring everybody up with me.
So when it comes to investing, what they will typically talk about is affordability and middle-class Americans, which is great. I support the middle class. That's my entire political philosophy. But we need to acknowledge that a lot of Americans invest. In fact, most Americans do because they have investments through something like a 401(k). So actually investing is a very powerful tool that everybody has access to.
But when politicians talk about investing, it can seem unrelatable. I'm less concerned about that. I'm more concerned about you. I want you to know that you have control over your financial life. And by opening up a free account at some of these discount brokerages, you can actually start putting money aside, which turns into a huge amount over the long term.
If somebody said to me, “I don't trust Wall Street,” I would give them a high five. I would say, “Yeah, me either.” But what does that have to do with you as an individual investor? If you are specifically choosing low-cost, long-term investments, you're actually giving a big middle finger to Wall Street because Wall Street doesn't want you to buy index funds. They want you to buy these larded-up, bullsh** investments like whole life insurance and these expensive mutual funds. They want you to pay 1.25% AUM to a financial advisor. The thing they want least is for you to have a really simple automatic portfolio of low-cost index funds that just grows because you're basically paying them nothing.
It can be extremely dark when I talk to couples on my podcast who have never calculated how much money they are going to have at retirement. Many of these people have worked their whole lives. They have worried and agonized about money, but they never actually learned how money works. And they realize very grimly that the income they're going to get is something like $35,000 or $45,000 a year. And there's a moment where you can see it on their face. They're terrified. And they realize that there is no easy way out.
And that is a moment of realization that I want you to see because I don't want you to be 56 years old and wondering how much you're going to have and realizing, “Oh my God, all those vacations, all those trucks I bought, the house that I bought without ever running any numbers. Maybe I should have.” By the time you get close to retirement, it is very difficult to change your financial situation.
That's why a lot of people use these morbid phrases like, “I'm just going to work till I die.” I don't like that. You might say it as a half joke, but it's not funny. There are a lot of people, as they get older, they cannot do that. There are a lot of people who end up having to take care of other sick family members who cannot just work. So I want you to take this seriously. In fact, I want you to respect money the same way that you respect the loved ones in your life. The same way maybe you respect your body by going to the gym. I want you to treat money with respect, which means you need to learn how it works and you need to start investing now and aggressively.
So far you've heard lies about taxes and housing and the stock market, but the next two are much more personal. These are lies that you've heard many times that have almost certainly made you feel guilty, like something is wrong with you. And I actually think these might be the ones costing you the most.
But first, you might be starting to realize something uncomfortable as you watch this. Nobody ever taught you how money actually works. You were told buy a house. You were told investing is risky. You were told just work harder and you've got to cut back on everything. Money is not meant to be spent. Cut back on my taste. And then somehow you were expected to what, magically build wealth? Or maybe not even that, maybe just you're not meant to be wealthy. You're just like one of us. This is exactly why I created Money Coaching.
Inside Money Coaching, my team and I are going to help you stop guessing, stop relying on these outdated scripts that somebody fed you and instead build a money system for you. You'll get coaching. You'll get step-by-step playbooks that you can implement right now today and you'll get accountability. We'll show you how to pay off your debt, how to invest, how to build your rich life.
Imagine logging in and knowing exactly what your next money move is. You don't have to swipe through a bunch of TikToks. You don't have to have a million spreadsheets and you don't have to wait to figure this out later. Go to iwt.com/moneycoaching. Click the link in the description or you can scan the QR code and you can join Money Coaching today.
Now, let's talk about one of the most damaging money lies ever created. In America, we have a very deep belief, which is if you work hard, you will be successful. Do you think that is a good belief or a bad belief? I think in general, it's a pretty good belief. I like working hard. My parents, immigrants from India, taught us to work hard. My mom took us to the public library every Saturday for hours. We learned how to read. We learned how to do math for hours. I believe in hard work. It has really paid off for me.
But even though we grew up middle class, when I went to college, I learned there's a whole different way of thinking that other successful people embody. And it was never taught to me as somebody who grew up middle class, because if you grow up poor or middle class in America, the idea is as simple as just work hard. That's it. Struggling to pay the bills, work more. Struggling to pay the bills even more, work on weekends, work on nights, get a second job, just keep working.
And I hear this from a lot of men in particular who were raised poor. They will basically say, “Look, I don't care about me. I don't care about what it does to my body. I'm here to provide for my family. I'm just going to work, put my head down and grind.” And that works for a while until it stops working. And a lot of people are now discovering there's a limit to how much they can work.
Hard work is good, but hard work alone does not necessarily mean you get paid more. All of us have experienced the idea that you worked hard and somebody who you work with, who doesn't even work as hard, got a promotion. Why? Because there's a whole game being played around us that many of us do not even realize. And that is the game of strategy. Not just how hard should I work, but what things should I be going after to give me a successful life?
I'll give you an example. You could work an extra two hours a day. It would probably be very tiring over time. It might ruin your body, but you could do it. Or you could learn the skill of negotiating your salary. Not applicable to everybody, but applicable to millions and millions of people who have not done it. And just take a look at these numbers. A $5,000 raise in your 20s fully invested each year is worth over
A million dollars in 40 years. Or you could switch jobs. That can be worth a 10 to 20% increase. Keep in mind that 1 or 2% increase doesn't even keep up with inflation.
You could build skills by going to your boss and saying, "Hey, I know that the next level for me is project manager II. Can you tell me exactly what skills I need to build in order to get that promotion because I want it?" Or you could build a side income. You could start taking something that you are already good at and start charging people $20 an hour, $30, $50 an hour. I've helped tens of thousands of people do this and make a ton of money.
My point is just working hard may not be enough. There is a whole different way of looking at success that might require you to change the way you think. You know who benefits from this type of thinking? The people who are wealthy and ultra wealthy and employing you. Because if you think about class consciousness, a lot of people who have entry level jobs or are working in the middle class level, they don't realize the power that they actually have.
I'll give you an example. I spoke to a guy who lived in a rural area and as part of his job, he had to pick up residents from some type of housing thing and drive them around. I noticed that his personal gas expenditure was really high. I'm like, "Man, you spend a lot of money on gas. Where are you driving?" He said, "Oh, for work, I have to pick these people up and drop them off." When I suggested to him that he should ask them to not only cover his gas, but probably get the vehicle and give it to him as a work vehicle, it just didn't really compute for him.
If you have been raised in a geographical area or in a culture where the people at the top are the ones who dictate everything and they have the power and you're just lucky to have a job, then a lot of this video is like I'm speaking Martian to you. But if you were exposed to different types of jobs, to different types of ideas, then you might realize that you actually have a lot of power as well.
That is what I am doing in all of my work. I am trying to share some of these lessons that we might not all have been lucky enough to grow up with. Even I was not lucky enough to grow up with all these things. I encountered them along the way and I want to share them with you so that you don't look at some of these wealthy and ultra wealthy people and put them on this omniscient pedestal. No, you have power and you should seize that power as well.
If you're worried that you're not good at negotiating, let me put your fears at ease. You're horrible at negotiating. You suck at it. You were never taught it. In fact, in America, there's a culture against negotiating. It makes us so uncomfortable. Guess what? I'm not uncomfortable with negotiating because it's a skill and you can learn it. It is critical that you learn how to negotiate because for a few key areas in life, it can be worth hundreds of thousands of dollars to you.
I remember once seeing my sister and she was feeding her son, my nephew, and I think he was like four years old. He goes, "Mommy, it's spicy." She had given him some peppers. You know what she said? She goes, "Yeah, drink your water. It's spicy. Water will help." I was like, "Oh my God." That's how kids learn to eat spicy food. How do you think I freaking pop habaneros for fun? It's not that I'm genetically blessed. It's that we learned culturally spicy food is part of our palate. We're going to eat it. If it's spicy, drink your water.
"Oh, you're not good at negotiating?" "Oh, it's okay. You don't need to do it again. Be comfortable." No, negotiating is important. You are going to practice. You're going to learn that skill because it can be worth hundreds of thousands of dollars to you.
The final myth tells you, you should never, ever buy coffee. This drives me nuts.
Before we get to this last one, you got to hit subscribe because every week I break down the money advice that actually works. Not the guilt, not the slogans that have been repeated to you for 50 years, but actual new ways of looking at your money and getting ahead. Subscribe right now so you don't miss the next one.
And now the lie that you have probably heard more than any other: you just need to cut back. You poor bastard. Why on earth did you think you could afford those pickles? Never buy pickles. In fact, pickles are for rich people and you're not rich. So next time you're outside, you take a cucumber off a tree, you put it in the freezer and that turns into a pickle and you never have to buy pickles again.
How many people basically grew up with that kind of advice? Only hearing we can't afford it. And oh, you're only behind because you have so much avocado toast, cancel Netflix and above all stop it with those fancy lattes. Is anyone sick of this?
I heard this stuff in 2004 when I started my blog, a bunch of old people, usually old men looking down and lecturing people like me, telling me all the things I couldn't do with my money. I'm like, who are you telling me what I can't do with my money? I want to go out. I want Taco Tuesday. I want to take trips with my friends. Just show me how to live that kind of life. But most of them only preach deprivation and restriction. That's not the kind of life I want. In fact, I want to live a rich life. So let's first just look at the math.
If you skipped a $5 coffee every day over the course of an entire year, you're saving about 1,800 bucks a year. Meanwhile, housing costs are historically high. Healthcare is more expensive. Wages, particularly for middle class and poor, have not kept up, but the advice has stayed the same. You are stupid and you need to stop spending money on frivolous things.
The very same people who give this advice don't even keep it themselves. I know a lot of the people in the personal finance world. Most of them do not keep a budget. Most of them do not cut back on coffee because that is not how they actually built wealth. I also think that nobody wants to be lectured to.
One of the reasons that I love my job is that I ask people, "What is your rich life?" And I really listen. If they tell me, "I kind of like clothes," I go, "Cool. What brands? What do you love? If you could buy anything, what would it be?" And I let them dream. And then we get to the numbers and I show them, "Hey, if you really want this beautiful cashmere coat, let me show you how you can get it."
In America, we have this idea that, "Oh, I shouldn't spend it. I'm so bad. So bad. Ramit, you're so bad." And then we do it anyway. We got to stop that. You're not a child and stop asking to be treated like one. If you want to spend money on something you love, even a lot of money, fantastic. If you want to spend money on Japanese scissors for no reason other than you admire their beauty and they are incredibly sharp, great. But you've got to be the one who decides this is part of my rich life. And now I'm going to figure out how to use my money to live it. That is what I teach in my work, specifically my book, I Will Teach You to Be Rich.
We are trained to focus on $3 questions when we really should be focusing on $30,000 questions. Like what am I paying for my investment fees? When am I going to be debt free? How much am I going to have at retirement? What if I could add an extra $100 or $200 a month to my investments? How much would that be worth 25 years from now? We don't think like that. If you get the three to five big wins in life right, you never have to worry about, can I afford this slice of pizza?
These money lies keep you focused on playing small while the big money moves get ignored. So if you want to know how to actually build real wealth, watch this next.
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