Lazy Man and Money

To Ramit or Not To Ramit?

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I hope everyone is excited for Memorial Day weekend. I can’t believe it’s here already. The kids will be out of school soon. We’re not too far from having a middle schooler.

I had been hoping to write a little more often, but the dog business has been busy. Also, my wife is traveling all the time now. Juggling the kids and their activities is a lot.

I don’t follow too many personal finance gurus these days. I’ve covered the basics. The gurus can be great if you are starting out. After a while, though, there are diminishing returns. That’s why I try to write about a new product or service that I’m enjoying.

One of the new things in personal finance is not really new – Ramit Sethi has been around forever, but he has a new Netflix show. I wasn’t expecting much, but it’s very, very good. No, it’s great! I love how he helps solve people’s money problems. He kind of guides them to the best solution for them. I think it’s great how he meets them where they are.

Ramit is a little complicated. While it seems pretty clear, he’s a personal finance guru now. There was a time when he came up with this thing called the Seagull Theory and wrote an article about how his website wasn’t about personal finnace. I think he kind of pivoted to psychology for a bit, but it seems clear back to personal finance.

I wanted to cover two bits of advice that he goes into

Ramit on Rent vs. Buy

Ramit is firmly in the rent camp. It’s okay to buy, but he thinks most people benefit from having the freedom to rent. As he says in the Netflix show, renting is the ceiling of what you’ll pay. You won’t pay more. When you own a home, a mortgage is the floor. You have to pay to fix stuff up.

It’s a good point, but it really only works for that lease. A lot of people saw rents go up a lot in the last year. Of course, many of them complained. As Beyonce might say, they should have put a ring on it (buy instead of rent). There are a lot of people in our area of Newport, Rhode Island, that can’t afford to live anywhere in the city. They are completely priced out of the market and have to move away from their friends and family. That’s a sad situation.

If we wanted to rent our house now, it would be $3500 a month. Our mortgage is a 15-year one, but it’s still only around $3000. If we had a 30-year mortgage, maybe we’d only be paying $2400 or so. We’re about four years away from just paying the property taxes, which is a lot less. We still have all that pesky maintenance to take care of.

The other thing is that we’ve built up a lot of equity. We bought it for $400,000, and we now have over $700,000 in equity. We could sell and use the money to pay rent for years.

Ramit’s argument may be that when you rent, you can save and invest the extra money that you aren’t paying on the mortgage. This is great, but I know a lot of people won’t save and invest. Maybe they’ll start to, but then life happens and derails them. Homeownership forces you to save. That’s why most Americans have most of their net worth in their homes.

This may sound like I’m against renting. We actually rented a home when we lived in Silicon Valley for six years. You needed a lot of money to get a downpayment on a home competing with the tech millionaires.

In the end, you have to do what’s right for your situation. It helps to run the numbers. It also helps to understand all the angles.

Ramit on Teaching Children About Money

Ramit recently went on a rant that we shouldn’t teach kids personal finance. Here’s his rant:

Obviously, I don’t agree as I have a Kid Wealth to show for that.

He complains that high school teachers aren’t going to teach it. Or that they would take away something. You can teach compound interest as part of math class. It doesn’t require taking anything away. However, I suppose if you wanted to take something away, you could remove trigonometry.

He also asks who is going to create the curriculum. Fortunately, there are tons of curricula already out there. He makes a poor assumption that bad banks would create the curriculum. Nope, I don’t think either Wells Fargo or Bank of America has one.

Then he pivots to an unrelated rant about politics. It’s very weird whataboutism. I guess you could say that we shouldn’t teach kids to read either because books are political now. That doesn’t make any sense.

Finally, he says that he’s failed to teach kids about money. He then says that if he can’t do it, then the average teacher stands no chance. I’m really good at adding two numbers together, but when it comes to teaching kids to do it, I’m probably not that good. Do you know why? I have taken no classes in education. Personal finance is relevant to kids because they want to be able to buy stuff.

It’s just wrong on every level.

However, with all that said, go watch his Netflix show. I think he makes a lot more great points.

Earning More vs. Saving Money

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Last week, Ramit from penned nearly 4000 words on 5 surprising insights on earning more money. When I saw that it had A) surprising insights and B) earning more money, I rushed to read the article. In fact, I don’t know anyone who isn’t interested in those two things.

Before you can get to the 5 surprising insights on earning more money, there is a lengthy introduction. Included in that is over 900 words on why one would want to earn more rather than cutting back. If you read Ramit’s site, that shouldn’t surprise anyone. He’s never been one to parade around about how frugal he is. While I appreciate the attitude of earning more, I’m often confused when it’s pitted against saving money (hint: click that link for about 1,000 ways to save money). The two concepts are not at war… they are not mutually exclusive. You can do both.

Ramit makes some good points for earning more verses saving money. Here are the ones he points out…

  1. For instance, he correctly points out that saving money gets harder and harder. For example, once you cut something out (let’s say your daily latte), you can’t cut it out again. Ramit then points out that as you make more money it gets easier to earn more money. His example is a 10% tweak in pricing negotiations can lead to hundreds of dollars per month. His main point here is “There’s a limit to how much you can cut back, but no limit to how much you can earn.”

    My take here is that the later isn’t necessary true. Some of the ways he suggests earning more include dog walking, organizing, utilizing your high school math skills (I’m going to assume tutoring on that one). Each of these do have limits on how much you can earn. Are you going to walk dogs 24 hours a day 7 days a week? Are you going to be able to convince someone to pay you much more than the going rate for someone who walks dogs? How much is your time worth at your chosen career? Is it better than what dog walkers typically make? If not, could it be better if you put more time into it?

    (Side Note: As a dog owner, I’ve spent a lot of time thinking about dog walking business. It seems to me that if you get a bunch of small dogs who don’t pull too hard, you can do well. If you get a few dogs like my 70-pound Husky-Labrador mix, you are likely to have a long day.)

  2. The other point he makes is that “cutting back on everything [is not fun]”. His language was a little more creative than what I like to use on this blog. His example was that to save an extra $1000 a month you’d have to go through and make major cuts including “No eating out, cancel gym, cancel cable, no going out, reduce cellphone minutes – etc.” But to earn an extra $1000 you spend a little more time tweaking your business in minor ways to get 50 more leads and one good client that will give you $1,000/month. He suggests that tweaking will be 5 hours a week. I have no problems with that idea, but unless your businesses are high-earning, the couple of dog-walking clients aren’t really going to add up to $1000/mo.

    The flip-side of the saving money argument is that it often doesn’t take any more time to save money. I reach for generic aspirin instead of brand name and that’s saved money in my pocket. Did one reach of my arm take any more time than another reach? I may have had to scan a couple of prices, but that takes mere seconds. I’ve written about cutting cable television in the past, but that’s largely because I don’t watch a lot of cable. I dislike paying for things that I don’t use.

The biggest argument that I have against the earning more philosophy (and I’ve been a huge proponent of it since the start of this blog), is that it typically does take time. Dogs don’t walk themselves. Garages don’t organize themselves. Kids don’t tutor themselves in math. At the end of the day, earning more in these ways require trading your time for money. That, in my opinion, isn’t exactly earning more, but earning differently. It may not be much fun to save money, but coming home from work and walking a dog or organizing a garage, doesn’t sound like my idea of fun either. If your grand plan is to quit your job and just do these side jobs, I fear that you won’t be earning more for a little while.

I understand Ramit’s perspective though. To some degree I live in that world. We both have blogs. We can spend a little time tweak our blogs and producing more earnings. He has a best-selling book. He can spend time promoting it and see earnings multiply. That’s just leveraging the existing hours of work we’ve put forward in more efficient ways. However, even those avenues of growth are limited. If I make $40 a day from Google AdSense, I may be able to increase that, but chances are that I’m going to be limited by the amount of traffic I have. At some point, I need to reach bigger audiences or look into other forms of monetization.

In the end, I’m not 100% sure what the answer is. I think it lies in the 80/20 rule. If you can cut out the expensive things that have little impact on your life, you should do it. If you can build a business in your spare time without making it feel like you are working 100 hours a week, perhaps that’s worth looking into as well. Where the two concepts collide is probably the sweet spot of having more money and having the time to enjoy it.

[Note: I realize I didn’t even get to the 5 surprising insights… perhaps another day… for now I’ll celebrate that I wrote around 1000 words, even if that leaves me 3000 shy of Ramit’s article.] [Note 2: Check out some tips from Reader’s Digest on how to save money.]