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Saving Money & Cutting Costs

Lesson 3 from: How to Make Money

Ramit Sethi

Saving Money & Cutting Costs

Lesson 3 from: How to Make Money

Ramit Sethi

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Lesson Info

3. Saving Money & Cutting Costs

Lesson Info

Saving Money & Cutting Costs

We're going to talk about somewhere the tactical side of money we talked about the psychology of money we covered a lot about the guilt we feel the things we should do but we don't how we feel lectured to by other people and confused because we know that when we ever read something in a magazine about money there's somebody trying to sell us on something we just don't know how so we've covered a lot of that we did that exercise and I want to get into some of the tactical side of how to actually save money remembering that we're gonna be talking about cutting costs, earning more optimizing or spending and of course throughout the rest of the week in particular growing your business delivering value to your client's raising your rates just figuring out how to take your own creative ideas and turn them into substantial income for now we'll start with cutting costs so let me introduce something called the ceo model now if I were to ask a random person on the street what would be what are s...

ome good ways to improve your finances? What would most people say shouted out work harder very good what else save more money that would be the number one what else cut your spending uh which is kind of like save more money anybody else most of it would be saved money it's almost like that's all we hear from magazines and tv and other experts and even our friends saying, yeah, I feel really guilty, but, you know, I like I love this coffee, but I blah blah, blah, blah, blah, right? We all hear that, and so it almost makes us feel like that's the only thing we can do with our money, but actually, I would argue that there is a different way to look at it. Now, I believe that cutting cost is important see, out of the ceo model cut costs, okay, we kind of know this intuitively we don't know how to do it right? We just feel guilty and then cut costs of randomly, but there is something to be said for cutting costs, okay? And we're going to cover that today e earning more something, as I said, that nobody talks about because most people don't know how they have no idea how to go for some random idea into finding clients that will pay you into turning it into a sustainable business into actually turning into such a great business that you could turn clients away. Give an example of something that I'm gonna talk about. Tomorrow, I was inspired by a sushi restaurant in san francisco and the sushi restaurant if you don't get there by seven pm, you don't get it. They have a line out the door, and when I when I walked in like I'm such a weirdo, the first thing I think about is like, oh my god, I could optimize the shit out of this business give me four other tables will increase revenue twenty five percent overnight, and then I look at this sushi and they don't give a damn right they want to run their business the way they want, so they turn people away. No, you can't come in yet set I was inspired by that because I wanted to work with the kind of people I want to work with now I don't have I mean, I have virtually unlimited tables for my courses, so if someone wants to join one of my courses on how to find clients, how to raise your rates, etcetera, it's called, earned one k I could take ten people today. I could take a million people because it's online, but what I decided was I want to serve a particular type of client so my for my most expensive flagship courses. I instituted a policy that said, if you have credit card debt, you're not allowed to join interesting that decision alone cost me over one million dollars per year, but it's the right thing to do, and it allows me to serve the right kind of clients we're gonna talk about how I do that and how you could do that as well. You don't have to ban people with credit card debt, etcetera, but there are other ways of choosing who you want to serve and actually earning a substantial huge amount while doing it and working with the right type of people. How many people here have either have a business where have worked in a business where you work with the worst clients on earth? All right, you wake up every day like I have a choice, get out of bed or kill myself because of the clients that I work with, we're going to talk about how to earn more money without drive yourself crazy without spending a million hours doing it, etcetera. So that's the e part of this c ome on the oh, part optimizer spending already spending a lot of money on different stuff okay, could be on food. It could be on bills. It could be on a credit card. Debt could be on a whole bunch of things. What if we could just optimize that spending right it's already happening? What if you could just optimize a little bit of that could dramatically increase the amount of money we have to do other things with whether it be saved were spent on the things we love, so I'm gonna go through this model uh and I want to start with the sea part cut costs. All right? So I'll start by saying that frugality as we talked about, is important, but it's not everything, and I use those words very intentionally because, like I said, if you go and ask a random person on the street, what could I do to improve my money? They're gonna give you ninety nine percent of the time frugality tips and I'm not kidding. The forgotten tips I've seen online are so ridiculous you would not believe it. So ok, we've covered a lot of example beyond what we need to, there are actual pieces of advice online that say, disable your oven light I'm not kidding because if you do, you can save thirty six cents a year. Whatever I'm not kidding. This is real advice. What happens is if you go down this path of frugality too far there's nothing else you could do but get increasingly extreme it's almost like listening to talk radio where if you come in with a very moderate position, no one's really gonna listen to you so you necessarily have to become increasingly extremist to attract those people at whatever end of the spectrum that's, what happens if you if you tunnel vision focus on frugality as the on ly approach to improving your finances? Now in my space if you go and read some different blog's about money and entrepreneurship in careers it's kind of well known that I'm like somewhat anti frugality and that's a bit of ah misnomer because like my parents are very frugal they're indian they came from india always say like if you want to learn if someone is frugal watch how they eat chicken wings nobody eats chicken wings like an immigrant they will clean that bone like there's nobody's business all right that's true but look at you look at someone was born here and that you chicken wings like half the meat is left on him like get the hell out of here so I do think that frugality is important to an extent but it's not everything and there are different approaches to take we're going to talk about the philosophy of big wins now, as I mentioned, we are what's called cognitive misers this is totally different than the way we normally think about uh ourselves. In fact, if you think about american culture we have phrases like just do it be all that you can be try harder and we covered some of the code words we use, right? If I just try harder, I can lose those ten pounds say that hundred bucks, etcetera what we don't realize is that every time we do that we are almost going against our natural human behavior so every decision I make especially relating toe will power makes it less likely that I will be able to make those decisions later on. And by the way this is richly found in the academic literature they have all kinds of examples of you know you you make someone turned down a cupcake early in the morning they're less able to turn down other temptations later in the day it's very clear findings in the literature big winds mean instead of focusing on fifty little things we could do we focus on seven to eight big winds in our lives okay, now listen carefully we all have seven to ten big winds in our lives where if we just get those right we don't have to worry about the little things this is a radically different notion than most money advice you will ever hear most money advice says what? Save on everything cable internet food lottie's your car your rent everything wrong if we acknowledge that we are cognitive misers if we believe and don't don't believe me go google it go look online go read the books I talked about the willpower paradox um the power of habit all these other books right the paradox of choice etcetera if you believe that if you acknowledge that and we know that we should focus our limited cognition on the things that matter because we only had limited amount so let's talk about what some of those big winds might be and I'm gonna challenge you if you have seven to ten big wins in your life if you just get these right, you don't have to worry about ordering appetizers or deserter of medium coke. What are these big wins? Can anyone speak to them? I'm valuing my creations, feeling confident and that. And bringing that to the market specifically. What would something be that would allow you to get more freedom of time? Would it be, for example, uh, negotiating your salary? Um, I think it would be having a more consistent cash flow for my business. Very good. Okay, who else has got a big way? Yeah. Being able to travel three months out of the year. Don't tell craig so for me, there's seven to ten big wins would include things like starting to invest early, and I'll show you some some numbers where if you start to invest early, I mean it's, one of those powerful things you could do relating to your money. Um, how about getting a well paying job or, uh, having a well paying business that's a big win, right? For someone who makes, for example, I have a course on negotiating your salary, we calculated that if you negotiate just a one time salary negotiation of five thousand dollars in your twenties just once and you invest that money properly now not counting taxes and all that stuff but just the one time negotiation of five thousand that can be worth over a million dollars over your lifetime. In other words, you're almost losing three hundred dollars a day by not negotiating your side that's by the way, a onetime negotiation which will cover on friday I'll show you exactly what words to say to negotiate what if you could do that twice or three times or ten times in your career? So negotiation for me is a big win could be negotiating with your job could be negotiating with your clients I got a lot of my earned one case students who went from twenty five dollars an hour to seventy five dollars, one hundred twenty five dollars now etcetera fact, I just put up a case study in my sight on I will teach you the rich dotcom, which is I believe someone who they're caricature artist all right? And they were making something like I may be mistaken it's like eight dollars an hour very low and now they're making one hundred and twenty five dollars an hour the coolest part of the story is she actually did a caricature of me and it is totally ridiculous listen, my eyebrows don't look that weird waiting to see where do we get it I will teach you to be rich dotcom go there check out the caricature and tell me what you think only if it's good all right so we've talked about big wins starting to invest early getting paid well right uh uh let's see negotiating your salary etcetera you do these things just these things alone you have to worry about the rest I want to cover one of the ways we can do that and that is to focus on savings I'm not going to tell you to save on everything I'm gonna tell you actually save on just two things I called the two headed savings approach so we talked about how most experts will tell you save on everything and that doesn't work because of the way we're built I prefer to limit the amount of stuff we focus on and crush it just dominate so let me show you how you can do that. Okay? The two headed savings approach says pick the two biggest discretionary areas of spending and cut costs dramatically on those what? Let's take a little poll here. What are the two biggest discretionary areas of spending for people online and for people in the room? Okay. Okay, very good camera gear all right, what else? Yeah discretionary mean like your mortgages that include great question what thank you for asking discretionary means no your mortgage would uh it would probably not counting that because number one it's like where you live number two it's quite hard to change that even if it were an apartment I would say that's probably pretty difficult discretion women mean things like things that you have the ability to cut back on up and down so for now given example for a lot people there number one discretionary expenses eating up okay that's a big one what else do we have like that camera here's a good one? What else? I'm on the fence about that one no because it's a necessity for my business but I could also be going over you think it's a necessity you think we're going to cover this tomorrow? My camera crew I have a video crew in san francisco great guys, they're growing their business I'm one of the largest clients and they were so excited you know they're talking about we're gonna get this gear we're going to get back here and I overheard them and they shoot a lot of my video of me talking about business stuff they said, what do you think I said honestly I don't give a damn like for my needs as a client I don't care if you're using five d or for whatever I don't know I don't care what I care what do I care about is a client for the video for the video crew I care about a couple of things I care about them getting my video's done on time and making sure that they're high quality and being communicative do you see that video gear doesn't fit anywhere in there? I really could not care less and so people especially creatives get to super confused I need to buy this gear to stay competitive but you never really understand not pointing at you not pointing you I never understood they never understand what their clients truly want tomorrow we're going we're going too deeply inside the minds of your client's deeper than even they go you're going to find out what they really want you will almost never find a client saying uh I didn't hire her because she didn't have the right kind of camera wrong they will not hire you or they will not pay you for many other reasons but gear is one of the last last reasons now do you need to have a certain amount of year to be up to date and competitive yes do you need to overspend on it hell no so we'll cover that other discretionary areas of spending way have a lot of go ahead eso yeah we have a ton they're just rolling in mpls jack says clothing yeah good one good it's just good say we're getting that from women and men okay clothing is a huge one alright? Yep annette it's his cars cars okay, how many cars this person I don't know I think I think the costs associated where you know you're getting a really expensive one as opposed to something that works I want to teach you guys a quick a phrase it's not in this presentation but I like I like it. Um so there's this thing called phantom costs okay when I had a car payment for my honda accord it was three hundred fifty dollars a month. Okay, fine does reason well, I could afford it etcetera guess how much it actually cost total when you include gas insurance etcetera per month three hundred fifty was the car payment guess how much it cost in total anybody double that seven hundred try a thousand dollars a phantom costs are the invisible costs associated with an expense and they actually get increasingly high the more expensive or large something is given example you buy you know, a crappy hanes t shirt your expenses are essentially no you're going to wash it in the washer which already gonna do anything you buy? Ah, an armani suit what do your expenses now? Dry cleaning and if there's a tear in it very expensive repair. Right? Okay, fine. I'm not saying don't buy an armani suit not at all I'm saying be conscious of the phantom costs what do you think has the highest phantom cost of any purchase ever house yes, house. And we'll talk about real estate. A lot of people think realized is the best investment my mom told me so. Okay, this a quick diversion, but I want to do it because people are so delusional about real estate. This in chapter nine of my book for all the math. So please take a look at it. It will shock you. So again, I'm not saying real estates of good, bad investment for most people. It's not as good as they think. Let's pretend that, uh, I'm good. I'm in the market for a house or an apartment or whatever. And I see one and the rent is a thousand dollars a month. And I see a house right next door that I could buy where the mortgage is. A thousand dollars a month. What would most people do? They buy it. Why? What do they say? What code words did they use? It's an investment. I want to build equity. I don't want to throw money away on rent. Anybody here ever hear those races? Oh, I love that phrase because it's totally wrong in some markets. Here's the deal. This is going to shock you, and if you tell your parents if they're going to hate you everybody write this down and everybody do this today if you khun, if you could check out my book and get on kindle to you will actually have the math to back you up. But this is one of the most hilarious conversations will ever have point out that if you actually account for all phantom costs in a house and what are these phantom cost? By the way, when you buy a house insurance taxes, maintenance once every twenty five years, your roof collapses, right? That's twenty five thousand dollars if not more. You gotto calculate that for every time, right? Just like I had to calculate my annual insurance for my car and sort of stammer, ties it or stretch it up so people don't get this, and this is the map that I love thousand dollars on rent, which is what I would be paying a thousand dollars on mortgage no add fifty percent to that fifteen hundred a month compared to a thousand. In other words, the rent would be a thousand your mortgage. If you actually added in all those costs and advertising up, be approximately fifteen hundred dollars a month that's a lot now could you make it back as an investment? Yeah, assuming a massive return and a great real estate market, and you minimize your cost cetera, but the fact is when people buy a house then they go to home depot and spent thirty k doing x y z they don't actually calculate is the price of the house there are haunting examples on my site pete some guy in texas he bought a house and like nineteen, seventy eight he's like I bought this house for twenty four thousand dollars and I just sold it for one hundred thirty thousand dollars this was the best investment I ever made and then and then the new york times actually ran the math and if he if he actually calculated his rate of return it was like one point eight percent and over that same time period you could have got something like eight percent ironically, he actually believed he genuinely believed it was a terrific investment. So my whole point on that totally random diversion which gets me really angry is don't listen to people who just tell you that real estate is the best investment, okay don't feel guilty if you rent I read by choice just don't feel guilty about not by do the math it's the biggest investment you'll ever make and I show you how to do that in in my book don't just feel guilty about buying ex wires right that's one of the big points I want to convey today so back to the two headed savings approach, I think we had some stuff online from responses from people what are some other big winds? Entertainment? Entertainment? Good. Yeah. Let's see? Books? Uh, television cable. Okay, um computer games, good spending on girls that's rob that's discretionary! I've been doing things wrong all along. Okay, so here's here's a tip? So we we identify our two biggest discretionary expenses honestly, for my readers, for most of them it's eating out and drinking. Okay, so if you live in like a new york or san francisco, you will be going out a lot and that's just the way it is and that's fine. I'm not going to tell you not to go out. I go out a lot. So do my friends. However, if your goal is to cut cost instead of worrying about, you know, spending three dollars here and there we can do this. We can take our two biggest discretionary expenses and we can just aim to cut just those by thirty checks out thirty percent over the course of six months. Now notice what I just said they're thirty percent is like pretty big, but it's, not you. I'm not saying cut it by half because you're not gonna cut your food spending by half it's not gonna happen, I'm also not saying cut it by thirty percent overnight because that's not gonna happen you know anybody here ever meet someone they're like kind of overweight and then they're like I'm going on a crash diet and they're like I'm only eating like vegetable I'm a leading celery for the next six months and you're like you already failed you can't do that with money, you can't make a rapid change what you can, manu is cut it over time so let's say I'm just going to make the math really easy say you're spending a thousand dollars a month you want to cut that by thirty percent over six months you want to get to seven hundred a month on your food bills or whatever bill camera bills, whatever so the first month they're going to go to eight fifty that's very modest it's only fifty bucks down right next month, maybe down eight, twenty five, eight hundred maybe you go back up because you had a friend in town, but over time you say three hundred bucks a month, you're doing that with two the two headed savings approach and what happens at the end of six months? How much more money do you have to spend? Save whatever six hundred bucks right? Because you did let's just I'm pretending from easy matthew to expenses a thousand dollars a month you cut it by thirty percent that's six hundred dollars you now have to save invest, pay off debt go to vegas whatever you want to do does that make sense so notice that we wake up in the morning we don't have to worry about should I buy this muffin or not whatever I'll do what I want I'm focusing just on these two goals because I know I'm a cognitive miser so let's talk now what are your two biggest spending areas and actually how can you cut them down let's talk about how you can cut them down so I want to throw to the web but first we'll talk to people in here let's start with yvonne your camera expenses talk to me about that I'm going to rationalize thumb and tell you that this is their their their investment right? Okay, so give me something else then what other discretionary expects loathing okay, how would you cut it down? Um I could look at uh not going to retail. I could look at like, thrift stores and, um you know, second hand shops, that kind of thing that could save there do you have any sense of how much you spend approximately for a month on clothes? No okay that's why most of us don't know and in fact many people who are in debt I don't actually know how much they owe the surprise anyone why would that be the case going to the doctor when you have a problem you really are scared to find out what he's gonna say you don't want to know you're exactly right it's so funny because people in debt it's not funny it's actually interesting and intriguing it's not funny they have very interesting behaviors like they'll use their debit card a lot because they know that if they put on their credit card number one they're not going to pay it off number two it's going to get added to the end so you can start noticing all these really subtle things that people in debt do this is like what I do for fun I just walk around like, oh my god, that person twenty four thousand dollars credit card debt now you find very interesting behaviors that people do so you don't know how much you spend on clothes let's make an assumption ballpark it for me monthly okay, one hundred five thousand five hundred five remember that we have to think carefully because there might be a month where you go out and dropped three grand uh you have to advertise that out right now grand that's gonna add an extra three hundred bucks a month, your purchases so let's just say five hundred now the reason I'm getting really specific with you not to pick on you because, you know there's actual there's a psychological reason so in the literature what what psychologists have found is if you ask people to actually plan out how they're going to do something, they're far more likely to do it. So in one study they asked people they're trying to get people to take a tetanus shot students on campus and in what they said, oh tetanus is so important other words changing the attitude and people like okay, I should get a tetanus shot in another study in another condition they actually put a map of where the health centre was and they said, can you tell us when you would go something like that and when they forced people to cognitively process how they would do something I actually did it way more they were more compliant so I'm gonna go throw back to you now you said you spent approximately five hundred bucks a month on clothes, whatever how would you cut back on that and what number do you want to get? I would limit my exposure very good so if it for me it tends to be when I'm away on business trips when I have free time oh there's a mall oh there's a nice shopping area I start to walk around and then we'll look at that I better go inside and look at that closer and then before I know what I'm buying things so I could go for a run instead of going to the mall, you know, re redirect to a park you know what I mean? Do you use a calendar? Yeah, but not for that I mean, use a counter like for for appointments and yeah, so in your free time you don't use a calendar totally not interesting. Um if I were you one tactic I might try, I'm not saying this will work or not, but I would try to say, I know that my meetings, when I'm traveling, we're gonna end it for pm and I know that my tendency is to hit them all at five, right? So I might go to my calendar and schedule a run one hour or thirty minutes I don't care all of a sudden now, it's one more thing that you have to do and by the way, that's taken away from your time at the mall. So I love what you said about limiting exposure that is a very powerful concept. Like a lot of people who buy a lot of clothes online, it takes me five seconds to find out that they are subscribed to, like six million newsletters, right gap, guilt, barney's, whatever and it's like very simple unsubscribe and you're spending will go way down so I love what you're saying take it a step further don't just wish that you're going to go for a run you're not gonna want to go for on sucks going for a run you're gonna want to go shopping so get even more deeper into that behavior all right? What else? Who else can tell me your biggest a couple of uh discretionary expenses and how you're going to cut it this is hard stuff so we're talking discretionary discretionary okay not not your mortgage not debt mortgage student loans car payments no at least things are very hard to change discretionary like I said examples would be eating out going out uh clothes because they're all great examples who's got one blue says I buy away too many shoes very common now here's what most people would say stop buying shoes but what do we know? What could we tell this person blue about how to stop buying shoes challenge you guys here? Well see, we all tend to go back to what we know just stopped doing it try harder. You know we've talked about psychology. What can we tell this person about how to stop buying shoes? Isn't it kind of about how how does that shoe purchase make the person feel there's some sort of reward there as a reward there's also a trigger? What when did these person buys shoes? Anybody know what's guess kind of similar right kind of bored done with work totally yeah, so what do we tell this person noticed that trigger like start cultivating that felt sense in your body and putting the pattern together kind of tracking the behavior good notice how deep were going? It is so weird, right? We're supposed to talk about money today here we are talking about behavioral change. This is so weird remember when I told you that example of the gym gym clothes and how I would wake up and I actually had to think about it for like, a few days to figure out why do I keep not going to the gym? And I finally figured out this really weird thing which was that I was just cold I was cold walking from my room to the closet again has nothing to do with intelligence it's just it is what it is that's how I was behaving so I bet you we find out that this person blue uh, buy shoes when they're stressed or as a reward when something's done or as away people resolved dissonance they say stuff like I know I shouldn't smoke but I worked really hard and this is my one reward for the day what else we got so we have s chancellor who is saying that going out to eat is definitely one of their biggest expensive and their suggestion is ensuring that they have quick, easy meals to prepare a home when they get back after work slash class and are exhausted, very good and so it was like it's more of a of time and ease than it is like a desire for football. Yeah, yeah, exactly. And for them I would push back and say, how can you make sure you have those meals already? And they might say, okay, every sunday from four to six p m I'm going to plan out and actually make five meals again, we're getting a really specific instead of letting this vague stuff like I'll figure it out later. All right, so my point here we're going to move on is your two headed savings approach is not about depriving yourself of everything when you'll see people who are my students and it's so interesting their friends will be like, I don't understand how you could keep, like buying x y z like, how do you keep shopping at whole foods? And you're still saving money and what do they say? They say, well, yeah, I have it under control because it's part of my conscious spending plan, right? They're spending extravagantly on the things they love, maybe it's organic food, but they've cut cost dramatically overtime on a couple things that they can, they're two headed savings approach, so you know, I'll tell you the truth, guys we're going to cover a lot of really fun stuff. This stuff is not that fun, it's, not fun to look at your own expenses and be like I had to cut, like, three hundred dollars a month off my food. How am I going to do that? I have to say no to my friend it's, not fun tomorrow, and even later today, we're gonna talk about some cool stuff, but we're going to talk about raising rates and negotiating, and all kinds of, like, tear down. I'm gonna bring you up here and tear you down, but this stuff is it's. If you want to talk about cutting costs, this is my basic message to you. Do this and you'll be far ahead of most other people, and you will not have to feel guilty when you're buying these little purchases that make you feel good, okay? That's, the sea of the ceo model.

Class Materials

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Ramit Sethi Interview
3 Negotiation Scripts
5 Negotiation Case Studies
Freelance Email Proposals
Freelance Income Roadmap
List of Freelancing Ideas
5 Resumes That Win
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Ratings and Reviews


This course changed my life. After watching Ramit on Creative Live, I bought his book, then signed up for his newsletter, then bought several of his classes. You could say I am officially drinking the Ramit Kool-aid now, but I'll tell you why... His stuff works. You have to trust the system, but I've been able to create a rich life for myself by my definition of rich and I am so happy. It takes work, but I am so grateful I found Ramit in my 20s so I can truly enjoy my 30s over the next decade. Without this course, I would still be complaining that people don't want to hire me because my prices are too high and whining that I am not valued, when in reality, the problem was me. Thanks Ramit for always speaking the hard truths and giving people wake-up calls to get their act together and live the life they want... It's possible!

Adrian Farr

Ramit is a huge inspiration, he is not just a 'been there and made loads of money' kind of guy, he is a 'been there and made loads of money, and here's how I did it' kind of guy! Ramit really gets down to helping you understand not only how to make money but also how to save it too. I am looking forward to reading his book and plan to implement a lot of his systems into my own life.


I have taken a few business classes for creatives online, but this is by far the most comprehensive, most practical course of all. Especially for someone like me who loves Ramit's work but has not made a decision to commit to his full courses, this is a great introduction for what he can offer. He pushes you to think outside the box and see all the possibilities that we can have in a very clear, logical way. If you are unsure which class to take to learn about business, this is all you need.

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