Pimp Your Finances

Back in October, I read something that changed my life.

I saw an article on Get Rich Slowly titled The Best $20 You’ll Ever Spend. It was a guest post from Ramit Sethi, extolling the value of talking to people you admire.

He suggested reaching out to people you look up to – especially entrepreneurs – and offering to take them to lunch. The insight you’d gain from a conversation would more than make up for the $20 you’d spend on lunch.

I took it to heart.

At the time, I was just starting this site, and was in need of a break. Get Rich Slowly was my favorite site, so I sent J.D. an email and offered him a $20 gift card in exchange for answering 20 questions.

The result? J.D. said no to the gift card, but was kind enough to answer any 20 questions that I wanted.

The interview helped me make an impression in the personal finance blogosphere, and was the first thing I did that really stood out. More importantly though, the lessons I learned were priceless, and have already had an impact on my life and finances.

Encouraged by how the first interview went, I reached out to another one of my favorite writers: Ramit Sethi of I Will Teach You To Be Rich. To tell the truth, I didn’t expect a response.

Sure enough, Ramit replied, and offered to do a telephone interview with me. Of course, he politely declined my gift card.

As a result of a simple email, I got 20 minutes to ask Ramit anything I wanted.

I know that Ramit is a polarizing figure in the personal finance world. Some people are offended by his tone, style, or approach to personal finance. But even if you don’t like him, I still think you should read this interview.

Like him or hate him, you have to admit that he’s very good at what he does. As of today, he is Amazon’s #1 selling author. He kicked Twilight off the top spot - an amazing feat in itself.

Here is the complete transcript of my interview with Ramit. We talked about entrepreneurship, goals, marketing, lessons learned, and starting a business (among other topics).

Make sure you read through to the end! It’s long, but I promise it will be worth it (that’s what she said… sorry, I couldn’t help myself).

PYF: First, I just wanted to say thank you very much for taking the time to talk with me. I sincerely appreciate it.

Ramit: Sure

PYF: To start off, what would you say you do for a living?

Ramit: I run a business teaching people about personal finance and entrepreneurship.

PYF: Would you say that helping people is one of your biggest passions?

Ramit: Yeah, I think for me the pattern has been learning something, trying to learn it really well, and then trying to take what I’ve learned and distill it down so that other people can understand it, and trying to basically motivate people to change attitudes on “I Will Teach You To Be Rich”.

PYF: What are some of the other sites you run?

Ramit: I’ve got another blog that’s a comedy blog that I started in college. I haven’t updated that in a while. Primarily it’s iwillteachyoutoberich.com, and there are couple other sites that I run like for example, ScroogeStrategy.com. That’s a premium savings program that I run, and it all falls under the umbrella of I Will Teach You To Be Rich.

PYF: With owning multiple websites, do you feel its important to diversify your businesses just like you would your investment portfolio?

Ramit: I do. That’s a great question. Yes. I think if your livelihood is dependent on a single website – it really depends if you’re talking about a website with multiple people in the company – then you probably want to invest all your time into making that product as great as it can be.

At the same time there’s another type of approach which is having a portfolio of different websites, and I think that what’s important is a couple things. One, the first and most important thing is figuring out what people want.

For example, I launched something in November called the “Save $1000 in thirty days challenge”, and basically it was about a tip a day. It sounds like maybe you read some of those tips. What I found was that people really liked those kind of tactical tips.

So ok, number one – do people like that kind of stuff? Number two, do I want to create something premium, to drive some revenue and help more people? Ok, do I put that on I Will Teach You To Be Rich or do I make that a completely separate site?

And I decided to make that a separate site because by making a separate site it allows you to do two different things. The brand can be a little different. You can optimize the actual web page itself a little differently.

And third, you know, it’s nice to have a portfolio of sites just in case something ever happens to one. You want to make sure you’re diversified a little bit. At least for me.

So I think the approach there is #1 – the customer validation page. #2 – creating an infrastructure that let’s you quickly create other sites. And then #3 – really optimize each of those sites.

PYF: To build on that question a bit, I know you were talking about your Scrooge Strategy Tips. I’m a fan of those already – just with the first tip I saved enough to pay for a few months of the subscription – so to me, that’s a good investment. But I noticed that some people had a pretty negative response to that. Why do you think that is, and did it surprise you?

Ramit: It does and does not. I think that if you look at personal finance blogs, there are a lot of different types. There are personal finance blogs that are focused on frugality. Mine tends to focused more entrepreneurship and earning more.

What you find is that on my site, you look at the comments when I announced it, it’s actually very positive. I was surprised. I was actually pleasantly surprised by how positive the response was.

And part of the reason for that is that I have been urging my readers to understand that you have to pay for value. It doesn’t make sense to try to out-frugal your way to being rich. And it’s possible to save and scrimp and pinch every penny, but for my readers, that’s not what they want to do.

My readers are a very different audience than other blogs, and on some other sites, you find people that really were offended by the idea that I would charge for content. And some of the comments were “you can get that anywhere, or “who does Ramit think he is to charge people?”.

And that’s fine, it doesn’t offend me at all. It just means it’s a different type of audience, and that person probably isn’t a good fit for the Scrooge Strategy.

As you said, you paid for Scrooge Strategy with one tip, and you paid for months of it. That’s the kind of person I’m exactly looking for. Someone who understands that sometimes, to make money, you have to spend money.

PYF: To me, that’s a good return on investment.

Ramit: Exactly. ROI. Which is very different than basically trying to constantly cut things out of your life by being frugal.

I think frugality can be good, but as you saw with the thirty day challenge, when I define saving, I define it with the CEO model, which is cut cost, earn more, or optimize spending.

I think a lot of times people think being frugal is just about cutting costs, and to me, that’s kind of like cutting down on your eating. It lasts for about five days, and then the vast majority of people will go back to what they’re doing. I’d rather add in earning more and optimizing your spending.

PYF: Yeah it makes sense, I like that. It helps you keep your lifestyle.

Ramit: There you go. It’s about lifestyle and it’s about sustainability.

PYF: What was your goal when you first started I Will Teach You To Be Rich?

Ramit: When I started it, I had actually created a one-hour curriculum called “I Will Teach You To Be Rich”, and I was trying to teach my friends in college, and I thought “Stanford students – very smart, they’ll be very interested”.

And in fact, everyone said “wow that sounds really good”, and then they would never show up for my talks, which were free by the way. I just wanted to see if I could help people understand what I had learned over the past few years.

So I got very frustrated and it took me about a year and a half to realize that it wasn’t working. No one was coming to the talks, and there had to be a better way.

So at that time I had been doing some comedy writing, and I decided to start a blog and make it something cheap, and really make it like you and I are sitting here talking across the coffee table, just real casual and real. Stuff that you and I would say to each other, but we may not necessarily say in public.

So I did that, and I wrote it, and for the first six months if you look at it, there’s virtually no comments on those posts. Nobody really read it. But I spent a few hours a day spreading the word about it.

My goal was basically just to get people to read it and understand that money is not this really complicated thing. In fact, there’s really a lot of BS, and just a few simple principles in getting started.

And it turned out, surprisingly, that the blog actually performed a lot better than speaking in public. Here’s why. I finally figured out two or three years later.

When it comes to money, people don’t like to go to events. Because if they go to an event, whether you’re in college, or when you’re forty and it’s put on by your employer, that is admitting that you don’t know about money. Which in our culture, everyone should know about money.

How? That’s kind of unclear, because no one ever really teaches us about it. But it’s embarrassing to admit that you don’t know what a 401K is.

So people don’t actually go to those events. It’s very difficult. This is well documented in the personal finance literature. So instead, if you start a blog, or something else, people are much more comfortable going to that when they can do it from the comfort of their home.

PYF: When you were just starting I Will Teach You To Be Rich, what did you to do attract visitors and establish credibility with your readers?

Ramit: The first thing I did was I wrote what I thought was really good content. I spent a lot of time writing each of those tips. In fact, if you go back and look at the first tips, they’re really detailed, and that eventually attracted a lot of attention.

The second thing I did was, they say if you want to do something, “build it and they will come”. But that’s not really true. Build it, make sure it’s really good, and tell the right people about it.

So there were about 12 really big personal finance blogs back then, and I made friends with them. I tried to help and add value to them, I commented on their blogs, I pointed them at pieces of research they may not have seen, and I showed them some stuff I had written that I thought would be interesting to their readers.

That helped a lot, because just a few links from those blogs really drove some traffic, and got some targeted people who really cared about the stuff.

A few other strategies I used were reaching out to journalists, as well as reaching out to my own friends in college. And eventually – there was no magic secret – eventually people starting coming and they started telling other people about it.

PYF: What is the best thing that you did to help it grow – could to point to any one thing and say “this really really helped”?

Ramit: It’s not a silver bullet, unfortunately, as people wish. It’s just spending a lot of time writing. Everyone says it, and it sounds simple, but actually doing it is very difficult.

PYF: What was the hardest thing you had to overcome when you were starting out?

Ramit: I think just getting in the rhythm of writing regularly. You know, again, I think there’s a blog post I wrote called “I hate it when bloggers look at their stats” or, and there’s a tendency to want to do all kinds of fancy SEO techniques, and Word Press plugins, and optimization and adsense. Those are nice packets, but really people don’t understand the strategy on that as much.

For example, my blog looked like a piece of crap for two years. It was one page, there were no archives because I didn’t know how to do that. It was like one megabyte each time you opened it up, and I had just used some free template. But it was driving thousands of readers per day. Why? Because you can always fix stuff with the design of the blog later.

I have some friends who write some very influential blogs in Silicon Valley, and their blogs are like most of our blogs. But yet they have some of the best readers that you could imagine for silicon valley, because their content is really good. So my biggest challenge there was getting in the regularity of writing good stuff on a daily basis.

PYF: Okay, so I’m going to switch topics a little bit, and kind of talk about goals and motivation. What’s your ultimate goal? What drives you in life? What do you want out of self employment, out of personal finance, and out of money?

Ramit: I think that’s a good question. I set up some goals on my site about two years ago, and I said “what does rich mean to you?” And for me, it was being able to work with smart people, being able to help people reach their own goals, being able to help my parents out financially, being able to travel whenever I wanted, things like that.

And to me, rich really means being able to be flexible enough to work on what I want to work on, and that pretty much encompasses a lot, which explains why for example, the Scrooge Strategy is a great way to help me reach those goals.

I write these tips once a week, and whether there’s 5 members, or a 1000 members, I’m going to write the tip. It’s a great way to help people in a measurable way to reach their goals and also help me reach my goals. So it’s a win-win for everybody.

And for me, to tell you the truth, the most motivational thing I get out of it is not adding a new revenue source, or something like that. It’s doing a survey where I ask my readers hey how much did you save last month by following the Scrooge, or what money attitude behaviors have you changed since I Will Teach You to Be Rich?

And I will get back 600 survey responses, saying “two years ago I was in $25,000 of debt, now I have $6000 in debt” or “I helped my parents set up their retirement account and I had never done it before.”

Just hundreds of those comments. That’s the kind of stuff where you say “Wow, this stuff is actually working, it’s not just me writing into the abyss. People are actually taking it seriously.” That’s very motivational.

PYF: So it all kind of comes back wanting to help people?

Ramit: Yeah, exactly. You look at personal finance, and it’s like you telling me “hey fix your car, the carburetor’s broken”, or something like that. How would I even get started? It is so inscrutable and complicated to me. And for a lot of people, that’s how personal finance is.

You say “Hey, you got to manage your money”, and instantly, these words are floating around like a constellation of things we should do: 401K, Roth IRA, asset allocation, savings account, interest rate.

You don’t even know where to get started. And for me, it was intellectually exciting to be able to create a framework that says “Hey, it’s not actually that complicated, and actually you don’t need to pay someone to do this for you. You can actually do it yourself.”

And that’s why I wanted to do that. And that’s why I started writing the bookas well, the “I Will Teach You To Be Rich” book.

PYF: That comes out in March or April, is it?

Ramit: That’s right. It comes out in April, and I’m really excited about that. With the blog, it’s fun, because I can write about anything when I wake up.

Like yesterday, I wrote about finalists that I announced for my scholarship. Today I may write about asset allocation. That’s good for blog readers who have been with me for the long term. They can understand who I am, and what my attitudes are. But if you come on a random day, you may just want to get started.

So the book took me two years to write, because I wanted to make it really good. My goal is that you pick up this book, anyone at any level, and someone in their twenties or thirties, and they will basically say “Wow. After reading this book, and after doing the stuff he tells me for six weeks, my finances are virtually on autopilot, and now I know exactly what I need to do to get to my goals.”

Rather than having like a billion choices, this pretty much makes it very simple. Like optimize your savings account. Set up your credit card. And you make it all automated and work together to set up your budget. Very simple.

PYF: So simplifying things to keep people from getting overwhelmed?

Ramit: That’s exactly right.

PYF: Sorry, I’m running a little long, I just have two last questions if you don’t mind. So they say you learn more from your mistakes than your successes. What mistake have you learned the most from?

Ramit: That’s a good question. I think that there’s a constant mistake of assuming rationality. Assuming that because this is so important, people will care. Right?

Money touches us every day of our lives. So you would think, people should care about it. But should is the “S” word. Just because you should care about something doesn’t mean you do it.

I think it’s been a constant learning process for me to have to figure out just because this is important, it doesn’t mean people will automatically do it. In fact, you have to set up ways for money saving and money earning to be more automatic, rather than consciously forcing people to do it all the time.

So I think again, the mistake that I’ve made has been rationality sometimes, thinking “Guys it’s so obvious! You’re making 8% in the market, your loan is 2%.” Well, you should just pay off the loan.

Well that’s not how some people work. They just feel really uncomfortable with debt. And they want to pay it off no matter what the financial numbers say. So I think it’s important to understand both the rational side, the logical side, but also the psychology of money.

PYF: Okay. Last question. If you could go back fiveyears in time and give yourself any piece of advice, what would you do differently?

Ramit: That’s a great question. I would start an email list much earlier. Much much much earlier I wish I had done that.

PYF: What do you mean an email list?

Ramit: Well I’ve done an email list of people who subscribe to my newsletter and I wish that I had done that earlier, and I wish that I had been more engaged with that email list earlier.

PYF: That’s a good idea. Keeps the following going, and builds it more quickly. Makes them more loyal.

Ramit: That’s right.

PYF: All right, that’s all the questions I have. I just want to say thanks again, I can’t tell you how much I appreciate this.

Ramit: My pleasure.