Ramit Sethi shares 3 rules for personal finance
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Everybody talks about saving money, but almost nobody talks about how to spend it meaningfully.

Hey there, I'm Matt D'Avella and welcome to my short form podcast, Three Rules. Each episode, I ask a guest to share three rules that help them find success and happiness. Today, I'm joined by Ramit Sethi, personal finance expert and New York Times bestselling author. Through his books, podcast and Netflix series, Ramit has helped millions of people take control of their money and build a life that aligns with their values. His new book is called Money for Couples.

Ramit, welcome to Three Rules. Excited to have you here. Thanks for having me. I think you know the concept of the show. You come with three rules that have helped you find success or happiness. And then we kind of just like break it down and talk about why those rules were helpful for you and why you think they might be helpful for other people. Yes. Okay. So my first rule is your arguments about money are not really about target. So many couples fight about target.

arbitrary small expenses. I can't believe you spent that much at Target. Why did you have to buy this type of meat when we can use a cheaper meat?

And the biggest revelation that I've had in my own relationship, as we talk about money and with others, is we are so obsessed with $3 questions when we really should be focusing on $30,000 questions or even higher, building connection with your partner. A lot of people just get caught up in these small purchases because they're

maybe those are easier things to wrap your head around versus these big picture visions of what you want your life to look like. If people are trying to get on the same page with their finances in a relationship, what do you think are maybe some of the first steps that they can take? I think the first thing that they can do is to have one positive conversation about money. Do you realize most couples only talk seriously about money

about four times in their entire life. The first time is when they go to buy a house. The second time is if and when they have kids. The third is when they get to be about 58, 59 years old. They're like, ooh, retirement's coming up. We should probably look at how this stuff works. And then fourth, post-retirement, potentially death. Well, I guess they're not talking about money when one of them dies. It's sort of ship has sailed on that one.

but let's change that dynamic we want to not only talk about money we want to talk about it positively so let me give you a quick little way of having a conversation your first positive conversation about money four parts very quick this is a 10 minute conversation no numbers no freaking spreadsheets you go to your partner whether you are dating whether you have been married for 25 years you go first off

reintroduce the whole concept say you know what I realize that when we talk about money the energy isn't going where I want it to go I want us to feel really good about money and I realize that in the past I've been a little um overbearing with money I haven't been as open on my end and I don't think I've been fair about it so I'd like to change that would you be open to that

That's the first step and that really is about sharing what you want and vulnerable. Being vulnerable with something you may have done because all of us have something that we're not perfect at. Next, how I feel about money. Right now when we talk about money, I feel scared. I feel lonely. I don't feel in control. How about you? Notice here that I am tossing the ball to my partner. Third, how I want to feel about money. I want to feel comfortable.

competent. I want to feel confident. I want to feel connected. How about you? And fourth and finally, when should we talk about money next? That's it. That's a positive conversation. For many couples, it's the first ever time that they have talked about money positively. And in the end, all you need to do is decide when you want to talk about it next. You don't have to cover everything. This is a short conversation, but you're going to feel good. You're going to give each other a hug, look each other in the eye, give each other a kiss and say, I love you.

What are some of the mistakes that people make when they approach those kinds of initial conversations about money with their partner? They feel that they need to get everything out all at once.

Just intuitively, it's just bad strategy. It's like when you went on your first date with your wife, it's like, are you trying to talk about everything? No, you're trying to laugh, have a drink or two, and that's it. We can deal with other stuff and see if we vibe later. Let's just see if we like each other. So that's the first mistake. The second is it's really negative.

it's using words like you really need to, or we need to get serious. And the metaphor I would encourage you to do is if you're, if you're trying to teach a friend pickleball,

How do you want to treat them? Do you want to go, you really need to pick up that thing and hit it harder? No, you go, hey, let's have some fun. Let's toss it around. And we can deal with all the technical stuff later. So just go into it with the right mindset. Hey, I want to connect with my partner and we can work out all the numbers and technicalities later. What's rule number two for you? Rule number two, the point of money is not to save it. It is to use it to live a rich life.

this point is lost, especially by a lot of frugal minded people on the internet who

who think that their entire value is based on their savings rate. Ooh, I got a 46% savings rate. Oh, that's outrageous. I can't believe you spend that much. I have a 62% savings rate. First of all, get a life, okay? Your worth is not determined by how much you save in the bank. And second of all, that's not even the point. You're playing the wrong game. The right game is to ask yourself,

what is my rich life? And if you're in a relationship, what is our rich life? And how can we use money to live it? So of course that means you need to save money. Of course. Of course it means you need to invest aggressively. Yes. But it also means you need to build the skill of spending money meaningfully. You know that everybody talks about saving money, but almost nobody talks about how to spend it meaningfully.

That's a skill. And this is becoming a bigger and bigger issue as lots of people have accumulated a lot of money, especially in an economy with the stock market like it is. They have more money than they thought. And suddenly they realize, oh my God, I don't know how to spend it. I'm still afraid. I thought if I had this much money, I would finally stop worrying, but I'm still worrying.

That is because they never learned what the point of money is. It's not to save it. It's to use it to live a rich life. Do you think, though, that some people have issues when it comes to...

that step of saving money. I think a lot of people are looking for the instant gratification. And I think that just skipping that saving step, the value of not spending the paycheck right when you get it is an important personal finance principle. So how do you marry those two ideas where it's like, yeah, saving your money and not just immediately spending it is helpful, but then also the

The point isn't just to save them. - That's correct. The two work hand in hand. That's why I said, of course you need to save. Of course you need to invest. And that's why for 20 years, I've been talking about automating your money, making sure that the money flows where it needs to go.

I will say that once in a while I hear someone taking my advice and perverting it and being like, "Hey, Ramit said rich life, so here we go." And they go and buy like a $200,000 car. Let me be straight with everybody watching this right now. You cannot just see something you like and then take

take my book and twirl it around and go rich life, rich life, rich life, and then use that to justify things. No, that's not how it works. You need to know your freaking numbers. Okay. Actually, you know what? I need to tell you a little pet peeve I have with a few people. So I was on a podcast speaking to a couple and they told me they bought a new mattress. And I'm always curious. I go, Oh, cool. How much was the mattress? And they go, Oh, like 2000 bucks. I said,

Excuse me? This couple was in severe credit card debt. Okay? I go, what'd you say? 2000. They said it like it was buying fries at McDonald's. I said, uh, okay, that's interesting. How did you decide you could afford that? And do you know what their answer was? They said, well, it's really important to treat your back well. I said, what the fuck kind of answer is that?

asked you how did you know if you can afford it, that answer better have a number in it. Instead, they gave me these these real trite pithy phrases. It's important to make sure what's on your feet and what's on your back. Treat it well. It's an investment. I said, hell no. So then two weeks later, I had another couple. Same thing. Two thousand dollar mattress. I looked at them. I said, do you understand that my mattress costs less than yours? And they were shocked.

So one key question everyone should be able to answer is how do you know if you can afford that? Whether it's a $2,000 mattress, a $45,000 car, or a $500,000 house, how do you know? That answer better have a number in it. For example, if you're buying a house, you better know

What percentage of it is your gross income? Is it 28% of gross? And I'm talking total expenses. If you're buying a car, how long do you need to keep that car to make it worth it? These are math answers. They're basic numbers. I cover all of it in the new book. But the important thing is you can't just live a rich life based on feelings. Oh, I want that. That's when you get into instant gratification. You've got to zoom out, have a plan, a rich life, but you also got to know your numbers. Using money to live a rich life.

How can people do that intentionally? - Oh, my favorite question, my favorite topic of all. So I want every single person watching and listening

to have fun with money money is not a source of stress and rigidity it's a source of adventure it's a source of spontaneity and generosity so one way you can do it is to identify your money dials a money dial is something that you love to spend money on and you can turn that dial up or down now the most common money dial is eating out

And I easily get this when I talk to someone, I'll just say, what do you love to spend money on? It's very clear. They love to eat out. The next one is travel. The next one is health and wellness, then convenience. And then there's a whole bunch of other ones. That's a money dial. So you can start to identify that and you can ask yourself, hey, I love traveling. What would it look like if I could quadruple my spend on that category?

and people always give the same answer they go well i guess i'd have to quit my job because i'd be traveling you know four times a year ha ha ha and i go wait a second quantity is one way but would you go to the same places would you stay at the same hotels would you take a private tour maybe there would you bring a friend or your mom or dad there's so many different ways that you can think about quantity quality experience

suddenly you realize, oh my God, if I love this thing, what if I could spend extravagantly on that thing? Turn that dial up. And once we get really vivid and specific about that, then we look at your spending and we go, okay, well, where do you want to cut costs mercilessly so you can actually do that thing?

And that is exactly how I spend my money, how my wife spends her money, and actually how we spend it together. I'm going to be back with the third and final rule in a moment. But first, one of the ways I'm supporting this podcast is through Patreon. By becoming a patron, you get access to the full unedited episodes of the show. Most of the things that people call investments are not investments.

Your personal trainer is not an investment. Your gym is not an investment. Your Vitamix is not an investment. Your mattress is not an investment. And your freaking shoes are definitely not an investment. Let me tell you why I say that. As a patron, you'll also get additional unused footage from my YouTube videos and access to a members-only area where you can ask me questions for my Patreon-exclusive AMA podcast.

And most importantly, you'll feel good knowing that you're supporting a creator you like. And really, what other incentive do you need? Simply go to patreon.com/mattdavella to support the show. That's patreon.com/mattdavella. There's a link down in the description below. Thanks for considering. Rule number three, if you are in a relationship, your future is together. So that means you gotta have three things working together. First of all, you gotta have your accounts together.

Of course, you have your joint account together. You should have your own individual account that your partner doesn't even have access to. And it's no questions asked money for yourself. You want to use it to get your nails done, massage, travel, boys trip, whatever. That's up to you. The second is your future's together. So you need to talk about money together.

It can't just be one person being the money person in a relationship. No way. That's really dangerous actually. And third, you've got to look at your money as teammates. That means both of you have got to be involved at least every single month.

You've got to each own at least one number in your relationship, and you've got to both be participating, talking about money and actively managing it. When couples start to get serious, you know, they move in together, they get married, they start to bring their finances together. How can they do that in the least messy way possible in a way that both people feel great about it? Okay.

the best way is to start gradually talking about money when you're dating to start off really easily just asking real curiosity based questions you know hey when you're a kid um where'd you guys live what'd you guys do on holidays and if if someone's like we went to aspen to ski every december you're like oh that's interesting that tells you something about them or vice versa etc then as you get more serious you start to have more serious money conversations hey

Let's talk about our finances. I've got some debt. I have some student loan debt. It's something I've been working on. I wish I could have paid it off sooner. What about you? You start talking about it. By the time you're married, ideally you've had multiple serious, fun conversations about money, but we should remember most people do not. And that's okay. They don't do it. I wish they did, but they don't. When you get married, here's my suggestion. There's good research showing that if you combine your finances...

in a combined account it's better for your relationship and your relationship around money so my suggestion is you together you go through the new money for couples book you bring your finances together in your joint account and you still make sure that each of you has individual money every single month and that persists even if one person stops working they still get that money it's important they're a contributing member of the relationship

and you talk about money every single month. You have an agenda, I have the actual agenda that my wife and I use, you can use it, and you talk about money,

and you stay up to date. That is the way that you stay connected when it comes to money. - Let's say a couple is in a relationship where somebody is a high income earner, they're making $500,000 a year. Somebody else, the other person in the relationship is making $50,000 a year. What would you say to somebody that's, you know, that high income earner, obviously they might be the first one to push back against this idea, that would say like, "Hey, this isn't fair. Like I've worked really hard in my career. I make a lot of money. I should be able to keep this money."

I would tell it to him straight. I would say, listen, if that's the way you think, then you should be single because your future is together. And it's really important for me to emphasize this, especially because I was that person. I made more than my wife. I was very proud of what I had built. And from the very beginning, it would have been easy for me to be the money guy in our relationship. Very easy.

I didn't. I made it a point. In fact, I insisted that we do it together and that our future is together because one, I'm going to get hit by a bus one day.

I don't want some shithead Goldman Sachs wealth advisor calling my grieving wife saying, "Hey, why don't you come over to our wealth management firm? Only 1.75% with proprietary fund access." Fuck you! I'll be looking up from hell saying, "I'm going to bring you down here." So I know now my wife is very knowledgeable about money. She's going to hang up on those guys immediately and say, "I'm never paying AUM."

i want a partner because i need a second set of eyes i'm not always going to make the right decisions i want someone to work with me bounce ideas together and third is just way more fun so i would tell this person who's so concerned about i worked hard my money territoriality i would say

Let's talk about all the things that can go right when you bring your partner in and you do this together. Sure, it's going to be hard. Truthfully, it was really hard for me to do this. It would have been much easier for me to just manage our money and our relationship. I'm good at it.

To go through that process with my wife, to watch her become incredibly competent and confident with personal finance, and now for us to have fun talking about where do you want to travel? Oh my God, this is a benefit that we both get for the rest of our lives. That's what I would tell that person. All right, Ramit, thanks again for coming on the show. You're the best in the world at what you do. Really appreciate you. Thank you, man. It's always a pleasure. If you want to get these rules summarized into a weekly newsletter, you can subscribe at mattdiavella.com slash threerules.

Thanks so much for Ramit for joining me. Check the links in the description to learn more about his work.