182. “We’re $350k in debt & have no savings. Will I have to work until we die?”

Don and Tana, near their early fifties, encapsulate a lifelong financial struggle that is all too common in today’s economy.

Additional financial challenges

From a young age, they have been deeply familiar with the concept of financial survival, always living paycheck-to-paycheck or relying on public assistance.

Constantly hustling but never advancing

Don has been hustling since he was 14, having started folding boxes for a nickel each. They’ve always maintained multiple jobs and side hustles and have constantly been in a state of stress about money. Still, they could never seem to get ahead financially, despite their relentless work.

No hope for retirement

The thought of retirement never seemed feasible ...

Don and Tana's life took an unexpected turn when Don's career recently quadrupled their income to over $120,000 per year, bringing the couple's gross monthly income to $21,500, or $258,000 annually. Ramit Sethi weighs in on their adjustment struggles as they leap into high-income status from years of financial scarcity.

Don's career recently took a dramatic turn, quadrupling his income to over $120,000 per year.

Don describes his current situation as one where in a single month, he now makes what he used to earn in entire years. The couple's new financial reality is intimidating, leaving them feeling out of place and emotionally and psychologically uncertain about managing their newfound wealth.

This sudden wealth has left Don and Tana feeling like they are in an unfamiliar world and unsure of how to manage their new financial situation.

Despite significant earnings, potentially more than $258,000, Don and Tana are hesitant and conservative in their financial planning. They are still grappling with their identity in this new financial bracket and are wary of losing what they have gained. This has led them to still behave as if financial disaster is always around the corner. Don, who goes by "Don 2.0," hopes to pivot his budget to include time for relaxation rather than constant work, but the very idea clashes with his ingrained belief that non-working hours equate to significant financial losses.

The transition from financial scarcity to abundance has been psychologically and emotionally challenging for the couple.

The couple recognizes the potential for improving their lives with their increased income, expressing a desire to invest in home improvements and hiring help to claim back time. Ramit Sethi points out the importance of tackling their scarcity mindset to genuinely adapt to their new affluence and plan effectively. Don admits to experiencing a form of survivor's guilt, contemplating a love-hate relationship with money due to his background working with marginalized communities.

For Don and Tana, embracing the value of leisure and self-permission to enjoy their ...

Don and Tana, despite their high income, find themselves in a precarious financial situation with substantial debt and negligible savings. Financial expert Ramit Sethi discusses their circumstances and the urgent need to create a comprehensive financial plan.

Despite their high income, Don and Tana have amassed substantial debt, including $51,000 in credit card debt and $168,000 in student loans.

Don and Tana's financial situation is bleak, with their total net worth being negative $174,123 at ages 48 and 50. Their listed assets are $202,824, investments are $11,043, with zero savings. They are encumbered by a $145,000 mortgage, $168,000 in student loans, $51,000 in credit card debt, a $12,000 lease, and a $10,000 personal loan. The couple's credit card debt arises from financial struggles during unemployment and lack of safety nets, which forced them to use credit cards for essential expenses.

They have virtually no savings or investments, with only $11,000 in assets at age 50.

Despite being in the top 6% for income, Don and Tana have only $11,000 in investments at age 50, which is quite low for their age. They have been living paycheck to paycheck, having to take on multiple jobs, and experiencing a large pay disparity between them. Their approach so far has not included saving or investing, but rather, putting all their resources toward their debts.

Ramit recognizes the need for them to develop a clear, intentional financial plan to pay off debt, build savings, and invest for retirement.

Ramit Sethi advises that Don and Tana's high income can solve many of their financial problems if carefully managed. He stresses the importance of them developing a clear, intentional financial plan that includes paying off debt and building savings for retirement. Their aggressive debt repayment strategy is intentional, yet Ramit acknowledges that they lack a savings strategy. Even considering Don's student loans, which are expected to be forgiven due to Tana's work in the nonprofit sector, they will need a solid plan to ensure a comfortable retirement.

They currently aim to put every penny toward their high-interest debt, then shift their focus to investing and saving. Tana, especially, is concerned about a lack of retirement savings. Ramit suggests the couple could potentially save $5,0 ...

Don and Tana's life experiences have deeply shaped their relationship with money, carrying a weight of social responsibility and personal worth that challenges their engagement with financial well-being.

Don and Tana's upbringings shaped their money mindsets, with Don growing up in a household of financial scarcity and Tana's family valuing frugality.

Don grew up in a poor, abusive household with a scarcity mindset, where he learned that to have anything, he had to earn it himself. This led him to start working from a young age and continue a pattern of generosity to others, seeking to counter the lack of generosity he experienced at home. Tana, on the other hand, had very low self-esteem and felt compelled to give more than she received to feel valid. Both were heavily influenced by their conservative Christian upbringing and the ingrained practice of tithing, even in times of financial strain.

Their involvement in social justice and ministry work also contributed to a reluctance to focus on their own financial well-being.

Don and Tana's service-minded attitude and difficulty in saying no have led to financial challenges, including debt. Their jobs, often in the nonprofit sector, reflected their values of giving back, but also meant accepting lower earnings. In Don's case, having served as a pastor for 20 years, there was a vow of poverty and an implicit acceptance of a lower income as part of their calling.

This background has made it difficult for them to feel worthy of a high income and comfortable spending money on themselves.

Their commitment to activism, justice work, and spiritual roles prevented them from prioritizing their financial needs. Don, having faced guilt and shame over contemplating leaving the ministry for financial reasons, especially after being defrocked and blackballed for his progressive stance, felt entrapped by spiritual obligations. This was reinforced by critical church community feedback on spending decisions, adding another layer of financial inhibition.

Don and Tana's focus on community-building and hosting young, displac ...

Ramit Sethi has detailed advice for Don and Tana as they navigate their financial future, highlighting the importance of intentional resource allocation, emergency funds, retirement investments, guilt-free spending, and the necessity of leisure for overall financial health.

Ramit encourages Don and Tana to embrace their new financial reality and make intentional decisions about how to allocate their resources.

He suggests they focus on building an emergency fund, investing for retirement, and allowing themselves guilt-free spending without feeling ashamed.

Don and Tana are learning to balance debt payoff with building an emergency fund and investing. They're uncertain about the right financial approach amid conflicting online advice. Ramit's plan aims to make them feel savvy, responsible, balanced, relaxed, and secure for today and the future. He acknowledges their debt but approves their payoff plan and doesn’t include Tana’s student loans due to her eligibility for loan forgiveness.

Ramit promotes conservative financial planning with income and expenses, suggesting rounding down income predictions and rounding up expenses to have a buffer against stress. While Ramit doesn't explicitly suggest an emergency fund or retirement investing, he hints at plans for additional income. He encourages a cautious increase in spending to avoid financial shock and gradual buildup of spending skills.

He also recommends proactive saving for home maintenance and using carefree spending—not the emergency fund—to handle unexpected expenses. To improve financial organization, Ramit introduces sub-savings accounts for specific purposes. He criticizes the couple’s previous "sloppiness" with money, leading them to feel financially behind despite higher income for years. He emphasizes clear demarcation in spending, separating emergency funds, guilt-free spending, and savings for goals like renovations to avoid debt accrual.

Ramit advises a financial allocation of 60% to retirement, 20% to savings, and 20% elsewhere, to be reviewed in six months. Decisiveness and education are crucial in making informed financial decisions, and despite any past mistakes, Ramit expresses that the couple deserves a healthy financial situation.

Despite not directly stating strategies such as building an emergency fund or investing for retirement, Ramit’s implication of making a plan suggests these strategies. He emphasizes balancing saving with guilt-free spending and advises reallocating some guilt-free spending toward savings, prioritizing building an emergency fund over investing. He recommends a savings account goal of six months for the emergency fund and intentional allocation of un ...