True Investment Definition

Ramit Sethi believes people misuse the term "investment" to justify luxury purchases. He advocates for a clear distinction between true investments and personal spending, emphasizing that financial decisions should be based on numbers rather than emotions.

• Investment Definition:

  • Strictly limited to items that can provide a financial return
  • Not to be confused with luxury purchases or personal spending

• Common Misconceptions:

  • People label personal purchases as "investments" to justify spending
    • Examples: mattresses, personal training, face cream
    • Even expensive items like houses are often luxuries, not investments

• House Buying Philosophy:

  • Not inherently an investment
  • Should be viewed as a luxury purchase
  • Decision should be based on:
    • Running the numbers first
    • Considering non-financial factors
    • Personal enjoyment and lifestyle choice

• Approach to Financial Decisions:

  • Affordability is about numbers, not feelings
  • It's okay to buy things simply because you enjoy them
  • Be honest about purchases being luxuries rather than investments
  • For couples:
    • Balance emotional and numerical considerations
    • Need to engage with actual numbers
    • Treat household finances like a business

• Key Message:

  • Be truthful about spending motivations
  • Don't justify purchases by mislabeling them as investments
  • Make financial decisions based on data while acknowledging emotional factors