Hola from Mexico! I left Sydney a year ago and since then have been to 17 countries (including a 6-month relocation to Singapore)! With all that traveling, I thought I’d finally really take a look at my finances and make sure that whilst I’m having fun and working, I still have money left afterwards to consider for my future.
Personal finance has always been a topic of interest to me. Ever since I was in middle school and picked up my first ‘Rich Dad Poor Dad’, I set my goal to have built enough passive income to become financially free by 30.
However as I grew up, I didn’t really know what exactly I should’ve been doing with my day to day life and finances. How I managed my money just became largely whatever felt like common sense but I always had a feeling I wasn’t using it to its potential. Also now at 25, I am way off from that goal but if I want to be financially free at some point, given that my average expenses are around AUD$3-4k a month (not including mortgage repayments), I will need to generate $48k in passive income a year to be financially free. And that’s probably gonna go up from here since that’s what happens as you get older right?
So last week, I decided to pick up Ramit Sethi‘s no bullshit ‘I Will Teach You To Be Rich’ book after Dexter’s recommendation to see if I could squeeze out some gems for myself.
Long story short: I found the book highly actionable. And if you know me, I love actionable. Here’s a breakdown of the sections of Ramit’s book which I directly applied.
The book is broken down into a ‘6-week program’, but I got too excited and read it as well as applied most of it in ~2 days. There are some other tips I will also go through which will take a little longer for me to apply (such as researching my asset allocation investment options which I don’t want to rush and waiting to downgrade my credit card until I get back to Australia since I’m currently traveling).
I also tried to google how other people managed to apply his book to their daily life but haven’t found a blog about that yet.
Note that I’ve also only written and applied to pointers relevant to me so this may not be completely relevant to your situation/ stage of life. For the full details, you should read the book. These are all the areas I’ve made changes in my life so I guess it’s a half book summary as well as what I actioned on.
Week 1: Optimize your credit cards
Step 1: Checking my credit rating
Since building up credit is pretty crucial in this day and age (if you’re a responsible spender), it’s important to know what your credit score is and understand if you need to make any changes. Your credit rating affects how low banks will give you in terms of interest rates when taking out a mortgage, cards you can open and a lot of perks you get etc.
Your credit rating is affected by a number of factors like payment history, stability, court actions, credit activity and other stuff.
A long time ago, I signed up for this Australian credit rating site based on the Equifax score called GetCreditScore and then proceeded to forget about it. Since then, I never checked it once.
So having newly logged in, this was the result I got. My October 2019 score was 736/1200, as an Asian, the “Very Good” felt more like a condolence pat for being slightly over average.
However, based on the fact that this score also accounts for length of time and whether you’ve built up enough credit history, I just left it for the time being. It’s good that now I know my score and can keep an active eye on it to continuously work on improving it.
I’ve also applied to get my free credit report from Equifax here. This details everything from identification, court actions, credit history and whom you’ve been paying to & if there were any late payments, warnings and credit inquiries from yourself or other lenders.
Step 2: Optimising my credit cards
I currently only have 2 credit cards: The Qantas Premier Platinum $200/annual fee & AMEX Qantas Discovery Card $0 fee. As you can probably tell, I’m a Qantas user.
A. Keep your cards for a long time
I previously had also signed up to NAB and ANZ for their obscene sign-up bonus points (100,000 Qantas points each, hence you can see I went on a credit card sign up spree). My mistake back then was canceling those cards after the bonus period because of the $400+ annual fee each, and also because I didn’t really need 4 credit cards.
What the book suggests and what I should’ve done instead was to have downgraded it to a no-fee card instead like I did with my AMEX card. To keep the card going, I could’ve just put 1 small monthly subscription payment like Netflix or my storage space on that card.
This is because closing down these cards can prematurely affect your credit rating and it probably affected mine. Your credit rating also improves when you’ve kept a card for 5+ years.
B. Downgrade your cards if you can’t justify the benefits
The Qantas Premier Platinum card is on a $200/ annum but they also have the cheapest $50/ annum card. Since downgrading means I need to be sent a new card and I’m currently traveling, I put in a calendar notification to downgrade my card and renegotiate the annual fee once I get back to Sydney so I actually have a credit card to use.
I decided I will downgrade since I don’t use their benefits enough to justify the $200 cost.
C. Making sure I pay off my credit card in full
This comes up in another chapter but I called up the credit card companies to always withdraw my monthly payments in full before my due dates rather than me having to manually do it (1 less thing to think about!).
That way, I’m not paying interest rates for no reason or risking accidentally missing my payment date. Which also means I don’t need to renegotiate my Annual Percentage Rate like Ramit suggests either.
However, if you can’t pay off your credit cards in full, Ramit has good advice in easily negotiating your APR down and how to easily waive your fees with a phone call.
Week 2: Beat the Banks: High Savings Accounts
The main thing I got out of this one was to get my savings the fuck out of my Commbank Savings account which I’ve just been slowly losing money over the years.
I did a quick calculation and I got something stupid like 0.5% in interest rates in my savings account. That doesn’t even cover yearly inflation!
I did a thorough search and I found the best savings account for Australians so far. It’s UBank’s Ultra+Savings Account which gives you a 2.1% interest rate per annum. The only requirement to reach the full 2.1% is to deposit a minimum of $200 each month from an external source (which can just be your salary) and it’s not compulsory to keep it in the account. Ubank also has no fees, & no international transaction fees & good rates since it’s an online-only bank.
Other savings accounts I looked at only had a high sign-up bonus for 4 months before going back down to a meager % rate. Sneaky.
Want to calculate the difference this simple switch has made?
My starting savings base is current ~$40k and I make monthly transfers of $1k into my savings account from my salary every month. This is the difference in results.
Um hello???? By just switching my savings account, with everything else kept constant, I’ve literally just made myself an additional $17,846.44 in interest alone.
If you want to calculate your own financial situation for yourself and how much you could potentially earn by switching to a high-interest savings account, use this calculator I found here.
If I’ve learned anything from James Clear’s Atomic Habits, it’s that continuous incremental changes will lead to exponential impact in the long run.
Week 3: Get ready to invest: Open your pension account and stocks account with just $50
Step 1: Depositing monthly payments into my superannuation account
This chapter helped clarify a lot of things for me. How many of you actually even know what to do with your superannuation (pension/ retirement fund) or how much is currently in it?
I certainly had no clue and required me to do a lot of digging around, resetting passwords and calling up my retirement fund, REST to find out how to even get into my account. Ramit shares some pretty startling yet not surprisingly low statistics on how young people tend to not give a crap and forget about their retirement accounts. We all think retirement is too far away so we’re not even thinking about it yet. Luckily in Australia, if you’re employed by an Australian employer, you are automatically enrolled in a superannuation scheme.
Well since I’m currently working for a foreign company, it means I need to put money in my own superannuation which I definitely had not been doing (I know, so irresponsible..).
When I finally logged into my REST account, I was super surprised to see my superannuation had around $24k in it from my past employment history. Since I’d never seen it come out my paycheck, it didn’t even really occur to me it existed HAHA. Maybe if you’ve been working for a few years now and never bothered to check your super account like me, you should take a look and maybe be pleasantly surprised too.
Let’s calculate what I would get in 10 years, 20 years and 40 years when I retire with my starting amount of $24k if I just put in $100, $200 or $500 in it every month. Google says a superfund usually returns 7% averaged over 10 years.
By adding this step in and putting an automatic recurring payment of $500/ month to be deposited into the super account, my total deposits in 40 years add up $264k, yet my interest returns are over $1.4 million. So whether or not you’re employed or contracting like me, make sure there’s money going into your super account and if you can afford to contribute a bit more, do it!
Week 4: Conscious Spending: How to save hundreds per month and still buy what you love
I really resonated with this chapter because if there’s one thing I can’t keep – it’s tracking my spending. And I hate that feeling of feeling super stingy because I need to watch and calculate every cent. Just not for me.
Ramit suggests something called a Conscious Spending Plan (maybe just another word for budgeting lol) but the aim is to ruthlessly cut out everything you don’t care about so you can not only save but also spend MORE on what you do love. It’s being frugal rather than cheap.
He used examples about how others were frugal in some areas but maybe would spend $5k a year on shoes. For me, that expense would be in experiences and learning.
Step 1: Go through all the subscriptions and cut out everything and do a-la-carte.
This is to use psychology against yourself since the idea is that subscriptions make it so easy for us that it takes extra effort to cancel things. And they all don’t seem like life-changing payments until you add it all up.
I did go through my subscriptions and was horrified I was paying for things I had already forgotten about or rarely use. This cut out $150/ month (damn you Linkedin subscription) which meant I’ve now saved myself $1,800 a year… The only subscriptions I’ve kept is my $5/ month cloud storage and Netflix 😂
Step 2: Find out the things you don’t care about and cut it out.
I once tried to make my Instagram a fashion Instagram and quickly realized, I really don’t care about clothes. I also once bought a set of curlers to do my hair and then realized I just really can’t be bothered doing my hair every morning. Yet I used to spend on these things anyways on an ideal on what I wanted to be like (more girly).
This year, since backpacking with Dexter, I haven’t bought any material things on the road whether it be clothes, shoes or even souvenirs because I know that anything I buy will be extra weight on my back and an extra thing discarded on my table when I get home. And it’s been liberating because it also made me realize, I don’t even need or even desire a lot of stuff. They just all need to match, a few rotating pieces and I’m good to go.
Yet, what I do want to spend on and the reason why I’ve always been careful with saving is that at any given time, I want to be able to have the freedom to buy an experience, a plane ticket and not have to worry that I don’t have enough money.
Step 3: Conscious Spending Plan: Fixed Costs, Investments & Savings, Guilt-free Spending Money
Ramit’s rough guideline:
- Fixed Costs: 50-60%
- Investments & Savings: 15-20%
- Guilt-free spending: 20-35%
So here’s my current monthly expenditure plan based on the last few months of expenditure:
These costs are based on previous months’ spendings and will be adjusted along the way. The key is to just be conscious and not be reactive to your spending. This made me mentally remember that if I want to buy new clothes etc, it will have to come out of the Additional Whatever budget of $300.
Right now, I feel like I don’t have a lot of buffer room in terms of spending unless it dips into my savings & investments bucket which is not ideal – so I’ll have to really assess which are some other big wins I can identify to reshuffle my spending space.
To do: I’ll update this once I’ve gotten into the rhythm of it and understand the expenses will change as I get to different stages.
Week 5: Save while sleeping: Making your accounts work together automatically
Step 1: Automating my accounts: Power of defaults where you set it and forget it
- I get my pay around the 1st-3rd of each month.
- Savings & Investment accounts: I set up recurring payments to allocated accounts on the 5th (includes a few days buffer time from when I get my pay).
- Align my bills on the same schedule: my previous Qantas Premier due date was on the 20th of each month and my AMEX card was on the 30th. I first called up each to move the due date to the 6th of each month. Then I set auto payments to pay off my entire credit card amount in full before the allocated date.
- Mortgage: Recurring payment on the 6th
- Also, I set a calendar on the 3rd of each month to quickly check that there’s enough money for all the payments to go through.
By making all the payments automatic, I know exactly how much money I have left to play around with without compromising on the savings & investing components. And also because I am lazy and this helps me be more disciplined with my money without being disciplined.
Ramit has tips for if you have irregular payment or payment twice a month/ weekly etc.
Week 6: The myth of financial expertise & Investing isn’t only for rich people
This chapter was really informative and clarified many things for me so you should give it a read if you’re interested in debunking some investing myths.
I previously had gotten scarred from my first noob experience in attempting to invest in stocks. Basically, everything went down. I’m one of those people who bought high and sold low. After that, I never bothered trying to invest in individual stocks again.
Debunked myth 1: Investing isn’t about picking individual stocks
Step 1: Open an investing account
I also did some research and opened up with a trading platform called STAKE: an Australian based startup platform (linked with Macquarie Bank) which only charges for FX exchange & 0.7% fee which is pretty low. Most of all, it allows you to buy US funds, stocks etc. You can also look into other options like CMC Markets, Pepperstone and others depending on what you’re looking for.
Step 2: Set automatic monthly payments
I was really ready to have a set and forget strategy with my investing because I’d rather not be thinking about the stock market and finance things all the time. So when Ramit made the case for tracker funds/ index funds which involves just riding it out for the long run, I was sold. And Warren Buffet agrees tracker funds are great investments so I believe him.
- I have since reading the book put in $2,000 into Vanguard’s S&P500 index fund (measures the stock performance of 500 large companies listed on stock exchanges in the United States.)
- I also set a recurring monthly $500 into my STAKE account regardless whether or not the market is going up or down. If the market goes down, I’ll basically be getting shares on sale.
- Handy info: Rule of 72: a fast trick to quickly find out how long it would take to double your money. “Divide 72 by return rate you’re getting and you’ll have the number of years you need to invest in order to double your money.”
- If a tracker fund return is 10% so 72/10 = 7 years to double my money. Invest $2000 today and I’ll have $4000 in 7 years. Additionally, if you add a small amount each month, this amount would be compounded.
Step 3. Diversify your portfolio
Other than putting $2k into S&P500, I haven’t put anything else in yet but still researching other options. The idea is that if you’re younger, you can invest more aggressively and rebalance your portfolio to less risky investments such as bonds when you’re older.
Ramit shares the example of Dave Swensen who runs the Yale endowment fund. Over 20 years, he’s gotten an insane 16.3% return. This is the Swensen Model of Asset allocation that Dave uses:
- 30% domestic equities
- 15% index-linked gilts
- 15% government bonds
- 20% real estate funds
- 5% emerging market equities
- 15% developed-world international equities
At the moment, I still have no idea what I’m going to do so I’ll keep y’all updated.
A. Dollar-Cost Averaging: Investing slowly overtime
I really got into this idea, because it means I have already set up my automatic payments and it can invest slowly over time rather than a lump sum each time. The aim is so you don’t have to guess whether or not the market is going up or down so you’re hedging yourself against any drops in price and you get shares on discount. As Ramit says “you don’t try to time the market, you use time to your advantage”.
I’ve set aside $10,000 to slowly invest $500 or $1,000 per month once I decide on an asset allocation. Whether or not this actually works, the more important part is the fact that unless I automate the investing, I’ll probably forget to do it anyways.
And that’s it! This is how I’ve currently applied Ramit’s book. Many of them are small tweaks that can produce exponential outcomes and I’m a strong believer of incremental but powerful habits. In this case, his book gave me a lot of clarity on how I should be managing my money and I’ll be reporting any updates maybe in a year’s time!
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