209. “We bought a house we can’t afford, now what?”
In this episode of I Will Teach You To Be Rich, financial expert Ramit Sethi examines a couple's challenging financial situation. With a combined income of $179,000, Sonny and Jasmine face significant debt, minimal savings, and a house purchase that stretches their budget beyond sustainable limits. The couple's story highlights how personal circumstances and emotional factors can influence major financial decisions, sometimes overshadowing practical considerations.
Sethi explores the relationship dynamics affecting their financial health, including their differing approaches to money management and the imbalance in their financial responsibilities. The episode covers their recent attempts to improve their situation through practical changes, such as reducing fixed costs, while also addressing deeper issues like career development and financial communication between partners.
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1-Page Summary
Household Financial Management
Despite a combined income of $179,000, financial expert Ramit Sethi reveals that Sonny and Jasmine face significant financial challenges. Their fixed costs consume 71% of their income—well above the recommended 60%—and they carry $45,000 in credit card debt. With minimal savings of $3,250 and no investments, their net worth stands at negative $9,525.
The couple's financial struggles are compounded by their lack of communication about money. While they've recently begun implementing some of Sethi's suggested strategies, such as selling one car and incorporating Sonny's business income into their monthly budget, these changes have helped reduce their fixed costs to a more manageable 56%.
Home Purchase Decision
Sonny and Jasmine's decision to buy a house was primarily driven by fear related to their status as a Black and mixed-race, trans couple, rather than sound financial planning. Sethi points out that they failed to consider the full cost of homeownership, which increased their monthly payments from $2,100 in rent to potentially $5,000 when including maintenance and furnishings.
Relationship Dynamics Around Money
The couple's financial relationship reveals a clear divide in their approaches to money management. While Sonny takes a proactive stance as the primary breadwinner, Jasmine tends to avoid financial discussions altogether. Sethi notes that this dynamic, shaped by their different financial backgrounds, has created an unsustainable rescue narrative where Jasmine relies heavily on Sonny's financial support.
Jasmine's Career and Earning Potential
With a salary of $44,000, Jasmine struggles to support her desired lifestyle and often relies on Sonny's income for personal expenses. Recognizing her career uncertainty, Sethi offers access to his "Find Your Dream Job" program, which includes practical steps like conducting informational interviews to secure better-paying positions. This opportunity represents a potential path for Jasmine to increase her income and reduce her financial dependence on Sonny.
1-Page Summary
Additional Materials
Clarifications
- Net worth is the difference between a person's assets (what they own, like savings, investments, and property) and their liabilities (what they owe, like debts and loans). Fixed costs are regular, essential expenses that do not change regardless of how much you earn, such as rent or mortgage payments, insurance premiums, and loan payments.
- Sonny and Jasmine's financial backgrounds are not extensively detailed in the text. Sonny is mentioned as the primary breadwinner, while Jasmine has a salary of $44,000. Their combined income is $179,000, and they face challenges due to high fixed costs and credit card debt. Jasmine's career uncertainty is highlighted, and she is encouraged to explore opportunities to increase her income.
Counterarguments
- Fixed costs at 71% may be high, but without context on the local cost of living or other obligations, it might not be as dire as it seems.
- The $45,000 credit card debt is concerning, but if it's at a low-interest rate or part of a strategic financial plan, it could be manageable.
- A negative net worth is not uncommon for young couples, especially if they have invested in education or other assets that could increase in value over time.
- Reducing fixed costs to 56% is a positive step, but it's important to ensure that the quality of life and necessary expenses are not being compromised in the process.
- The decision to buy a house based on fear may not be financially sound, but it could provide emotional security and long-term stability, which are also valuable.
- The increased monthly payments due to homeownership might be offset by the benefits of building equity and the potential appreciation of property value.
- While Sonny's proactive stance is beneficial, it's important to ensure that both partners are comfortable with the financial decisions being made to avoid resentment.
- Jasmine's avoidance of financial discussions could be a coping mechanism that requires understanding and gradual engagement rather than immediate overhaul.
- Relying on Sonny's financial support might not be ideal, but if it's part of a mutually agreed-upon dynamic that works for both, it may not be problematic.
- Jasmine's salary and lifestyle expectations might be mismatched, but it's also possible that she derives satisfaction from her work that compensates for the lower income.
- The "Find Your Dream Job" program could be helpful, but it's important to recognize that not all career paths will lead to significantly higher incomes, and job satisfaction is not solely determined by salary.
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Household Financial Management (Income, Expenses, Debt, Savings, Investments)
Sonny and Jasmine face precarious financial management issues that include high fixed costs, minimal savings, no investments, and a significant amount of debt, highlighting the need for a sound financial plan and better money communication.
Sonny & Jasmine's $179,000 Combined Income Is Precarious
Fixed Costs 71% of Income, too High; No Investments, Minimal Savings
Ramit Sethi unveils the shaky foundation of Sonny and Jasmine’s financial state. Despite earning a combined income of around $180,000, the couple has $45,000 in credit card debt, negligible savings of $3,250, and no investments. Their daunting fixed costs are 71 percent of their income, significantly above the recommended 60 percent threshold. Housing expenses alone represent 36% of their income, well over the ideal 28 percent or less. Consequently, their total net worth stands at a negative $9,525.
Sonny and Jasmine's impractical spending on fixed costs is further highlighted by Jasmine spending 89% of her income, suggesting that she is habitually living beyond her means every month. Sonny's additional business income, ranging from $2,000 to $6,000 a month, is not utilized to offset their high-interest credit card debt.
Sonny and Jasmine Lack a Financial Plan and Money Communication
The couple’s lack of financial literacy and discussion is evident through their unplanned approach towards the home buying process. They express the urgency to get their finances in order only when faced with their impending first mortgage payment. It's clear that the couple made the most significant purchase of their life—their home—without analyzing the numbers or understanding its long-term financial impact.
Jasmine’s deference to Sonny as the primary breadwinner seems to perpetuate a lack of joint financial planning or communication. It wasn’t until recently that the pair had a substantial conversation about their finances. This newfound awareness is prompted by Caller #2's engagement with Ramit Sethi's advice, which includes creating a conscious spending plan, saving a portion of their tax return, reducing guilt-free spending, and initiating investment activities, such as setting up a 401(k) match.
The wakeup call has prompted them to reduce their fixed costs. By integrating strategies suggested by Ramit, such as selling ...
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Household Financial Management (Income, Expenses, Debt, Savings, Investments)
Additional Materials
Actionables
- Create a visual income and expense tracker to identify spending patterns and areas for cost reduction. Use a whiteboard or a digital app to categorize your income sources and list all your expenses, including fixed and variable costs. Color-code them to quickly see where your money is going, which can help you spot trends and make informed decisions about where to cut back.
- Establish a 'financial date night' with your partner to improve money communication. Set aside a regular time, such as once a month, to sit down together and discuss your finances openly. Use this time to review your budget, discuss upcoming expenses, and make joint decisions about financial goals and spending habits.
- Implement a 'micro-savings' strategy to build your emergency fund ...
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Home Purchase Decision and Its Financial Impact
Sonny and Jasmine decided to buy a house out of fear for the future, without fully considering the financial implications.
Sonny and Jasmine Bought a House Out of Fear for the Future
Overlooked Ownership Cost Before Purchase
Sonny and Jasmine, a Black and mixed-race, trans couple, were motivated by fear related to the political climate and concerns for personal safety when they decided to purchase a house. Their purchase was driven by the desire to have a safe haven amid fears of losing rights and facing socio-political changes. Financial expert Ramit Sethi notes that their decision was based on fear rather than a thorough financial plan, and the couple had not substantively discussed money before making this significant life decision.
House Payment Increase Risks Financial Stability
Upon buying their home, Sonny and Jasmine did not run proper calculations on the total cost of ownership. Sethi points out the common oversight among prospective homeowners who fail to realize the complete financial burden of a house purchase. For Sonny and Jasmine, their new house increased their monthly payments from $2,100 for rent to at least $3,500, possibly even approaching $5,000 when accounting for new furniture, appliances, and maintenance.
Jasmine initially went to open houses for fun, without any intention of buying. However, after deciding to purchase a home, she admitted nervousness about the financial impact and the effect it might have on their relationship. Meanwhile, Son ...
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Home Purchase Decision and Its Financial Impact
Additional Materials
Clarifications
- Sonny and Jasmine's decision to buy a house was influenced by fear related to the political climate and concerns for personal safety. They sought a safe haven amid worries about potential changes in rights and societal dynamics, prompting them to prioritize homeownership as a form of security. This fear of uncertainty and instability in the broader socio-political landscape played a significant role in their choice to purchase a home.
- Sonny and Jasmine's decision to buy a house out of fear for the future stemmed from concerns about the political climate and personal safety. This fear led them to seek a sense of security and stability through homeownership. The emotional motivation behind their purchase was driven by a desire for a safe haven amidst uncertainties about potential changes in society and their rights.
- Sonny and Jasmine overlooked the full financial impact of buying a house, including increased monthly payments, potential additional costs for furniture, appliances, and maintenance, and the overall burden of a $519,000 debt. They did not thoroughly calculate the total cost of ownership, leading to potential financial instability and concerns about affording the mortgage in case of unexpected financial challenges.
- The increase in monthly payments from $2,100 to at least $3,500, possibly even approaching $5,000, signifies a significant rise in their housing expenses. This increase includes not just the mortgage payment but also additional costs like furniture, appliances, and maintenance. Sonny and Jasmine did not anticipate the full financial impact of this increase, which could strain their budget and potentially lead to financial instability. Understanding the complete financial burden of homeownership is crucial to avoid unexpected debt and maintain financial stability.
- Jasmine initially went to open houses for fun, which sparked her interest in buying a house. This casual exploration eventually led to a more serious consideration of homeownership. The experience of visiting open houses shifted her perspective from a leisure activity to a potential investment in a property. This ...
Counterarguments
- Buying a house out of fear for the future could be seen as a proactive measure to ensure long-term safety and stability, which might outweigh short-term financial strain.
- The decision to buy a house, even if motivated by fear, could be a rational response to a perceived threat to personal safety and rights, and might provide peace of mind.
- While they did not fully consider the financial implications, it's possible that the couple had enough savings or a financial safety net that wasn't mentioned, making the purchase more feasible than it appears.
- Not running proper calculations on the total cost of ownership is a common mistake, but it can be rectified with future planning and budget adjustments.
- The increase in monthly payments might be offset by the long-term benefits of homeownership, such as building equity and potential property value appreciation.
- Jasmine's initial casual interest in open houses could have provided them with valuable market insight that informed their decision to buy when they did.
- Sonny's assurance about affording the home might be based on knowledge of their financial resilience or other income sources not discussed in the text.
- The concern about a cycl ...
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Relationship Dynamics Around Money
Sonny and Jasmine's Differing Attitudes Towards Money Cause Tension
The discussion led by Ramit Sethi outlines the problematic nature of Sonny and Jasmine's financial dynamic, where Sonny's proactive approach clashes with Jasmine's avoidance regarding money discussions, shaping a tense atmosphere around their finances.
Sonny Is Proactive About Finances, but Jasmine Avoids Money Conversations
Sonny exhibits a proactive stance on money matters, evidenced by his initiation of a conscious spending plan and his motivation to buy a house because of concerns for their future. He demonstrates a persistent focus on managing their finances and preparing for increased housing costs. Jasmine, however, tends to avoid discussing finances, exemplified by her recurrent "I don't know" responses during financial planning, her surprise at the seriousness of house buying, and her anxiety about home ownership.
This tension is illustrated by Sonny consistently bringing up topics about finances and taking the lead, while Jasmine leans back from these discussions, both figuratively and literally. When faced with taking over financial conversations, Jasmine's reluctance becomes apparent—she prefers coasting and is afraid of failing. Sonny's role is described as the breadwinner and provider, comfortably managing the majority of financial aspects, whereas Jasmine acknowledges her reliance on Sonny's income and has grown accustomed to his support.
Financial Backgrounds Shape Sonny as Provider, Jasmine as Rescued
Jasmine's attitude towards money is deeply influenced by her past, where her family's frequent inability to afford things and her mother's later marriage to a financially stable man shaped her expectations. These experiences could contribute to Jasmine's reliance on Sonny and her discomfort with asking for money, as she assimilates to the idea of shared finances within the marriage.
While Jasmine views Sonny's role as provider favorably, she struggles with change and feels pressured by Sonny's timeline for her to mature financially. Initially, discussions on income led Jasmine to shut out Sonny, but she now considers further education and different career options. Jasmine's past wastefulness with money and present discomfort in asserting her financial agency reflect her dependence on Sonny for financial managem ...
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Relationship Dynamics Around Money
Additional Materials
Actionables
- You can create a "financial conversation jar" where you and your partner write down financial topics or questions on slips of paper and draw one to discuss each week, making money talks a regular and less daunting part of your routine.
- This method eases both partners into financial discussions, making it a shared experience rather than one person always initiating. For example, topics could range from discussing budgeting strategies to understanding investment options, ensuring a comprehensive approach to finances.
- Start a joint "financial diary" with your partner to track both your feelings and facts about money, helping to identify emotional patterns and practical financial habits.
- By documenting your financial journey, you can pinpoint triggers for anxiety or avoidance and work on them together. For instance, if noticing a pattern of stress before bill payments, you might explore setting up automatic payments or creating an emergency fund to alleviate concerns.
- Engage in a role-reversal exercise where you and your ...
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Jasmine's Career and Earning Potential
Jasmine’s story unfolds around her professional uncertainty and the impact it has on her financial stability and future prospects.
Jasmine Is Uncertain About Her Career and Hasn't Pursued Income-Increasing Opportunities
Career Struggles Lead To Reliance on Sonny's Income
Jasmine's career path so far shows that she hasn't taken advantage of opportunities for career development because she wasn't sure how to proceed. This lack of initiative has kept her income stagnant at about $44,000 a year. Her salary does not support the lifestyle she envisions, which includes the ability to travel and enroll her kids in activities. Due to this, she finds herself relying on her partner Sonny's income to manage certain personal expenses and to compensate for shortfalls, such as waiting for payday to buy dog food or needing money to get her hair done.
Ramit Urges Jasmine to Use "Find Your Dream Job" For Her Financial and Personal Career Goals
Acknowledging her status quo, Jasmine has decided to return to school to identify what she genuinely aspires to in her career. Ramit Sethi, sensing her avoidance in decision-making that has left her feeling stuck and hinders her career progress, offers her access to his "Find Your Dream Job" program. This program, which Jasmine is ready to embrace, includes active steps such as conducting informational interviews, aimed at securing elite job positions. Ramits shows confidence that by engaging with th ...
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Jasmine's Career and Earning Potential
Additional Materials
Counterarguments
- Jasmine's lack of career development might not solely be due to a lack of initiative; external factors such as job market conditions, personal life circumstances, or systemic barriers could also play a role.
- The assumption that higher income will lead to a better quality of life may not always hold true, as job satisfaction and work-life balance are also critical factors.
- Relying on a partner's income is not inherently negative and can be part of a mutual support system within a relationship, provided it is consensual and equitable.
- Returning to school is not the only path to career advancement; on-the-job training, networking, or self-taught skills could also be valuable.
- The "Find Your Dream Job" program, while potentially helpful, may not guarantee success for everyone, as individual results can vary based on a multitude of factors.
- Conducting informational interviews and aiming for elite job positions may not align with everyone's values or definitions of success, and alternative career paths might be more fulfilling for some individuals.
- Financial independ ...
Actionables
- You can redefine your career aspirations by creating a vision board that includes your desired salary, lifestyle, and job characteristics. Start by gathering images and phrases that represent your ideal career and financial goals. Place this board somewhere you'll see it daily to keep your objectives top of mind and use it as a motivational tool when exploring new career opportunities or educational paths.
- Develop a personal financial independence plan by setting specific savings and income targets. Break down your desired lifestyle into monthly costs and determine how much you need to earn to cover these expenses without relying on others. Use budgeting apps to track your progress and adjust your spending habits to align with your independence goals.
- Enhance your job marketability by learning a high-demand skill throu ...
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