174. “We make $300k but spend like we make $1M”

Kathleen and Forrest exhibit a concerning relationship with money, characterized by avoidance, reckless spending habits, and a lack of financial discipline.

Kathleen and Forrest have an unhealthy relationship with money, exhibiting avoidance and reckless spending habits.

Kathleen expresses a laid-back "everything will work out" mentality and becomes defensive when faced with their financial reality. She relies on the hope that an increase in her income will solve their problems. Forrest, on the other hand, acknowledges their habit of spending in anticipation of future wealth rather than on current means. Together, they prioritize enjoying life through experiences such as trips, skiing, and yoga, regardless of the financial impact.

The couple's approach to debt is similarly problematic; Kathleen leans toward worrying less or avoiding the thought of their $65,000 credit card debt, while Forrest attempts to manage it through balance transfers and even withdrawing from their 401k. They have made expensive purchases, like $5,000 bicycles, without the necessary funds, and Forrest laments that despite a $300,000/year income, their debt prevents them from affording things like a $150/month gym membership.

Kathleen avoids discussing and managing money, preferring a "it'll all work out" mentality, while Forrest takes on the financial burdens but struggles to make tough decisions.

Kathleen admits to feeling defeated when faced with their financial issues and prefers to avoid dealing with them seriously. She mentions growing up in a household that lived within their means but now finds it difficult to maintain the same discipline. Forrest, having been bailed out by his parents at a young age, might feel that financial issues naturally resolve over time, leading to his continuation of spending despite high earnings.

Both partners recognize the fragility of their financial state, aware that a single mishap could lead to disaster. However, Kathleen's tendency to go with the flow without planning and Forrest's reluctance to make changes to their finances exacerbate their predicament.

The couple's differing approaches to money management create conflict and a lack of financial discipline in their househ ...

Forrest and Kathleen find themselves struggling financially despite a high household income, largely due to debt and spending habits.

High income overshadowed by debt

Forrest and Kathleen have a significant annual income of around $286,604 and yet they are in a precarious financial position with a considerable amount of credit card debt.

Fixed costs overwhelming income

Ramit Sethi reveals that Forrest and Kathleen's fixed costs consume 91% of their income, significantly limiting their potential for savings and discretionary spending. The couple has a history of high spending on non-essential items such as dining out, shopping, travel, tickets to sports games, and other luxuries, which has exacerbated their financial instability.

Precarious savings situation

The couple's financial vulnerability is compounded by their minimal savings. They have a savings account balance of only $2,000, which Sethi highlights as severely inadequate, remarking that "If you lose your job, you have enough to get by for about four or five days." This lack of an emergency fund ...

Ramit takes Kathleen and Forrest through a coaching process to transform their understanding of finance and implement concrete steps towards stability.

Ramit takes a methodical approach, first understanding the couple's mindset and behaviors before tackling the financial details.

He encourages the couple to be honest with themselves and each other about the severity of their financial situation, challenging their minimization of the problem.

Kathleen faces Ramit’s challenge regarding her optimism about their finances and her defense mechanisms with their high debt. Ramit probes the couple's spending habits and the repeated accumulation of credit card debt. He identifies patterns such as Kathleen's avoidance and Forrest's behaviors tied to his early financial mistakes. Ramit questions the guiding principles behind their financial choices over the last decade, highlighting a need to develop a healthy relationship with money and understanding the gravity of the situation.

He introduces the concept of the "money minimization paradox," where the gravity of financial issues is not fully acknowledged in verbal discussions as it may appear in writing. He presses the couple to confront the contradictory nature of their aspirations, such as maintaining their current lifestyle despite the need for an emergency fund, and implicitly suggests that they have minimized the severity of their financial issues.

After Ramit explains the importance of recognizing and correcting financial mistakes without self-reproach, he asks the couple to establish a new vision for handling money, where they commit to only spending what they have.

Ramit guides the couple through an exercise to establish a new, shared vision for their finances, emphasizing the importance of a healthy money culture.

Ramit walks Forrest and Kathleen through an exercise from his book called "Your First Positive Money Conversation," which prompts an open and positive discussion about money. This involves expressing why the meeting about money will be beneficial, their current feelings about money, and how they want to feel about money in the future. He speaks about having one religion, the "rich life vision," and stresses the need for the couple to live by it, making sacrifices accordingly.

Ramit provides specific recommendations for the couple to aggressively pay off their debt and build financial stability.

He advises the couple to sell unnecessary assets, cut back on discretionary spending, and allocate their additional income towards debt repayme ...

Kathleen and Forrest's journey of financial transformation involves initial resistance, committing to open communication, and ultimately taking concrete steps to realize their goal of financial freedom.

Kathleen initially struggles to fully engage with the financial discussions but eventually becomes more committed to the process.

Initially, Kathleen shows a hesitancy to engage with the financial discussions, often avoiding the topic. However, her commitment to change is evident when she acknowledges the need to make sacrifices, such as forgoing a gym membership. Her reluctance to say no to a trip initially suggests difficulty with tough financial decisions, but she comes around to accepting Ramit's recommendations, showing a deepening commitment to their financial health.

Forrest, who had been managing the finances, displays anxiety over making large lifestyle changes. Yet, when Kathleen expresses a desire to learn and implement specific strategies to improve their finances, it hints at her future support, which could help Forrest become more willing to make needed adjustments.

Forrest and Kathleen take concrete steps to implement Ramit's recommendations, including selling assets and reallocating their income.

Despite Forrest’s initial attempt to negotiate keeping some of his expensive items, such as a $1,500 bike, Kathleen's involvement and support help him to fully embrace Ramit's plan. The couple begins to host finance dates to transparently discuss their debt, savings goals, and vacation planning, indicating a new level of commitment to shared financial goals.

Kathleen and Forrest also comm ...