Podcasts > I Will Teach You To Be Rich > 210. “We make $170k—but spend like we make $450k”

210. “We make $170k—but spend like we make $450k”

By Ramit Sethi

In this episode of I Will Teach You To Be Rich, Ramit Sethi talks with Clara and Devin, a couple who earn $170,000 but have amassed $477,000 in debt through credit cards, student loans, mortgages, and car payments. Their conversation reveals complex financial dynamics: Clara has accumulated significant credit card debt on non-essentials while feeling controlled by Devin, who manages their finances with a parental approach.

The discussion examines how the couple's spending habits and financial choices, including daily dining out and an $80,000 home renovation, have left them with zero savings. Sethi explores Devin's unconventional wealth-building strategies, such as gambling and collecting, while addressing the couple's lack of concrete financial planning—their fixed costs consume 74% of their income, and they have no structured strategy for debt repayment or saving.

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210. “We make $170k—but spend like we make $450k”

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210. “We make $170k—but spend like we make $450k”

1-Page Summary

The Couple's Financial Issues and Spending Habits

During a conversation with financial advisor Ramit Sethi, callers Clara and Devin reveal significant financial troubles. Clara has accumulated $20,000 in credit card debt spread across five cards, spent on non-essentials like Taylor Swift concert tickets and backyard furnishings. While she's negotiated her debt down to $9,000, the couple's total debt reaches $477,000, including student loans, car notes, and mortgages. Their spending habits, including daily dining out and a $1,300 monthly car payment, have left them with zero savings.

Money, Power Dynamics, and Trust Issues

The couple's financial relationship reveals concerning power dynamics. Devin, with his finance background, controls the finances like a "parent," leading to resentment from Clara, who feels disempowered by having to ask permission for basic purchases. Clara expresses a desire to prove her financial responsibility and earn Devin's trust, while Devin acknowledges feeling exhausted from constantly monitoring their finances.

Devin's Unconventional Financial Strategies

Sethi expresses concern over Devin's risky financial approaches, which include gambling and collecting as attempts to build wealth. Instead of traditional investing or saving, Devin hopes to quickly multiply money through sports betting. Clara disapproves of these behaviors and has been trying to convince Devin to save more responsibly and contribute to their 401(k).

Couple's Lack of Financial Plan and Goals

Sethi points out that the couple lacks a coherent financial strategy, with their fixed costs consuming 74% of their income. Despite vague goals of getting out of debt and saving more, they haven't developed concrete plans to achieve these objectives. Their spending on dining out, coffee, and an $80,000 home renovation has prevented any meaningful savings. Sethi advises them to develop a clear vision for their family's financial future and create a structured debt payoff plan.

1-Page Summary

Additional Materials

Actionables

  • You can track your spending habits by using a dedicated app that categorizes expenses and identifies patterns over time. By seeing where your money goes each month, you might discover that you're spending more on certain categories, like dining out, than you realized. This awareness can lead to more mindful spending and help you cut back on non-essential expenses.
  • Create a "trust-building" financial game with your partner where each of you takes turns managing the budget for a month. This can help both partners understand the challenges of financial management and appreciate each other's efforts. It can also open up communication about money and lead to a more balanced approach to handling finances together.
  • Start a small investment club with friends or family to learn about wealth-building in a low-risk environment. Each member contributes a small amount of money monthly, and together you decide on investments, track progress, and share insights. This can be a practical way to learn about investing without the high stakes of gambling or collecting, and it can help you build a foundation for future financial growth.

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210. “We make $170k—but spend like we make $450k”

The Couple's Financial Issues and Spending Habits

Discussion with callers Clara and her partner reveals their struggle with significant financial troubles and questionable spending choices.

Couple's Debt: $20k Credit Card, $477k Total

Clara's Credit Card Debt From Non-essential Spending

Clara, the first caller, confides that she has accrued $20,000 in credit card debt, spread across five credit cards. The purchases contributing to this debt include $4,600 for Taylor Swift concert floor tickets, new backyard furnishings such as a gazebo and dining set, and various clothes and toys for her children. She has even faced the ramifications of her spending habits, such as being sued, which resulted in a summon from the court. Clara's initial response was to ignore the issue by avoiding her mail, but the court summons forced her to face her debt.

Debt Measures and Renegotiation Efforts

Despite these alarming numbers, Clara has taken some steps towards debt control. She successfully negotiated her debt payments down with a collection company. Her $20,000 debt was reduced to $9,000, and she's now on a payment plan of $200 for each card. Clara has also identified potential areas for cutting her monthly expenses, such as subscription costs, phone bills, groceries, and using hand-me-down clothes for her children.

Caller #2, likely Clara's partner, reveals a total debt situation of $477,000 encompassing student loans, car notes, credit card debt, and mortgages on properties in New Jersey and the Philippines. This daunting sum highlights a broader issue with the couple's financial management.

Ramit Sethi, bringing further clarity to their spending habits, highlights the couple's pattern of eating out daily, a considerable expense that amounts to zero savings and thousands in credit card debt. This habit, compound ...

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The Couple's Financial Issues and Spending Habits

Additional Materials

Counterarguments

  • Clara's decision to negotiate her debt down and set up a payment plan shows a proactive approach to managing her financial situation, which is a positive step toward debt resolution.
  • Cutting monthly expenses is a responsible action that can lead to long-term financial health, and it demonstrates a willingness to change spending habits.
  • The couple's total debt includes mortgages, which can be considered an investment in property, and not all debt is necessarily bad if managed properly.
  • Eating out and spending on renovations and cars could be seen as enjoying the fruits of their labor, provided they can afford it, which is a subjective matter of personal financial priorities.
  • The high monthly car payment might be associated with a reliable and safe vehicle, which could be a ...

Actionables

  • You can create a visual debt tracker to monitor your progress and stay motivated. Draw a large thermometer on a poster board and fill it in as you pay off your debt, or use a spreadsheet with conditional formatting that changes color as you get closer to your goal. This visual representation can provide a clear and immediate sense of achievement with each payment you make.
  • Implement a "no spend" challenge in a specific category for a month. Choose a category where you tend to overspend, like dining out or clothes shopping, and commit to not spending any money in that area for a full month. Track your usual spending in this category to see how much you save, and consider putting that money directly toward your debt or into a savings account.
  • Start a side hu ...

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210. “We make $170k—but spend like we make $450k”

Money, Power Dynamics, and Trust Issues in Relationships

Discussing the stress that imbalanced financial responsibility can bring to a relationship, Caller #1, Clara, and her husband, Devin, share their experiences with money management.

Devin, the "Numbers Guy," Controls Finances Like a "Parent," Causing Resentment and Conflict With Clara

Devin has taken control over the management of finances, likening his approach to a parent-child dynamic where he is seen as the "responsible parent." His finance and accounting-heavy background contributes to him exerting a lot of control over the finances after Clara's spending on a Taylor Swift concert, which he indicated would not be acceptable moving forward. Sethi challenges Devin, asking him about his responsibility in their financial situation as the one ostensibly in charge of money.

Clara Feels Frustrated by Devin's "Auditor-Like" Monitoring of Her Spending

Clara feels disempowered by having to ask for permission to make basic purchases and is unhappy with Devin's condescending tone when they discuss finances. She considers separating from him because she does not want to be constantly monitored and controlled in her spending.

Clara Dreams Of Earning Devin's Trust and Respect Amid an Unhealthy Money Dynamic

With the help of Ramit Sethi's conversation, Clara decides to step up and retake her power in the relationship to be co-equal in handling finances, expressing enthusiasm about proving her maturity and financial responsibility to Devin, suggesting an aspiration to change the dynamic and earn trust and respect.

Clara realizes that she has been unaware of the urgency of their financial situation, feels irresponsible, and accepts reality to take on more responsibilit ...

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Money, Power Dynamics, and Trust Issues in Relationships

Additional Materials

Clarifications

  • Ramit Sethi is a well-known personal finance advisor and author. In this context, he appears to have facilitated a conversation or provided guidance to Clara and Devin regarding their financial issues and relationship dynamics. Sethi's expertise in personal finance and money management likely helped Clara and Devin navigate their challenges and work towards a more balanced approach to handling their finances.
  • Clara and Devin's financial situation involves Devin taking control of their finances due to his background in finance and accounting. Clara feels disempowered by Devin's monitoring of her spending and seeks to regain equality ...

Counterarguments

  • While Devin's approach may seem controlling, it could be argued that his background in finance and accounting makes him well-suited to manage their finances effectively.
  • Clara's frustration with Devin's monitoring could be seen as a reaction to necessary financial discipline if their situation requires strict budgeting.
  • The desire for trust and respect is mutual in a relationship, and it might be that Devin also needs to feel that his concerns and expertise are respected by Clara.
  • Clara's aspiration to be co-equal in handling finances is commendable, but it may require a significant investment of time and effort to develop the necessary financial literacy and discipline.
  • Accepting reality and taking on more responsibility is positive, but it's important to ensure that Clara is not taking on more than she can handle or setting herself up for failure.
  • Devin's exhaustion from being in control could be indicative of a deeper issue, such as a lack of effective communication or collaboration in the relationship, not just in financial matters.
  • The couple's hope for improved dynamics may require external support, s ...

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210. “We make $170k—but spend like we make $450k”

Devin's Unconventional Financial Strategies and Their Impact

Devin has been relying on unorthodox financial strategies such as gambling and collecting, but these methods are worsening his financial situation and causing tension with his partner, Clara. Host Ramit Sethi and Devin's partner express concerns over his approach to finance, which is more focused on the short term and lacks realism.

Devin Resorts to Risky Financial Strategies, Like Gambling and Collecting, to Build Wealth

Devin reveals that he has resorted to gambling and more collection-driven activities in an attempt to make money. Instead of investing, he uses any small amount of money he has for gambling and collecting, without a cushion for proper investments. Ramit Sethi describes Devin as gambling on sports betting hoping to quickly double or triple his money. Devin also admits that this type of behavior is not sustainable for retirement.

Devin's Gambling and Collecting Worsen Financial Troubles and Erode Clara's Trust

Although not explicitly stated, it's implied in the concerns raised by both Clara and Sethi that Devin's behaviors worsen their financial stability. Clara's disapproval and frustration with Devin's gambling reflect eroding trust, while Caller #1 wants Devin to stop engaging in draft games and sports betting. Clarence has been trying to convince Devin to save more responsibly and to contribute to their 401(k), but Devin prefers spending money now rather than saving it, trying to get rich quick.

Devin's "Dreamer" Mentality Hinders Realistic, Sustainable Financial Planning

Devin's lack of a traditional financial plan is clear. He expresses a "g ...

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Devin's Unconventional Financial Strategies and Their Impact

Additional Materials

Counterarguments

  • While gambling is generally risky, some individuals may possess skill or knowledge that gives them an edge in certain types of betting or collecting, potentially making these activities less risky for them.
  • Collecting, if done wisely, can be a form of investment if the items collected appreciate in value over time.
  • A "dreamer" mentality, though it may hinder traditional financial planning, can sometimes lead to innovative thinking and unconventional success.
  • Short-term financial strategies can sometimes yield significant returns that can be reinvested into more stable, long-term financial vehicles.
  • The tension with Clara could be due to a lack of communication or differing financial values, rather than solely Devin's financial strategies.
  • Devin's preference for spending money now rather than saving could be based on a rational understanding of his own life expectancy, personal values, or a desire for immediate life enjoyment.
  • Devin's dismissal of the risk of layoffs might be based on a strong job market or high d ...

Actionables

  • You can create a "reality check" budget by tracking all expenses and income for a month to see where your money actually goes. This will help you identify patterns of unrealistic spending and areas where you can cut back. For example, if you notice a significant portion of your income goes to dining out, you might set a goal to cook at home more often to save money.
  • Start a "future fund" challenge with a friend or family member where you both contribute a set amount into a savings or investment account each month. Make it a friendly competition to see who can reach a savings goal first, which can motivate you to prioritize long-term financial stability over immediate gratification. You could even create a shared spreadsheet to track progress and hold each other accountable.
  • Engage in a monthly "financial book club" with peers where you read a ...

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210. “We make $170k—but spend like we make $450k”

Couple's Lack of Financial Plan and Goals

Clara and Devin’s financial troubles stem from not having a coherent financial strategy or clear goals, as revealed through their conversation with Ramit Sethi.

Unclear Financial Goals and Stability Plan

Incoherent Financial Strategy Results in Inconsistent Decisions

Throughout their discussion, it becomes clear there is no structured approach toward Clara and Devin’s finances. With high fixed costs taking up 74% of their income, the couple saves nothing each month. Ramit Sethi describes their net worth and investment situation as a red flag, also criticizing their Comprehensive Spending Plan (CSP) for reflecting their lack of real financial goals. Additionally, Clara and Devin seem to rationalize excessive spending, such as a $1,300 car payment, without considering a savings strategy.

Lacking a Clear Financial Vision, the Couple Remains Trapped In Debt and Missed Opportunities

Devin does not contribute to retirement savings, and there is no mention of a broader strategy to escape debt or improve their overall financial situation. They have vague goals, such as getting out of debt, saving more, and earning additional streams of income, but lack concrete plans to achieve these objectives. Clara wants to save for their children’s activities and retirement, but the couple's spending far outweighs their savings efforts. Spending on dining out, purchasing coffee, and $80,000 on home renovations has not left room for savings or other financial goals.

Devin's speculative and risky financial tactics suggest a lack of strategy, potentially leading to debt and missed financial opportunities. Clara's understanding that Devin doesn’t see her financial advice as credible adds another layer of complexity to their co-created financial dynamic. Despite negotiating debt payments with a collection company and considering selling a car, these decis ...

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Couple's Lack of Financial Plan and Goals

Additional Materials

Actionables

  • You can create a visual financial roadmap by drawing a large map on poster board, marking your current financial status as the starting point, and your goals as destinations. This visual aid can help you see the path to your objectives and identify the steps needed to get there. For example, if your goal is to save for a down payment on a house, you could draw a path with milestones like "pay off credit card debt" or "build an emergency fund" along the way.
  • Start a "financial book club" with friends or family where you read and discuss one personal finance book per month. This can enhance your financial literacy and hold you accountable to others as you learn and apply new financial strategies together. For instance, if you're all interested in learning about investing, you could start with a book on basic investment principles and meet to discuss your takeaways and how you plan to apply them.
  • Implement a "spending freeze week" every qua ...

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