As an avid reader of all things financial, I stumbled across Ramit Sethi’s book I Will Teach You to Be Rich years ago. I confess that I didn’t give it a chance. The title sounded like a scam pitch, and as a CFP® professional, get-rich-quick schemes are simply not on my agenda. But when the second edition came out this year—and I saw that it had become a New York Times Bestseller—I decided to give him a second chance. I started following him on Instagram, and I tuned in to his interviews on a handful of financial podcasts. It was there that I was introduced to his ideas about “money dials” and understood that the way he defines “being rich” is quite different than most personal finance gurus. The title of his book may sound cliché, but his ideas are pretty great—especially for anyone who is committed to building a balanced and “rich” financial life.
So what are “money dials” and why do they matter?
In short, your money dials are the things that you are willing to spend extravagantly on by cutting back mercilessly on the things you don’t care about. I think of it like using the gas burners on my stove: there’s only so much fuel to go around, so what do I want to crank up to the highest heat, and what am I willing to slow cook, or even not cook at all. Your money dials are the things that matter most to you.If you’ve never really thought about your money dials, you’re not alone. In my work with my clients, I find that even people who do a great job at budgeting haven’t really taken the time to figure out what they want to be spending on—and what they don’t. If you have your basic financial plan in place—meaning that you’re saving and investing for the future (Sethi suggests saving 20-30% of your income toward that goal alone) and have reduced your debt to a reasonable level—now is the time to put some real thought into your personal money dials.
Step 1: Identify the “money dials” that matter most
Money dials are different for everyone. There is no right answer when it comes to how you want to spend your money. I have a friend who has a passion for cars and spends most of his discretionary cash on his vehicles. I’m perfectly content to drive my trusty old truck everywhere I go. Is he wrong? Am I right? Not at all. It’s all about where each of us chooses to “turn up the dial.” According to Sethi, here are the 10 most common money dials: Convenience Travel Health/fitness Experiences Freedom Relationships Generosity Luxury Social status Self-improvement
Related: Millennials: It’s Time for a Road Trip to Financial Confidence!
Step 2: Identify your least important “money dials”
Now look at the list again and identify the things you are willing to “cut mercilessly” to fund the things that matter most. Where are you willing and able to turn down the heat? One of the biggest financial mistakes many Americans make today is that they spend extravagantly without cutting mercilessly! The result: they take on dangerous amounts of personal debt. According to the latest Federal Reserve consumer credit report
, Americans collectively owe an estimated $4 trillion in consumer debt, which includes non-mortgage debts such as credit cards, personal loans, auto loans, and student loans. According to the latest data from Experian
, the average credit card balance in the first quarter of the year was $6,028. Those numbers tell us that most Americans don’t have their money dials in line. At all. Determining where you are willing to cut mercilessly to provide that fuel can help you avoid that financial misstep.As soon as I read the list, I knew my #1 money dial immediately: Travel. No question about it. I grew up in a very middle-class family, so I’ve never felt a need to live in a big house, drive a new car, or wear the latest fashions. My needs are pretty simple. What I do cherish, however, is traveling to new places to experience all the things they have to offer. I’m more than willing to sacrifice other things to make that happen. But that’s just me. What are your money dials?Sethi’s explanation of how LeBron James uses money dials is a great illustration of how they can work in the real world. He shares that LeBron James spends $1.5 million a year on health and fitness. From world-class equipment and trainers, to cryotherapy, to private chefs and masseuses, he spends extravagantly to keep his body on the court. And in 13 years, he has never missed a playoff game. He spends on his priority, and that investment pays off for him. Want to play the game like LeBron? Identify your top priorities, and then align your spending accordingly.I guess it’s true that you can’t judge a book by its cover—or at least its title! When it comes to money dials, I think Ramit Sethi is 100% spot on. Young or old, wealthy or not-so-flush, identifying and balancing your personal money dials is a great way to start building your own “rich” life today. And if you need a hand to make it happen, please reach out. We’re always here to help!