Ramit Sethi’s Rich Life Philosophy

Ramit’s philosophy prioritizes living your Rich Life by aligning money with personal values and joy.

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Financial gurus have taken social media by storm in recent years, and many now have their own books distilling their financial methodologies for others to apply and replicate. Ramit Sethi authored I Will Teach You To Be Rich in 2009, and hosts the podcast of the same name. He is famed for his ‘Rich Life’ approach, and his attitude to enjoying life while pursuing financial freedom. Here’s everything you need to know about designing your own ‘Rich Life’.

Who is Ramit Sethi?

Ramit Sethi is the author of I Will Teach You To Be Rich — a book in which he teaches readers to be rich in both a financial sense and a lifestyle sense. Sethi’s voice is a unique one in the personal finance realm. Many appreciate his realistic, lifestyle-based approach to building wealth, and the fact that he encourages spending on things you enjoy, even while pursuing financial freedom.

What is a ‘Rich Life’?

One of the key tenets of Sethi’s philosophy is his concept of a ‘Rich Life’. Through his teachings, Sethi encourages people to consider what they want their life to look like, and honor that while working through the usual suspects of wealth creation, like investing for retirement, living below your means and increasing your income.

Key principles of living your Rich Life

What’s interesting about Sethi’s Rich Life philosophy is that he encourages followers of the concept to start living their Rich Life now — not in 30 years. He advocates for a path to financial freedom that involves actively creating a life you love, and enjoying life in real time. Here are some of the key principles of living your Rich Life.

Splurge on what you value, mercilessly cut the rest. This is one of Sethi’s most often-used phrases. He encourages people to find something that represents living their Rich Life, allocate money to that (in a way they can afford) and “mercilessly” cut back on everything else. Consider it selective frugality. Sethi himself famously drives an old car, but flies business class when he travels.
Buy the best and make it last. Sethi is also a strong advocate for buying high quality products where you can try. Much like the well-known ‘Boots’ theory, buying cheaper often means buying twice. When you can buy something of higher quality, you only need to buy it once.
Increase your income. As with many other wealth creation roadmaps, Sethi acknowledges the importance and the value of increasing your income. Whether that’s asking for a raise, changing careers to something more lucrative, or starting your own business (which can also become part of your Rich Life).

The ‘Boots’ theory of economic unfairness originated from a Sir Terry Pratchett novel, Men at Arms. One of characters was a poor man who could only afford to buy a $10 pair of boots. A richer man would have the means to buy a higher quality pair of boots at $50, that would have lasted for years. The poorer man has only the means to buy cheap boots that need replacing every season or two. After ten years, the poorer man has spent more than the richer man.

Pros and Cons of the Rich Life philosophy

Let’s take a look at some of the upsides and downsides to embracing Ramit Sethi’s Rich Life philosophy.

Pros of the Rich Life philosophy

Empowers you to create financial change. Connecting to a vision that you have created for yourself, rather than following a path dictated to you by someone else, is incredibly empowering. When you know what you’re working towards, you’re able to feel more in control of your finances and adjust your behavior to make progress on your own terms.
Creates motivation without restriction. Sethi’s approach is never about restriction and shame. By eliminating the restrictive connotations that budgeting can carry, you’re free to self-motivate and take steps to create the life you want, both now and in the future.
An approach for life. Cultivating your own Rich Life is an ever-evolving pursuit. Right now your Rich Life might look like having brunch on Sunday mornings with your kids. Long term it might look like spending summers in Europe. The Rich Life philosophy evolves with you, rather than being a short-term sprint with no long-term application.
Prepares you for wealth. By understanding what you truly want from life, you’re preparing yourself for the life your wealth may eventually afford you. The traditional work paradigm sees us chained to a desk for 40 years until we retire and find ourselves with no purpose or passion outside of work. Creating your Rich Life helps you discover and honor your values in real time, rather than waiting 40 years to actually start living.
Recalibrates your financial psychology. Living your Rich Life helps you gradually shift your financial comfort zone and nudge your mindset towards abundance rather than scarcity. Achieving wealth is about more than just numbers. By connecting to what a Rich Life means for you, you’re able to expand your mindset along with your bank balance.
Teaches you to understand and embrace your values. Knowing yourself and what you value can benefit multiple areas of your life, and increase your overall well being.
Personalized to you. The best part of the Rich Life concept is that it’s perfectly tailored to you, your goals and your circumstances. Sethi says, “Your Rich Life should fit you like a handmade glove.”

“Your Rich Life should fit you like a handmade glove.”

Cons of the Rich Life philosophy

Risks overspending or lifestyle creep. Broadly, Sethi’s teachings hone the importance of living below your means as well as using money to enjoy your life. However, you might run the risk of embracing too many of the spending aspects of your Rich Life, and neglect to manage your budget and investments correctly.
You still have to have money left over to grow. In order for the Rich Life concept to work for you, you need to have enough money left after expenses to be able to make your money work for you. In some circumstances, there may not be enough money to live aspects of your Rich Life now and grow enough money for the future.
Requires ongoing discipline. As with all financial planning endeavours, discipline is required to continue saving, investing and increasing your income.
May underestimate the power of cutting small expenses. Sethi often suggests not focusing on $3 decisions like lattes and focusing on $30,000 ones instead, like saving on your mortgage interest. However, in the absence of assets or large incomes, it can be the $3 decisions that later add up to the $30,000 decisions.

Ramit Sethi’s financial blueprints

Sethi has become known for his Rich Life terminology, but your Rich Life can’t exist without solid financial foundations. In fact, choosing only to live your Rich Life in the absence of a wealthbuilding strategy wouldn’t get you very far. In his book, Sethi shares three blueprints for each phase of your financial future.

The Financial Blueprint

These are your financial foundations: Spending less than you earn, knowing where your money is going, and understanding your financial position.

Understanding your finances Create a detailed financial picture, including income, expenses, assets, and liabilities.
Setting clear goals Define specific financial goals, whether it’s saving for a down payment, building an emergency fund, or investing for retirement.
Creating a spending plan Develop a budget that aligns with your financial goals and allows you to track your spending habits. Sethi often advocates for the 50/30/20 budget, and in some cases, reverse budgeting, which he often refers to as “anti-budgeting.”

The 6-Figure Blueprint

This next phase is all about increasing your income, laying the foundations for wealth creation and refining your spending habits to best honor your Rich Life and your financial future.

Increasing income Focus on increasing your income, by negotiating a raise, starting a side hustle, or investing in your skills to be able to earn more.
Optimizing spending Identify areas where you can reduce unnecessary expenses and allocate more funds towards savings and investments.
Building wealth Explore different investment options and develop a personalized investment strategy.

The Freedom Blueprint

This is the phase where we begin exploring your life of freedom, by creating passive income, actively designing the life you want, and giving back to communities and causes that matter to you.

Financial independence Diversifying your earning potential and creating passive income streams that can cover your expenses.
Lifestyle design Consider your desired lifestyle and align your financial goals accordingly. It’s important to think about what freedom means to you, and what kind of lifestyle you need to honor that.
Giving back Explore ways to give back to your community and make a positive impact, by making this part of your Rich Life.

The brain bit: The Rich Life mindset

Sethis’s approach to embracing your Rich Life is a refreshing take on wealth creation. He is one of the few financial gurus that don’t shame you for having debt, or for enjoying a latte if you want to, which helps his advice circumvent the ‘what if I die tomorrow’ question that can linger at the back of your mind when making financial sacrifices.

Research actually proves that connecting to your values and what you want from life can improve your financial behavior. A study from 2017 revealed that people who took part in a financial psychology seminar exploring their values and visions for the future increased their savings rate by more than those who attended a traditional financial education seminar that taught the basic principles of financial literacy and saving for retirement.

When you align your financial decisions to your deeper values, you can naturally modify your behavior because you have skin in the game. Knowing what you want from life and what adds the most value to you makes it easier to sacrifice things that don’t align to that vision. Making decisions for your future self can be difficult — psychologically they feel like a stranger to you. Sethi’s Rich Life philosophy helps you connect to your future self and therefore rationalize more optimal financial behaviors.

From a financial wellbeing standpoint, the Rich Life approach allows you to feel in control of your life and your finances, and balance your present day enjoyment with looking after your future self. This can increase our overall sense of financial well being and lead to more optimal financial outcomes as a result.

How to get started with the Rich Life philosophy

To start designing your Rich Life, give some thought to what freedom looks like to you. We all say we’d like to work less and live more, but what does that represent to you? Freedom to one person could look like being able to stay home with their kids during school holidays. Freedom to someone else could look like traveling the world for several months of the year.

Consider what matters most to you in life and the type of life you’d like to lead, and then bring that knowledge into your finances. What goals can you set to get closer to that life? How can you optimize your spending to get there sooner? How can you live aspects of that life now?

“What does freedom mean to you?”

Your Rich Life 🤝 PocketSmith

Building out your Rich Life requires you to keep your finger on the pulse of your finances — and luckily, PocketSmith can help you do just that.

Track your net worth. PocketSmith’s net worth tracker can help you monitor all aspects of your financial position as you grow closer to your Rich Life goals.
Categorize your Rich Life expenses and keep on top of it. Optimizing your spending can help you live your Rich Life now and in the future. With PocketSmith, you can categorize your Rich Life transactions, and get a holistic view of where your money is going to identify opportunities to cut out anything that doesn’t align to your goal.
Forecast how soon you can experience more aspects of your Rich Life. With forecasting, you can monitor how quickly you’ll hit your goals, and explore the impact of different changes like earning more or spending less.

Rich Life: How to nail it

We want you to crush your Rich Life, so here are our top tips on how to nail it.

Be realistic. Don’t set yourself up to fail when pursuing your Rich Life. Start small, focus on the hard hitters in your budget, and work your way up from there.
Get an accountability buddy. Find a friend or family member and work towards your Rich Life together. It’ll boost motivation and set you up for the long haul.
Review your goals and priorities often. Something that’s a priority now might not be a priority this time next year. Make sure you review your spending and saving priorities regularly to continue shaping your Rich Life.

Rich Life: How not to fail it

The opposite of nailing it? Failing it. Here are some potential pitfalls to avoid.

Don’t forget to save and invest as well as enjoy yourself. The Rich Life philosophy is great at ensuring you’re enjoying life while saving for the future. But it’s important to make sure you’re covering both sides of that coin. Spending too much in the now, even if it does fit your Rich Life, can mean you have to make larger sacrifices later.
Don’t compare yourself to others. Comparison might be the thief of joy, but it’s also the thief of progress when it comes to your financial goals. Some people will achieve their goals faster than you — but you can’t let that stop you not achieving yours at all.
Don’t neglect your relationships. Prioritize meaningful connections as part of your Rich Life. It’s important to not get too obsessed with the numbers.
Be wary of burnout. Hustling towards your goals can be exciting and motivating, but it’s important to look after your physical and mental wellbeing at the same time. Short bursts of hard work can make a big difference, but remember to rest and come up for air.

The PocketSmith verdict: 4.5/5

Here at PocketSmith, we love the Rich Life approach to managing your money. It’s the perfect balance of living your life in the now and optimizing for the future, while getting to know what you really want from life. There’s flexibility to make it your own, and you’ll build a more positive relationship with money in the process. It’s a yes from us!

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