There are many people around the country that seem to think that Ramit Sethi is the worlds answer to their financial problems. If you aren’t familiar with Ramit and his platform, it’s a platform that is based off of a no-nonsense mantra. Instead of pushing people to count their lattes and create budgets, he pushes them to find ways to make more money. He does that through several classes, groups, and even a book. In a way, he’s the polar opposite of Dave Ramsey. Full of ego, and unabashed vigor for his product, he’s unafraid to let someone know when he has no use for them, or to tell them to get lost because they aren’t the readers he wants. There’s nothing wrong with that, really. He knows who he’s most likely to help, and knows that he’s unlikely to offend any of them with his ranting.
Earlier this week, he posted his Big Wins Manifesto. I’ll warn you now, it’s a manifesto, which apparently means that it needs to be fairly long. Like most of what Ramit writes, this manifesto grates at me. First, he starts off by comparing two fellows who are trying to get themselves a better financial life. The first, “John”, is his example of someone trying to improve his financial life by way of budgets, latte reductions, and penny pinching.
John, 28, earns $62,000/year as a project manager. He used to have $8,200 in credit card debt from overspending, but he’s been slowly paying it down over the last two years and now it’s at $6,400. How? He tried all the typical personal-finance advice: He set up a budget, he tried to cut back on his daily lattes, and he made sure to make a list of goals he wanted to achieve. Yet last week, he took an honest look at his life and realized he’s still treading water. Despite paying off part of his debt, he still has years ahead of being in debt — plus no real savings, no investment, and something always comes up, causing him to yo-yo back and forth on his goals.
Are you kidding me? The dude makes $62,000 a year and only managed to reduce his credit debt by $1800 in 2 years?!? That’s barely the minimum payment. If that’s the best you can do on $62,000 a year, you aren’t even trying. And, Ramit? That’s one of the worst examples you’ve ever used. I understand you’re using some psychological sales pitch or whatever, but at least make it realistic. Seriously? You’re trying to tell us that the dude used a budget, cut his lattes, set goals, and he only managed to reduce his debt by $75 a month? That’s got to be the most self-destructive example you could come up with.
Then, his counter example.
Chris, 32, earns approximately $120,000. Four years ago, Chris was making about $60,000/year but he was barely getting by — he had $50,000 of student-loan debt and, most days, would eat the free snack bars at his office instead of buying lunch. Yet within 4 years, Chris paid off $50,000 of debt, amassed a savings account of tens of thousands of dollars, and more than doubled his salary. To do this, he set up automated systems to pay off his debt. He turned his skills into a side income to earn over $1,000/month on the side. He knew he was slightly socially awkward, so he spent time joining courses to improve his social skills and ended up negotiating multiple salary increases — including over a $50,000 raise two months ago.
Chris is the MAN! Can you believe he paid off all of that debt, and increased his income by that much!?! OMG! It gets better though. As you can guess, Ramit would have you believe that Chris did all of that while doing actions that he prescribes in his book, or any of his programs. The funny thing, in both examples, is that Ramit never once talks about anything other than the people’s financial situation. Here’s John, his financial situation, and how terrible he did at setting a budget and sticking to his new spending habits. Here’s Chris, his financial situation, and how AWESOME he did when he followed Ramit’s teachings! But, when you really get down to it, Chris worked his butt off, both in his full-time job, but also in a side job (the $1000/month on the side), and then spent time taking courses to improve his social skills. How ambitious. Parts of me wonder how much free time he found himself with during that time. Or how much he finds himself with now that he’s successfully negotiated multiple salary increases. Can anyone give me an example of any place that would give you a $50,000 a year raise where your responsibilities at work wouldn’t increase at least on the same scale? I’ve got news for you. Nobody is going to pay you twice as much to do the same amount of work. They’ll just fire you and hire John instead. But, hey, if you’re only objective is to make a ton of money so you can say you have a ton of money, then by all means, follow Chris in his journey.
But, the manifesto isn’t about the life quality. It’s about “BIG WINS”! It’s about making changes that produce results, now! By far, the best part is towards the end.
Next time you hear the same old tired advice of keeping a budget, or cutting back on $2 lattes, ask yourself: Has that really worked for the millions of people who’ve tried it? Are they really not “trying hard enough”? Or is there perhaps a systemic problem urging people to waste their limited cognition on near-meaningless tasks with little reward…and should we instead focus them on high-leverage areas that will result in massive payoffs?
Define reward, Ramit. Also, while I’m sure you can find plenty of people for whom a budget and cutting back on lattes hasn’t worked, you can also find plenty that it has worked for. Many of whom are the experts that you so easily scoff at for suggesting others do the same.
Now, I’ll be plain, I’m not Ramit’s target audience. I’m in my early 30′s, with a family, a house, and a dog. I choose those things over the freedom to be as mobile as I would have to be to take advantage of most any of the methods that Ramit professes. I choose to have quality time with my family over working the hours it would take to negotiate anything resembling a significant raise. I don’t let money have that kind of control over me. If it has that kind of control over you, I suggest you think twice about that. Money has plenty of use, but not at the expense of the quality of life that I desire. Further, Ramit likes to paint the picture in black and white. He rails against budgets, cutting back on lattes, and basically any of the advice that doesn’t fit into his “Big Wins” philosophy. Just like the rest of the world, the world of personal finance isn’t black and white. What works for you, might not work for me, and what works for me, might not work for you. And, what works for Ramit doesn’t work for me.
Here’s the bottom line, folks. A budget, cutting back on lattes, and pinching pennies can, and does, work. It isn’t instant. It takes hard work and dedication. The same hard work, and dedication that anything that Ramit teaches does. In fact, I’d say a combination of the two is likely a good solution. But, to write off one for the other is very much like saying that a bicycle won’t get you the same place as a motorcycle. They both go the same places, it’s just that the method, effort, and reward are slightly different.