212. "He's terrified of losing it all—so she's losing him"
In this episode of I Will Teach You To Be Rich, Ramit Sethi advises a couple facing financial relationship challenges. Despite having a combined net worth of over $3 million, business owners Vanessa and George struggle with combining their finances and planning for retirement, largely due to George's past negative experiences with financial advisors. The episode explores how they can overcome communication barriers and emotional hurdles around money management.
Sethi helps the couple identify gaps in their financial planning, particularly their small investment portfolio relative to their age and net worth. He provides practical guidance for retirement planning and suggests ways to strengthen their financial relationship, including using tools like the "wheel of emotions" and establishing regular money discussions. The episode demonstrates how couples can move from fear-based financial decisions toward a more collaborative approach to managing wealth.
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1-Page Summary
Relationship Dynamics and Communication Around Money
Vanessa and George, successful business owners, face challenges in their financial relationship. While Vanessa wants to combine their finances, George's reluctance, stemming from past negative experiences with a financial advisor, has led to frustration and communication barriers. Financial expert Ramit Sethi suggests using tools like the "wheel of emotions" to help them express their feelings about money and recommends scheduling regular financial discussions to improve their communication.
Current Financial Situation and Assets
The couple has a substantial net worth of $3.186 million, primarily tied to their businesses, real estate, and possessions. However, Ramit Sethi identifies their relatively small investment portfolio of $157,000 as concerning for their age and long-term security. Their wealth is largely dependent on volatile business valuations, and they acknowledge significant gaps in their personal finance knowledge.
Developing a Comprehensive Financial Plan
Discussing retirement, George envisions staying active with activities like fly fishing and canoe trips, while considering locations in Canada or Mexico. Given their high income but late start in financial planning, Ramit encourages aggressive saving and investing. He recommends they put aside $40,000 to $50,000 annually over the next decade, even though this means reducing their discretionary spending below his usual recommended levels.
Overcoming Financial Fears and Emotions
Ramit addresses the couple's emotional barriers to money management, particularly George's anxiety stemming from past financial exploitation. He encourages them to approach financial decisions with excitement rather than fear, suggesting specific guidelines like discussing money matters before 7 PM when they're most alert. The couple's progress in therapy and willingness to engage in emotional discussions about money signals their readiness for a more collaborative financial relationship.
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Counterarguments
- While the "wheel of emotions" may help some couples articulate their feelings, others might find it too abstract or simplistic for the complexities of financial emotions.
- Regular financial discussions are beneficial, but without proper guidance or structure, they could exacerbate tensions rather than alleviate them.
- A net worth of $3.186 million is substantial, and the focus on the size of the investment portfolio might overlook the potential liquidity or income generated from their businesses and real estate.
- Aggressive saving and investing might be sound advice, but it should be balanced with the couple's current lifestyle and happiness, as excessive frugality could lead to regret or resentment.
- The recommendation to save $40,000 to $50,000 annually is a one-size-fits-all solution that may not consider the couple's unique financial situation, business cycles, or personal goals.
- Discussing financial matters before 7 PM assumes that this is when both parties are most alert, which might not be the case for everyone due to individual differences in energy levels and schedules.
- The readiness for a collaborative financial relationship is positive, but therapy and emotional discussions are not guaranteed solutions and may not work for all couples or individuals.
- Encouraging excitement over fear in financial decisions is a positive mindset, but it should not lead to underestimating risks or overconfidence in financial planning.
- The emphasis on personal finance knowledge gaps might overlook the expertise the couple has gained from successfully running their businesses, which could be transferable to personal finance management.
Actionables
- You can create a "financial date night" to make money talks more enjoyable and less intimidating by setting a regular evening each week where you and your partner have a themed dinner that leads into a discussion about your financial goals and concerns. For example, if you're planning for a vacation, have a meal that represents the destination and discuss saving strategies for the trip.
- Develop a "future vision scrapbook" with your partner where you both add images and notes about your retirement dreams, such as pictures of rivers for fly fishing or canoes for trips, and use this as a basis to discuss how your current financial planning can help achieve these dreams. This visual and interactive approach can make the process more tangible and less daunting.
- Start a "skill swap" initiative within your community where you exchange personal finance knowledge with others who have skills you want to learn. For instance, if you're good at cooking, you could offer to teach someone in exchange for their insights into investment strategies, thereby enhancing your financial understanding without the cost of formal education.
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Relationship Dynamics and Communication Around Money
Vanessa and George, despite their success in business, struggle to navigate their financial conversations, particularly when it comes to the idea of combining their finances. Their differences in handling personal finances have led to frustration and a need for improved communication.
Vanessa and George Struggle With Open Financial Conversations Despite Successful Businesses
Vanessa Wants to Combine Finances, but George Avoids It, Causing Frustration
Vanessa is clear about her desire to combine finances, initiating conversations and suggesting joint accounts to streamline their dealings. However, George avoids the topic, sometimes leaving the room when the subject is raised, which leads to frustration for Vanessa. Despite much personal money being invested in their businesses, their personal finances remain separate, which Vanessa finds illogical and challenges her to handle financial issues on her own. This situation has lasted five years and has led to dead-end discussions without progress.
George's Reluctance Stemming From Past Financial Advisor Experience
George acknowledges his insecurities about money and the need to address trust issues. His reluctance to combine personal finances with Vanessa is related to a negative experience with a financial advisor who took a large percentage of his wealth, resulting in trust issues and a general avoidance of managing finances. George agrees that the solution now seems to be combining finances, recognizing the need to talk about financial matters after Vanessa had to confront him about his silent reaction when she needed help to pay off credit card debt for one of their underperforming businesses.
Ramit Urges Vanessa and George to Be Direct About Their Financial Feelings and Needs
Ramit Uses the "Wheel of Emotions" to Express Feelings on Financial Decisions and Future
Ramit Sethi, in counseling Vanessa and George, stresses the importance of direct communication about feelings related to financial decisions. He suggests using tools like th ...
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Relationship Dynamics and Communication Around Money
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Counterarguments
- While combining finances can be beneficial for some couples, it's not a one-size-fits-all solution. George's hesitation may be valid if there are unresolved issues that could be exacerbated by merging finances.
- Past experiences with financial advisors can indeed lead to trust issues, but it's also important to recognize that not all financial advisors are the same. George might benefit from seeking a different advisor with a better track record or a different approach.
- Direct communication is crucial, but it's also important to ensure that both parties are ready for the conversation. Pushing someone to talk before they're ready can lead to more frustration and resistance.
- The "Wheel of Emotions" is a useful tool, but it may not resonate with everyone. Some individuals might find other methods more effective for expressing their feelings about money.
- Scheduled money talks are helpful, but they should be flexible enough to accommodate unexpected financial discussions that may arise spontaneously. Too rigid a structure could add pressure or create a sense of formality that hinders open communication.
- ...
Actionables
- Create a personalized "Emotion & Finance" journal to track your feelings about money over time. Start by jotting down your initial emotional response to financial situations each day for a month. At the end of the month, review your entries to identify patterns and triggers in your financial emotions. This can help you understand your own financial behavior and prepare you for more effective conversations with a partner about money.
- Develop a "Financial Vision Board" with your partner to visually represent your shared financial goals and values. Use images, quotes, and symbols that resonate with both of you and place the board somewhere you both will see it daily. This shared visual can serve as a constant reminder and motivator for working together towards your financial future.
- Initiate a "Money Role Pl ...
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Vanessa and George's Current Financial Situation and Assets
Vanessa and George, a couple who co-own two businesses, are facing a mix of financial concerns as analyzed by expert Ramit Sethi. Despite a substantial net worth, their investments are not as robust as they could be, calling their long-term financial security into question.
Vanessa and George's High Net Worth in Business, Real Estate, and Investments
Vanessa and George's net worth is influenced greatly by the valuation of their businesses, real estate, and possessions.
Portfolio Small vs. Income & Net Worth, Raising Long-Term Security Concerns
The couple's net worth is listed at $3.186 million with assets worth $3.477 million, which includes their house, vehicles like a truck and a car, two snowmobiles, a family cabin, and trailer accommodations for their Alaska store. Their investments, however, are relatively small at $157,000, which Ramit Sethi identifies as a red flag for people of their age, potentially jeopardizing their future economic security.
Majority of Their Net Worth Tied To Volatile Business Valuation
Despite owning a profitable company in Alaska and another in Canada which is currently not profiting, much of their net worth is based on the valuation of these businesses, using an industry standard of three times the previous year's revenue. George in particular is aware of the volatility regarding their finances, which is cause for concern considering that the bulk of their net worth is derived from the valuation of their businesses—estimates which may fluctuate.
Ramit Urges Vanessa and George to Examine Their Finances
The analysis by Ramit Sethi highlights clear areas where Vanessa and George need to pay more attention to their financial health.
Vanessa and George Recognize Their Personal Finance Knowledge Gaps, Which Ramit Aims to Address
Vanessa and George stand out for their entrepreneurial success, yet they recognize significant g ...
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Vanessa and George's Current Financial Situation and Assets
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Clarifications
- Valuation of businesses based on three times the previous year's revenue: This method is a common approach to estimating the value of a business. It involves multiplying the company's revenue from the previous year by three to determine its approximate worth. This valuation technique provides a simplified way to assess a business's value, though it may not capture all aspects of its financial health and potential.
- George relying on a monthly pension of about $2,500 means that he receives a fixed amount of money regularly from a pension plan, typically provided by his employer or a retirement account. This pension income contributes to his overall financial stability and may be a significant part of his retirement income strategy.
- The former financial advisor charged Vanessa and George a high fee of 3% for managing their investments. This fee is a percentage of the total value of the investments that the advisor oversees. It is considered high compared to industry standards, where typical fees can range from around 0.5% to 2% for investment management services.
- The lack of awareness and understanding of their financial situation indicates that Vanessa and George may not have a clear grasp of their overall financial health, including their income, expenses, debts, and investments. This lack of awareness can lead to challenges in planning for their future financial goals, such as retirement, as they may not be fully informed about their current financial standing and the implications of their financial decisions. Understanding their financial situation is crucial for making informed choices, optimizing their financi ...
Counterarguments
- Investments not being robust could be a strategic choice, focusing on business growth over market investments.
- A small investment portfolio might be due to recent liquidation for business investment or other strategic financial moves.
- Business valuation is a common method to determine net worth for entrepreneurs, and not inherently a negative aspect.
- Awareness of financial volatility is a sign of financial literacy, not necessarily a cause for concern.
- Seeking expert advice, like from Ramit Sethi, is a proactive step, indicating Vanessa and George are taking their financial health seriously.
- Recognizing knowledge gaps is the first step to improvement, which is positive rather than a negative aspect.
- A 3% fee from a financial advisor mig ...
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Developing a Comprehensive Financial Plan for the Future
Ramit joins Vanessa and George to provide expert guidance on aligning their future vision and crafting a financial plan including investment and savings goals. With George's upcoming retirement and their high income, Ramit encourages aggressive saving and investing due to their late start in financial planning.
Vanessa and George's Retirement Plans: Staying Active or Relocating
Ramit Stresses Aligning On a Shared Future Vision for Informed Financial Decisions
George and Vanessa discuss their aspirations for an active retirement, which vary depending on whether they decide to retire in Canada or Mexico. George envisions continuing to earn income from various sources, including participating in activities like canoe trips and land-based programs. He wants to engage in his passions, such as fly fishing, sooner rather than later, which requires good health and financial planning. Ramit highlights the critical step of agreeing on a shared future vision, essential for making informed financial decisions and ensuring they have options available.
Ramit Guides Vanessa and George In Crafting a Financial Plan, With Investment and Savings Goals
Ramit Encourages Aggressive Saving and Investing For Vanessa and George Due to High Income and Late Financial Planning
Ramit encourages George and Vanessa to get serious about financial planning. They need to create a playbook and review their financial situation every few months. Given Vanessa and George's high income and their surplus after necessary spending, Ramit sees the potential to invest a significant amount each month. Ramit advises that their retirement might be funded from modest pensions, their savings, and potentially selling assets.
To focus on planning, Ramit suggests using his journal for the couple to outline their perfect day and envision future milestones, which could help them real ...
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Developing a Comprehensive Financial Plan for the Future
Additional Materials
Counterarguments
- While aggressive saving and investing are encouraged, it's important to balance quality of life and financial security. Overly aggressive financial strategies could lead to unnecessary stress or reduced enjoyment of life in the present.
- The idea of earning income from various sources in retirement is optimistic, but it may not be realistic for everyone, depending on health, market conditions, and other unforeseen circumstances.
- The emphasis on aligning on a shared future vision is important, but individual desires and goals should also be respected and incorporated into the financial plan to ensure both parties are satisfied.
- Regularly reviewing the financial situation is sound advice, but too frequent reviews could lead to short-term thinking and unnecessary changes in strategy due to normal market fluctuations.
- The potential for significant monthly investments assumes a stable high income, which may not account for economic downturns or unexpected financial emergencies.
- Funding retirement from pensions, savings, and selling assets is a traditional approach, but it may not consider other innovative retirement income streams such as passive income or gig economy opportunities.
- Using a journal to outline a perfect day and future milestones is a subjective exercise that may not accurately predict future needs or desires, which can change over time.
- Redirecting funds from guilt-free spending into investments could lead to a feeling of deprivation, which might not be sustainable in the long term and could impact mental well-being.
- Increasing investments by redirecting funds from spending assumes that current spending is not already optimized for happiness and well- ...
Actionables
- You can visualize your financial future by creating a vision board with images and quotes that represent your retirement goals, such as pictures of travel destinations, hobbies, and a comfortable home. This tangible representation can serve as a daily reminder and motivation to make financial decisions that align with your aspirations.
- Develop a habit of monthly "finance dates" with yourself or a partner to review your budget, track your savings progress, and adjust your investment contributions. Use this time to celebrate achievements, identify areas for improvement, and ensure you're on track to meet your financial milestones.
- Create a "passion fund" by setting asid ...
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Overcoming Fears and Emotions Related To Money Management
Renowned financial expert Ramit Sethi engages with a couple, Vanessa and George, as they confront deeply rooted fears and emotional barriers related to their money management.
Ramit Acknowledges George and Vanessa's Emotions and Fears About Money, Contributing To Their Avoidance in Financial Discussions
Ramit Suggests Vanessa and George Explore Root Causes, Like George's Past, and Address Them Through Communication and Support
Vanessa reveals that George is often paralyzed by fears and anxiety about money, which hinders their financial discussions. George admits that his past experiences, including being financially exploited by a high-fee charging financial advisor, contribute to his unease with money, influencing their decision-making process.
Ramit identifies their avoidance behaviors and emphasizes the need to address root causes, such as George’s trust issues stemming from past financial burns. Ramit suggests that critical root causes, including the impact of George's prior negative experiences with a financial advisor, must be explored. To tackle these fears, he encourages deep communication and offers the concept of the "wheel of emotion" for Vanessa and George to express and understand each other's feelings about personal finance. This approach aims to foster a more supportive and transparent framework for discussing money matters.
Vanessa's own feelings of isolation when dealing with financial issues, particularly after receiving non-responsive reactions from George, are acknowledged by Ramit. He pinpoints the importance of inclusivity, thrashing out feelings of inadequacy or exclusion, and ensures that Vanessa feels supported rather than disconnected.
George recognizes his need for improved financial literacy and transparency. Through therapy, he aims to build the skills necessary for candid communication. Ramit underscores the significance of honestly confronting fears and emotions in order to live a rich life.
Ramit Encourages Vanessa and George to Approach Financial Decisions With Excitement and Empowerment, Not Fear
Ramit underscores that financial discussions should be embarked upon with a sense of excitement and empowerment rather than trepidation. He equates financial confidence to areas where George already possesses competence, suggesting that just as George has learned to be confident outdoors, he can develop a similar confidence with finances through practice and experience.
He recommends establishing specific guidelines, such as discussing financial matters before 7 pm when they're alert, to facilitate more productive conversations. Additionally, Ramit encourages the couple to take on money matters as a team, solidifying trust and fulfillment. This team approach, as Ramit implies, enhanc ...
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Overcoming Fears and Emotions Related To Money Management
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Counterarguments
- While Ramit suggests addressing root causes of financial fears, some individuals may require more than just communication and support, such as professional financial counseling or therapy.
- The "wheel of emotion" might not be an effective tool for everyone; some couples may find other methods or tools more helpful in expressing and understanding their feelings about personal finance.
- Encouraging excitement and empowerment over fear in financial decisions is positive, but it may oversimplify the complex emotions some individuals feel about money, potentially invalidating their experiences.
- Establishing specific guidelines for discussing financial matters, like before 7 pm, may not be practical for all couples due to varying schedules and life demands.
- Taking on money matters as a team is ideal, but it may not address individual needs for autonomy and personal financial space within a relationship.
- Envisioning a financial journey as a source of joy might not resonate with individuals who have deep-seated anxieties or negative associations with money.
- The emphasis on team-oriented finances boosting trust and ...
Actionables
- Create a "financial feelings journal" where you and your partner write down your emotions related to money each week, then set aside time to discuss these entries together. This practice can help both of you understand each other's emotional landscape regarding finances, leading to more empathetic and supportive conversations.
- Develop a "money date" ritual where you and your partner engage in a fun activity followed by a financial check-in, turning what might be a stressful task into a positive, shared experience. For example, after a dinner out, you could review your budget or discuss future financial goals, associating these tasks with the enjoyment of the date.
- Des ...
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