HOME

Ramit Sethi’s Money Rules: Why Buying a Home Isn’t Everything

Posted at | Categorised in money, money management, Personal Finance, personal finance real estate, wealth

Finance guru Ramit Sethi takes

fired up

When faced with the perspective that owning a home is the premier way to build wealth.

This is driving me crazy!

he shouted

During a guest spot on entrepreneur Steven Bartlett’s show
The Journal of a CEO
podcast last July 2023.

Purchasers facing skyrocketing home costs are additionally grappling with rigid mortgage interest rates. A typical 25-year, fixed-rate loan currently stands as

4.74%

.

“The top factor we’re seeing nowadays is… monetary policy,” clarified the University of Calgary professor.

economics professor Trevor Tombe

Central banks have direct control over interest rates. By adjusting the total amount of money available, they aim to maintain their primary goal: ensuring that inflation remains consistently low.

While many Canadians are waiting for the right moment to buy a house, Sethi has a different mindset altogether when it comes to homeownership and living a rich life. Without mincing words, Sethi has declared that owning a home “can be a very bad financial decision — and there are far better, far simpler investments.”

It turns out those investments are just as much about personal values as they are about financial decisions; some even include savvy expenditures.

In his best-selling book “I Will Teach You to BeRich,” Ramit Sethi explains why purchasing ahome doesn’t necessarily lead tofinancial wellbeing. In summary, here are Sethi’s key points:

money rules.

While he wrote the book based on his own money rules, most readers agree that his financial principles can be adapted and used by almost anyone interested in developing smart money habits.

Table of Contents

Don’t Miss

The following five financial actions can assist in climbing Canada’s net worth ladder in 2025, with each task being completable in just a few minutes.

Here’s how
I’m almost 50 and don’t have enough retirement savings. What should I do? Don’t panic.

Below are 6 effective methods for getting back on track:
Emergency veterinary expenses can soar up to $4,000 – however, adequate insurance coverage can help alleviate this burden.

you can safeguard your pet without draining your finances

1. Maintain at least one year’s worth of emergency savings.

Sethi admitted that setting aside one year’s worth of emergency funds is “more cautious” compared to what many financial advisors typically suggest. However, this approach allows him (and potentially you) to have a more restful sleep.

“It’s in a savings account, completely accessible at short notice, which is precisely its purpose,” clarifies Sethi.

Great options for storing your emergency fund are bank accounts, such as high-interest savings accounts or premium checking accounts that demand a minimal balance to avoid monthly charges yet still offer all banking benefits.

Good

high-interest savings account options

include:

Good

premium bank account options

include:

BMO Performance Chequing Account

:
Scotiabank Ultimate Package

:

2. Set aside 10% and allocate 20% of your total yearly earnings for investments.

Sethi enjoys putting money into the S&P 500—or comparable passive index funds and low-cost exchange-traded funds (ETFs) that follow the biggest players in the stock market. Although investments in stocks can fluctuate, past data indicates that adopting a long-term buy-and-hold approach generally leads to an upward trajectory. To illustrate, the S&P 500—the standard measure for the U.S. stock market—has shown increases of approximately 80% from February 2019 onwards.

If becoming an active trader isn’t your goal, beginning with index funds can be quite beneficial. In Canada, the top choice for many is the S&P/TSX Composite Index (TSX:SPTSX), which serves as the standard measure of stock market performance here. It’s widely used by both individual investors and portfolio managers as a reference point.

Sadly, the cost per share for the S&P/TSX Composite Index (TSX:SPTSX) is out of reach for many investors, as each share currently costs around $22,000.

Rather than doing so, seek out exchange-traded funds (ETFs) that follow the S&P/TSX Composite Index (TSX:SPTSX). Suitable choices encompass:

Vanguard Canada Inc S&P 500 Index ETF (TSX:VFV)
Vanguard FTSE All Cap Index ETF (TSX: VCN)
iShares Core S&P 500 ETF (TSX: IVV)
SPDR S&P 500 ETF Trust (TSX:SPY)
Vanguard Total Stock Market ETF (TSX:VTI)

Bear in mind, these aforementioned funds represent the Canadian counterparts to those frequently recommended by Warren Buffett and other advocates of the buy-and-hold strategy, positioning them as ideal choices for passive investors.

To begin your investment journey, you will require an online trading account.

To begin investing, you will require an online brokerage account. While selecting one, choose an option that provides education about the assets you’re interested in and keeps your trading and recurring account expenses as low as possible. Suitable choices include:

Wealthsimple

This online brokerage provides complimentary trades for both stocks and ETFs — along with the choice of additional features.

starting a brokerage account for stocks

, a

crypto-trading account

or

a robo-advisor trading account

.
Questrade

Trading fees vary between $4.95 and $9.95 (based on your account type). When using a Questrade account, you can avoid paying trading fees altogether when purchasing an ETF, which is beneficial for those who prefer not to engage in short-term stock holdings.

Sign up for a Questrade account now

.
Qtrade

Customers receive complimentary transactions on a vast selection of exchange-traded funds (ETFs), whereas the cost for trading stocks may be as little as $6.95 for premium account holders.

Sign up for a Qtrade account today.

.

Invest in property markets without purchasing a residence

An additional choice is diving into real estate investments. Although buying properties typically demands substantial capital—and as Sethi highlights, locking your funds into a single financial endeavor may not be prudent—a viable substitute might involve engaging with real estate investment trusts (REITs).

REITs provide access to real estate — an excellent substitute for fixed-income investments — yet come with the advantage of liquidity, as they can be purchased and traded just like stocks.

As of 2019, over 40 Real Estate Investment Trusts (REITs) were listed on the Toronto Stock Exchange (TSX). Among them, 19 REITs are part of the S&P/TSX Composite Index (TSX:SPTSX), which serves as a standard for measuring overall market performance for many investors.

For example, the S&P/TSX REIT Index (SPTSRE:IND) has a trading value slightly above $300 per share as of April 2024. The sector-specific index developed by S&P Dow Jones Indices consists of Real Estate Investment Trusts (REITS), each having a maximum weighting limit set at 25%, ensuring that no single REIT constitutes more than a quarter of the total index. Additional choices providing shares priced under $100 apiece as of April 2024 encompass:

Allied Properties REIT (AP-UN.TO) specializes in urban office spaces, holding properties across Canada’s major metropolitan areas. The approximate share price stands at around CAD 17.35.
Boardwalk REIT (BEI-UN.TO) focuses on multi-family residential properties spanning various regions of Canada. The approximate value per share stands at around $72.35.
Can Apartment Property Real Estate Investment Trust (CAR-UN.TO) specializes in residential properties such as apartments, townhouses, and mobile home communities. The trust holds assets throughout Canada and the Netherlands. Current approximate share price: $45.30.
Choice Properties REIT (CHP-UN.TO) concentrates on developing work/living spaces throughout Canada. The approximate stock price per share is $13.15.
Crombie REIT (CRR-UN.TO) specializes in grocery-anchored retail spaces, mixed-use properties, and industrially-focused retail assets. The approximate stock price per share is around $12.80.
CT REIT (CRT-UN.TO) is a closed-end fund primarily invested in income-generating commercial real estate throughout Canada. The approximate value per share is around $13.80.

3. Settle large purchases with cash payments

Sethi indicates that major celebrations like large holidays, weddings, and engagement rings belong to this classification.

“This particular approach is contentious,” he admitted, yet the tactic of using cash payments achieves several financial goals. One advantage is that when people pay with cash, they have to incorporate patience into every major purchase decision. Cultivating this practice can help prevent accumulating unsecured debts—typically the priciest kind like credit card loans.

To steer clear of using credit cards, Sethi establishes objectives for significant expenses and sets aside money each month to cover the entire cost of the major expenditure.

An alternative approach is to set up an account and begin saving money. Once you have enough savings, utilize a rewards credit card to purchase the item. You can charge the entire amount to the credit card and then pay off the debt using your accumulated savings.

4. Always feel free to spend money on books, starters, wellness, or supporting a friend’s charitable fundraising event.

Sethi follows a book-purchasing guideline: He will purchase a book if he believes there is potential to gain at least one transformative insight from it.

Participating in a friend’s charitable fundraising event is a given: It aligns with Sethi’s dedication to fostering experiences and communities rather than merely growing a savings account.

But
appetizers
Sethi mentions that during his younger years, his family rarely ordered starters when they went out because it was simply beyond their means. However, now as an adult with more stable finances, he allows himself these little luxuries. To Sethi, treating himself like this feels exceptionally lavish and provides him happiness—highlighting what he believes is the real aim behind managing money and making fiscal choices.

5. Reserve business class seats for trips longer than four hours.

Indeed, the seats come at a higher price compared to economy class flights; however, according to Sethi, this cost facilitates a transition for individuals from “feeling dismissed to feeling curious.” He mentioned this point.

If purchasing first-class flight tickets seems too costly, think about enrolling in a travel rewards program which can assist you in offsetting the expense of pricier flights via earned rewards.

6. Always purchase high-quality items and use them for as long as you can.

You don’t necessarily need to splurge to acquire top-notch items; however, you do need to put effort into researching and disregarding the hype surrounding prestige emblems. Take for example Sethi’s sense of accomplishment with his fourteen-year-old four-door Honda Accord. This vehicle continues to run smoothly thanks to its exceptional reliability. By maintaining this car instead of opting for an expensive new one, Sethi redirects those potential savings towards other priorities.

7. Avoid restricting expenditures on healthcare and education

Expanding your repository of information positions you for increased achievement.

“I aim to learn from exceptional finance instructors by attending accounting courses,” stated Sethi.

Caring for your well-being leads to a higher quality of life. According to Sethi, seeking assistance from a personal trainer, for instance, can aid you in structuring both your exercise routine and dietary habits.

8. Make enough money so that you only have to work with individuals you admire and enjoy.

As he pointed out, ‘The company you keep has a profound impact,’ since ideas and values gradually infiltrate your awareness.

If you find yourself trapped working with an unpleasant person, consider switching to a different team and having a new supervisor. Feel free to communicate to others that you’re eager for new possibilities.

9. Give priority to time spent away from spreadsheets

“Yes, understanding your figures is important,” Sethi stated regarding financial issues.

However, at some stage, he emphasizes, it’s important to move forward and enjoy a fulfilling life alongside loved ones and friends.

I dedicate fewer than 60 minutes each month to managing my finances.

Looking for an additional $1,300,000 for your retirement savings? According to Dave Ramsey, this could be achievable.

this 7-step plan ‘works every single time’ to kill debt, get rich

—and ‘everyone’ can achieve it

10. Wed the correct individual

Often, the concept of crafting a meaningful life revolves around core principles, like one’s feelings towards raising children or their desired place of residence. Equally crucial is understanding an individual’s approach to finances and identifying the objectives they deem significant.

Therefore, choosing your spouse is truly one of the most significant financial choices an individual can make.

“The most crucial point perhaps,” clarifies Sethi.

He argues that “the person you choose as your partner will influence where you reside, the home you purchase, and how much money you end up spending.”

Discuss finances openly and frequently with your partner to foster agreement on one of life’s most important issues.

— with contributions from Lou Carlozzo

Sources

1.

Moneywise:

Ramit Sethi claims you’ve been misled, according to Vishesh Raisinghani (December 8, 2023).

2.

Diary of CEO:

The Financial Guru – “Don’t Purchase a Home!” 10 Strategies for Generating Actual Income: Ramit Sethi (July 20, 2023)

3.

UCalgary News:

A University of Calgary economist states that the effects of increasing interest rates will differ for each individual.

4.

Moneywise:

“I’ll make you wealthy in 10 minutes,” by Vishesh Raisinghani (January 28, 2024)

This article

Ramit Sethi’s 10 commandments for managing finances (spoiler: purchasing a house isn’t mandatory).

originally appeared on Money.ca