172. “We saved for retirement but have no money to spend NOW” (Part 1)
In this episode of the "I Will Teach You To Be Rich" podcast, host Ramit Sethi explores a couple's financial predicament stemming from their conflicting money mindsets and spending habits. Michelle, with a scarcity mindset from an unstable upbringing, clashes with Ryan's carefree spending rooted in financial security. Despite their high income, the couple overspends and depletes savings on discretionary purchases.
Sethi examines their overspending, lack of shared financial goals, and insufficient accountability systems. The episode delves into the need for couples to candidly discuss and align their financial approaches. Through this couple's story, listeners gain insights into developing sustainable habits and structures to achieve long-term financial well-being.
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1-Page Summary
Couples' different money mindsets and personal histories with money
Michelle attributes her diligent saving habits and anxiety around money to growing up in an unstable financial environment without resources. Ramit Sethi notes her resilience in overcoming scarcity while still experiencing physical reactions to spending.
In contrast, Ryan downplays financial concerns, adopting a carefree "live for the moment" approach rooted in a more financially stable upbringing where necessities were met.
This contrast bred resentment in Michelle toward Ryan's past "grasshopper" lifestyle, which she feels enabled him to enjoy himself while she worked hard. Ryan recognizes Michelle's intense focus on money stems from her difficult upbringing.
Couples' current financial situation, including expenses, savings, and debt
Despite a high combined income, Michelle and Ryan are overspending each month - their fixed expenses reach 113% of their income. Even optimistic budgets leave costs at an unsustainable 75%.
With assets nearing $1 million, spending on discretionary items like Amazon and Target significantly drains their savings used to cover monthly credit card bills.
Both acknowledge their dire financial trajectory of depleting savings if habits don't change.
The need for the couple to align on a shared vision and approach to money
Lacking a clear shared vision for their finances, Michelle and Ryan feel "stuck" without dreams for the future. Ryan avoids directly addressing issues.
Sethi emphasizes the need for candid conversation and developing structure with systems to proactively track spending together to make informed decisions aligned with long-term goals.
Their current lack of sustainable financial habits is evidenced by late fees and last-minute transfers to cover bills - indicative of changes needing to be lifestyle shifts, not just episodic attempts.
1-Page Summary
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Clarifications
- Ramit Sethi is a well-known personal finance advisor, author, and entrepreneur. He is known for his best-selling book "I Will Teach You to Be Rich" and his website of the same name, where he provides practical financial advice. Sethi's expertise lies in helping individuals manage their money, invest wisely, and build wealth through a combination of psychology and personal finance strategies. His approach emphasizes automation, conscious spending, and long-term financial planning.
- The term "grasshopper lifestyle" typically refers to a carefree and spontaneous approach to life, particularly in the context of finances. It suggests a tendency to prioritize immediate enjoyment and experiences over long-term planning and financial security. This term is often used to contrast with a more disciplined and cautious approach to money management.
- Michelle and Ryan's fixed expenses exceed their income, reaching 113%. Despite a high combined income, their spending habits are unsustainable, with even optimistic budgets leaving costs at 75% of their income. They have assets nearing $1 million, but their savings are being significantly drained by discretionary spending on items like Amazon and Target. This financial situation is leading to a trajectory of depleting savings if their habits do not change.
- Late fees and last-minute transfers in financial management are indicators of poor financial planning and organization. Late fees result from missing payment deadlines, leading to additional charges. Last-minute transfers suggest a lack of proactive budgeting, often leading to rushed decisions and potential overspending. These practices can signal a need for better financial habits and a more structured approach to managing expenses.
Counterarguments
- Michelle's saving habits may not solely be due to her upbringing; personality traits and other life experiences could also play a role.
- While Ramit Sethi praises Michelle's resilience, it's possible that her anxiety around money could be addressed with professional help to improve her quality of life.
- Ryan's carefree attitude might not be entirely due to a stable financial background; individual beliefs and values also influence one's approach to money.
- Resentment towards Ryan's past lifestyle could be counterproductive; focusing on current behaviors and future goals might be more beneficial for the couple.
- Overspending each month might not only be a result of habits; it could also be due to a lack of financial literacy or understanding of budgeting principles.
- The couple's spending on discretionary items might not be the sole reason for draining savings; other factors like emergency expenses or lack of investment could also contribute.
- Acknowledging a dire financial trajectory is a first step, but it's also important to recognize the role of external factors like economic conditions.
- A lack of shared vision for finances could be due to differing values or communication issues, not just a lack of effort or attention.
- Avoiding financial issues might be a coping mechanism for Ryan, and understanding the underlying reasons could be key to resolving the avoidance.
- Developing systems to track spending is important, but it should be tailored to the couple's unique situation and preferences to be effective.
- Late fees and last-minute transfers could indicate a need for better financial planning tools or services, not necessarily a complete lifestyle shift.
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Couples' different money mindsets and personal histories with money
Michelle and Ryan's relationship strains under the weight of their vastly differing backgrounds and perspectives on money.
Michelle and Ryan have vastly different backgrounds and perspectives on money
Michelle grew up in a family with financial instability and lack of resources, teaching her to be a diligent saver and worrier about money
Michelle describes her family background, marked by divorce and financial instability, as the catalyst for her diligent saving habits and constant concern about money. With no personal savings or financial gifts from childhood, she recalls feeling like a burden as her parents did not take care of her needs, which pushed her to rely solely on herself for financial security. The lack of resources shaped her into a worrier in the relationship, desiring an equal partner in financial matters. Going through college with financial constraints and starting to save aggressively in her early 20s after struggling to pay bills highlighted her resilience in the face of scarcity. Ramit Sethi nods to Michelle's impressive ability to overcome her hurdles without letting her past define her, despite her ongoing anxiety about financial transactions. She admits that the physical reaction she experiences when spending is due to an overload of worry.
Ryan grew up in a more financially stable household where money was less of a constant concern
In contrast, Ryan, who doesn't experience the same level of financial anxiety, downplays his concerns by adopting a "do better next month" approach when faced with financial mistakes like a missed credit card payment. He recollects "we don't have money for that" from his childhood, yet he indicates that necessities and emergencies were always handled, leading him to believe his parents were good budgeters rather than financially constrained. Although there is an implied financial stability in Ryan's background, it also hints at a laid-back attitude that allows for impulse decisions and living for the moment, as evidenced by him living it up in Australia and incurring credit card debt. Reflecting on his ability to buy a house and save, he admits to feelings of regret, suggesting he may have overvalued saving over his social life.
The couple's differing money histories have created tension and resentment in their relationship
Michelle feels resentful that Ryan was able to enjoy his "grasshopper" lifestyle in his youth, while she had to work hard and save constantly
Michelle's resentment towards Ryan's past carefree financial habits contrasts sharply with her own need to work steady and save. She reflects on Ryan's approach of living in the moment, accum ...
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Couples' different money mindsets and personal histories with money
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Counterarguments
- Michelle's diligent saving habits, while commendable, might also limit the couple's ability to enjoy present opportunities and experiences due to an overemphasis on future security.
- Ryan's laid-back attitude towards money, although it led to past debts, might contribute positively to the relationship by bringing a balance between saving and enjoying life.
- The notion that Michelle's past financial struggles are solely responsible for their current financial standing may not acknowledge Ryan's contributions, whether financial or emotional, to their shared life.
- Ryan's regret over prioritizing savings over social life could be a valid feeling, suggesting that finding a balance between financial responsibility and personal happiness is complex and subjective.
- The resentment Michelle feels towards Ryan's past may overlook the possibility that different life experiences can offer valuable lessons and perspectives to both partners in a relationship.
- The idea that Ryan does no ...
Actionables
- Create a shared 'money biography' with your partner to understand each other's financial backgrounds and behaviors. Sit down together and write out your individual financial histories, including how you felt about money growing up, pivotal financial moments, and how these experiences shape your current attitudes towards money. This exercise can foster empathy and help both partners see the emotional roots of their financial habits.
- Start a 'no-regrets' spending journal to balance saving with enjoyment. Keep a daily log of your expenses, noting not just the amount but also how each purchase makes you feel. At the end of the month, review the journal to identify which expenditures brought genuine happiness and which ones triggered anxiety or regret. Use this insight to adjust your spending habits towards more fulfilling choices without compromising your financial goals.
- Implement a 'future letter' practi ...
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Couples' current financial situation, including expenses, savings, and debt
Michelle and Ryan are in a precarious financial situation despite a high combined income, as they find themselves consistently overspending each month.
Despite their high combined income, Michelle and Ryan are overspending and losing money each month
Despite efforts at managing their finances, Michelle and Ryan’s fixed expenses exceed their monthly income, reaching 113 percent. This situation is unsustainable as they consistently spend beyond their means. They've tried manipulating their budget spreadsheets, but even the most optimistic adjustments leave their fixed costs at an uncomfortably high 75%. Caller #1, Michelle, candidly admits the unsustainability of this approach, recognizing that they can't continue spending more than they earn. Ramit Sethi, a finance expert, further illustrates the direness of their situation by comparing it to a slow-moving train wreck, reaffirming the potential loss of significant assets like their home or compromising family stability if spending habits continue unchecked.
Michelle and Ryan have substantial assets and savings, but are at risk of depleting them due to their overspending
Michelle and Ryan’s net worth is close to $1 million, inclusive of their investments valued at $467,985, savings of $135,249, and a debt totalling $218,135. They've never computed their net worth before; however, it doesn't alleviate day-to-day financial stress, suggesting a constant worry about money. Their spending habits, particularly in discretionary expenses through retailers such as Amazon and Target, are largely unmonitored and impulsive, totaling significant amounts each month. For instance, Michelle and Ryan's monthly expenditure includes $763 at Target and $1,185 at Amazon, alongside other substantial costs like groceries ...
Here’s what you’ll find in our full summary
Couples' current financial situation, including expenses, savings, and debt
Additional Materials
Counterarguments
- High income does not automatically equate to financial literacy or responsible spending habits.
- A net worth of close to $1 million may not be as secure as it seems if it is largely tied up in illiquid assets or if living expenses are high.
- Not computing net worth previously could indicate a lack of engagement with their financial health, which may contribute to their current situation.
- Unmonitored and impulsive spending habits suggest a deeper issue with financial discipline that may require behavioral changes beyond simple budget adjustments.
- Significant discretionary expenses could be symptomatic of lifestyle inflation, where increased income leads to proportionally increased spending.
- Dipping into savings to cover monthly expenses is a red flag that their budgeting strategy may be ineffective or that their lifestyle is not aligned with their income.
- Expressing anxiety about finances is a common experience, but it is not a solution; proactive measures are needed to address the root causes of financial stress.
- Ack ...
Actionables
- Create a visual spending tracker by using a whiteboard in a common area of your home to record every purchase. This method turns spending into a visible activity, encouraging you to think twice before making impulsive buys. For example, write down each expense under categories like 'Groceries', 'Entertainment', and 'Miscellaneous', and set a clear limit for each category that's within your income range.
- Implement a 'one week wait' rule for non-essential purchases to curb impulsive spending. Whenever you feel the urge to buy something that's not a necessity, write it down on a list and revisit it after one week. If the desire to purchase the item still exists and it fits within your budget, then consider buying it. This pause can help you differentiate between wants and needs, reducing unnecessary expenses.
- Start a monthly 'financ ...
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The need for the couple to align on a shared vision and approach to money
Michelle and Ryan are struggling with their finances and are in need of developing a shared vision for their financial future. Ramit Sethi offers insights on how they can turn their situation around.
Michelle and Ryan lack a clear, shared vision for their finances and long-term goals
Michelle and Ryan feel "stuck" in their current financial situation and have lost the ability to dream about their future. Michelle, Caller #1, states, "We stopped dreaming. You can't dream at 113%. You can't." Meanwhile, Ryan exhibits a tendency to avoid addressing their financial issues directly, with phrases like "the cost of doing life," which suggests a casual approach to late fees. Michelle experiences the physical effects of financial stress, likely contributing to her paralysis in addressing their monetary issues. Both express a sense of being overwhelmed day to day, with Ryan admitting, "I'm just trying to survive." They acknowledge the need for change, with Ryan conceding that major changes are necessary, although he is scared to initiate them.
Developing a conscious, proactive approach to their finances is critical for Michelle and Ryan to get their spending under control and achieve their goals
Ramit Sethi underscores the importance of Michelle and Ryan having candid conversations about their finances to stop the bleeding and restore control. The couple presently lacks a structured approach to managing money together, which can be seen when they discuss after-the-fact reactions to unplanned high expenses. They need to implement systems and habits that will enable them to track their expenses and make info ...
Here’s what you’ll find in our full summary
The need for the couple to align on a shared vision and approach to money
Additional Materials
Clarifications
- Ramit Sethi is a well-known personal finance advisor and author known for his practical and no-nonsense approach to managing money. He emphasizes the importance of conscious spending, investing in oneself, and creating systems to automate financial success. Sethi's advice often focuses on behavioral psychology and how individuals can change their money mindset to achieve their financial goals. His work includes books like "I Will Teach You to Be Rich" and online courses that help people take control of their finances.
- "Stop the bleeding" in a financial context typically means taking immediate action to halt excessive or unnecessary spending that is causing financial harm or loss. It involves identifying and addressing financial leaks or drains that are depleti ...
Counterarguments
- While aligning on a shared vision is important, it's also crucial to acknowledge and respect individual differences in financial attitudes and priorities within a couple.
- A clear, shared vision for finances is beneficial, but flexibility to adapt to life's unpredictable changes is equally important.
- Developing a proactive approach to finances is ideal, but it's also necessary to recognize that some individuals may have different learning curves and comfort levels with financial management.
- Candid conversations about finances are key, but they should be approached with sensitivity to avoid blame and foster a supportive environment.
- Structured approaches to managing money are helpful, but they should be personalized to fit the couple's unique lifestyle and not be overly rigid.
- Implementing systems and habits to track expenses is useful, but overemphasis on tracking can lead to stress and may not be suitable for everyone.
- While episodic changes may not be sustainable, they can serve as stepping stones towards more consistent habits and should not be entirely dismissed.
- Honesty about spending patterns is necessar ...
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