Q&A: Ramit Sethi Shows Us How to Be Rich

Vampires are scary, but being broke at 30, well that gives us the chills.

MainStreet is not alone on this one: just recently Gen Y personal finance guru Ramit Sethi's I Will Teach You To Be Rich hit No. 1 on Amazon.com, momentarily knocking off the popular teenage vampire series, Twilight.

Sethi spoke with MainStreet about his blend of no-nonsense money management and college dude humor that has resonated with his mostly early 20s and 30s audience.

MainStreet: How did you get started writing about personal finance?
Ramit Sethi: I come from a very middle class family. [In high school] my parents told us “if you want to go to college, you have to get scholarships.” So I applied to over 70 scholarships. I got a few of them, but one in particular was a scholarship for $2,000 which they sent a check for directly to me. So what did I do? I turned around and invested it in the stock market. I lost half my money within a matter of months. I was just putting it in whatever company I thought was going up and down a lot. I didn’t realize investing is much more than just picking whatever company you think is cool and then putting a bunch of money in it. I certainly learned that lesson and afterward, I resolved to learn more about personal finance before I lost more of my money. I started reading and realized it’s actually pretty simple.

So what’s the big secret to financial success?
A lot of people think money and personal finance is about someone saying "No!" But it’s actually much more empowering because you can spend extravagantly on the things you love if you cut costs mercilessly on the things you don’t.

How can young people start saving (and spending) successfully?
The first thing we have to do is start managing our own money. The problem is we have too many choices. You wake up every day and you say to yourself, “Should I buy that latte?” “Should I pay off my debt?” “Should I rebalance my portfolio?” And given all those options we become overwhelmed and inevitably just do nothing.

You can’t out-frugal your way to being rich. Saving $3 extra a day is not going to make the difference. The big wins come from focusing on your credit, automation and investing. What I wanted to do with the book is just strip it down and say, “What are the most important things? Let’s pick two that really matter."

I can tell you right now, as a typical 26-year-old, what I spend the most on is going out with friends and eating out at restaurants. Don’t think, “Oh, I’m not going to order a Coke every time I got out.” That will save you $2. Who gives a damn about two bucks? What I would rather focus on is cutting my spending on eating out by 20% and going out to bars by 35%. If I can do that, I can generate hundreds of dollars extra in cash flow per month.