186. “Was it a huge mistake to sell our house?”

Meet Ava, 36, and Chris, 38. When it comes to their finances, they do not see eye to eye; and they’re stuck in a cycle of overspending. Ava is a worrier who uses a labor-intensive ledger to track expenses, taking tons of time and energy every month (although they’re still in debt). Chris doesn't like Ava's approach, but he's sick of fighting about it. They just sold their house, and now they need my help to get on the same page before they make their next move. Can Ava and Chris set aside their finances and create a new way to talk about money together? This episode is brought to you by: Our Place | Use code RAMIT to receive 10% sitewide at https://fromourplace.com. ZocDoc | Download the ZocDoc app for FREE at https://zocdoc.com/ramit then find and book a top-rated doctor today. Masterclass | For unlimited access to every class and 15% off an annual membership, go to https://masterclass.com/ramit. Pique Tea | Get up to 20% off plus a free starter kit at https://piquelife.com/ramit. Fabric by Gerber Life | Protect your family today with Fabric by Gerber Life. Apply today in just 10 minutes at https://meetfabric.com/ramit. Links mentioned in this episode • Get tickets to Money for Couples LIVE coming to a city near you in January Connect with Ramit • Pre-order my upcoming book: Money for Couples • Get the Podcast Newsletter and watch me analyze an anonymous couple's spending each Saturday • Get Money Coaching with Ramit • Download the Conscious Spending Plan • Listen to my book—now on Audible • Get my New York Times best-selling book • Get my no-numbers journal • Other episodes • Instagram • Twitter • YouTube If you and your partner have a money issue and you want my help, I occasionally select a couple to work with, free of charge. Apply for my help here. Produced by Crate Media.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ramit Sethi?

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• 0:43Ramit Sethi?

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• 0:50Ramit Sethi?

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• 2:00Ramit Sethi?

  Meet Ava and Chris.

• 2:02Speaker 01

  Negative Nancy, and I don't want to be, I don't want to be.

• 2:05Ramit Sethi?

  Ava is 36 and Chris is 38. And when it comes to their finances, they don't see eye to eye, and they are stuck in a cycle of overspending.

• 2:13Speaker 02

  I don't feel negatively about our finances, but I think for sure that we have a different perspective towards our finances.

• 2:21Speaker 01

  I want to be on the same page. I just don't see how we get there in the situation that we are in now.

• 2:27Ramit Sethi?

  Ava is a worrier who uses a labor-intensive ledger to track expenses. It takes tons of time every month, but they're still in debt.

• 2:35Speaker 01

  Ever since college, I've kept a ledger. Definitely don't think we're using the right approach.

• 2:42Ramit Sethi?

  Why do you have credit card debt?

• 2:43Speaker 01

  Because we overspend on a monthly basis.

• 2:47Ramit Sethi?

  Chris doesn't like Ava's approach, but he is done fighting about it.

• 2:51Speaker 02

  When we do our bills, it feels like it's a drain at the end of it. I'm like, ugh, this is what we got left. I'm just gonna let it be. But letting it be, obviously, is worse than me just constantly trying to have the fight.

• 3:01Ramit Sethi?

  They just sold their house, and they need my help to get on the same page before they make their next move.

• 3:06Speaker 01

  I'm down for moving, but I just want to sit down and put on paper like what that really looks like.

• 3:12Ramit Sethi?

  Can Ava and Chris set aside their finances and create a new way to talk about money together?

• 3:18Speaker 01

  I don't feel like we have a handle on it, and I want us to do it together.

• 3:22Speaker 02

  It's honestly just haven't shifted from when we were not making a lot of money. The approach is still the same, and I think that's what the issue is.

• 3:30Ramit Sethi?

  Let's meet Ava and Chris.

• 3:38Ramit Sethi?

  Okay, looking at Chris and Ava's CSP, let's take a look. 36 and 38, okay. $418,000 asset, probably a house. Investments, 150K, that's good. Savings, 1,300. That's a huge disparity between the two. It's a bit of a red flag. Debt, 278, for a total net worth of $291,000. Okay, let's take a look at the income. Whoa, that's a high income. 16,959 per month, that's $203,000 a year. Fixed costs at 70%. Why? That's high at that income. Let's take a look. Housing is low, 13%.

• 4:21Ramit Sethi?

  So where are they spending the rest of the money? Uh, car payment is 655. That's very reasonable, including gas, et cetera. Groceries, 1,000, fine. Phone, oh. Childcare, $2,000 a month, okay. This is so frustrating for so many parents. And there's often no easy solution. There's no discount childcare that you can magically cut your costs. I mean, are they living above their means? Maybe, but I also have to acknowledge that for a lot of parents, you have to spend more, especially when kids are young. I don't mind that. That's just a natural part of life. And that is why ideally, before you have kids, you have your numbers dialed in.

• 5:05Ramit Sethi?

  So you can be saving extra. And then in the first few years of having a kid, you can draw from those, cut your investment or savings contributions and put them towards things like a NIN. Okay. Let's take a look at the rest. Investments are at 3%. Uh, they're probably doing some pre-tax stuff, which is okay. And their investments are at 150K. So maybe they've intentionally cut that down a bit. Savings are at 1%. That's crazy, especially with $1,300 in savings. No way. If one of them loses their job, they're over. They're over in one month. That's a problem. And guess what? I knew it once I started scrolling down.

• 5:48Ramit Sethi?

  Guilt-free spending at 26%. There's no way. Typically, it's 20 to 35%. For young parents, it probably becomes 15. Maybe 10, not 26. If you're going to hire a nanny, that's a lot of money. And if you can afford it, that's okay. We can find a way to make it work. But you need to ask yourself, where's the money coming from? And simple dollars in, dollars out would mean if we're spending $2,000 a month on a nanny, it needs to come from somewhere. Now, probably some of it comes from our savings rate. Some of it comes from investing, but some of it should come from guilt free spending. You choose. It's your call, but the numbers have to add up somewhere. And right now they are not adding up.

• 6:32Ramit Sethi?

  Looking back at my notes, they spend a significant portion of their income on childcare because of their schedules. Whenever they sit and talk about finances, it turns into doom and gloom. Chris operates on the mentality of I work, so if I want to buy something, I buy. They've been in a cycle of overspending, racking up debt, paying it off and getting back to square one. Yeah, all right. What I see here is probably a lack of focus paid to the organization level. Right? It's like, okay, we got to pay the nanny. Let's pay the nanny. Fine, but zoom one level up. Where's the money coming from? How does it affect our investments? How does it affect our savings rate? What does it mean for us this year, next year, the year after? Very few couples pay attention to that. And I'm willing to bet this couple has not either.

• 7:16Ramit Sethi?

  We'll take a look though, when I talk to them soon.

• 7:20Speaker 01

  We were in the process of deciding what we were going to do next from a house perspective. We were on the same page about our house now is not where we want to be long term. And when that conversation started, Chris was very much like, okay, you know, let's start looking for the next thing. And I was nervous. I don't think that we are in a position to look for the next thing, which is going to cost more because I don't feel like we're doing a great job of like handling what we have now. Chris said, well, no, we can, we can do it. You know, I've run, I've run the numbers. We have room to take on a higher mortgage. And I was like, I don't think that we can.

• 8:02Speaker 01

  And I said, I want to look at everything that we have on a monthly basis and what we pay because I am the one that I'm not going to say handles the finances because I admit I don't do well, but I pay the bills. And so I know that I see on a regular basis what we have. And I was like, I just don't feel like there's a way that we can make this work.

• 8:20Speaker 02

  Ava's approach towards finances has been very hands on on a day to day basis.

• 8:28Speaker 02

  Um, I'm not, uh, and it doesn't mean that I'm not paying attention. I'm just not necessarily a pen and paper type person when it comes to it. Um, I do a lot of it in my head. I don't feel negatively about our finances, but I think for sure that we have a different perspective towards our finances. We rely very heavily on opinions and not necessarily, uh, facts to be able to base our arguments on. But I don't think that we are really nailing down why I think we can be able to afford something versus why she thinks that we may not be able to afford something. I want more for our family. I want more for Ava. I want more for me.

• 9:10Speaker 02

  Um, I do get discouraged when I get told no constantly. I do get discouraged when every financial conversation turns into what we don't have. Um, it does make me not want to be involved and literally just, I'm just gonna work, provide the paycheck, just make sure the bills are paid.

• 9:35Ramit Sethi?

  Can we just do the conversation right now? Like, I'd love to see how this actually plays out. Let's talk about the house.

• 9:41Speaker 01

  I'm down for moving, but I just wanna sit down and put on paper like what that really looks like and what we can, if any, spend and go up a month based on everything else that we're paying.

• 9:53Speaker 02

  I have looked at the numbers. I know that we can be able to do more. We just don't necessarily use the money that we have currently the best way possible, which is why I think that there is a cushion that's there to be able to actually go up on our mortgage.

• 10:09Speaker 01

  I don't know how that works right now without significantly looking at where we're spending and cutting.

• 10:14Ramit Sethi?

  Okay, let me pause you right there.

• 10:17Ramit Sethi?

  First of all, that was pretty interesting. I appreciate getting a look into how you communicate, cuz it tells me a lot. What'd you both notice about that conversation?

• 10:27Speaker 01

  I don't wanna say frustrating. It just feels hard because I feel like that conversation just goes in a circle and it never really ends in a resolution.

• 10:36Ramit Sethi?

  Hmm, like you haven't decided on what to do about the house, correct?

• 10:41Speaker 01

  Well, we close next week, so we're definitely selling our house.

• 10:44Ramit Sethi?

  Oh, really? What the hell? How did I not know that? All right. Good. Let's keep me on my toes here.

• 10:49Speaker 01

  Right.

• 10:50Ramit Sethi?

  Chris, what did you notice about that conversation?

• 10:52Speaker 02

  It was easy to have that conversation because we still didn't necessarily bring facts and figures to the conversation. Because of that, as Ava said, we are just talking in circles.

• 11:01Ramit Sethi?

  Yeah, I agree. She said, I want to look at the numbers. Did the two of you ever look at the numbers together?

• 11:11Speaker 02

  No, not recently.

• 11:12Ramit Sethi?

  How do you make the biggest decision, financial decision of your life, without looking at the numbers?

• 11:16Speaker 02

  We could not agree on what we could afford to buy. We did agree that we wanted to sell. We knew that where we were was not where we wanted to be. We do have a temporary solution that does give us an opportunity to kind of reset.

• 11:28Speaker 01

  Fortunately, both sets of parents were open to letting us to come and stay for a while. So we definitely were like, we don't know what the next step looks like as far as buying, but we do know that right now, we have a very small window when we can sell. We have two kids. They're both very young, so we can pick up and temporarily go somewhere and take our time to figure it out. So we were 100% aligned on that, where if we're gonna sell, we're gonna do it now.

• 11:55Ramit Sethi?

  Nice job agreeing on the decision. I think that's important. And now we get to talk about how you make decisions. So getting back to that conversation, both of you said, it sounds like opinions. I'll note that on a multi-hundred thousand dollar decision, no numbers. What do y'all think about that?

• 12:17Speaker 01

  It seems a little reckless, but I swear it's not.

• 12:20Ramit Sethi?

  But I swear it's not. Okay, tell me.

• 12:22Speaker 01

  Because we weren't spending multiple hundreds of thousands. We were gonna make something.

• 12:28Ramit Sethi?

  That's not how you make big financial decisions. We're talking about big money. This is one of the biggest financial decisions in your life, until now, probably in your entire life. Are you two looking at separate numbers and then just coming to different conclusions? Or are you not looking at numbers at all?

• 12:45Speaker 02

  We have a budget file that we go off of on a month-to-month basis. I think we're looking at the same numbers.

• 12:49Speaker 01

  It tells me that there's not room to go much more than where we're at now.

• 12:54Ramit Sethi?

  What does it tell you, Chris?

• 12:55Speaker 02

  That we can do more. We just need to find something that's going to fit within the budget that we have.

• 13:00Ramit Sethi?

  Okay. Should we just pull up the budget and look at it?

• 13:03Speaker 01

  Yeah.

• 13:04Ramit Sethi?

  Let's do it. Here it is. Let's look. We have forty-two lines and there are three columns in this budget. One of them is category. Categories include utilities, insurance, savings, health, household, etc. The second is vendor, such as gas, preschool, pest control. And then the third column is expense. And this is just a list of numbers. Ten dollars, a hundred dollars, two hundred and eighty dollars, one oh one point sixty-one, and on and on and on. Forty-two lines of this. Can you tell me, looking at this right here, what does this tell you?

• 13:43Speaker 02

  It's our list of expenses from a month-to-month basis.

• 13:46Ramit Sethi?

  I take nothing away from this. I don't know if you have enough or if you don't. I don't know if you're spending correctly based on your values or not. So if you want to get a bigger house, how do you use this to make that decision?

• 14:01Speaker 02

  I look at the expenses that go towards the house and then try to be able to compare to what it would cost for us to be able to go somewhere else.

• 14:08Ramit Sethi?

  You can't make meaning from that. It's actually not the right tool. It's like me telling you to build a skyscraper and giving you a hammer. And it actually keeps you small. Ava, you're the one who manages that budget, right?

• 14:24Speaker 01

  Yeah.

• 14:24Ramit Sethi?

  How many minutes or hours per month do you put into it?

• 14:29Speaker 01

  Four to five hours.

• 14:30Ramit Sethi?

  A month?

• 14:32Speaker 01

  Mm-hmm.

• 14:33Ramit Sethi?

  Mother of two young kids, five hours a month. And when was the last time you sat down and actually looked at those numbers and talked about them?

• 14:40Speaker 02

  Fifteen days ago. We've been doing it for every pay period.

• 14:44Ramit Sethi?

  So you all go in there and you go, hey, this time we actually spent extra on gas or less on groceries or something like that. So you put it in the budget, right? Together, which is great. And then what?

• 14:57Speaker 02

  Then the bills are paid.

• 14:59Ramit Sethi?

  This is how people play small. They think that their managing money is filling out a budget. How do you escape from this hell that is updating a forty-two-row spreadsheet for the next sixty years of your life?

• 15:14Speaker 01

  Lower our fixed costs.

• 15:17Ramit Sethi?

  Okay, that could work. But then what? Let's say you lower your fixed costs by two, three, four hundred bucks a month. Then what?

• 15:24Speaker 01

  I don't know. That's what's hard. It sounds ridiculous. It's so hard for me to let go of the concept of just spending or paying and then not seeing what everything is. Like, I don't think I don't trust myself.

• 15:36Ramit Sethi?

  The problem is you have no vision. It's just a bunch of numbers. And if I ask, how do we get beyond the next two weeks? Do you know what it would look like to get beyond thinking two weeks out?

• 15:51Speaker 01

  I don't.

• 15:52Ramit Sethi?

  Okay, that's an honest answer. I appreciate that. Chris?

• 15:54Speaker 02

  Yeah, I've done it before. I used to set

• 15:58Speaker 02

  monthly goals versus yearly goals. I would put money away in order to be able to go on trips. Or if there are big games, I'd like to be able to go. I'm a big sports fan. I put money off to the side for that. I would basically earmark some of my money, but then I would still leave a cushion that's in there to not completely earmark everything.

• 16:18Ramit Sethi?

  Okay, I like what you're doing. So do you do that right now?

• 16:22Speaker 02

  Not completely.

• 16:23Ramit Sethi?

  Why?

• 16:24Speaker 02

  When I shared that approach initially, it it wasn't agreed upon. So basically, I did what I felt like was more comfortable for her. And the things that I was doing previously, I just, I just didn't do anymore. I was like, hey, if this is the way you want to do it, and this is going to make you feel good, that's fine. Because when I tried to do it, my way would be more of an argument. It was a my way versus her way thing, as opposed to like a let's actually come up with a way that works for both of us.

• 16:56Ramit Sethi?

  All right. Ava, you agree with that?

• 16:59Speaker 01

  Mostly. Ever since college, I've kept a ledger, like a paper ledger.

• 17:06Ramit Sethi?

  That sounds like it's from the prehistoric age. Pull that thing out. What is this ledger? Dust it off for us. Show everybody what it is. Already loved it. Hold it up to the camera. Oh my God, look at that thing. Hold on everyone, hold up to the camera, real tight. I feel like we're in Egypt right now. It's like a book, but it's got a weird binding. It literally says ledger on it. Most people these days don't even know what that freaking word means. And then show us that side, turn it to the side. It's used, like it's been worked through. Look at this thing. This is an artifact. I have to ask, where on earth did you learn to use a ledger?

• 17:43Speaker 01

  When I got my first bank account and I got my first set of checks. Um, my big thing was if I was writing a check and it didn't get cashed right when I thought it would, I didn't want to spend that money and not realize that I actually didn't have it. So I started using a ledger. I mean, I was undergrad, a broke college student, making $300 a week in my work-study job. So I was like, that was the best way that I could think of to just balance and keep track of what I had. And I never let go of it.

• 18:14Ramit Sethi?

  You never let go of it? So when the two of you got together and got married, started discussing money together, you dusted off this ledger, right? You opened up the safe, like freaking Inspector Gadget. And then you were like, look at my ledger, really proudly. And then Chris was like, alright. And then he basically said, alright, you deal with this. Is that how it all went down?

• 18:37Speaker 01

  More or less, kind of, yeah.

• 18:40Ramit Sethi?

  Okay, they're both nodding their heads, alright. Okay, so how many years ago was that, where you had that conversation?

• 18:46Speaker 01

  That was when we got married, so it was eight years ago.

• 18:49Ramit Sethi?

  Okay, and that kind of tells me that Ava, you've taken on more of the daily management of the money. Chris, what does that mean for your role as it relates to money?

• 19:00Speaker 02

  It's minimal, to be honest with you. I think that we got ourselves to a point where, so, young, newly employed, earning money, so we're like, oh, we have money to spend, right? And then when we had our first kid, we didn't travel as much. And then we have our second child. So like, we know these expenses are going up, so we know, we know that other expenses have to go down. But it's not necessarily in a way where we're really painting the picture of like, what that looks like.

• 19:31Ramit Sethi?

  I agree. I think that's a good way to put it. If I can describe it, it feels very simplistic. I think I understand where we are today. I think I also understand why your conversations feel like you're just spinning. Because one of you, Ava, is managing this money. And the way that you have set the money up is to be worried about it. You have structurally set your day-to-day management to be worried. Unless you end up with a huge amount of money every single month,

• 20:05Ramit Sethi?

  there's no way for you to feel good about this. Because guess what you're looking at every single month? Literally, every line is just where money's going out. I actually feel overwhelmed looking at it. You're not actually using numbers effectively. And that's one of the things that I want to show you how to do. Ava is using her ledger, unaware that it might have worked when they were dual income, no kids, but now that things have changed, she clings to the ledger, even though it's clearly not working anymore. You can also see that their lack of agreement has caused issues. When their expenses went up, they didn't have the foundation to sit down, talk about their numbers together, and jointly decide how they wanted to reallocate their spending.

• 20:51Ramit Sethi?

  In fact, they sold their house without really running real numbers. And you can imagine how much trouble their approach will lead them to if they continue this way. I have to tell you, honestly, I'm grateful that we have the chance to talk now, before they decide their next move. After the break, we'll explore how they see money together.

• 21:13Ramit Sethi?

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• 21:58Ramit Sethi?

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• 22:42Ramit Sethi?

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• 24:07Ramit Sethi?

  Now let's get back to our conversation with Ava and Chris. The approaches that you took when you were younger or even single probably are have stopped working for you now. Think about it. You have two kids, heavy expenses when kids are young,

• 24:28Ramit Sethi?

  unpredictable expenses, and even though you're making more than ever,

• 24:34Ramit Sethi?

  it doesn't really feel like it.

• 24:37Ramit Sethi?

  So you but your approach has been let's track even more.

• 24:43Speaker 02

  I do think that there's a there's a sense of if at least you can be able to see it in front of you, then you at least have an opportunity to control it. And

• 24:52Ramit Sethi?

  But that's the very thing that you all talked about and that it didn't work. Like you the way that you talked about selling and buying a house was like, I want to look at the numbers. That's what Ava said. And then Chris's response was, I have looked at the numbers, but you never actually sat down and looked at the numbers in a meaningful way together.

• 25:16Ramit Sethi?

  I think that there's this invisible script you both have that if we look at some numbers, magically, we will make the right decisions. But guys, you have the numbers. You don't even look at them for the biggest decision of your life. So either there's something wrong with you, which I don't think there is, or you're not using the right approach.

• 25:36Speaker 01

  I definitely don't think we're using the right approach. I thought we were for a while and as of late, I told Chris that when we sat down in Dura CSP a couple of weeks ago, I said, I don't feel confident about this. I don't feel like we have a handle on it and I want us to do it together.

• 25:52Speaker 02

  It's honestly just heaven shifted from when we were not making a lot of money. The approach is still the same, and I think that's what the issue is.

• 26:00Ramit Sethi?

  Yes. Your money grew faster than your money psychology. You're both playing small. You can keep doing it if you want.

• 26:11Ramit Sethi?

  But the way I look at it, you will simply keep doing this biweekly thing for the next 20, 25 years. Ava, you'll continue worrying about money. The two of you will make financial decisions based on whoever argues the loudest or brings it up the most. And that's it. You'll save some money for a vacation because I know you like to travel, Chris. But that's it. Seems kind of like a waste considering how accomplished both of you are, your incomes, the potential here.

• 26:52Ramit Sethi?

  What do you think?

• 26:54Speaker 01

  I agree. I just don't know how to get out of it.

• 26:57Ramit Sethi?

  Okay, well, I can help with that.

• 27:00Ramit Sethi?

  What would it look and feel like if the two of you were truly on the same page with your money?

• 27:06Speaker 02

  I think we could be able to accomplish more if we were on the same page because we would be able to walk, you know, on the same path.

• 27:12Ramit Sethi?

  Okay.

• 27:13Speaker 02

  Together.

• 27:14Ramit Sethi?

  Okay, love it. How about you, Ava?

• 27:15Speaker 01

  I want to be on the same page. I want us to want the same things and be excited about planning for the same things. I just don't see how we get there in the situation that we are in now.

• 27:26Ramit Sethi?

  Put the past aside just for two minutes, even put the present aside and dream with me. What would it look like to be on the same page? And I want you to walk me into your house.

• 27:39Speaker 01

  We're in a house that has enough room that he wants, has the safety and security that I want for us and our kids. We're comfortable. We are, you know, budgeting for and saving for a vacation every year to go on as a family. We can do those things and just be comfortable about it, be on the same page about, cool, this is where it's coming from. We got it. We planned for this.

• 28:03Ramit Sethi?

  I love that vision. How does that feel to say?

• 28:05Speaker 01

  I feel lighter saying it, even though it's not the reality right now, but it just feels exciting.

• 28:12Ramit Sethi?

  Yeah, I can see it in your smile. Sometimes we even have to just pretend, just for a moment, just to know that something is possible. Because everything you just said to me is extremely possible as far as I'm concerned. I've looked at your numbers.

• 28:30Ramit Sethi?

  If we were purely talking about numbers, I could get you there and pretty quickly. But obviously, money is way more than numbers. It's about how the two of you come together, show up, change your money psychology. It's all those things. But I can tell you that numbers wise, everything you just said, we can make it happen. Okay, Chris, what would it look like to be on the same page?

• 28:55Speaker 02

  Bigger house,

• 28:59Speaker 02

  a yard for the kids to be able to play in, for us to be able to entertain in,

• 29:06Speaker 02

  fire pit with, you know, being able to have friends and family over.

• 29:11Ramit Sethi?

  Okay, I love these conversations. Have the two of you talked about this stuff? I know you've talked about the house, but have you talked about it

• 29:20Ramit Sethi?

  under the purview of money?

• 29:24Ramit Sethi?

  Meaning, hey, how can we use our money to get those goals?

• 29:29Speaker 01

  No.

• 29:30Ramit Sethi?

  Okay. So the conversations are, what? Like, we need a bigger house. And then the other person says like, there's no way we can afford it because the numbers don't, we don't have enough. And then, Chris, you go, well, I've looked at the numbers, we can. And then each person starts to get entrenched on their side of the boxing ring, right? All right. Do you see the difference in how those two conversations happen? One of them is just like, one partner is trying to convince the other, the other's trying to shut the other one down. And it's just a doom loop. It's just, you get negative and negative and negative and negative. And you two are pretty young, pretty new to your marriage. Imagine you do that for 30 more years. It's not good. But the other one was actually the opposite. It was an upward loop.

• 30:15Ramit Sethi?

  It's like, I want this. Oh, that would be amazing. And I would have that and we would do this. Now, notice, we haven't yet talked about how to make the numbers work. But even just the possibility of dreaming of what you want, got you both leaning forward. Did you see that? All right, let's talk about the numbers because I love the dreams. Ava, can you read off the word in bold and the full number next to it?

• 30:41Speaker 01

  Assets, four hundred and eighteen thousand. Investments, a hundred and fifty thousand, eight hundred and ten. Savings, thirteen hundred. Debt, two hundred and seventy eight, six, ten. Total net worth, two hundred and ninety one thousand, five hundred.

• 31:00Ramit Sethi?

  All right, cool. What do you all think about those numbers?

• 31:03Speaker 01

  They could be better.

• 31:04Speaker 02

  I don't look at it as being bad. I'm just like, okay, this is what I have to work with. Like, would I like to be able to have, you know, my investments grow? Yes, absolutely. Would I like to be able to have my assets grow? Yes, absolutely.

• 31:15Ramit Sethi?

  Hey, can I tell you how I would answer the question? I would go, I feel really proud. I intentionally chose to have no assets because I'm currently renting by choice. I have a lot of investments because I prioritize that. I've created a bunch of rules so that when I have unexpected income, seventy plus percent goes towards investments. I'm doing that because I know the power of compound interest. My savings are currently a little bit low because I just used a chunk of it for a planned vacation and I had a blast. Now I gotta build it up for the next one. And then my debt, I have no debt because this is a no debt household. So overall, I feel really good. I have my plan, but I still need a little bit of time to make it work.

• 31:58Ramit Sethi?

  What do you notice about my answer versus yours, Chris?

• 32:01Speaker 02

  You seem like you've got a plan forward. You seem more encouraged about it.

• 32:07Ramit Sethi?

  Yep, I like money. Not because I like to sit there and log in and count my dollars and cents, but because money gives me the ability to travel like you like to travel. The other thing I would notice is that I could clearly explain why this number was high or this number was low. In fact, I even knew if the number was high or low for somebody my age and my situation, right? There's like a deeper level of knowledge about these key numbers. This is what I want you to get to, both of you.

• 32:40Ramit Sethi?

  These are some of the most important numbers in your entire life. And I don't want to simply accept like, oh, it is what it is. No, you chose, you made decision after decision to get those numbers there. So let's own it and let's explain it. And if there are areas where you're not feeling great about it, or you want it to be better. Amazing. Everyone has areas of improvement, but at least be clear about why it's this and what it's going to take to get it to the next level. Okay. Can we go back to your net worth? It says 418,000, but that's not really true anymore, right?

• 33:16Speaker 02

  That's correct.

• 33:17Ramit Sethi?

  So what is it? Jumping in, we're throwing lots of numbers at you, so I'm just going to summarize them right here. According to Ava and Chris, the sale of their house will roughly have this impact on their finances. Assets will reduce from 418,000 to 18,000. Savings will increase by 85,000. And debt will decrease from $278,000 to 16,200. Really quick, before we continue on, if you enjoy these videos and you want to be the first to know when we drop a new one, make sure you hit that subscribe button now because it helps my team and me grow this channel. All right, so your total net worth is $237,000. Obviously, being very approximate here, we're also fiddling with numbers. This is normal.

• 34:01Ramit Sethi?

  Chris, can you read off your combined monthly income?

• 34:05Speaker 02

  16,959.

• 34:08Ramit Sethi?

  You make $203,000 per year. Your fixed costs, Ava, what's that number?

• 34:15Speaker 01

  70%.

• 34:16Ramit Sethi?

  What do y'all think about that number?

• 34:18Speaker 01

  It's high.

• 34:19Ramit Sethi?

  Yeah, it's high. So, you know, all this time you've been worrying about the price of gas, but this is really the number that actually matters. You can't get anywhere trying to optimize on the price of lettuce. That's not relevant. It's this number that you have to focus on. So your fixed costs, I'm going to leave your housing how it is for a second. Let's just go through this and then we'll talk about what it looks like now that you've made the decision to sell. So I want to point out a couple of things. Your mortgage was quite low. That was amazing. 1,751 bucks. I added in your utilities and all that stuff. And then I added in even your household maintenance, which was 470 a month.

• 35:04Ramit Sethi?

  All of that ended up being about 16% of gross income. That's great. That's fantastic. The question is, what's taking you to 70% on a very high income? Well, let's look down. Car payment, pretty reasonable. I don't have any comments about that. Groceries, 1,000 bucks. I have no comments about that. Phone, all right, whatever. Subscriptions, maybe a little high at 232, but fine. Oh, nanny, 2,000 bucks. Okay, that explains it. And in fact, if I just zero this out, just so you can see, we take the nanny away, your fixed costs dropped to 52%. Okay, so what does that tell you?

• 35:44Speaker 01

  I was surprised that we were reasonable with like household expenses. I always felt like those were high.

• 35:52Ramit Sethi?

  Yes. Do you know why you thought that? Because the way you set up your infrastructure was constantly pinpricking yourself. All you saw was red, red, red, red, red, red, red. Target, Amazon, da, da, da, da, da. But you had no comparison. When you look at it this way, in a conscious spending plan, not a budget, you go, wait a second. It's not crazy. Why am I agonizing over this little piece of the overall pie? That's actually irrelevant. What is the primary expense that is relevant to your fixed costs?

• 36:26Speaker 01

  Our nanny?

• 36:27Ramit Sethi?

  Yeah.

• 36:28Speaker 01

  Yeah.

• 36:28Ramit Sethi?

  That's it. The rest of it is fine. And we saw that because if I zero it out, 52%. So when I looked at your CSP, I said, they're not spending anything crazy here. In fact, they have extra money to spare because of how low their housing costs are. So where's it all going to be at 70? I saw the nanny. Chris, what meaning do you make out of this fixed cost category?

• 37:00Speaker 02

  I've always felt like we live pretty much at our means, but I do think we put a lot of money into, you know, childcare and making sure they're good.

• 37:08Ramit Sethi?

  What else?

• 37:09Speaker 02

  Trying to invest in ourselves as well, too. You know, just mentally and emotionally.

• 37:14Ramit Sethi?

  I think that the two of you tell yourself a lot of stories about who you are, about what decisions you've made, about what you're doing. You all need to align with reality over here. This is reality. So sometimes you can keep your stories, just set them aside and say, what do the numbers actually tell me? The numbers tell me that this couple has very reasonable housing costs, that they spent a lot of money on a nanny, so they probably have a young kid or young kids.

• 37:45Ramit Sethi?

  The, the big takeaway from this is they're spending a ton of money for a temporary amount of time. That's it. No stories, no past, no nothing, it's just cold, hard numbers. The question then is, where's the money coming from? So do the two of you know that answer? Where is this considerable amount of money for $2,000 a month for a nanny coming from? I'm going to guess that basically the two of you just said like, hey, we need a nanny. Let's look at all the expenses going out the door and we got to find a way to do this. So like, let's just write the check every month, right? Both nodding. So that is not the way that I want you to think about money. In order to build a connection about money and actually in order to become much more sophisticated with money,

• 38:30Ramit Sethi?

  I want you to think about it a little differently. If you look at the conscious spending plan, there are four key numbers. There's your fixed costs, there's your savings, there's your investments and there's your guilt free spending. Now each of those has a very specific number that I typically recommend for people. So if my wife and I were discussing a $2,000 a month expense that came up.

• 38:53Ramit Sethi?

  How do you think we would talk about it?

• 38:56Speaker 01

  I'm sure you would probably present it and say, okay, here's the expense that's coming up. How are we gonna fit this in? Where is this coming from? What is, does this pick anything, any of those four categories out of the recommended? And if so, how can we adjust to make sure that we can account for this cost, but still keep everything where it should be?

• 39:15Ramit Sethi?

  That's right. We would start to make trade offs. And you'd notice that because we would say like, hey, we normally have our savings rate at 10%. But right now, if we add $2,000 a month, we can't. So we gotta start making some trade offs. We're probably gonna have to cut a little bit of our savings, maybe a little bit of investment, guilt free spending, and then we discuss. And we have that discussion together versus

• 39:45Ramit Sethi?

  just feelings. What I did there was show Ava and Chris how to really talk about an added expense. And I want you to do the same thing. If you are considering taking on a new expense, maybe it's a new house, a new car, even a vacation, I want you to use real numbers to decide if you can afford it. The simplest way is to use the conscious spending plan, almost like a game of Tetris. Download the CSP for free, plug in your numbers, and as long as you keep your numbers within the parameters, you win. So if you want to spend $2,000 a month on a nanny, you just have to decide where the money's gonna come from. And as long as everything fits, you can do it.

• 40:26Ramit Sethi?

  Just remember, it's tempting to tap into your investments or savings to pay for something now, but if you do that, it will cost you later. Download the CSP to see for yourself. It's free at iwt.com/csp. Please notice that Ava and Chris have not been doing this at all. They've been having conversations where each person just talks. They share the stories of how they think they should make this decision, how they feel about money. But do you notice that they're not actually using numbers? It's like two chefs sitting around talking about ingredients and taste, but never actually cooking anything. When we come back, we're gonna break down how their behavior with money is affecting their relationship in a deeper way.

• 41:09Ramit Sethi?

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• 41:53Ramit Sethi?

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• 42:21Ramit Sethi?

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• 43:03Ramit Sethi?

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• 43:49Ramit Sethi?

  Now, back to Ava and Chris. Right now, Ava, you are playing negative Nancy. Whatever Chris comes to you with, you instantly start by saying, we don't have enough. And that's off-putting, right? At the same time, Chris will say phrases like, I'm more intuitive with the numbers. I do it in my head. That doesn't work in a relationship with complex financials, where you're making almost 20K a month. There's got to be specificity around how you are talking about money. That is why I think so many of your conversations have been stuck. The way to change is for you to both understand the roles that you are currently playing and understand why.

• 44:33Ramit Sethi?

  Because if you want to change these numbers, you actually have to totally recalibrate your relationship with money and your relationship with each other. Are you both open to that?

• 44:42Speaker 01

  I definitely agree. I don't leave much room for consideration when it comes to new expenses. I don't want to be that way.

• 44:49Ramit Sethi?

  All right, beautiful. Then I feel good. I feel really good so far. Let's continue. All right, we got six costs at 70%. It's a little high, but it's a nanny. How long are you going to have the nanny for?

• 45:01Speaker 01

  I would probably say at least another year.

• 45:05Ramit Sethi?

  Okay, great. So I don't mind that. Let's take a look at the rest. Investments are at 3%. Uh, anybody do a 401k or any pre-tax investing?

• 45:15Speaker 01

  We both do.

• 45:17Ramit Sethi?

  How much do you put in there total every year?

• 45:19Speaker 02

  I'm at 6% of my annual, because that's what the match is.

• 45:25Ramit Sethi?

  Okay, so that's 4,600 bucks. And then what about for you, Ava?

• 45:29Speaker 01

  Right now, I'm at 4%. My important match is 100% of my contributions, but only the first 3%.

• 45:35Ramit Sethi?

  So that's 9,700 bucks a year. That's really good. That's 800 bucks extra that you're putting in. Look at that. Okay, let me show you what just happened. So their investments currently show as 3% combined, okay? But I'm gonna add their pre-tax in here, just so I can get a better view of what's going on. And suddenly their investments are at 11%. That's good. I like that. Okay, cool. All right, so let's look. You got your investments at 3%. We'll change it in a second. Your savings are at 1%. Can we talk about that? Why is that?

• 46:08Speaker 01

  Because we are paying off the credit cards.

• 46:12Ramit Sethi?

  Why do you have credit card debt?

• 46:15Speaker 01

  Because we overspend on a monthly basis.

• 46:20Speaker 02

  Usually this time of year, we put ourselves in credit card debt, and then we end up having to pay it off basically with whatever income that may come in. So like, tax money, things like that. August is our anniversary, and it's her birthday. So I usually try to, especially this year with birth of a new child, and just a lot of transition, everything going on. I wanted to be able to make sure she had a really good birthday, and we were also traveling this month, so we took a trip with the family. And we just had added expenses from that that ended up pouring into the credit card.

• 47:01Speaker 02

  Plus, my truck hit 150,000 miles. That was an additional expense. So all that kind of hit at the exact same time.

• 47:09Ramit Sethi?

  How do you all make decisions about how much to spend on these things?

• 47:13Speaker 02

  It's not necessarily something that we discuss, can we do. It's, you know, we need to just find a way to make it work.

• 47:21Ramit Sethi?

  I don't think it's acceptable to go into credit card debt at $200,000. No way, no how. And I especially do not think it's acceptable to go into credit card every year and then pay it off with a tax refund or hope that something else comes our way. In order to live a rich life, you have to be extremely clear about what is acceptable and what is not. In my family, no credit card debt, no way. Okay. Have you all had a conversation where you talk about the culture of money? What is acceptable and what is not in your family? No, both shaking their heads no. So if you haven't had that conversation, it's no surprise that you're in in and out of debt.

• 48:06Ramit Sethi?

  I understand that August is a big month for birthdays, et cetera. I get that. What would be a different way that you could handle those expenses, knowing that you're probably going to spend a little bit more than usual that month?

• 48:19Speaker 02

  If we know it's going to be something that's going to happen on an annual basis, we need to be putting away for it.

• 48:23Ramit Sethi?

  Exactly. How much you want to put away for it?

• 48:26Speaker 01

  Every month, we're putting at least like $200 away for the next big thing.

• 48:32Ramit Sethi?

  Okay, 200 bucks a month. So that's 2,400 a year and that would cover what?

• 48:37Speaker 02

  That would cover the trip that we normally take at the end of August every year. Any sort of birthday celebration, anniversary, usually we do a dinner.

• 48:45Ramit Sethi?

  Okay, let me put this at 200 bucks a month. Okay, so your savings goals just went from 1% to 3%. Good job. I think this is great. This is exactly how you plan for expected expenses. You know that you have a family event every August, but money assigned for it. And if you do it every single month, it becomes quite a manageable amount, right? It's totally fine. Where's the emergency fund?

• 49:14Speaker 01

  We don't have an emergency fund. So if we're replacing tires, if something goes out, we're putting that on a credit card.

• 49:21Ramit Sethi?

  That's not an emergency. An emergency fund is a true emergency. Like one of you gets laid off, family member gets sick and you have to hop on the first plane. That is an emergency. Are you aware that if one of you lost your job, that the two of you could last about? One week.

• 49:40Speaker 01

  I never looked at it that way.

• 49:41Ramit Sethi?

  You've all been so busy focusing on a lot of busy work with numbers that you have totally missed out on the important parts of setting up your financial infrastructure. Two parents, earning parents, who have two young kids. This is a very high-risk situation you're in. Your savings account was $1,300. That's enough for about a week. Like, that's it. And then suddenly you start to have to make really, really bad decisions because your back is up against the wall. What do you make of that?

• 50:18Speaker 01

  I think I end up going bye every month just hoping nothing crazy happens.

• 50:23Speaker 02

  It doesn't feel good, and especially for somebody who has been unemployed multiple times. You don't want to put yourself in a situation that basically we're putting ourselves in right now.

• 50:33Ramit Sethi?

  Yeah. And luckily, everything is going okay right now, but you all know that one day it won't. That's life. People get laid off, people get sick, things happen. And with two young kids, you cannot be exposed to this kind of risk. Are you starting to see that the way that you both relate to money is why there are these issues with your CSP? You have the money. Like, we could fix this all quite quickly. But the fact that no one has brought up the idea of an emergency fund and actually suggested this is what we need to do. The fact that you're being caught by surprise every single August and you have not come

• 51:15Ramit Sethi?

  up with something a little bit more forward-looking, that's a problem, right? We can fix it. Let's get down to the guilt-free spending. $2,988 a month. You added household supplies, et cetera, 500 bucks. Fun funds, like eating out, nails, hair, et cetera, 400. And then socials, such as eating out, baseball tickets, and kids' activities, 500. Are those numbers accurate?

• 51:38Speaker 02

  Yeah, those be accurate, yep.

• 51:39Ramit Sethi?

  All right, so that's 1,400. So where's the other 1,500?

• 51:44Speaker 01

  That's where I think we got a little bit confused. I looked at that and I was like, we don't spend 3,000 a month on everything else.

• 51:51Ramit Sethi?

  Where's your debt payments? I don't see them in fixed costs. Where's your credit card debt payments?

• 51:57Speaker 01

  They're not in fixed costs because it's essentially what's left over, what we feel comfortable paying.

• 52:02Ramit Sethi?

  What's that mean?

• 52:03Speaker 01

  Every two weeks, I'll sit down, we'll sit down, I'll pay the bills and say, okay, we have X amount left over for the month. Well, let's take this chunk of it and put it toward the credit card. Some months it pays it off, some months it doesn't.

• 52:17Ramit Sethi?

  No, can't do this anymore. Do you all realize why I'm so alarmed?

• 52:22Speaker 02

  Yeah, I get it. Because basically, anything goes wrong, we can't get ourselves out of it.

• 52:29Ramit Sethi?

  Correct. And, Ava?

• 52:32Speaker 01

  There's no, there's no plan.

• 52:35Ramit Sethi?

  This system is a mess. No wonder this is so confusing. Your credit card debt should be consistent because it allows you to project. It allows you to know exactly when you'll be debt free. And most of all, it's not focusing attention on all these random things. How much do you pay?

• 52:52Speaker 01

  We at least pay five hundred on the card.

• 52:56Ramit Sethi?

  Five hundred bucks a month? Let's put it, look at, watch here. Debt payments, which currently says zero. It's not zero, it's five hundred. Watch this. Watch what happens to this fixed cost number. Are you ready? It jumped up to seventy four percent. That's not sustainable. Seventy I can work with. Just because temporarily you're young parents and you have a nanny, fine. Seventy four percent? No way. This is a problem. So now, and we have to still acknowledge that you're only saving three hundred bucks a month. That's also not acceptable. You're at way too much risk. The two of you realistically need something like, if we look at your fixed costs, which is about eight thousand bucks a month.

• 53:39Ramit Sethi?

  You need at least twenty four thousand dollars in an emergency fund that you do not touch. What do you think about that number?

• 53:46Speaker 01

  It feels a lot.

• 53:48Ramit Sethi?

  You cannot save up an emergency fund in one month, six months, even twelve months. It often takes years. I don't mind that. But the fact that there's nothing being saved towards it is a huge problem.

• 53:59Ramit Sethi?

  There's a lot happening here and the more I ask, the more alarmed I get. The first lesson is that people's money behavior is just an output of how they think and feel about money. That's why it's so important to spend time understanding your money psychology, not just playing whack-a-mole with random behaviors that you exhibit. For example, Ama feels the need to control her money system. That's why she uses a ledger. That's why she laboriously tracks all of these numbers. Even though they're in credit card debt, it's clearly not working, but the more it's not working, the more she feels the need for control. Doesn't matter because people respond to their feelings, not to numbers on a page.

• 54:41Ramit Sethi?

  Next, my wish for you is to set high standards for yourself and for your relationship. They make $200,000 a year. It's not acceptable to go into more debt for random expenses. I want you to start using phrases like this. "That's not acceptable for us," or "in this family, we prioritize expenses." In other words, I deeply want you to know, what do you stand for? What kind of money culture are you creating for yourself? Please remember, they have kids who are always watching. Now they have time. They can make changes. That is why I'm so hopeful for them. And after the break, I'm going to talk to them about their strategy.

• 55:24Ramit Sethi?

  One of the most helpful things that I have started using in the last year or so is meeting notes that automatically tell me what the next action steps are. Clear notes really matter. They are so easy. And that is why I recommend this episode's sponsor, Granola. Granola is an AI-powered notepad built for the way real people actually meet. Using it is easy. You take your typical rough notes during a call and in the background, Granola uses your device's audio to turn your messy bullet points into clean, structured, actionable insights. It's great because there's no setup, there's no awkward bots showing up to the call. My colleague told me what I love about Granola is that I can stay focused on the conversation instead of scrambling to capture every

• 56:08Ramit Sethi?

  Detail and if I forget something, granola got it with the action items ready to go. If meetings are eating up your day, granola is a no brainer. You can try it totally free. Just head to granola.ai/ramit. That's granola.ai/ramit to get your time back. Try it for free at granola.ai/ramit.

• 56:32Ramit Sethi?

  Welcome back. Let's keep going.

• 56:35Speaker 01

  I think what you're saying is a lot of what I've been feeling, but just like didn't know why. And now it makes sense. I probably was feeling nervous because deep down, if something happened, I didn't know how we were going to get through it.

• 56:49Ramit Sethi?

  I think that's probably true. I think people have intuitions and clues. But when it comes to money, your intuition is not enough. You have to back it up with actual numbers. You have to use percentages and real numbers. And if you don't, it's actually really frustrating for your partner. Because they just see someone who's constantly worrying, constantly looking at what can go wrong. And there's no actual facts. So that's why in order to be really good with your money, you have to know your numbers and you have to master your money psychology. Both of those things, that will help you really improve.

• 57:30Speaker 02

  I can see now how much I've decided just

• 57:35Speaker 02

  sit back and just be like, look, you're not really open to too many ideas at this point, so I'm just going to let it be. But letting it be obviously is worse than me just constantly trying to have the fight.

• 57:47Ramit Sethi?

  I think that if you immediately assume that when we talk about money, we fight, that's a problem. Because talking about money should not be fighting. Talking about money should be joyful. It should sometimes just be routine, like taking out the trash. And there should be a vision. So what I want to do is kind of just flip it right now. I want you two to tell me what you would like to do with your money.

• 58:16Speaker 02

  I want to put money away. I want to actually have savings accounts that are dedicated to doing things in the future so that I don't feel like every time I'm asking to do something, we have to figure out where's the money coming from.

• 58:28Ramit Sethi?

  Hey, how much? I love the vision. How much?

• 58:30Speaker 02

  I really would love to be able to put anywhere between $500 and $1,000 a month. I'd love to just be able to put off to the side, and it can be earmarked.

• 58:38Ramit Sethi?

  Thousand bucks a month. I love that vision. And what would you put the money towards?

• 58:44Speaker 02

  Vacations, gifts, uh, maintenance, and then your oops fund. You're just like, hey, um, something happened and we need to be able to take care of that and we have somewhere to be able to pull it from.

• 58:59Speaker 01

  I love that vision. I remember that vision before kids. One of the most fun vacations that we had right after we got married were vacations that, you know, we had planned for. It was the best feeling in the world. Everything was paid for and that, I want that feeling every month, not even just in vacations, but just a new month. What do we want to do this month? Great, we have this feeling because we've planned for it. I want to, yes, dream, but I also want to marry that with, okay, logistically, like tactically, numbers wise, what does this look like?

• 59:31Ramit Sethi?

  Beautiful, beautiful. Chris, it's gotta feel good to hear a different response than the typical negative Nancy one.

• 59:41Speaker 02

  It does.

• 59:42Ramit Sethi?

  I like seeing the two of you have that conversation. And it turns out that Ava, you actually agree.

• 59:50Ramit Sethi?

  That's pretty cool. To me, that's, that's 80% of the battle right there. You both have said something that's important to you. Now let's talk about how to make it happen. But put these numbers up on screen and I want you to tell me.

• 1:00:10Ramit Sethi?

  What do you want to do?

• 1:00:11Speaker 01

  I feel like we should be realistic about, okay, you know, rent mortgage like that line item going away or going down.

• 1:00:18Speaker 02

  The only thing that I worry about as far as taking that line away is that eventually that line's coming back.

• 1:00:24Speaker 01

  Right, and it's gonna be more.

• 1:00:26Ramit Sethi?

  Tell you what, let me show you how to deal with it in both ways, okay? We can't ignore the fact that you currently have zero rent, which means you're gonna be saving a lot of money every month. We gotta use that time. We can't pretend like it's not real. It's real. And by acknowledging reality, that allows you to make that reflect on the plan. And you will create a plan for when you go and get your next place to live, okay? So let's start with reality. You are in a situation where you're gonna be paying no rent. So what do you want to do?

• 1:01:07Speaker 01

  So can we just earmark, let's say we'll call it rent, it's 500 a month?

• 1:01:12Ramit Sethi?

  I love it. Okay, 500 a month, what else do you want to do on the fixed costs?

• 1:01:17Speaker 01

  I mean, we can take away utilities.

• 1:01:19Speaker 02

  Grocery bills should go down. 800.

• 1:01:22Speaker 01

  I would welcome the challenge of getting it to 800 a month. So yeah, let's go with it.

• 1:01:27Ramit Sethi?

  Pick another category.

• 1:01:29Speaker 02

  Household maintenance. Zero.

• 1:01:32Ramit Sethi?

  Nice. Done. Ava and Chris's guilt-free spending is currently at 26%, and that's too high, especially since they have a $2,000 per month nanny cost. They probably need to reallocate some of that money towards fixed costs. I'm also concerned how low their savings rate is, and I want to start funneling money in that direction. Listen as I walk them through that, and please notice where I push them harder. You talked about wanting to do a thousand dollars a month for savings. Let's start there.

• 1:02:05Speaker 01

  Yeah, I think it makes the most sense to start with a long-term emergency fund.

• 1:02:11Ramit Sethi?

  Great. How much you want to put there?

• 1:02:14Speaker 02

  Five hundred.

• 1:02:15Ramit Sethi?

  Nice. Let's put five hundred down and see what happens. We can always change it. Love it. Five hundred bucks. We're currently at seven percent on the savings. We're moving in the right direction. I love this. Five hundred bucks a month towards your emergency fund means what? Fast forward one year. How much are you gonna have in that emergency fund?

• 1:02:35Speaker 01

  Six thousand dollars.

• 1:02:36Ramit Sethi?

  Now, let's make meaning out of that number. Look up here. Your fixed costs per month are how much?

• 1:02:42Speaker 01

  Six thousand.

• 1:02:43Ramit Sethi?

  Six thousand bucks. So what that tells you is by the end of an entire year, you will have one month of an emergency fund saved up. What do you think about that?

• 1:02:53Speaker 02

  It's progress.

• 1:02:54Speaker 01

  It's more than we have now. It's the fact that it took a year and save a month is it is progress. It's more than we're doing now, so it's somewhere to start.

• 1:03:03Ramit Sethi?

  At two hundred K per year,

• 1:03:07Ramit Sethi?

  you can do more than five hundred bucks a month. Embrace the fact that you are young parents right now. You're not going out to bars all the time. You're at home. Let's build up financial security now so that over time, we will look back and thank our young thirty-something selves. Go bigger than five hundred a month. This is too low.

• 1:03:30Speaker 01

  Let's do a thousand.

• 1:03:31Ramit Sethi?

  If you do that for twelve months, how much do you have?

• 1:03:35Speaker 02

  Twelve thousand.

• 1:03:36Ramit Sethi?

  Yeah, twelve thousand bucks, which is two months of an emergency fund. That's bad.

• 1:03:42Speaker 01

  Yeah, that makes me feel better.

• 1:03:44Ramit Sethi?

  It's not bad at all. Beautiful. So I like where we're going. I like it. Let's stay down here in savings. Chris had talked about wanting to save up for August trip, birthday and anniversary. You're currently saving two hundred bucks a month for that. Are you good with that?

• 1:04:05Speaker 01

  I'm okay with that. Chris, are you?

• 1:04:09Ramit Sethi?

  Can we add, say, two hundred bucks a month for just a life happens fund? What are you saying? Notice what's happening to these numbers. The savings goals, the savings percentage is 12%. That's actually quite reasonable. Typically, I recommend 5 to 10%. The two of you are young, high earners. So your savings should actually be higher, especially because you have basically no emergency fund. Your fixed costs are right down the middle of where I recommend 50 to 60%. So what this tells me is if we have 55% fixed costs right now, we should be using that money elsewhere.

• 1:04:53Ramit Sethi?

  So the question becomes, where do we want the money to go?

• 1:04:58Ramit Sethi?

  Anybody want to tell me? Tell me.

• 1:05:01Speaker 02

  We don't have a car maintenance line.

• 1:05:04Ramit Sethi?

  You want to put some extra money in the car maintenance? Let's do it. Car payment and transportation. All right. Put an extra $100 aside per month for something really bad to happen to your car. I'm going to put an extra 100 bucks in your savings account. And we'll just call it life happens. Okay, great. You're at 13% savings. I don't mind. That's solid. That's good. Okay, great. Hey, um, does anyone care about investments at all? Like, how the hell are we talking about freaking brakes? And we're not talking about investments, which is worth a lot of money?

• 1:05:36Speaker 01

  I think we both just assumed because we're contributing to a 401k. That was an, and now.

• 1:05:45Ramit Sethi?

  In my opinion, we have spent so much time focused on little expenses, which I'm okay with. I'm here to meet you where you are. But when I am talking about money,

• 1:05:58Ramit Sethi?

  I'm talking about investments because 99% of the value is created in that section. So I would like to spend a lot of time talking about that. Let's take a look at the numbers here. Here's a simple compound interest calculator. You currently have $150,000 invested. Great job. That's awesome. Let's play it out. You are currently investing 9,700 bucks. I always use 7% as a very conservative calculation. Let's take a look.

• 1:06:30Ramit Sethi?

  1.8 million.

• 1:06:32Speaker 01

  That was definitely way more than I thought, but...

• 1:06:35Ramit Sethi?

  Go ahead. Finish the sentence. I want to hear what the, the second clause was.

• 1:06:40Speaker 01

  But I don't know if it's going to be enough.

• 1:06:42Ramit Sethi?

  Whoa.

• 1:06:46Ramit Sethi?

  Okay, so then tell me this. How much is it now?

• 1:06:48Speaker 01

  I would like to be able to say we could spend 200 to 250,000 a year.

• 1:06:55Ramit Sethi?

  Okay, if you want $250,000 a year, then you would need 6.25 million. What do you think of that?

• 1:07:02Speaker 01

  It's pretty unattainable right now.

• 1:07:06Ramit Sethi?

  If it's unattainable, maybe you don't need it. Sometimes people pick an unattainable goal and then they get down that they can't achieve it. It's like me saying I want to run a 315 mile and then I'm like, oh, ho-hum, I'm so sad I can't run it. It's like, no, it's not possible. I don't even run. So why would I get depressed about a goal that's just made up?

• 1:07:31Ramit Sethi?

  Secondly,

• 1:07:33Ramit Sethi?

  when you say you want to have $250,000 a year to spend, I can respect that. But I think also, I don't actually see evidence on your spending that you are a couple that would need $250,000. Your day-to-day expenses are quite reasonable.

• 1:07:54Speaker 01

  Right, and we're not still going to be paying a nanny at that age.

• 1:07:57Ramit Sethi?

  No nanny, not investing anymore. You don't need that stuff, right? That's a lot of money. So I'm sharing this because this is how you start to get more

• 1:08:10Ramit Sethi?

  nuanced about the numbers that you pick. And we could kind of tell because I love that you picked a number. You were like, 250k. Okay, great. 6.25 million. Then you both were like, oh, sucks. But when it's that far off, you start to go, maybe my number was wrong. Maybe my assumption was wrong. And it was. You don't need that much. So that's good news. Let's talk about what you can do. I want to show you some stuff, okay? How much do you currently have in your savings account as a result of the sale of the house that you will get next week?

• 1:08:43Speaker 02

  To say conservatively eighty.

• 1:08:45Ramit Sethi?

  What will we do with eighty thousand dollars? Have you all talked about that?

• 1:08:51Speaker 01

  Really not. I think eventually we both are on the same page that we'd like to then apply that to a down payment for the next house when that is. But in the meantime, before that, we haven't talked about what we do with it.

• 1:09:04Ramit Sethi?

  Please notice the consternation on my face.

• 1:09:09Ramit Sethi?

  How do you think that I would deal with having a large sum of money coming into our household?

• 1:09:16Speaker 01

  You would probably look at areas of your CSP that maybe weren't hitting where you wanted them to.

• 1:09:23Ramit Sethi?

  Good. What else? Would I just do this on my own?

• 1:09:26Speaker 01

  No, you talk about it with your wife, absolutely.

• 1:09:29Ramit Sethi?

  How would I bring it up?

• 1:09:32Speaker 01

  Hey babe, we're gonna have eighty thousand dollars. So let's sit down and talk about what we're gonna do with it.

• 1:09:38Ramit Sethi?

  Angie, Kenny, this is awesome. We're going out to a great restaurant. We're gonna have an amazing meal. We're gonna get a coffee and walk in the park. What are your dreams? What would you do if you could take all eighty K and do anything you wanted? And then she dreams and I go, you know what I would do? I would do this, I would do that. But also, what do we want to do in our rich life together? Notice that I'm excited? I can't think of the last time the two of you were excited talking about money. And you can tell because you have eighty thousand dollars and neither of you have even thought about getting excited regarding discussing this money.

• 1:10:22Ramit Sethi?

  Do you see that it's time to turn the page with money and create a new chapter for both of you?

• 1:10:28Ramit Sethi?

  Yeah, that's how you do it. And let's talk about it right now.

• 1:10:33Speaker 02

  I would like to have a considerable amount go towards a down payment because I think that if we put a good chunk of it down on a reasonable house, then that significantly lowers our monthly payment.

• 1:10:48Speaker 01

  I agree with that. I think that we are, we are lucky and that we have a chance that, that a lot of people don't get to temporarily, almost like wipe the slate clean, right? So I'd like to take a chunk of that, pay off the credit card debt that we both agree we don't need and shouldn't have. I think we should then decide what we're comfortable with a chunk of putting aside from an emergency fund and then yeah, take the rest and put that away for a down payment.

• 1:11:15Speaker 02

  Is there anything that you would like to do since we now have this money that we probably aren't going to have for a while? Like, do you want to go anywhere? Do you want to do something for yourself or for the family?

• 1:11:31Speaker 01

  This is where I'm glad to have you because you provide that other, whereas my mind automatically goes to anything extra, we put it to debt. So like, yes, we'll wipe out the credit card. Let's go somewhere.

• 1:11:44Ramit Sethi?

  I love that conversation. Here we go. Eighty thousand bucks? How much you want to pay off the credit card debt?

• 1:11:50Speaker 01

  Oh, yeah.

• 1:11:53Ramit Sethi?

  Great. What's next?

• 1:11:56Speaker 01

  Fund an emergency fund.

• 1:11:57Ramit Sethi?

  How much?

• 1:11:58Speaker 02

  Ten.

• 1:11:59Speaker 01

  That's exactly the number I had in my head.

• 1:12:01Ramit Sethi?

  Okay, I like this. This is when you start to actually get on the same page. Whoa. And what does ten mean to you? Why ten?

• 1:12:10Speaker 02

  Ava loves even numbers.

• 1:12:12Ramit Sethi?

  Hold on. That's like when I asked my mom one time, my mom told me that she does a leg press at the gym and I was like, wow, mom, leg press. That's pretty cool. I go, mom, how many reps do you do? And she goes, uh, four. I said, wow, rep range of four. That's very interesting. Mom, how did you choose that? She goes, four for four kids.

• 1:12:32Speaker 01

  That's adorable.

• 1:12:36Ramit Sethi?

  Too cute, right? So, all right, that's kind of like the answer I just got from you. 10K because you both like round numbers. Now, I like that the two of you are saying you want to put some towards your emergency fund. I think that is correct. What I would like to see you doing, both of you, is actually using your conscious spending plan. Look at this. I would simply go up here and say, oh, my gosh, we need six months of an emergency fund. So when you both say 10K, if you go, hey, let's do 10K because it's one-third of the way there, I can get behind that. If you just pick 10K out of the orbit, no.

• 1:13:19Ramit Sethi?

  Numbers are based on other numbers. We need to actually start using our numbers, and that is what my challenge to you is.

• 1:13:25Speaker 01

  Actually, I think that's a good point. Chris, what I'm thinking is we're on the same page. So that 10K gets us at the base to start. But then we've also accounted for contributing additionally to that on a monthly basis.

• 1:13:39Speaker 02

  What I don't want to necessarily do is fully fund everything. We need to actually set up some sort of a routine.

• 1:13:45Ramit Sethi?

  Yes.

• 1:13:45Speaker 02

  That we're used to actually paying it.

• 1:13:46Ramit Sethi?

  Yes.

• 1:13:47Speaker 01

  Yes.

• 1:13:48Ramit Sethi?

  Good. Great. That's exactly the point because you could pretty much fund a lot of stuff right now. But the problem is your habits wouldn't change at all. And then you would be back in debt. And when you go to rent or buy a place, you would be in big trouble. You need to be thoughtful about how much of this money are we using

• 1:14:06Ramit Sethi?

  for one-time things like paying off credit card debt? That's a no-brainer. That debt is toxic. Get rid of it and never get back into credit card debt. Your emergency fund, I think 10K is reasonable. And then you want to take a trip? Give me a number.

• 1:14:23Speaker 01

  I think we can go somewhere for 2,000.

• 1:14:25Ramit Sethi?

  That's solid. You currently have spent $18,500 of your 80K. Okay? Can I show you something? I want to take you back to investments for a second. Everyone's like, let's take vacation, let's pay off this and that. No one ever thinks about putting money in investments. I have a rule for myself with unexpected income. This is at a more advanced level where you create a rule of what you will do when you get unexpected income. And you do it on percentages and it just goes through the funnel. Something like 70% goes straight to investments. What message do you think that sends to my wife and to me?

• 1:15:04Speaker 02

  That you're looking out for the future.

• 1:15:07Ramit Sethi?

  That's exactly right. And it's not even a question. We're not asking each other. It's just a decision that was made. So let's play it out. Let me just show you what happens if you take an extra $30,000, just to show you what happens. You're now at $2.2 million. We're talking about hundreds and hundreds of thousands of dollars from one decision you made once. What's your conclusion?

• 1:15:28Speaker 01

  I like to see the longer term impact that one decision has. What I get nervous about is the balance of taking care of our future, but also not screwing ourselves in the now. We will get to a point where we want to move again, buy another house or, you know, whatever. Want to make sure that we haven't, that we don't put ourselves in a situation where we have nothing for that.

• 1:15:54Ramit Sethi?

  I agree. You should have a very healthy amount of liquid cash for when you move. I think that this is when the two of you start to discuss things like, when would we want to move? How much approximately would we spend? Are we going to buy? Are we going to rent? What fits our goals at this stage of our family? Right now, you took a step. You know, you just said, look, we're going to sell it. But there's no vision. You don't know which direction you're going. It's like you're walking in the dark. In order to truly know what to do with this considerable amount of money, you actually need to be thinking three, four, five steps ahead.

• 1:16:34Speaker 01

  Those are the things that I've been thinking about, but we haven't talked about just together, the two of us.

• 1:16:39Ramit Sethi?

  Well, she's doing it right now.

• 1:16:40Speaker 01

  I'd like to be settled before school starts next year.

• 1:16:45Speaker 02

  I would like to buy and I'd like to buy in the spring.

• 1:16:49Ramit Sethi?

  All right, you're all basically on the same page. You guys see how easy it is sometimes? It's like, we don't need all this preamble. Now, here's my question to you. Have you looked at the numbers for a potential house that you would buy?

• 1:17:01Speaker 02

  Yes.

• 1:17:01Ramit Sethi?

  Okay, what's the, what is the price of that house?

• 1:17:07Speaker 02

  Four twenty.

• 1:17:09Ramit Sethi?

  Okay, and the monthly?

• 1:17:12Speaker 02

  The monthly would end up being, I think with taxes, like twenty seven hundred.

• 1:17:17Ramit Sethi?

  Okay, let me show you the numbers. So that's your monthly payment, two thousand nine hundred forty five dollars. However, is the payment going to be actually higher or lower than that number?

• 1:17:29Speaker 01

  Payment's gonna be higher because mortgage is the minimum that we're gonna pay.

• 1:17:33Ramit Sethi?

  Bingo. So we're talking about, in my opinion, in my high cost of living area, I literally add fifty plus percent onto the price of the monthly payment. So in my case, if this was a three thousand dollar payment, it would actually be forty five hundred a month. Total. When you factor in transaction costs, probably new furniture, all kinds of stuff, maybe thirty six hundred a month. What's your current payment?

• 1:18:02Speaker 01

  Seventeen fifty one.

• 1:18:05Ramit Sethi?

  More than double. What do you make of that? What's going through your head?

• 1:18:09Speaker 01

  My initial response was to go back to negative Nancy. I don't know how we could do that with childcare costs currently.

• 1:18:18Ramit Sethi?

  Good news. We actually have a conscious spending plan we can plug it into right now and see. You wanna do it?

• 1:18:25Speaker 02

  Sure.

• 1:18:26Ramit Sethi?

  All right, so this is a future state like a year from now. You are not living at home anymore. So let's just make that mortgage, let's be really conservative, okay? Really conservative. Thirty seven hundred a month. Your debt payment, we can take that away because you all paid that off. Good job. We're down to seventy eight percent. Car payment's still going on. Groceries, you're at a thousand bucks. Fine, not changing that. Phone, not changing. Subscriptions, not changing. Childcare.

• 1:18:56Speaker 01

  It might go down a little bit. We'll target like fifteen hundred.

• 1:19:01Ramit Sethi?

  Fifteen hundred. Okay, any other changes we wanna make?

• 1:19:05Speaker 01

  That fifteen hundred is inclusive, like we could get rid of the preschool line item.

• 1:19:09Ramit Sethi?

  Oh, beautiful. Let's take that out too. Okay, great. Beautiful. You all ready to look at the fixed cost number now? Seventy-one percent is too high. This is how you actually start to plan for major purchases. First, we took a house price that you gave me. We plugged it into a mortgage calculator. Then we took the numbers and we added on extra because we know that there's going to be additional costs. Then we came into our CSP and we plugged it in and we adjusted all the things that are going to change. And now we look at our numbers and what does it tell us?

• 1:19:45Speaker 01

  Fixed costs are still too high.

• 1:19:48Ramit Sethi?

  Correct. This is the very minimum of what you've got to do when it comes to major purchases. This is the basic expected level of of financial rigor. Chris, what's going on in your head?

• 1:20:02Speaker 02

  It's nice to be able to have something that you can be able to plug in and be able to actually see just right in front of your face if you can and cannot be able to afford it.

• 1:20:10Ramit Sethi?

  My guess is in order to make your fixed costs fall to roughly sixty percent, my guess is the house you could afford is like three hundred forty thousand dollars or so.

• 1:20:25Speaker 02

  When we first started, you said that it was okay that it was at seventy because we were paying for the nanny. Is it purely the nanny? I just want to be able to make sure.

• 1:20:37Ramit Sethi?

  I love this question. This is a great question, very specific. We're currently at seventy-one percent of fixed costs. Seventy-one percent may be okay if it's temporary. However, buying a house where you are putting your housing costs higher, that puts you at a higher risk. I will say that the housing costs themselves are still pretty reasonable. So it's not a crazy housing expense. I'll tell you that. It is that you have.

• 1:21:14Ramit Sethi?

  A nanny for 1,500 bucks as well as these other expenses. Let's play it out, though. Let's see. Let's just play and see what happens. All right, let's let's say we take away the kids chiropractor subscriptions. No, wait, are you kidding me? All right, that's at 50. Childcare, we keep the same. Groceries, 800 bucks. We're at 66%. Let's keep looking. So right now you can see that you currently have $961 a month to spend on guilt free spending. I don't think that's enough for the two of you. The good news is that you do have money set aside for things like your trip and Life Happens Fund. All of those are fantastic.

• 1:21:56Ramit Sethi?

  But 8% is extremely low. In your case, my gut says I would do something like 15%. Okay, so what I'm doing now is I'm basically treating this like Tetris. I'm like, what numbers make sense in each of these categories so that you have enough for guilt free spending? Because if you don't have enough for guilt free spending, guess what happens?

• 1:22:22Speaker 01

  Credit card debt.

• 1:22:23Ramit Sethi?

  Exactly. The two of you are just going to stop paying attention to any of this, be like, this CSP, and you're just going to do what you've done in the past, which is to get into credit card debt, and that is catastrophic. So we got to give you enough healthy amount of spending. The crux of the problem here is that you are living day to day, month to month, but there's no vision. You have $80,000 or so coming your way. You have two things to think about. First off is set the money aside for a second, put it in a savings account. You got to build up a healthier CSP. And you can do that specifically because you're so fortunate to be able to live with your family for a while.

• 1:23:04Ramit Sethi?

  You are in the mode where you can save and invest a ton of money for the next six to 12 months. I highly encourage you to take advantage of that. If I were in that situation, I would be trying to aggressively invest, knowing that every $1,000 I put in now as a young couple will turn into so much more down the line. That's number one.

• 1:23:31Ramit Sethi?

  Number two, I would build a healthier relationship with money. First, it would start by how we talk about money. The two of us would be talking about money regularly, positively, proactively.

• 1:23:46Ramit Sethi?

  And we would actually be making big decisions, not smaller ones. You've seen that we're now talking about millions of dollars with compound interest. I would take the money from the house. I would immediately pay off the credit card debt. That's an absolute no brainer. The rest of it, I would keep in a savings account and I would have a series of discussions about what do we want to do with it. Finally, the house, that's the kind of elephant in the room. I want to encourage you to really slow down and think about where your next housing unit is. Sometimes buying is not always the best decision. And in your financial situation, you might be able to make it work.

• 1:24:28Ramit Sethi?

  You might, but things would have to go right in a lot of different ways, like a lot. I would encourage you to really think about it before you jump in to any major purchase. You actually have this pivotal time in your life where you two can take control of your money. What an amazing opportunity for Ava and Chris to lay the groundwork for their rich life. I want to thank both of them for coming here and talking with me. Their story indicates the importance of having a shared rich life vision and talking using actual numbers. Let's hear what their follow ups are. Let's start with Chris.

• 1:25:06Speaker 02

  What I learned is that it was a better way to handle our finances and our current approach to basically just tracking our expenses really kind of made us more worrisome than anything else and really weren't getting to the bottom line of what we really wanted to be able to accomplish. I think what surprised me was that basically.

• 1:25:28Speaker 02

  Us trying to make it work when our finances on a month-to-month basis translated into basically a lack of respect for our money because we were not really saying no very often when it came to our finances. We weren't going broke, but we were definitely setting ourselves up on a path in which we couldn't really build and we would just be disappointed in our actions on a month-to-month basis.

• 1:25:51Ramit Sethi?

  And now, let's hear from Ava.

• 1:25:54Speaker 01

  My biggest takeaways are that managing money is less about the actual practice and more about establishing a healthy mindset and psychology around money. Chris and I have spent time discussing and deciding on what we're calling our non-negotiables that will guide us moving forward. We came up with, we do not carry credit card debt, we pay ourselves first, we make big financial decisions together and with a specific plan, and we use our CSP to guide our financial approach. We say no, we're not right now, if it does not fit. Some of the specific changes that we're making are that we're burning our register and killing our expense tracking spreadsheet. We've decided to move to YNAB as a way of keeping a track on our finances, which now will all be automated. We close on our house next week and we're

• 1:26:38Speaker 01

  immediately going to pay off the $6,500 in credit card debt and put 10K to fund our emergency fund. After that, we'll leave the rest in a savings account while we take advantage of the time and opportunity we have not paying a mortgage to be aggressive about saving for our future. We've decided that investing is going to be a priority.