205. “I've been homeless before…I'm terrified to spend money”
In this episode of I Will Teach You To Be Rich, Ramit Sethi examines how different money mindsets can create tension between partners. Through a discussion with Jennifer and Steve, Sethi explores how their contrasting views on money—one seeing it as a source of joy and freedom, the other viewing it primarily as security—affect their relationship and financial decisions.
The episode delves into how past experiences shape current financial perspectives, with Steve's history of homelessness contributing to his scarcity mindset despite the couple's healthy financial situation. Sethi addresses these challenges by introducing practical solutions, including the concept of "guilt-free spending" and suggesting strategies for improving financial communication between partners. The discussion includes specific recommendations for building trust and achieving harmonious finances through joint accounts and couples therapy.
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Differing Money Mindsets and Financial Behaviors Between Partners
Ramit Sethi explores the contrasting financial mentalities between partners through a discussion with Jennifer and Steve. Jennifer views money as a source of joy and freedom, associating it with travel and creating memories. In contrast, Steve sees money primarily as security, holding onto it to protect against financial instability.
These different perspectives lead to recurring conflicts. Jennifer becomes frustrated when Steve repeatedly says "no" to purchases, even for simple items like storage bins. Steve's cautious approach stems from his fear of financial vulnerability, often causing tension when decisions don't align with their shared financial goals.
Impact of Past Experiences on Current Money Perspectives
Steve's financial decisions are heavily influenced by his challenging past. Orphaned at a young age and having experienced homelessness, Steve developed a scarcity mindset that persists despite his current financial stability. Jennifer, conversely, grew up in a privileged background where her family's real estate investments led to an increasingly better standard of living, shaping her expectation for continuous improvement in lifestyle.
Strategies For Improving Financial Communication and Alignment
Sethi emphasizes the importance of couples understanding and validating each other's money stories. He suggests that partners should openly acknowledge each other's financial perspectives to foster an aligned vision. Through caller examples, Sethi demonstrates how actively listening and empathizing with each other's financial experiences can build trust and alignment.
Steps to Build a Shared Vision and Life Together
During their discussion, Sethi reveals that Jennifer and Steve's financial situation is stronger than they realized, with a net worth of $335,946 and an annual income of $165,000. He introduces the concept of "guilt-free spending" to help overcome their scarcity mindset, suggesting they could triple their current monthly discretionary budget of $1,187.
Sethi recommends couples therapy as a tool for resolving deep-rooted financial issues and advises setting up a joint account as a practical step toward achieving harmonious finances rooted in trust and shared goals.
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Additional Materials
Counterarguments
- While understanding and validating each other's money stories is important, it may not be sufficient for some couples to overcome deep-seated financial conflicts without additional strategies or interventions.
- Active listening and empathy are crucial, but they must be coupled with actionable steps and compromises to effectively manage financial differences.
- The concept of "guilt-free spending" might not address underlying issues of financial anxiety or compulsive spending behaviors that could be present in one or both partners.
- Tripling the monthly discretionary budget could lead to increased spending without necessarily improving financial well-being or happiness, especially if it's not part of a well-considered financial plan.
- Couples therapy can be beneficial, but it may not be accessible or affordable for all couples, and not all therapists may be equipped to handle financial disputes effectively.
- Setting up a joint account is a practical step, but it may not be the best solution for all couples, especially if there are trust issues or vastly different spending habits.
- The assumption that a higher net worth or income automatically leads to a stronger financial situation may overlook other factors such as debt, expenses, or future financial needs.
- The idea that one's upbringing solely defines their financial perspective may be an oversimplification, as individuals can change and adapt their views over time independent of their past experiences.
- The suggestion to increase discretionary spending assumes that the couple's current savings and investment strategies are already optimal, which may not be the case.
- The focus on harmonious finances might inadvertently pressure couples to suppress individual financial desires or concerns in favor of an imposed "shared vision," which could lead to resentment or disengagement from financial planning.
Actionables
- Create a "money biography" to share with your partner, detailing your financial history and emotions associated with money. This exercise involves writing down your earliest money memory, your biggest financial triumphs and challenges, and how these experiences shape your current attitudes toward money. Sharing this with your partner can lead to deeper understanding and empathy.
- Designate a "dream fund" where you and your partner contribute a small, agreed-upon amount each week to save for a shared goal that brings joy. This could be anything from a vacation to a home renovation, and the act of saving together reinforces a united financial purpose while respecting individual money associations.
- Initiate a monthly "financial date night" where you and your partner discuss money matters in a relaxed setting. Use this time to celebrate financial wins, adjust your budget, and explore ways to enhance your financial life together. This regular check-in keeps communication open and ensures both partners are engaged in financial planning and decision-making.
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Differing Money Mindsets and Financial Behaviors Between Partners
Ramit Sethi delves into the contrasting financial mentalities and behaviors between partners. Differing money mindsets and the resultant conflicts are brought to light through the discourse between Jennifer and Steve.
Partners View Money's Role and Meaning Differently
While discussing how partners perceive the role of money, Ramit Sethi notes that Jennifer and Steve see money from entirely different perspectives. Jennifer views money as joy and freedom. She equates money with opportunities for travel and creating lasting memories, and she loves money for the potential to experience an unlimited life. Steve, on the other hand, values money as security. He holds onto money to ensure no one can take it away from him, aiming to protect himself from a past of financial insecurity.
Money: Jennifer's Joy and Freedom, Steve's Security
Steve wishes for financial comfort, but Jennifer desires a great future without limiting their aspirations. For Jennifer, money means joy and freedom. Steve, conversely, sees money as a guarantee against hardship and a tool to prevent a return to less fortunate times. Despite agreeing in principle to increase guilt-free spending, Steve's discomfort with spending shows he sees money as protection and stability rather than a means to joy and freedom.
Partners' Differing Financial Choices Cause Recurring Conflicts
Steve and Jennifer have faced ongoing disputes due to their disparate financial choices. Jennifer's frustration with Steve manifests in conflicts over everyday purchases like storage bins. Steve's repeated "no" might indicate his discomfort with financial vulnerability, but Jennifer sees it as a neglect of their collective joy and the potential improvement of their living spaces. Steve's tendency to default to "no" might protect them from seemingly endless spending but causes friction when such decisions are not aligned with shared financial goals.
Jennifer Is Frustrated by Steve Saying "No" To Purchases and Investments
Jennifer's frustration is evident when Steve resists making decisions she feels would contribute to a better future, whether those decisions are about substantial investments or $10 storage bins. While Jennifer tries to involve Steve in these decisio ...
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Differing Money Mindsets and Financial Behaviors Between Partners
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Counterarguments
- While Jennifer sees money as a means to joy and freedom, it could be argued that without a solid foundation of financial security, the joy derived from spending could be short-lived.
- Steve's view of money as security is not inherently negative; it can be a responsible approach that ensures long-term stability and peace of mind.
- The idea that Steve's discomfort with spending is solely due to a desire for financial security might overlook other valid reasons for frugality, such as environmental concerns or a preference for minimalism.
- The recurring conflicts between partners might not only stem from differing financial choices but also from a lack of effective communication and compromise.
- Steve saying "no" to purchases could be seen as a form of financial discipline rather than a blanket refusal to invest in their future or happiness.
- Jennifer's frustration with Steve's cautious spending might not take into account the potential long-term benefits of saving and investing for future financial resilience.
- Steve's fear of financial vulnerability could be a rational response to a volatile economy or uncertain job market, rather than just a result of past experiences.
- The text implies ...
Actionables
- You can create a "values-based budgeting" plan to align your spending with your personal values. Start by listing out what you and your partner value most, such as adventure, security, or family time. Allocate your budget to ensure that spending and saving habits support these values. For example, if one values adventure, set aside funds for travel or new experiences, while also creating a robust emergency fund to satisfy the need for security.
- Develop a "financial empathy exercise" where you and your partner switch roles for a month. If one partner is more inclined to save and the other to spend, swap your spending behaviors intentionally. The saver makes discretionary purchases that the spender would typically make, while the spender follows the saver's budgeting habits. This can foster understanding and appreciation for each other's financial perspectives.
- Initiate a "future planning game" ...
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Impact of Past Experiences on Current Money Perspectives
Steve and Jennifer's vastly different upbringings have shaped their attitudes and behaviors toward money in their adult lives.
Steve's Tough Upbringing: Orphaned, Homelessness, and Financial Anxiety
Having faced a multitude of hardships since childhood, Steve's financial decisions are deeply influenced by his past traumas.
Haunted By $5 and Living In His Car, Steve's Financial Decisions Are Shaped
Steve was orphaned at a young age, with his mother passing away when he was seven and his father when he was 14, leaving him and his sister parentless. After his father's death, a lady from their church initially took guardianship of him and his sister. However, she misused their parents' death benefits, which almost led to the revocation of her guardianship.
Steve's sister's boyfriend's mother eventually took over the guardianship to protect him and his assets. After selling his childhood home, Steve lived with the new guardian, but he eventually found himself homeless, living in cars, and couch surfing. This experience, coupled with the memory of having just $5 to his name, has left Steve with a constant fear of running out of money. He is haunted by the possibility of having to return to homelessness and vulnerability.
Steve developed a scarcity mindset and still lives with the fear of returning to his earlier state of instability. Despite progress in his life, including renting his first apartment alone, which provided a sense of security and a job after college, his financial views remain overshadowed by his childhood experiences of loss and fear.
Jennifer's Privileged Background and Family's Real Estate Investments Sha ...
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Impact of Past Experiences on Current Money Perspectives
Additional Materials
Actionables
- Reflect on your financial history by writing a personal money biography to uncover how past experiences shape your current financial behaviors. Start by jotting down key financial events from your childhood to the present, noting how they made you feel and how they might influence your current attitudes toward money. For example, if you remember feeling anxious during times your family struggled to pay bills, consider how this might contribute to a scarcity mindset now.
- Create a 'financial emotions' journal to track how your feelings influence spending and saving habits. Each day, write down any strong emotions you experience related to money and what triggered them. If you notice you're feeling anxious about an upcoming bill, you might be more prone to cut back on all spending, even if it's not necessary. This awareness can help you make more balanced financial decisions.
- Experiment with 'lifestyle scaling' for a month to challenge your comfort zone regarding standards of living. Ch ...
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Strategies For Improving Financial Communication and Alignment
Financial guru Ramit Sethi provides insights into improving financial communication and alignment between partners, essential for a healthy and trust-filled relationship.
Couples Should Understand and Validate Each Other's Money Stories
Listening To and Empathizing With Financial Fears and Goals Builds Trust and Alignment
Sethi and the callers discuss the importance of couples understanding and empathizing with one another's financial stories. Callers reflect on instances where validating their partner's perspectives on money helped to build trust and alignment. Sethi reinforces that recognizing and empathizing with each other's financial fears and dreams is crucial for building a stable partnership. For example, Caller #1 proposes that reaching a consensus and understanding each other could come from actively listening and empathizing with each other's financial experiences.
Steve and Jennifer's contrasting views on money—Jennifer's comfort in allowing for wants when affordable, and Steve's resistance to unnecessary spending—illustrate the emotional weight and misunderstanding that can arise without proper validation. Sethi points out the lack of validation and the emotional disconnection Steve and Jennifer experience, suggesting that real safety in a relationship comes from the trust that disagreements won't jeopardize the entire partnership.
Sethi proposes that both partners should openly acknowledge each other's financial perspectives to foster an aligned vision of their financial lives. He demonstrates this by prompting the couple to share one-word associations with money, which leads to revealing their divergent perspectives. In Steve's case, Sethi acknowledges the view of large savings as safety while also suggesting that it is possible to enjoy what has been achieved financially. Jen shows empathy towards Steve by expressing her desire for his comfort and recognition of his deserving nature.
Shared Financial Vision Helps Partners Move Beyond Recurring Arguments
Financial Goals, Automated Savings, and Joint Expenses Foster Team Approach
Moving beyond recurring financial arguments requires a shared vision, and Sethi emphasizes working on underlying issues rather than only dealing with surface disagreements. For instance, Caller #2 speaks about the efforts to validate her partner’s perspective by asking for confirmation or correction on her understandi ...
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Strategies For Improving Financial Communication and Alignment
Additional Materials
Counterarguments
- While understanding and validating each other's money stories is important, it may not be sufficient for some couples who have deep-seated financial issues or traumas that require professional counseling or therapy.
- Empathizing with financial fears and goals is crucial, but it should be balanced with practical financial planning and decision-making to ensure that emotions do not override sound financial judgment.
- Acknowledging each other's financial perspectives is beneficial, but it may also be necessary to establish clear boundaries and personal financial autonomy within a relationship to maintain individual financial health and prevent co-dependency.
- A shared financial vision can help move beyond recurring arguments, but it is also important to recognize and respect that individuals may have different financial priorities and risk tolerances that need to be accommodated.
- Working on underlying issues is essential, but couples may also need to develop conflict resolution skills to effectively deal with surface disagreements that can impact daily life.
- Financial goals and automated savings are helpful, but they should be flexible enough to adapt to life changes and unexpected financial emergencies without causing stress or conflict.
- Joint expenses and a team ap ...
Actionables
- Create a "Dreams and Fears" jar where you and your partner can drop notes about your financial hopes and worries. Set aside a regular "Dreams and Fears" night each month to discuss the contents of the jar. This practice encourages ongoing communication and ensures that both partners feel heard and understood over time.
- Develop a "Couple's Financial Playbook" that includes your individual money stories, shared values, and financial goals. Use this playbook to guide your financial decisions and to remind each other of the bigger picture when conflicts arise. This can be a physical notebook or a digital document that you both contribute to and revise as your relationship and financial situation evolve.
- Initiate a monthly "Finance Date" where you review ...
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Steps to Build a Shared Vision and Life Together
Couples often struggle with finances, but by taking steps to understand and actively manage their financial situation, they can build a shared vision and life together.
Reviewing Financials and Projections Offers a Clear, Objective View of the Couple's Financial Standing and Potential
Couple's Net Worth, Income, and Retirement Savings Are Stronger Than Expected
During a discussion with Ramit Sethi, a couple, Jennifer and Steve, learn that their financial situation is more robust than they initially thought. Their assets total $346,000 with investments amounting to $116,372, savings of $193,464, and a substantial debt of $319,890, culminating in a net worth of $335,946. The couple earns a gross monthly income of $13,821, amounting to an annual income of $165,000, a figure previously not fully appreciated. With fixed costs accounting for 43% of their income—below the 50-60% recommendation—their major expenses are under control.
Using a calculator, they find that by investing $43,000 yearly, instead of just $7,000, they could accumulate $2.8 million by retirement, drawing a safe withdrawal of about $114,000 per year. Adding an extra $1,000 per month could increase their potential retirement savings to around $3.4 million, allowing for a safe withdrawal of nearly $140,000 per year. Ramit points out the power of investment over savings; hypothetically, investing $50,000 rather than keeping it in savings could significantly increase its long-term value, projecting wealth as high as $3.7 million or up to $4.38 million with continued investment over additional years.
Allocating "Guilt-Free" Spending Funds Helps the Couple Overcome a Scarcity Mindset
Agreeing On a Reasonable Amount for Discretionary Spending Allows the Couple to Enjoy Life Now
Ramit Sethi introduces the couple to the concept of "guilt-free spending," a category within a conscious spending plan that designates a percentage of income for discretionary spending without guilt. Jennifer expresses dissatisfaction with the current amount allowed for guilt-free spending, indicating a desire for higher discretionary spending to enjoy life. The couple saves about 37% of their income, or nearly $4,000 a month, with $2,500 going towards an emergency fund. Despite their ample room for discretionary expenses such as $400 per month for dog maintenance, there's an evident focus on security and savings.
The conversation leads Jennifer and Steve to consider an increase in guilt-free spending to avoid living in scarcity. Sethi notes they could easily exceed their current monthly guilt-free budget of $1,187, and the dialogue around this opens the possibility for more flexible and enjoyable present-day spending, which co ...
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Steps to Build a Shared Vision and Life Together
Additional Materials
Counterarguments
- While reviewing financials and projections can offer clarity, it's important to note that projections are not guarantees and can be influenced by many unpredictable factors such as market volatility, changes in income, or unexpected expenses.
- The couple's net worth and income may be stronger than expected, but this does not necessarily mean they are in a secure financial position. Other factors such as cost of living, future financial goals, and potential health issues should also be considered.
- Fixed costs accounting for 43% of income being below the recommended 50-60% could be positive, but it's also possible that this guideline does not fit every couple's unique situation or financial goals.
- Investing more yearly to increase retirement savings is a sound strategy, but it also carries risks. The couple should be aware of their risk tolerance and the potential for investment losses.
- Allocating "guilt-free" spending funds is a good way to balance enjoyment and savings, but it's important to ensure that this does not lead to overspending or neglecting long-term financial goals.
- Agreeing on a reasonable amount for discretionary spending is subjective and what is reasonable for one couple may not be for another. It's important to tailor spending to individual circumstances and values.
- Joint decisions on monetary matters can be crucial for alignm ...
Actionables
- You can create a "dream board" with your partner to visualize your shared financial goals and inspire consistent action. Start by gathering images and phrases that represent your financial aspirations, such as a home, travel, or retirement lifestyles. Place this board somewhere you both see daily to keep the shared vision alive and motivate you to manage finances in alignment with these goals.
- Develop a "financial date night" routine where you and your partner regularly discuss money matters in a relaxed setting. Make it a monthly event where you review your financial progress, discuss any changes in your income or expenses, and adjust your investment contributions if necessary. This keeps the conversation ongoing and ensures both partners are engaged and informed.
- Initiate a "spending game" where you and your partner ...
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