Guiding Clients To Design Rich Lives With Spending Dials

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

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Full Transcript:

Michael: Welcome, Ramit Sethi, to the “Financial Advisor Success Podcast.”

Ramit: Great to be here.

Michael: I am so excited to have you on and joining us today for the podcast. I think a lot of our advisor audience is probably at least familiar with your work and some of what you do. For those who aren’t familiar, Remit is the one who wrote the book, “I Will Teach You to Be Rich,” long been out there as one of the better-known books of just teaching people, especially teaching younger people how to get oriented about life, money, and skills that we don’t really teach in school. More recently put out a podcast around the same theme with very deep and I would say very vulnerable conversations with people about the real challenges that they’re having around money and financial decisions in their household, we see a version of it from the advisor’s end as well.

And so, some people, I think, at least, Ramit, have seen you from the book, maybe have heard the podcast. But I’m excited today to go a little deeper into just your story and journey, frankly, how you’ve made a business out of this beyond just “guy who wrote a book that sold some good copies.” And what you’ve learned from now doing nearly 20 years of trying to educate consumers about their finances and help them make better money decisions. I know you don’t necessarily come to it from, I’ll call it, our financial advisor lens. But you have this incredible track record of what you’ve built and the audience you built and how many people you’ve helped. And so, just I’m really excited to learn how someone from your background thinks about helping people make better money decisions and better money choices.

Ramit: Well, thank you. I’m flattered and I’m very excited to share what I’ve learned. I think that I know the advisor world from a distance and also having been a client of an advisor, I know that there are similar business challenges, how do you find the right clients? How do you select them? How do you charge? But most of all, I just love talking about human psychology and that is what I’m excited to talk about today.

What “I Will Teach You To Be Rich” Offers And Ramit’s Ideal Client Types [05:51]

Michael: Amen, I was a psychology major before I landed in the financial services industry, so I’m always happy to go back to my psych roots. So, to kick off, though, I think I would love to have you describe for us a little bit more just what you do in the business of what you do. Again, I think a good number of people at least may be familiar with you from the book or the podcast but that’s like the external-facing content. Help us understand “I Will Teach You to Be Rich, the business.”

Ramit: Sure. The business has a few core components. There’s a blog, which I started in my Stanford dorm room in 2004. I started it because I had tried to teach my friends in college about money and college kids don’t want to come learn about money, they want to drink beer. And I quickly learned that…well, it took me a year and a half, I’m a little slow. So, part of the business is the blog. I have a book that I wrote after many, many years of writing the blog. I treat my blog like an experimental laboratory, test lots of approaches. And when I finally had a system that worked for virtually every edge case I could find, that’s when I finally wrote a book.

Beyond that, the bulk of our revenue comes from our online programs. We teach people about starting and growing a business. It makes perfect sense as part of a rich life because some people want to earn more money. As I always say, there’s a limit to how much you can cut, no limit to how much you can earn. We teach people in another program, “How to Find a Dream Job. We’ll show people literally step by step, we sit down and we show people how to negotiate a $25,000 salary increase, things like that, transition industries, etc. And then we have a variety of other programs on psychology, money, etc.

At any given time, I think right now we have about 20 different programs. They range from, let’s just say a couple of hundred bucks to maybe over $10,000. They are primarily virtual, we do some in-person things occasionally. More recently, I have a podcast, which I can talk about and really, I wanted to share some of the juicy stories around money, the conversations couples have behind closed doors. And there’s social media and there’s the book, “I Will Teach You to Be Rich,” which has sold over a million copies and surprisingly just popped back onto the New York Times bestseller list this week. So, it’s been around for a long time. We constantly are trying to create new ways to reach new people and to deepen people’s understanding of what a rich life really can be.

Michael: So, talk to us a little bit more about just you’ve mentioned this a few times, it’s like creating a rich life, having a rich life and I know you talk about that quite a bit in the book. So, for those who aren’t familiar, just can you share a little bit more of the rich life philosophy?

Ramit: So, I start from a perspective of I love to talk to everyday people. I just love it. I love watching trashy reality TV. I love…I’m not saying everyday people are all watching trashy reality TV, but it’s pretty popular and it’s popular with me too. I love it. I read normal magazines that you find at the airport and I just love being able to understand what all of us are just thinking about and feeling. And so, when it comes to some of the material that we create, we are less interested in, “Let me show you how to hyper-optimize this, how to create this pivot table which is going to track every last thing.”

Honestly, nobody cares. Certainly not the everyday person. We want to talk about designing a rich life. And I believe that one of the common misconceptions in the financial world is that people start by talking about a budget. First of all, nobody wants to keep a budget at all. And it’s funny, if you pick up virtually any personal finance book, chapter one always says the same thing.

Michael: Budgeting.

Ramit: Yeah, it’s like, “All right, let’s see how much you spent over the last year.” And then the person reading the book…I can tell you exactly what they say because I did research on this before I wrote my book, they go, “I don’t know what I spent last month, that’s going to be really hard to find, but I bet you it’s a bad number. I think I’m going to put this book back on the shelf.”

Michael: Yep. And I joke sometimes, we get a very similar challenge from the advisor end, gather data from clients, which means essentially, have them fill out forms or provide information so that we get the data to do the planning and…

Ramit: You should never do that on the first meeting or before the first meeting, never.

Michael: So, wait, all right, so I now want to go down this road for a moment. Why not? And where should we do it?

Ramit: Okay, so this is the fundamental understanding of psychology. You have to meet people where they are. If you ask the average person, “All right, pull together your documentation and your investments and your debt.” The first question they’re going to…first of all, they’re just going to be like, 50% of them going to be like, “No, thanks, I’m out of here.” Some of them are going to send you questions like, “Does my 401k count as investments.” Right? That’s the level of sophistication we’re often talking about. And that’s okay, but this isn’t a place to ask people to do that. That’s like saying, “I’m going to come over for coffee to visit you, Michael. I need you to go ahead and clean out your entire house, including going through and excavating that garage that’s been dirty for the last 25 years.”

No, let’s just meet at a restaurant and have some fun! So, you have to truly and deeply understand human psychology to understand that you should never ask people to pull together their numbers the first time they talk. The numbers are not even the most important thing at all. They’re not even the second, third, or fifth most important thing. What I always start with is saying, “What’s your rich life?” So, let’s talk about that. Let’s talk about what happens when I ask people that question. Okay, Michael, guess what people say when I asked them that question?

Michael: I would actually guess a lot of people say, “Well, I actually don’t know, I’m not really sure, I’ve never thought about it before.”

Ramit: Yep, that’s true. And you know what the words they use to answer that question?

Michael: What’s that?

Ramit: They go, “I want to do what I want when I want.” And I always smile, I go, “Okay, okay, that sounds pretty good.” I go, “So what do you want to do?” And that’s when they stare at me blankly because they actually have never thought about it. And because they came in to talk to me…when they think about money people, they expected me to be wearing some suit, they expected some kind of intimidating desk, and they expected me to ask them these questions that make them uncomfortable. They’re already defensive. That’s what money makes us feel, it makes us feel defensive.

Even the multimillionaires I often talk to, they feel defensive because they think they’re about to get judged. So, I just break it down. I say, “Okay, you know what? What do you want to do?” And they go, “I don’t know,” and they always say the same few things, they go, “Maybe I want to pay off my debt, I want to be debt-free,” which I don’t find very inspiring. It’s not like…nobody wakes up in the morning and goes, “Okay, I’m going to be debt-free.” And then what?

Michael: Well, it’s a nice waypoint if you’re currently very debt-laden and it’s stressing you out, but then it’s like, “Cool, so then what do you do with the rest of your debt-free life?”

Ramit: Yeah, exactly. What’s next? That’s a good milestone and I understand if you have debt, it’s all-consuming, but what else? Oftentimes when I speak to people who are younger, they go, “I want to have $1 million. I go, “Okay, that’s cool. How’d you come up with that number?” And it’s kind of just this number that floats in the air like, “When I have $1 million, I’ve made it.” Of course, it depends on where you live and your age and all that stuff. But I go a little deeper, I want to get out of the financial world and I want to connect it to their real life. So, I say, “Tell me what you love to spend money on.”

And I’m going to go through this little exercise with you. It’s called the Money Dials exercise. I’ll explain what it is. I go, “What do you love to spend money on?” Oh, my God, their eyes light up. Every single person on this planet has something they intuitively know that they love spending money on. And in order, here are the common categories. Number one, eating out. Number two, travel. Number three, health and wellness. Number four is convenience. And after that, it’s a sharp drop-off. You can find all these catalogs, you can just search for Money Dials. So, I say, “Okay, great, you love to travel. Beautiful. Why do you love traveling?” They go, “Oh, I went to Santorini, it was so cool.”

I go, “Okay, now I have a second question for you. If you could quadruple the amount you spend on traveling, what would it look like and what would it feel like?” I call it a money dial because like a radio dial, I’m asking them to turn it up. And you can turn up eating out from… one person says, “I would eat out four times a week,” okay, that might be going from a level one to a two. Another person says, “I might fly to Italy, take my parents with me, and we’re going to shop in a farmer’s market with a professional chef and make the food.” That’s like a 10. Beautiful.

All this does is it starts getting people comfortable talking about something positive with money, something they love. And of course, it helps you…because I always say we want to spend extravagantly on the things we love and cut costs mercilessly on the things we don’t. Well, I want to start with what they want to spend extravagantly on, I find that a lot more fun and interesting. And if we give them…

Michael: Yeah, than like, “Let’s talk about your budget,” which is essentially a code word for, “Let’s judge where your money goes and then make you feel bad until you stop.”

Ramit: Exactly, I don’t believe in centering around restriction, I actually believe in starting with helping them understand what they want to spend more on, and eventually letting them come to their own conclusion, “Oh, my gosh, why am I spending money on this thing? It doesn’t actually align with what my rich life is.”

Michael: So, Ramit, what you’re describing reminds me of, frankly, a very similar phenomenon to what we deal with on the advisor’s end. There’s this sort of view like as advisors, we exist to help people achieve their goals, ideally, in a well-financially optimized manner where we add some value along the way and help that economic outcome go even better. But it all starts with this idea like, “Well, you’ll come on in and tell me about your goals, and then we’ll come up with a financial plan to help you reach your goals.” And I know one of the challenges that I had as I got more experienced into the career is I would start these conversations like, “Well, tell me about your goals.” And we just kind of get this blank like, “Well…”

It’s similar to what you said with rich life, it’s like, “Tell me what your goal is,” they’re like, “I guess I want to retire with a $1 million.” I’m like, “Cool, just curious, where did that number come from?” They’re like, “Well, I heard it, it seems like a good round number.” Right? It’s like we don’t really actually have very much clarity on our goals here, do we? We have this whole premise in the planning world around helping people achieve their goals, and then find that a lot of people are not actually that good or have any capability of articulating what the goals are in the first place.

And so, I’m struck even at what you’re describing, like, “What’s your rich life? Tell me what you love to spend money on. If you could quadruple the amount you spend on that, what would that look like?” To me, those are really powerful questions because it starts to take people down a road of just even imagining and figuring out what that might actually look like beyond, “I’m going to pick a big round number like $1 million because that’s what people say,” or, “I want to retire at 65 because that just seems to be when a lot of people retire.”

Ramit: Yeah, it takes an understanding of meeting people where they are to develop your own philosophy about the type of questions you want to ask. I would never encourage anyone to directly ask the same style of questions in my format, I encourage everyone who talks about money to develop their own style. But we have to remember a few key things about human behavior. First of all, I don’t believe most people are goal-oriented with many things in their life. Maybe at work, maybe they have some type of plan. But what does the average person want to do? They want to have breakfast, go to work, maybe get praised by their boss, maybe do a good job at work, come home, spend some time with their family, watch something on TV. That’s a good day. That’s a really good day.

This misconception we have that people are sitting here optimizing their 30-year plan, dialing it down to their one-year plan, their quarterly objectives, that’s not how people operate. And if you take the lens of even using the word plan…I like plans, I think plans are good. But if you start going down the rabbit hole of a plan, you will necessarily end up asking someone, “What are your goals?” And it’s no surprise, by the way, Michael, that your answer to that, even in the hypothetical, was, “I guess I want to retire.” That’s because when you ask anyone, “What are your goals about money?”

They’re always going to give you the same answers, “Well, I want to retire at this age, I don’t know if I can do it, though, ha-ha-ha.” They have no idea. But it’s one of those questions that Robert Cialdini calls a click whirr question. You ask someone a question with a certain word in it and it automatically elicits a type of answer. For example, what do you like to do for fun? Ninety percent of people you ask that to are going to answer with the word traveling. Now, do 90% of people like to travel? No. Have 90% of people traveled in the last year, two years, three years, or five years? No, but it’s one of those automatic words.

And so, I want to try to get away from automatic answers. That’s why I want to just connect with them. What do you like to do? Walk me through your house, what do you like to spend money on? Where was the last place you and your husband or you and your wife went for dinner? How did you choose that? That kind of report takes away this financial rigidity and just starts getting real with people. People talk about restaurants way more than they talk about asset allocation. Fine, let’s meet them there.

Michael: Well, I’m chuckling a little bit in your comment of most people aren’t really that goal-focused, that goal-oriented. So, part of what we do on the Kitces platform is research out to advisors, and one of the studies that we do is a study on advisor wellbeing and what drives advisor wellbeing. And one of the striking things that we found in the last round of research is that when you look at how advisors stack up relative to the average person in the population, the two dimensions that advisors, as just personal individuals, score completely off the charts 50% to 100% higher than population norms, which is in psychology research is like so stratospheric, that’s never supposed to happen.

The two dimensions that we score off the charts for are goal accomplishment and self-efficacy, which essentially, our belief that we’re capable of achieving our goals. And so, one of the conclusions that we’ve sort of drawn from the research is financial advisors appear to be really goal-oriented and helping with clients because essentially, financial advisors are very, very disproportionately goal-oriented people who are very confident they could achieve their goals and then like to help everyone else do the exact same thing because that’s how most of us are wired.

Ramit: I have a product team in my company, they’re very, very good at understanding human behavior. They’re masters of human behavior. And when we have a new member join, which rarely happens, I have a fun little exercise and I’ll ask them, “When you have a problem in your life, what do you do?” It could be that you want to change your body, it could be that you realize you don’t like the way you cook, whatever, some financial issue, maybe your kids are acting up. And their answers are, “Well, I sit down, I observe the problem, I make a list, I research my options, I get on a couple of webinars, and then I hire a coach.” And I go, “Okay, cool. Now, what do you think an ordinary person does?”

And they’re like, “What are you talking about? They do the same thing. Maybe they don’t join a webinar, but they get a book, and they do this.” I go, “No, the average person does nothing,” and they’re stupefied. But isn’t that true for all of us? I have problems in my life right now that I’m totally ignoring. That’s normal, that’s human, and so do you. And people have relationship problems and they have health problems and they have all kinds of problems, or they got that broken faucet that’s been broken for two months and we ignore it.

And so, we have to acknowledge that if we do that and we are self-development freaks, then, of course, the average person who doesn’t work at a self-development business is going to ignore problems. It’s easier that way. So, when we start by being honest and we’re like, “Okay, I actually have a lot of big problems in my life I’m ignoring right now,” then we can get real and meet people where they are. They’re not sitting around talking about goals and they’re probably not researching webinars until they’re way down the funnel. They’re just like, “Oh, God, this is a problem. Oh, well, I’m going to hope it goes away.” And if we can meet them there, that’s real.

Michael: So, does that change at all in the domain of…in your world, like, but they have come to your website and they’re checking out your programs or in our world, they did reach out to us as an advisor and scheduled a meeting. Is that not a positive enough indicator that they’re ready to actually do something that we can go ahead and do the do something part now? Or is that a bad assumption?

Ramit: It’s a great question. First of all, when they come to hear about me, they’re not checking on my programs. I wish, I wish that was the first thing they checked out. Yeah, right. They’re finding some funny thing on my Instagram page or my TikTok or they listen to my podcast or picked up my book because somebody on Reddit recommended it. It’s a very low-stakes beginning engagement with me. And then it often takes years, I’m not joking, years of engaging in our universe until something happens that causes them to take action. So, I’ll give you an example. We do a lot of internal research studies. We found in terms of this customer research that we did that there was a group of people who went like five years of being on our email list, sometimes eight years, and then suddenly they bought. I could not figure out what happened to cause them to buy, there was no predictability in any campaign they had seen or anything.

Michael: It wasn’t like, “We did a new campaign, we offered a new discount on the program and, wow, we suddenly dislodged a whole bunch of people that’s been on the list for seven years.”

Ramit: I wish. Again, I wish, that would be amazing, and I would just redo that campaign every day. “What is that campaign, and how do we recreate it?” No. So, I actually emailed every single one of them. I think we did like 100 people, I emailed 15 or 20 a day, and I was just like, “Hey, I noticed you’ve been a member for a long time and suddenly you join one of our programs and I’m just curious, why?” And they started writing back to me and I had conversations with all of them. And you know what the answer was? There was no reason whatsoever. Some of them said…

Michael: “Just felt like it was time.”

Ramit: Yeah. And so, I said, “What do you mean?” Some of them said, “Well, I finally paid off my debt,” because we don’t allow people with credit card debt to join our flagship programs. So, they were like, “Finally, I could join it.” Okay, great. Some of them said, “I was sitting at work on a Friday and I realized I don’t like this job and I want to make a change.” Okay. “I’ve attended your free webinars like six times, some of those webinars I just repeated, by the way,” and they’re like, “I finally decided I’m ready to start a business.” So what that teaches us is, yes, our marketing matters, of course, we want our positioning and our copy and everything to be solid. Of course.

But honestly, people are going to make a change when they are ready to. And so, our job is to show up, be consistent. We send emails, we’ve sent them for 20 years, and we post on social media consistently, we are always real, we tell the truth, and one day, whether it’s today or seven years from now, life is hopefully going to cause our readers to decide, “I want to make a change.” And if they make that decision, I want to be the number one person that they think about.

Michael: So, as you go down that road, I guess I’m just wondering, who buys your program? Help us understand a little bit more of just the audience that your platform serves.

Ramit: We have consumers, they started off being in New York, San Francisco, LA, but since, they’ve expanded. The majority of our audiences in the U.S., they tend to be…they tend to age with me. So, I’m 40, they tend to be in that 35 to 45 range. And they are people who have slightly above average incomes. They are very interested in self-development, so it’s very common that they read my material, they probably listened to Tim Ferris’ podcast and a variety of other self-development folks. And they, for whatever reason…I think because I have a more long-term orientation, they like that. I say that because there are a lot of folks online who are like, “Make $1 million overnight.”

First of all, I don’t believe that. And second, it attracts a certain type of person that’s not our audience. So, instead, we will make big promises like, “We can help you find a dream job,” and then we want to deliver on it. That’s who we find. When I meet them in person, I meet them frequently in person in events and things like that that I do, they’re like people that I hang out with. They’re my friends. They’re educated, they actually liked their jobs for the most part, and they might have a little entrepreneurial edge to them. They’re a little contrarian, right? They want to know that they’ve done their research, they find the right answer, not just what everybody tells them. And if they find somebody who speaks to them, they feel like they finally found a community.

Michael: And so, what is a $10,000 program in your world? Help us understand a little bit more what the offerings are?

Ramit: So, the entry-level ones would be digital programs. They would be…like we’ve got one called Success Triggers, which is 30 videos of different psychological insights, different ways to look at success, different lessons I’ve learned. That’s a nice introductory program. It’s kind of like a bag of candy. It’s easy, you can listen to it on a five-minute commute every day, and it’s not too taxing. It’s just like, “Oh, I never thought about something like that.” Then as you move up…I should actually start with the book, which is like 10 bucks at any bookstore or library. That to me is where a lot of people come and hear about us for the first time.

And what I’m really proud of is that when I wrote that book in 2007 originally, I was obsessed with simplifying personal finance so that people could have one definitive canonical book where it’s like, “What should I do with my money?” Read this book. And, “What if I have irregular income? What if I have this? What if I had that?” Boom, read this book. So, I think people read that book and they go, “Okay, wow, I got my investment setup, I understand that Vanguard charges low fees and I shouldn’t pay for this and that, and boom, it’s all automatic. What’s next?” So then they might join one of the low-end programs.

Really, our most popular programs are in the $2,000 or so range. Those would be video programs for areas like starting a business or finding a dream job. We’ve recently added cohorts so people get actual live interaction through Zoom and that will be a little bit more expensive. And then as you move up the value chain to about $10,000, those are almost all business programs for business owners with very specific needs. So. if you’re a service-based business owner that wants to go from six figures to seven figures, etc, that program would be for you. Interestingly, that program is…our $10,000 program is actually much shorter than our $2,000 program. Part of the reason is that business owners are just like, “Hey, just give me exactly what I need and compress it for me.” Boom, done, and they’re happy to pay.

How Ramit Evolved The “I Will Teach You To Be Rich” Brand [28:40]

Michael: So, how did this evolve for you as a business? Just how do you go from, “I wrote a book,” to, “I’ve got a team and we’re putting all these programs out that we’re charging hundreds and thousands of dollars for?”

Ramit: Well, I’ve been writing the blog for years before I wrote the book, so I really love interacting with my community. Even today, you’ll see me in my own Instagram comments, reading all the email responses that come in from our newsletter. I don’t know why, I like it, I like interacting, and it keeps me current, it helps me understand human psychology. And so, as I went on book tour, I would always ask people, “Okay, you bought the book, what do you want me to do next?” And a lot of them back then…this was March 2009, was when the book came out, the absolute bottom of the recession. And people were like, “I want to know how to earn more money.”

And I was actually surprised because I was like, “What? Doesn’t that sound kind of scammy?” But then again, the name of my book is called “I Will Teach You to Be Rich,” so who are we kidding? People already think it’s a scam. So, they were like, “I don’t care if it sounds like a scam, I want to know how to earn more money.” And I was like, “Okay.” And I know how to do that, I had been a consultant, I had been a freelance consultant and raised my rates. I had negotiated salary. So, I knew how to do this. And so, I went back after book tour in ’09 and we started brainstorming different ways that we could create something. Now I have to tell you, at that time, we didn’t know what…this wasn’t even a business. It was just a book and a blog.

Michael: I was going to say, you were saying, “We,” was there a we? Was there a team? Or are you just you because the We part hasn’t come into multiple people yet?

Ramit: There was a small team. I had a part-time assistant, I had a book researcher who helped me and ended up being an amazing friend and worked with me for over 10 years. So, I came back in this small team, I said, “What should we do about this?” And I find that I need the creative energy of the people around me and we all make each other better. So, you should remember, at this time, it was just a book and a blog. There was no financial model. This was a hobby. And we actually tried a variety of different monetization methods. So, at one point, we had, I think, AdSense or some kind of ads. And we tried a couple of things and I just didn’t really like it. I wasn’t good at it, it didn’t get me excited.

But creating programs that help move people through a journey and cause behavioral change, that’s what I love, that’s what I’ve been trained in at Stanford, and helping people to actually make change and do it at scale. That’s what I am here for. And so, we started doing it and we tried a variety of different things. We tested it with small groups. I still remember we had, I think, 20 people in our test group, one of our first dream job test groups, and we did 14 variations of that before it ever came out. We had to learn when we create these programs that there are a lot of things we think people care about that they just don’t and there are other things that are a minor nuisance to us and people are like, “I want to know every single thing there is to know.”

I’ll give you an example. When it comes to starting a business, the number one question by far and dwarfs everything else is, “How do I find a business idea?” That is it. That is so important. For dream job, “What is my dream job?” That’s a huge part of it. But then, you can go into details on some of this stuff and we only learned this through testing. For example, if we say, “Negotiate your salary,” people are like, “I don’t know how to negotiate, that seems really scary.” So, I always believe show, don’t tell, so we actually brought people in and did negotiations right there on the spot. And you can watch the transformation happen from this awkward negotiation to a very confident negotiator. That’s the kind of stuff that you only learn through testing. So, we learned it, we developed it, we created programs, we learned about things like monetization and all that, and that was what took us through the next several years of the business.

Michael: And so, that was just like putting out successively larger courses? What was the first one you put out and what were you charging for it?

Ramit: I think the first…well, the first digital program I ever put out was $4.95 and I was petrified to charge, petrified. So, this is a funny story because it really shows how much emotions play especially for a beginning entrepreneur. So, let’s go back to 2006. My blog had been up for about two years and I had like a small but the audience was awesome. Like, I would comment to them, they would comment to me, blogs were like really hot. And at that time, I was like, “I wonder if I can sell something on the internet to all these cheapskates. Does anyone buy anything on this stupid internet?” And, remember, back then nobody really did. So, I was like, “All right, I’m going to create a guide,” basically like a book, I got it designed, and there was no fulfillment back then. You had to find all these weird software things and cobble it together. I didn’t even know how to do it.

Michael: Fulfilment mean like how you actually deliver…like you made an e-book, how you deliver the e-books. You don’t have to just wait around at your computer and type an email and hit “Send” every time someone buys something.

Ramit: Well, that’s funny you say that because that’s what I decided to do.

Michael: Fantastic.

Ramit: I didn’t know how to do all this tech stuff. So, I actually also had such low confidence that anyone would buy anything. I thought maybe 50 people would buy this thing for $5. So, I said, “All right, let me try it, and let’s just see what happens.” So, I was so nervous writing about it and my “sales page” was just a blog post. And when I go back and look at that copy, I cringe because I was so defensive. I was like, “Why am I charging for this? Yeah, I guess I could give a lot of it away for free but I’ve been writing for so many years.” It’s just like so whiny.

And I was like, “Anyway, I think this is awesome, I think it’s worth it, and if you don’t like it, I’ll refund you.” So, I launched it and I think the first couple of days, I got like 100 or 150 orders or something like that. I was like, “This is insane.” But I also had tons of comments calling me a sellout and that really hurt. I still remember to this day that people were like, “Oh, “I Will Teach You to Be Rich?” More like “I Will Teach Ramit to Be Rich.” And I was like, “Wait a second.”

Michael: That’s mean.

Ramit: Yeah, and remember, my blog was completely free and it still is. In fact, 98% of my stuff is free. And so, I said, “Wow, that hurts,” but at the same time, the people who bought, I could see the metrics, the email metrics, they opened my emails at four times the rate of other people. So, they had an 80% open rate, those buyers. The people who bought sent me great notes, “Hey, I love this thing, let me know when you create the next thing.” And I’m like, “What the hell is going on here? I have these cheapskates online who are berating me for selling something for less than the price of lunch and then I have these really happy buyers who are telling me to create something more.”

So, that got me on a journey of understanding buyer psychology and that took many years. And now when I sell a program, I’m totally unapologetic about it because, number one, I’ve sold all these different things. Number two, I’m only putting out something that works. We know that. We know it’s great, we have testimonials. And number three also realized my stuff isn’t for everyone and if you don’t like it, that’s cool, follow me on TikTok or follow somebody else. But I’m not trying to go after everybody, I’m just trying to find the right people and the right people will find value and happily paying for what I offer.

Michael: Well, I’m struck by this as you’re describing it because one of the things that jumped out to me just the first time that I’d read your book and also now having seen you more over the years on Twitter and in social media as well is you put out some strong views and strong opinions, you drop some curse words and…

Ramit: Me? What? What are you talking about? I’m a teddy bear!

Michael: You drop some bombs in the book. And to me, it’s an interesting version of what you just said sort of writ large is that phenomenon that, look, if you build your business to a certain size and just a good number of people start seeing what you’re doing, you’re going to hit this split at some point where some people are going to love what you do and buy it and pay for it and say they want to engage more and tell their friends about it. And other people are going to say, “You’re a sellout,” “You’re a rip-off,” “It’s way too expensive, why would anyone buy that?” We very much live that in advisor world as well as we scope and price our services.

And I know for a lot of us, that gets really hard, we hear the naysayers way more than even the people who were saying they’re liking it because I know human beings don’t like feeling negativity from other people. But you seemed unique to me in that you seem to have gotten, not only really comfortable with that divide, but you seem to lean into it now of like, “Yeah, I’m just going to say exactly what I’m thinking of what’s going on and if you really like it, we’ve got a lot of cool things for you and if you don’t, peace, move on.”

Ramit: Now, now I can say that. But even as I was telling you what happened in 2006, it was visceral for me to remember those blog posts. I remember waking up and reading those and seeing people basically assuming the worst. People who had been reading me for years suddenly turned on me the minute I charged a few bucks, that really hurt. And I still remember that, it’s one of the most painful times in my business. What I think is…a couple of things happened. One, I was fortunate that I had buyers who gave me such positive feedback. And to see the stark dichotomy between the non-buyers and the buyers, it was just obvious there’s something really fascinating going on here and I don’t understand it.

And then, two, after I got more comfortable with it, I started to realize I don’t want to be a commodity in this world. I don’t, I don’t want to be a commodity of going around and talking about the same old thing everybody else does. First, I have a lot of different views on stuff based on my background being raised by immigrant Indian parents, my background studying technology and psychology at Stanford, my background in working in technology and finance. So, I’m like, “If I’m not going to talk about this, then why don’t I just go get a nice normal job and finish work at 5:00?” I think that, over time, it became more comfortable for me to share what I believed, but I also never wanted to be hyperbolic. Look, the name of the site is already “I Will Teach You to Be Rich,” and as I said…

Michael: I was going to say like it’s a bold name for not wanting to be hyperbolic.

Ramit: Yeah, I know and I was sober when I picked that name in college, believe it or not. And the crazy thing is, if you go and read it today, literally comment after comment after comment goes, “There’s this book, it’s called “I Will Teach You to Be Rich,” it totally sounds like a scam but I promise you it’s not, it actually has really good information.” And I go, “You know what? All right, I accept it.” What can I do? I know it sounds like a scam. And I’ve been at these conferences, I’m sitting on stage, and there’s all these big shots CEOs and then there’s me, CEO of I Will Teach You to Be Rich, and everyone kind of like half laughs. But I’ll tell you something, when I started, I thought that one day I would get big enough that all of these freeloader cheapskates would disappear.

Wrong. Wrong, you actually get more because you just become more well-known. But what happens is you become stronger, you’re able to handle it. The second thing I learned is that some of the questions you get in the early days will disappear. That, I can share and I think it should be very reassuring. When I used to sell programs, people would literally ask me, “Can you please explain why this costs $99 and not $79? What are the features? What’s the timeline? What’s this? What’s that?” They don’t ask those questions anymore. Part of it is that my business has become more well-known. Part of it is that we become much more skilled at messaging and part of it is that we disqualify people earlier on.

If you come to my site and you are a coupon cutter looking to save like 10 cents by disabling your oven light, you’re not going to stick around for long. All right? You’re not going to like it, that’s okay. But if you come and you’re like, “Wow, I want to earn more money,” “Wow, I want to be able to travel unapologetically,” “You know what? I want to buy a nice coat or I want to treat my parents to a beautiful anniversary trip they didn’t even know about,” you’re going to start seeing my examples and our team and what we’ve put together and you’re going to be like, “This is for me.” So, that’s what I’ve learned over the years when it comes to feedback from the market.

Michael: It’s interesting to me just there’s so many parallels to this and what you’re describing and how it plays out for us as advisors as well. Anyone who started on this role as advisor, and particularly when you charge fees because the roots of our industry, we sold products. And the cool thing, for better or worse, about a product is you don’t set the price, the price is the price because we’re selling whatever product our companies make available to us. And our compensation is our compensation because it’s some commission or whatever gets sold, a percentage of the volume, and you don’t control any of those numbers.

It’s not until you start giving advice and charging fees where at some point, the client says, “How much does it cost?” And you have to say like a number out of your mouth in a competent manner. And almost inevitably, especially when you’re early on as an advisor, people start saying like, “Well, why is it $2,000 for a plan? Why can’t it be $1,500?” Or like, “Why is it 1%? I know of so and so that only charges 0.8%.” And we get a lot of those questions. And I will say in a similar vein what you’re describing, looking at how the advisory business has evolved just in my own career and journey, I have a lot of those questions early on but I don’t get any of those questions now.

Just at some point, the business is established enough that if they don’t like your pricing, they just don’t show up and talk to you and engage with you. If they are, they’ve already gotten comfortable, you charge what you charge, either they’re going to decide they just want the service overall or not. But that price haggling element is very evident early on, it’s like happens a lot and does seem to fall away almost entirely after a couple of years.

Ramit: I agree. I would say that I also realized a few years into creating different programs that I didn’t want to hide and be defensive about how much I charged. I always knew I would charge top of market, always. I wanted to be a premium business, I knew that. I never wanted to deal with haggling cheapskates who wanted to nickel and dime me. And so, how do you do that? Well, there’s a couple of ways. One, you need to be a premium consumer yourself. I had a friend of mine who was like, “Hey, I’m selling my…” I think it’s a $50 or $500 course, “It’s selling fine, but when I charge $2,000 for this other course, nobody buys it.”

I go, “Okay, when was the last time you bought a $2,000 course?” He goes, “I don’t buy that.” I go, “Exactly.” If you don’t buy premium goods, you can’t expect to sell them. And if you don’t buy luxury goods, you can’t expect to sell luxury services or products. So, you have to be in the market to be able to understand the market. And the other thing is I think your pricing actually has to make sense. So, if I’m out here charging…well, let’s just talk about pricing for advisors because you know I have views on this.

Michael: Sure.

Why Ramit Dislikes The AUM Model [43:21]

Ramit: You’re charging 500 bucks an hour as an advisor? God bless and you’re great and you can provide value, I am all for it. I myself have hired an advisor, he charged me a nice premium rate, I did not bat an eye, I said, “Great,” and he did a great job.

Michael: And was that like an hourly advisor charging by the hour?

Ramit: Yes, it was hourly, or it was project, but it was basically a very reasonable premium hourly fee. But if you’re charging 1%, well, I think you have a problem and I think you’re going to have more of a problem over time because 1% does not stand up logically to any scrutiny. So, the equivalent would be me saying, “I’m going to take a percentage of your income based on this course.” It doesn’t really make sense. I would be much happier charging a very premium rate, even $10,000, offering them great refunds, great evidence, all that stuff, but I could never come around to paying the AUM or encouraging my readers.

And so, what I have said for my readers, many millions of them, is I said, “Look, there are certain reasons why you might want to consider an advisor.” Right? There are reasons. I myself have used one. Most people can get started on their own, it’s totally fine. If you choose to have an advisor, find one who charges you an hourly fee or a project fee, even if they charge you a lot and you like them, go for it, but never AUM. And when I explained the examples, I remember on Instagram, there was a young woman, she was in her early 30s, and she was like, “Am I getting ripped off?” And I talked to her on DMs, I said, “How much do you think you’ll pay your advisor over the course of your lifetime?” She had no idea how to calculate it. I said, “Let’s just guess.” She goes, “$35k.” I go, “Okay.”

We ran the calculations together, the answer is actually she would pay over $300,000 in fees. And her response when I pointed it out to her and I showed her the math was, “WTF, wait, what?” And she just wrote…she was shocked and I have the whole thing that I posted. If people knew how much 1% AUM would cost them and they knew it transparently, they will not pay it. So, I think when you charge your pricing, you have to know that it makes sense and it’s a value for you but it’s also a value for the consumer. That’s where I’ve come down and I’m a long-term low-cost passive investor, I encourage people to focus on low expenses. Well, that’s an area that I feel pretty strongly about.

Michael: So, I do have to wonder, though. So, as you put like you don’t charge a percent of income, you may charge $2 grand, you may charge $10 grand. But at the same time, I’m presuming people who make $50,000 probably are not buying your $10,000 course, I’m not even sure people who make 100 grand are buying. But as you said, it’s business owners, so I’m going to presume it’s people who make a couple of hundred thousand dollars for whom $10 grand is something that they can drop for a thing that is meaningful for them. And their business is large enough that if you grow them a couple of percent, it’s actually a meaningful ROI, the math works.

But to me, I can’t imagine how a business like yours…I get you’re not literally charging a percentage of income, pull out your tax return to calculate the cost of this IWT course. But I have to believe that all the courses that you offer still probably scale pretty consistently to certain income levels just because they either do or don’t have enough financial wherewithal to pay for a course at 50 bucks or 200 bucks or $2,000 or $10,000.

It would seem to me like your model is still functionally a model that charges people based on their income because if they’re not high income, they’re not buying your higher and premium courses because they just can’t afford it. Your fees are still probably pretty correlated to the income of the people that are buying the courses.

Ramit: I think it’s fair to say that the people who buy a $2000 or $10,000 program of ours make more income on average than the people who buy like a $100 program. I think that’s fair. However, I always use this ethical rubric for myself, which is, if somebody had all the information and motivation in the world, would they buy this? So, let me tell you how that affected some of our offerings. We have a rule where if you have credit card debt, we do not allow you to join our flagship programs, those are the expensive programs, over $1,000, over $1,500.

Now, why do I have that rule? Because if you understood how 14.99% interest rates or 24% interest rates work, you would not spend $1,500 or $2,000 on a program, you would take that money and pay your debt off as fast as you possibly could. Bottom line. And all of us know that, I know that, you know that, so I just tell them, “Pay your debt off. Here, get a chapter from my book for free, use it. pay your debt off and come back, we’ll be here.”

Michael: “Call me back when things are better.”

Ramit: Yeah. And actually, I want that too because I don’t want somebody who’s super stressed out by debt going through one of these programs, they’re challenging, I want them to feel really good. So, they do that and most of them don’t come back, that’s totally fine. The ones who do are super committed, and I’m like, “Hey, this is awesome.” Now, let’s take the same thing for a financial advisor client. If a prospect for a financial advisor goes and says like, “All right, I have like $150,000 in this account and I have a higher income now and etc., and I want to pay $5,000 for an engagement with you.”

And you know as an advisor that you’re going to help them with their plan, you’re going to check in with them, you’re going to set them up and give them certainty. To me, that’s a no-brainer, 2,000, 3,000, 5,000, fine, great. Love it. It fits that ethical barometer. If they had all the information and motivation in the world, would they spend $5,000 in order to probably make way more over the course of the next 10 to 20 years? Yes. Okay, great. Now, if they understood the effects of a 1% fee, that over the course of a lifetime, it would result in nearly a third of their money going in fees, would they make that decision?

I would argue, no. That for me is the distinction between charging even premium fees versus AUM. Not everybody agrees with me. Advisors who charge AUM don’t usually agree with me, that’s okay. But this is the way I think about it and this is what I tell my readers. And again, I encourage them if and when they need an advisor, happily pay premium fees, don’t even bargain if you find an advisor that you like and trust. But there are certain business models that I have to candidly warn my readers about.

Michael: So, how do you think about what fees add up to when you’re engaging your $500 an hour advisor year after year after year after year on an ongoing basis? If I grow that and apply a growth rate to it, don’t I still end up with a really large number?

Ramit: No, no way. Two differences. Great question. Number one, $500 times 10 years is not that much, or let’s say 12 years.

Michael: Well, if you’re engaging an hour at a time as opposed to a 5 or 10-hour project or a 20 or 30-hour project if you’re more complex. I know advisors doing this that will have 40, 50-hour financial plan projects. They work with complex people and business owners with a lot of stuff going on but hourly rates can add up pretty well, as well as I’ve certainly lived with lawyers and accountants.

Ramit: Absolutely, $500 an hour advisors, lawyers, can add up. Absolutely. I think that if they’re working for 30 or 40 hours, it’s probably quite a complex task, especially year after year. And at that point, they probably have multiple, multiple millions of dollars, eight-figure net worth. Yeah, it might seem like a lot to be paying $25,000 a year in fees for one type of advisor or even 75,000 or even more. But if you’re sitting on $38 million, it’s a rounding error. So, I actually don’t mind that. And I will also say that there’s a profound difference in knowing exactly how much you are paying whether it’s a per project or hourly fee versus a percentage.

You and I both know that humans are not properly…we don’t properly understand what a percentage means. We just think, “1%? Oh, that sounds fine. Why not?” But we don’t understand the math of how 1% leads to 28% in fees being paid out. That is so counterintuitive. And when I show people the math, it absolutely blows their mind. Guess what? There has been extensive training…it’s not an accident that AUM, even the acronym itself, and 1% has been chosen, it has been engineered to be confusing for the average consumer. Here’s another ethical barometer. What would you want your mom or dad to pay their advisor?

Michael: Well, mine literally pay an advisor 1%.

Ramit: Why do you let them do that?

Michael: Because for them, it is an ongoing relationship. They’re at a point in the stage where…my folks are retired and moving on to later years. Re-explaining their financial situation to a new advisor every year isn’t going to work in the long run. In fact, in some number of years, I don’t even know how strong they’ll be to make a lot of their own financial decisions. And so, they can’t get a new financial advisor up to speed in meeting every year, the value for them is they have an ongoing relationship with someone who understands their whole situation and can deal with all of that on an ongoing basis.

I sort of think of it like when people have a lot of health issues, there comes a point where I don’t want to just go see a doctor every time I’m ill, I got a complex health issue, I want a dedicated doctor who knows my whole situation so I don’t have to explain the whole chart over and over again every single time. There’s a whole concierge medicine domain that’s growing in the same area. And when I look at it, even from the industry perspective, we put out some of the benchmarking numbers to calculate this. If I take the average amount of revenue that an advisor gets paid for the number of clients they have, and then I add up how many hours they actually spend servicing their clients, because we do some time-tracking studies around it as well, it comes out to be about $250 to $300 an hour on average.

Obviously, there’s a range. But the average advisors, AUM fees divided by the average number of hours the advisor services their clients, you end up at about $250-$300 an hour. Now, you’re buying larger chunks, you don’t get a one-hour engagement with an AUM advisor, it’s a relationship-based model clearly. But hourly rates end up competitive to what we see a lot of other advisors. Even when we do this with top-producing advisors, we still end up with numbers that are like $600 to $650 an hour. And people with 20-30 years of experience, they can command that more power to them.

Ramit: Well, I will say this. It sounds like I’ve come down pretty hard on AUM advisors. I will say one thing, it’s not fair the way that consumers value financial advice. It’s totally backwards.

Michael: What do you mean?

Ramit: Well, they pay for…they basically want to beat the market. And so, they pay for gimmicks and tricks and investment advice, which really in the vast majority of cases would be better to just put in a target date fund or an index fund, etc. But they don’t pay for behavioral interventions, for checkups, for accountability. Those are the things that actually really matter. And for things like, “Hey, let’s look quarterly over your spending, let’s increase your savings rate by 1% a year.” That is incredibly meaningful, but they won’t pay for that. So, I have a lot…

Michael: Well, except what the AUM advisors have found is they will pay for that when it’s bundled into an AUM fee.

Ramit: Exactly. I know! And it’s unfair!

Michael: For better or worse, they do pay for it, there’s a good value version of that and there’s still the like, “I’m charging you 1% and I see you once a year to just tell you how your 1% is doing,” and there’s nothing in between. We certainly own, we’ve got a huge range to what advisors are doing for their 1% and the market is excruciatingly slow to sort that out. But, again, when we look just from our research of like, “What the heck are advisors doing,” that when you add up all those AUM fees and divide by the hours and you still end up back at like $250 to $300 an hour, the answer is very much where you just went.

Like it’s check-in meetings, it’s ongoing meetings around, well, retirement issues, spending and cashflow issues, tax planning issues which can provide its own return for some people if they’ve got enough tax issues to generate tax savings. It’s fixing insurance problems not because they’re selling insurance but because they are advising on it and can see problems. It’s fixing estate documents. It’s all those domains that broadly we call financial planning that what you end up with if you decompartmentalize the fee is it’s like a quarter to a half of it is actually investment-based and the other half to three-quarters of it is all the other financial planning behavior management kinds of stuff you’re talking about with, again, the fair asterisk where it’s like not all advisors are doing that well, your mileage may vary.

Ramit: Yeah. It’s an incentive problem, it’s a cognitive problem in the way people value things, but it’s reality. The financial industry has tried to charge in different ways and I know very good advisors who started off with a very strong philosophy on, “I am charging hourly, I am charging per project.” And they had to capitulate and charge AUM if they want to stay in business. And I talked to them and I asked them and they told me like, “Yes, nobody pays for that.” And so…

Michael: So, does that change your view to it in a world where like, “When I charge for behavior management by the hour, no one pays for it, and when I charge for behavior management on an AUM model, at least a good number of people actually pay for it,” and then get the exact kind of help and advice that you’re suggesting they need? Again, in the context of what you said, look, if the person you were talking to was going to be able to effectively self-manage her own index funds and get there, more power to her. We certainly see from the advisor…and I’m sure you’ve seen the subset as well of like, yes, they day-traded themselves on Robinhood down to zero or negative because they dialed it up with options leverage. And if your choices are like, “You can pay me a 1% fee or you can keep day trading yourself into oblivion every time you add money to your account,” I’m pretty sure I know which one actually ends out with more wealth in the long run.

Ramit: Well, that is a very fascinating question but my answer to your question is no, it does not change the way I feel about AUM advisors. I will tell you, I used to be fundamentally against those Coinstar machines. You know those machines that you used in the grocery stores?

Michael: Oh, yeah, yeah, yeah, bring all your spare change and it will literally count your change for you and keep five or 10% of it.

Ramit: They kept like 8%, and once you understand what 8% means, you go, “Wait a second, that’s insane.” And so, I used to be fundamentally against it, I’m like, “This is a rip-off, I’ll wrap my own coins if I have to,” because all the banks took away those machines.

Michael: What was it going to say? “How long do you spend wrapping your own coins?”

Ramit: Yeah, I know. So, eventually, I have to admit, even I was like, “All right, fine, I will pay the 8% for this $70. Like, I hate myself right now, but I’ll do it.” But I will not…one percent for someone who has $400 in their investment account? Okay, fine. But the AUM model is absolutely predicated on those fees bearing fruit in the later part of life. That’s when the real fees…and AUM advisors know that, they’ll even tell you, point blank, “Look, my fees are so low right now, as you make money, I make money, etc., etc., and it’s all about later.” Okay, I understand that, and mathematically, that is true.

But whenever I show people the math of how it actually works, like, “This is your portfolio, right now it’s modest. But over time, it’s going to grow to this and you will be paying this much. And if we actually average out those fees over your 25 years of engagement, it’s not like $30 a year in fees, it’s like $30,000 a year in fees,” and their eyes are just shocked. So, that’s one. Ethically, no, I can’t get behind it. It’s not like Coinstar because it’s not $70, we’re talking about $700,000 or $7 million.

And the second thing is I just think strategically, the world is changing away from AUM. It’s a really difficult business to be in. So, if strategically, if I were an AUM advisor, well, first of all, you’re not listening to this podcast anymore because you already hate me. So, all right, fine, you shut this off 25 minutes ago, that’s fine. But if you somehow managed to make it to this point, it’s just going to get harder. So, if it were me, I would say, “Where is the world going? Let me try to go there.” If it were me…

Why Ramit Thinks The Future Of Financial Advice Should Be Focused Behavioral Management Services [59:53]

Michael: So, where do you think about that puck going?

Ramit: Well, that’s exactly what my business has been. You know I still talk about boring, low-cost target date funds and index funds? I’m not out there talking about Robinhood and crypto and all this bulls*** stuff that people are talking about making $1 million. I go on TikTok and make fun of those people. I go, “Oh, here we go, another whole life insurance scammer, let me rip apart their math and show you the scam.” It’s really hard to make a living when you are talking about index funds, which basically have no margin and I’m not even making margin from it.

So, what would I do if I were in the advisor world? First of all, I’ll get extremely adept at choosing a target market and meeting them where they are. So, you see some really talented advisors on social media. Wow, it’s amazing! A lot of them are on Twitter because I think they like to be in the FinTwit world, and they like to type. But more and more people, I’m 40, who are 40s and 50s, they’re on social media and other channels, I would certainly get there and I would master that game. That’s number one. Number two, I would lean into my views and my philosophy. If you are not charging AUM, I would be open about it, “I don’t do that, here’s why, here’s how much another advisor would charge, here’s why I don’t do it.”

Like, my wife is a personal stylist and she doesn’t take a percentage of how much you buy at the store like other stylists. She tells people that. She goes, “Here’s why, I have no commission, no alliance to any brand, I’m here for you.” And she charges premium prices. So, the right customers when they like her, meet her, see her photos, they go, “Okay, I’m in.” That’s what I would do there. And three, I would be dipping my toes in the behavioral world. I know we’re not there yet, I know most people are not paying, but there are glimmers of people realizing the importance of accountability.

There is now cohort-based groups, there’s Slack groups, there’s all kinds of…there’s private podcasts where people are starting to explore like, “Oh, wow, I got my asset allocation, it’s good, I don’t need to fiddle with that. But what’s going on with inflation? I need to talk to somebody and not freak out about it.” There’s value there, you just have to be creative about how you monetize that.

Michael: So, how do you think about monetizing it? In this world where, we’ve got your handle on AUM, but the flip side, even as you noted, it’s hard to do this straight hourly because just not a lot of people are paying for or paying for it yet. So, is that a like be perseverant about hourly and the market is going to come to you? Is there some alternative thing like charge a subscription fee because now that’s a model that’s growing? Like, charge a subscription fee but just make it a flat fee, not an AUM thing and that’s okay?

Ramit: Yeah.

Michael: How do you see monetizing it?

Ramit: Okay, so I’ve worked out with a personal trainer and I’m fascinated with the personal training industry. There’s actually a lot of similarities between personal training and financial advisors, hourly, per project, etc. And the personal training world charges roughly 100 bucks an hour, ballpark. Okay, that’s pretty good money per hour, but you got to go places, different gyms, etc. There’s a lot of overhead. And so, you start to think how can a personal trainer turn this into a multiple six-figure or possibly even seven-figure business? Well, there’s a lot of different options. There’s the obvious training people at $100 an hour. Okay. There’s specialization, so it might be, “I’m training bodybuilding competitors,” if I have the skill, or whatever it may be, which can raise your rates.

But there’s also some really clever things like when people start to train more, they probably want access to meal prep, prepped food, maybe even a private chef, that could be part of your introduction. Quarterly, there’s the opportunity to do things like January, Get Extra Fit group program. Once a quarter, they could do some type of weekend program, Bring Your Kids. There’s a whole bunch of different ways that we could do this. On the advisor side, every January, there should be a program that every advisor is doing because January, New Year, new you, it’s a huge time for money. And that doesn’t have to just be one person. In fact, I would bring in 10, 20, depending on how you know how to scale as many people as you can.

Michael: To do what? Like just, “Hey, let’s talk about New Year’s goals?”

Ramit: No, no, no. First of all, nobody wants to talk about goals, remember. I would create our 2022 or 2023 or 2024 plan, “Let’s do it right now.” Or maybe it will take us three days. You could have one-four, let’s create a family financial plan. If you have expertise in how parents should talk to kids about money, that’s a whole nother program you could do. I bet you, your clients, a lot of them have kids, and I bet you they would happily pay for that program. So, it’s thinking about what different types of programs and formats you could offer. Some of it could be virtual, some of it could be digital like a video program, some of it could be at the highest level, in-person.

There’s so many different models and formats. That’s one. Next would be partnerships. So, if I trust you as my financial advisor, well, what about when I have tax questions? Of course, you want to have recommendations and referrals there. But also, there are things that people may not realize. You mentioned, Michael, insurance. Awesome example. What about a monthly newsletter where you share the best techniques that your other clients have used, fully anonymized, of course, for optimizing their tax bill or making more money, etc., etc.? There are a lot of ways that we can go from $100 an hour or $200 an hour to much larger of a business.

Michael: So, how does that show up in the billing model, though? How does the advisor need to charge so that they can get paid for this and you’re willing to refer them? And what does that have to look like for you to fit the ethical framework for you?

Ramit: Well, in my opinion, all those things I just mentioned, you should be totally charged for it and they should be charged at a healthy premium rate. So, it could be…

Michael: And that’s like by the hour, by the project, by the progress.

Ramit: Yeah, so let’s say you do a January New Year, New You, we’re going to create a financial plan. I’m using an example. It could be the one with kids, etc. So, what would you charge…well, what would you charge for that, Michael if you were going to do that and you’re going to have 20 people in a group virtually and it’s going to take, let’s say, two three-hour sessions?

Michael: Well, I guess kind of depends on their financial wherewithal and impact but I can potentially do a couple of hundred dollars per person, might go higher depending on how challenging their lives are that they’re trying to make into a new you experience for them.

Ramit: Yeah. So, I love that. The way I think about it, just slightly different, number one, I would select so that the class makes logical sense. I wouldn’t want someone in there who makes $8 million a year and someone in there who makes $25,000, it makes no sense. So, I would select, and that would allow me to rationalize my pricing and that depends on what type of clients you have, etc. It also just makes the class better because it would make more sense. The second thing is, in a program like this, you do not have to offer the same thing you do in a full engagement.

So, one thing we learned at IWT is we say A to F, not A to Z. What that means is most people don’t actually want to go from A to Z and become an expert in something. Honestly, they just want to know that it’s good enough, it doesn’t have any gaping holes, and then get on with your life. And think about it, isn’t that true? The way you treat your car or your lawn, it’s like, “I don’t need every last thing.”

Michael: Yeah, you got to be really picky about what you actually try to take from A to Z. Because if you try to take everything from A to Z, you just go nuts and run out…

Ramit: Bingo! And honestly, we have over 50,000 customers, there’s hardly any who want to become true masters of personal finance. Honestly, the vast majority of them wanted to just do the right thing, and then get on with their life. And I think that’s really important for advisors to remember. In your entire practice, there might be a couple of clients who want to go A to Z. But for something like a January session, they might want to just have a plan and they want to know that it’s going to take them through the next six months and be able to save 5%. Perfect, that’s a success, and you can actually charge more than $300 for that. I would charge more than that, I would charge, ballpark, $1,000 for that. That has value and that’s 20 people right there. Again, you need to have the audience, you need to have the wherewithal to know how to sell that, but that has value, and people in January happily pay for something that helps them develop a plan for the year.

Michael: So, for advisors that want to go deeper down this road of…as you’re framing it, just learning more of the behavioral world, where would you send us to get started?

Ramit: That’s a hard question. You hit on it earlier when you said that a lot of the behavioral material that’s shared with advisors is primarily about cognitive biases. Okay, I mean…

Michael: Yeah, a lot of our material is like…it’s the behavioral finance like, “Hey, people own too much of their company stock because they’re very overconfident and then they get over-familiar with the company because they talk about it all the time at the watercooler.” My gripe for a long time always in our world is like, well, okay, cool, but I’m pretty sure if I actually sit across my client and say, “Well, Mr. Smith, you really own way too much of your company stock but you’re just doing it because you’re really overconfident and you have a familiarity bias because you talk about the company so much at the water cooler.”

Maybe completely true and accurate, I’m fairly certain it’s going to get me fired. I’ve never tried it to prove the point but, I’m pretty sure I know how that conversation is going to go. So, all these teaching is like, “Here’s “the dumb things” that people do with money,” or like, “Here’s the biases,” it’s like, well, cool, so what am I actually supposed to do about that in a conversation with my client?

Ramit: I’m going to give you some unconventional suggestions because I don’t need another list of 75 human cognitive biases. I’ve read them, it’s interesting, but what am I going to do with that? So, what I would suggest instead is first, I believe that in personal finance, we overvalue math and we undervalue psychology. And I have no doubt that every single advisor listening to this knows how to run compound interest calculations and a variety of other sophisticated scenarios. But there are much smaller things that can actually be much more impactful in developing that relationship with clients and with, in my case, students, etc. Here’s what I would say. I would ask every advisor, “What do you read? What do you read to learn about your area?” And Michael, if I ask your members that, what would they say?

Michael: Well, hopefully, “Nerd’s Eye View” at kitces.com would be awesome.

Ramit: Of course. Of course, that’s their number one. But after that?

Michael: I think most of us, option number two starts to go towards professional industry associations, advanced designations. Just for the folks that are knowledge seekers and information seekers, we tend to see them go in that direction.

Ramit: Yeah. I would propose something totally different.

Michael: Okay.

Ramit: I think those are great. I think they should, of course. If I wanted to improve, I would start by thinking about communication and psychology. On the communication side, I would start by…I always believe in studying the best. Who are the absolute best communicators in the world? Celebrities. Especially when they go on “Tonight Show.” And that’s exactly how I started studying communication many years ago, I’d pull up their clips, and I watch them. They’ve got three minutes, they need to communicate a message, they got to look good, and they have to do it with another person. Boom, how do they do that? This is the kind of research that I would actually love to hear advisors talking about.

“You know what? I’ve been watching how these masters, these celebrities build rapport in 10 seconds because I want to learn something for my clients.” Right? And you have to study all these different folks to find out the style that works for you. You probably have to try on some of them and probably bomb on some, that’s okay. The next thing I always ask my team is, “What do you read?” And of course, when they first join, they tell me all these self-development books and I go, “Okay, great, great, you impress me. What else?” And what I really want them to read is magazines like “US Weekly.” Normal, everyday magazines. They’re not frivolous, they actually really important for being able to understand the topics that are being talked about.

I was inspired by a famous copywriter, Eugene Schwartz, he was a very, very wealthy copywriter, he lived on Park Ave, and he used to go to the dollar theatre, this is a long time ago, and it helped him stay connected, even as he became more and more successful. So yes, professional accreditations, of course. But we got to know what’s going on in the general cultural zeitgeist, we got to know like, “Are people talking about Taylor Swift?” Whoever my clients are, what are the things they are talking about? Is it the restaurant that opened? What is it? That is way more impactful, in my opinion, to be able to truly master that than, “Can I run this extra sophisticated scenario with my clients?” That’s not going to move the needle, but being able to relate to them, get them to smile, maybe even access a story about how they grew up with money and what it meant to them and what they want it to mean to them tomorrow? Wow, way more impactful.

Michael: So, out of curiosity, do you ever think about becoming an advisor and joining this side of the business?

Ramit: Of course, I do. That’s why I’m here talking to you. Michael, can you give me some advice for becoming an advisor?

Michael: Well, I can give you a great business model, but I don’t think you want it.

Ramit: That is true, it would be…it’s funny, all the advice I’ve gotten from friends about how to change my business model, and they have some good ones and like, “You should start this and that,” and I was like, “I don’t want to get in the RIA thing, there’s people who are much smarter than me doing it.” I love the idea of being an advisor. I think what I love about it is it allows you to have a long-term relationship with clients. I think that is magic. As you mentioned with your parents, somebody who knows them and can check in on them over the course of 10, 15, 20 years? That’s so rare. It’s even rare to have a friend for that long, much less an advisor. So, I think that’s magical. I think some of the requirements are simply…they just don’t jive with who I am. I mean, just the way I talk, you can tell.

Michael: You’d have to be a little careful on the compliance side.

Ramit: Yeah, the word compliance is not a word that I usually use in my day-to-day. So, my compliance is basically, “I’m the boss and I’m going to do what I think is right, we have our ethical barometer.” I will say, though, this podcast that I started with couples has been a great opportunity to really peel back the veil of what people are talking about behind closed doors and what I’m sure some of your advisors have experienced when they speak to couples. To be able to share that with everyday people has been incredibly rewarding.

Michael: Yeah, and for folks who are listening, this is episode 301. So, if you go to kitces.com/301, we’ll have links out for Ramit’s book as well as the podcasts. I guess you can also just find it on your podcast player that you are listening to this on with searching for “I Will Teach You to Be Rich.”

Ramit: You know why I started that? My wife and I were going through a prenup process and we were signing a prenup and we started talking about it, it was going well. And I figured, “Oh, I’m the personal finance guy, this shouldn’t be too hard,” and I’m trying to be thoughtful and it was all going great, and then it started to not go so great. And it became pretty contentious and we had lawyers and finally, my wife was like, “We got to go talk to somebody because this is not going well,” and I was like, “You’re totally right.” So, if you’re wondering how does Ramit go and find the best therapist? I literally went on Yelp and I typed, “Therapist near me.”

And we walked down the street and we went in to see this therapist. Notably, by the way, not a financial advisor, a therapist, because we were…it was not about dollars and cents, which I quickly realized. The therapist asked us a lot of questions, she was great, and she said, “When you think about money, what word comes to mind for you?” That’s a very powerful question. I looked at her and I said, “Growth.” In my head, I was like, “Duh, growth, 8% returns, da-da-da,” I can see the compound interest in my head, it’s so cool, growth. And then she asked my wife the same question and my wife said, “Safety.” I looked at her like, “What?”

I don’t even understand that word. Safety? What are you talking about? That’s like saying spatula. I don’t understand the relation to money at all. And wow, that really opened up our conversation. And we continue to have these conversations and then, of course, we got married. And then the conversations changed, they actually did not get easier, they were just different because it was like, “How do we come up with a joint vision for our spending?” And especially because we’re both entrepreneurs, we make irregular incomes, how do we do that?

And as we were going through these conversations, I was like, “I was desperate to find other couples who would talk about this kind of stuff,” and the unfortunate truth was it only happened behind closed doors. So, there were lawyers who would share some stories, they were friends who would talk about prenup stuff. But I just wanted to listen to other couples, how do they talk, and there was nothing like it. So, eventually, I started a podcast. And by the way, it happened totally out of the blue. This couple on Instagram was like…well, this is actually interesting. They were like, “We have something like $600,000 of debt.”

So, this couple, I think one or both were vets, and they were like, “Can you talk to us?” I was like, “All right, I happily talk to you but you got to do it live with me on Instagram and you have to share all your numbers.” And they were like, “Okay.” I was like, “Wait, what? You’re actually going to share your numbers?”

Michael: And you said, “Yes, I have to do this now.”

Ramit: I know, I was blown away. So, I did it live, literally had my phone up and we talked for an hour or two and people were watching and they were just like, “This is insane, I have never heard people talking about money with these kind of numbers.” My friends had been telling me to start a podcast for like six years. I had never had a good idea, so I’d rather just wait than do something that I don’t feel really good about. And I was like, “This is it, I’m going to get real couples to share real numbers and for the first time, we’re going to be able to listen in on how couples talk about money, how they fight about money, how they cry about money.” And so, since then, we have over 50 episodes of the “I Will Teach You to Be Rich” podcast.

We have a couple that has $825,000 of debt and they don’t know if they can even afford to have children. We have another couple where they’ve been married 21 years, she’s threatening to divorce him because he’s so cheap and their net worth is $13 million. We have men, women, straight, gay, all different cultures, and just sharing how people actually talk about money. To me, this is what a rich life really is. Of course, you need to know your numbers. Of course, you need to have an investment plan. Of course, you need to be paying your bills on time. But for the vast majority of our life, money is things like, “Why did you go to Target and spend that much?” Or, “Are we going to be able to afford to have enough this month or to retire?” To me, that is the real part of money. And if you can get that right, the rest of it becomes so much more exciting.

The Surprises And Low Points Ramit Encountered On His Journey [1:18:57]

Michael: So, what surprised you the most about this journey of building your business?

Ramit: I think how many things went wrong and continue to go wrong but if you zoom out from a high level, it all just looks like a nice smooth curve. It’s not. It’s not. If we zoom out to the million-foot level, I sold a $5 ebook, then I wrote a best-selling book, and then I hired a bunch of people and we have this great business. That’s not really how it works. And we could say the same thing about the stock market. Well, if you zoom back to 1920 and since then, we return about 7%-8%. Sounds great, but that’s not how it feels when you’re in it.

So, I think as investors, that kind of helps us have a long-term perspective even when we launch a program and it totally bombs or somebody on my team who’s amazing decides they want to make a career change. That stuff feels devastating at the time but, hopefully, you have the right systems and as my dad told me once, he’s like, “You’ve grown this business, you are too strong for one decision to make things go wrong.” And at the time, it was nice to hear. I wasn’t sure I believed him. But I think after doing something for a long time, whether it’s being a parent, whether it’s being training in fitness or running a business, you go, “You know what? This too shall pass and tomorrow is going to be a good day.”

Michael: So, what was the lowest point for you on this journey?

Ramit: Well, I mentioned the people saying that I was trying to…you know, “I will teach Ramit to be rich,” for the $5 thing, that really hurt, seriously. Beyond that, we had a tough business time. In 2016, our business dropped by 50% overnight. That was really rough.

Michael: So, what happened?

Ramit: So, first of all, there was an election going on, so at first, we thought, “Oh, okay, maybe just attention is being sucked up by the election.” There were other businesses that suffered in our space at the same time but what we ultimately concluded was that we basically had not innovated in many years. We had these awesome programs and we had just grown a little too process-driven. We became inward-focused and we stopped innovating, we stopped creating new things, and our market wants new things. That is the bottom line. And we didn’t do it and it costs us dearly. We went through a retrenchment in the business, it was very difficult.

I had trouble sleeping for a while. And that was a very, very, very difficult time. I think we had to make some tough decisions and we had to shrink the size of the team, unfortunately, lost a lot of great people from our team. And we had to decide, like, “What went wrong? And how did we even get there? And what are we going to change going forward?” So, that kind of allowed the next chapter of the business to develop.

Michael: And so, what ultimately turned it around? What did you change aside from had to let go of some great people to right-size the P&L?

Ramit: We had to remember that, ultimately, our students do not care about our project management or our process internally. They don’t care about that. They care about what are we creating for them and we had to create a lot more. So, our output started going way up, we started creating new products again. Well, that really invigorated things. It’s no surprise, if you create something new and you sell it, probably people are going to buy it and that was a really positive sign for us. We started taking risks again. We did conferences. We wouldn’t have done like that in the past. We started trying events and we were just like, “Let’s go on a limb, not everything is going to be ROI traceable. We’re just going to try it and we move fast and that really helped us. But ultimately, I think the number one thing by far was we started creating again.

The Advice Ramit Would Give His Former Self And Younger Advisors [1:22:37]

Michael: So, what do you know now you wish you could go back and tell you from 10 to 15 years ago when you were starting down this journey and trying to turn your ebook into a book.

Ramit: The things that I thought only I could do, that’s not true, that’s a very arrogant perspective. I’ll give you a recent example, like, only I, Ramit Sethi, can write our captions for our social media posts. I mean, that’s pretty stupid. Just to even say it out loud, it doesn’t make any sense. And I’m thinking like there are a lot of CEOs in much bigger companies that have figured out how to have somebody very talented write their captions and it’s great. That’s hard as a founder entrepreneur, you think that it all has to come from you, and I would encourage my younger self to find great people and also realize where you need to stand up and say, “This has to be perfect,” and “what can be good enough?”

The podcast, I have to do that…I do it myself, meaning I speak to the couple and I am listening to all the edits and I’m putting my voice over, that has to be me, it’s literally my voice. But now I’ve had help and the editors and others helped me do that. Things like Instagram captions, that can be outsourced and that’s not a core competence. It’s not driving value in this world in the way that something like writing another book will, which I have to absolutely make perfect.

Michael: So, what advice would you give younger advisors that are trying to get started on their career and want to go down a positive path?

Ramit: I would say, ask yourself what would it look like and feel like if you were unique as an advisor? What would make you different? And is that difference valuable to your market? In my case, I could…I’m Indian, I could have created a business around being Indian. That’s certainly different, I’m not sure that’s necessarily valuable to my audience. What I chose was to focus on money and psychology. I have an interest in it, I have a different perspective, I have a background and training in that. And so, suddenly, that was something that allowed me to really become unique. For advisors, you probably have something that is unique.

Maybe you were born…you didn’t have a lot of money when you grew up. Great, I would lean into that, what can you do that differentiates you from every other advisor? And I would really let that flow because if you differentiate yourself, you’re probably not going to have a similar website as everyone else, you’re probably not going to show up at the same conferences as everyone else, your social media is not going to look the same as everyone else, nor should it. If I were a young advisor, I would every day be thinking, “What is it going to look like a few years from now when people are looking for me, not just for an advisor who happens to live in this area?” And then I would start testing different ways to stand out.

The Next Steps On Ramit’s Journey [1:25:42]

Michael: So, what comes next for you?

Ramit: I’ve got a new journal coming out. I created a journal, it’s a new book, and it will be launching…because I wanted people to have a way to easily dream about money. When I ask them, “What’s your rich life?” And we start talking about it, they get super excited. I wanted to push that forward. So, an opportunity to grab a cup of coffee in a quiet coffee shop and really sketch out, “What’s my perfect day? What’s on my bucket list? What is my dream house look like? And also, what are the things I just don’t need in my rich life? Maybe I don’t need fancy clothes or I don’t need to eat at some fancy omakase place.”

To really allow someone to go through this journal, a no-numbers journal, and not be intimidated, but rather to really think in an inspiring way, “What do I want to use my money for in my life?” That’s next. And after that, I’m very interested in different media channels to be able to reach new people. I’ve got a coaching program coming out. And I think some people…it’s interesting for advisors, there’s so many different ways people engage with financial help. Some of them, they might just go on YouTube and watch somebody and sometimes that stuff is good, sometimes it’s a complete quack. Sometimes they’ll go on TikTok and sometimes they find great advice, sometimes not.

They might listen to a podcast. Those, I think the quality, in general, tends to be higher, people are talking. Maybe they get a book. And then I found that there was a gap between that level and hiring an advisor. And so, I’m very interested as we launch a money coaching program to help people join, get regular accountability, be able to be surrounded with a community of people who think long term, who can talk to them about things like inflation and go, “Hey, wait a minute, let’s not freak out, let’s actually look at the numbers.” And remember that money is not something you just do once, it is something that you should deal with every single month for the rest of your life. It’s important. It’s fundamental, it’s foundational. So, that’s what our money coaching program will be.

What Success Means To Ramit [1:27:57]

Michael: Very cool. So, as we wrap up, this is a podcast about success and one of the themes that always comes up is just the word success means very different things to different people. And so, you built this successful business with the IWT platform. How do you define success for yourself at this point?

Ramit: I want to have integrity in what I do, so I want to know that when I’m sharing the material that I share about money, that it is unimpeachable in terms of what I’m telling people. I’m still proud that the book that I originally wrote in 2007 has never been questioned for its accuracy or any of the claims I make. If anything, I’m very conservative with what I recommend to people. And with a name like I Will Teach to Be Rich, I know what it connotes to people. I want integrity in the recommendations, in the business I run, the way that I work with my team, and our pricing models. That’s number one.

Two is to be able to feel easy and comfortable about money in my personal life, and that means everything from being able to work with people that I like and respect, being able to have easy conversations with my wife about money. And third is just to be able to use it to enjoy, to live my rich life. That’s traveling a lot, that’s, for example, being here in New York for a month and just enjoying it. And it’s really…I think, ultimately, it’s a question of who. When you start off with money, it’s maybe about what. What do I want to buy? What can I achieve? How much can we make? But I think at the highest level, it starts to become about who. Who do I get to take with me on that next vacation? And to me, that’s infinitely interesting and it’s a lot more fun than just talking about what.

Michael: I like that transition, when you start out with money, it’s about what you can buy, and at the highest level, it’s about who I can take with me. Well, thank you, Ramit, for joining us on the “Financial Advisor Success Podcast.”

Ramit: Thank you. It’s such a pleasure.

Michael: Likewise. Thank you.