NYT Bestselling Author Ramit Sethi explains the secrets to managing money, negotiating and networking
My friend Ramit Sethi is the NYT bestselling author of I Will Teach You To Be Rich. He’s also well known for his blog of the same name. What’s always interested me about his work is that it’s based on psychology and a strong, practical knowledge of how people really behave.
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The Secret to Managing Your Money: Systems And Big Wins
One of the things that I talk about in all my material is the importance of building systems. The importance of acknowledging that we are, at heart, lazy. We don’t want to do a lot of things that we should do, and so if we can actually build systems that automate a lot of our decision making — like our investing, like our savings, like all those things — then we can actually focus our limited attention and our limited willpower on the things that really matter.
So I take a couple of very intentional approaches. One is big wins, not small wins. So that means, instead of worrying about lattes. Which is the most common and ridiculous example in money literature. Here’s the truth: even if we cut back on lattes, it’s not even worth that much. $3 or $4 a day really doesn’t add up to that much.
Second of all you’re actually probably very unlikely to do that. When we wake up in the morning, you’re going to cut your caffeine out and you’re going to hate your life? All to do what? Save a couple of bucks.
Then third, every minor decision we make actually makes it more difficult for us to make all these other decisions at all. That’s the basis of being a cognitive miser. And so, instead I focus on the big wins. Things like negotiating your salary, getting your dream job, earning more on the side, starting to invest properly. For example, if you just improve your credit score when you go to buy a house that could be worth over $100,000. How many lattes is that worth?
How Top Performers Negotiate Salary
So let’s pretend I’m the employer. You’re trying to negotiate. I say, “Okay, how much were you paid at your last company?” A typical performer would either blurt out the number or they would say, “Uh, well, I mean, I made 50 but I’m hoping to maybe make 54,000 or 56,000 at this company.” Right there, you just lost the game. A top performer they’d say, “I’m sure that we can get to the salary discussion later but right now I just want to see if this is a good fit for both of us.”
Now those words sound very simple but there’s a huge psychological and strategic difference. Because top performers know that the money is not the problem. The money will come. They’re good enough if they get an offer; they’re going to get a great offer. But they’re also confident enough to push back and say, “I’m sure we can talk about that later but right now I want to see if it is a good fit for both of us.” In other words, they’re evaluating the company as much as the company is evaluating them.
The Power of Testing Your Ideas
I learned how to practice and test different approaches. In this one story I’ve told many times when I need scholarships for college I kept on getting interviews but I kept on losing them once I got to the interview. I finally got so frustrated I videotaped myself and I discovered that in my head I was this friendly, jolly guy but externally I wasn’t smiling at all. I just looked angry. I forced myself to learn to smile and after that I ended up getting more than enough scholarships to pay for my undergrad and graduate school at Stanford.
Number one is the importance of testing. You can do it in every aspect of your life. Don’t just think ideas in your head. You actually have to go external and validate these results. It’s about really getting out of your room, getting out of your head and going external.
The second thing I realized about testing was it doesn’t have to be complicated. This is a classic extreme reach barrier where people say “Hey, wait a minute Ramit. I don’t want to have to build some elaborate testing system.” Well, you don’t. When it came to me testing a way to get myself to go to the gym I took a notepad and I wrote down different permutations of tests that I ran until I found the one that worked. Soon it just starts to become part of your repertoire.
Networking Without Being Sleazy
The fundamental reason that people are afraid and scared of networking is the first archetype that comes to mind is this sleazy, slimy, shammy guy who just rifles out business cards at an event. But in reality the very best networkers, you can actually think of them yourself. We all have friends who are just like cool to be around. They’re always sending you awesome stuff. In emails, they’re like, “Hey, check out this book”, “Oh, you’ve got to see this video I just watched, here, here’s a copy.”
That is actually networking, because they’re serving you first. Now one day if they came to you and said, “Hey man, I know you have a friend who works at X company. I’m actually trying to get connected there. Do you think you can introduce me?” Of course you would say yes… Networking is about a personal relationship. I would rather spend three hours researching one person, and send an incredibly amazing email, than go to an event with a bunch of other people handing out business cards.
Books That Can Help
I love this book called “Age of Propaganda” by Aronson and Pratkanis. Most people have heard of Cialdini and “Influence“, which is a terrific book. This is another book in the same vein and it really explains human nature in a really nice, narrative fashion. It’s all based on experimental research. It’s a terrific book.
There’s a book from the marketing and advertising world which many people have not read. It’s by Eugene Schwartz. It’s called “Breakthrough Advertising.” A terrific book which is extremely dense. It took me like a week just to get through the first few pages. I reread it about once a year. Every year I learn new insights.
Then I’ll give you one more also on the idea of testing. This is also from the advertising world. It’s called “My Life in Advertising” and “Scientific Advertising” by Claude Hopkins. All of these are based around experiments. Experimental psychology or experimental advertising.
What you discover is that you can actually discern human nature. Some of it is very obvious. But some of it is extremely layered and subtle. You would only be able to tease it apart if you had experiments and then further experiments and even more subsequent experiments. That’s why I really love these books. They shine a light into why we do the things we do.