195. “Her socks have holes but she's too cheap to buy new ones”

Matt and Eliza Find It Hard to Spend Despite High Income and Savings

Matt and Eliza struggle with their deeply ingrained frugal mindset, causing them unnecessary stress over small financial decisions, despite their considerable income and savings. They have a combined income of $170,000 a year and $683,000 in assets, including $536,000 in investments. Despite this, they agonize over whether to purchase everyday household items, like a coffee maker or even soda at a restaurant, showing that their frugality extends beyond significant decisions.

Frugal Decisions on Soda or Coffee Purchases

The couple debates expenditures such as coffee makers; Eliza is content with a $20 Mr. Coffee, whereas Matt sees the value in a $100 espresso machine due to its daily use. When they make decisions to loosen up on spending, it's limited to one or two household items they had delayed purchasing. Matt deprives himself of small treats like soda at the restaurant, a behavior rooted in his childhood when he chose the less expensive menu item not because he preferred it, but because it was cheaper.

Frugality Is Ingrained In Their Identity

Matt and Eliza both exhibit behaviors that reveal frugality is not just a habit but a part of their identity. Eliza would rather spend almost nothing to work towards her larger goals, while Matt views every dollar saved as a dollar earned. Their difficulty to consider spending on bigger items, such as a second car or an electric vehicle—even with the necessary savings—exemplifies their concerns about cash flow and the additional costs associated with such purchases. Matt admits he often passes on a $3 item due to his self-perception as someone who does not break rules, while Eliza finds no joy in spending on what she considers extraneous.

Reluctant to Make Decisions Like Hiring a Housekeeper

Matt and Eliza express a desire to be more relaxed about spending, and hiring a housekeeper has come up as an actionable step toward that end. They deliberate over the affordability of a housekeeper, with Matt questioning if they could manage ...

Financial expert Ramit Sethi explores the conundrum of balancing savings and investments with spending for quality of life experiences. Matt and Eliza's story provides a case study in prioritizing future wealth over current enjoyment.

Matt and Eliza Prioritize Saving and Investing Over Spending Now

Matt and Eliza have spent years meticulously investing towards a comfortable retirement. With 78% of their income dedicated to fixed costs, they have amassed over half a million dollars in investments, with a savings rate of 0%. Eliza feels a sense of obligation to save scrupulously, while Matt grapples with the desire for meaningful experiences currently being sacrificed for future financial goals.

Caller #2 (Eliza) mentions their rigorous discussions around the conflict of spending versus saving, which results in a lifestyle with potentially missed opportunities for joy. Despite the possibility of using their investment funds for a house addition, Caller #1 (Matt) is hesitant, and they find themselves off track for their desired timeline.

Ramit notes the couple's tendency to scale back even minor expenses, such as the occasional ice cream, favoring unclear future aspirations. Their struggle extends to decisions like buying an electric vehicle, which they debate extensively but defer in favor of savings discussions.

In their wealth, Matt and Eliza find it difficult to justify discretionary spending on basic indulgences, such as a can of soda at a restaurant. Eliza indicates their financial discussions can be excessive and restrictive. Even for expenses like sports gambling, which was previously earmarked with a set annual budget, they are cautious due to current financial concerns.

They forgo experiential spending like concerts and sporting events due to the expenditure incurred, exemplifying their frugal mindset. Even an eagerly anticipated cultural event like Wicked was bypassed since the ticket cost seemed too steep at the time.

Internal Conflict: Future Savings vs. Meaningful Experiences Now

Despite a strong financial foundation, they resist spending even on practical aids like hiring a housekeeper, a necessity that could ease a standing conflict in their relationship. However, Matt suggests that this expenditure would need to come from their savings or investment bucket, demonstrating the pervasive hesitation to spend.

The couple’s continuous debate regarding childcare captures their dilemma of investing for the future versus spending on quality of life now. This balancing act proved more challenging when Matt lost his job and they had to significantly cut back on discretionary spending. Matt reflects on their inability to see potential areas to reduce spending further, showcasing their tight grip on discretionary funds.

Although Caller #1 aspires for larger splurges, they believe that saving on small items might contribute toward these goals. However, Caller #2 agrees it’s impractical to save enough for major expenditures like horse ownership through such minor economies.

Ramit Views Money as a Tool for a Rich Life, Not Just a Means to an End

Ramit's advice shifts the dialogue to reframe their perspective on money. He encourages them to consider money as a tool to enrich life, not just to accumulate it for future security. For instance, though they enjoy Netflix, it was cut from their bu ...

Frugality Mindset Challenged by Ramit as Identity, Not a Means to an End

Ramit Sethi implies that the couple's frugality is challenging their ability to enjoy life and that they need to change their money mindset, suggesting that their frugality is more about identity than an effective financial strategy. He challenges Matt and Eliza's identity as frugal individuals, questioning whether it is beneficial or a limitation. When discussing their Conscious Spending Plan (CSP), which indicates very controlled and minimal spending habits, Ramit probes their decision-making process. He points out that they don't actually make decisions and tend to talk around them instead of being direct. Ramit emphasizes the importance of clear communication, especially with a baby on the way. Matt and Eliza's dynamic includes avoiding definitiveness to prevent hurting each other's feelings. Ramit intervenes, suggesting that using a savings and investment mindset to avoid spending money could improve their daily life significantly.

Encourages Hiring a Housekeeper and Cutting Costs

Ramit encourages Matt and Eliza to consider hiring a housekeeper, aligning with Eliza’s vision of being able to relax more, and to reevaluate if a once-monthly cleaning is enough. He challenges them to find other areas of their budget to cut, like the life insurance policy, instead of tapping into emergency funds. Ramit also suggests reallocating money from their vacation fund to cover the cost of a house cleaner. He questions why they wouldn't get ahead of needs like childcare, given their financial situation, and points out that hiring a housekeeper now, rather than waiting until overwhelmed, could prevent months of fighting and lack of sleep.

Matt and Eliza Embrace Ramit's Money Mindset Shift

Eliza talks about what a more relaxed approach to money would look like for her, including getting massages, hiring a housekeeper, dining out without worry, and making home improvements without needing a very high amount in the bank. Ramit encourages them to spend money on personal passions such as travel, or on experiences that are important, like seeing family, and stresses the importance of spending on 'big things' that can have a positive impact on life. He implies that enjoying money is crucial, especially for creating memories like a trip to Pa ...