217. “Are we broke…or just bad with money? (Part 1)
In this episode of I Will Teach You To Be Rich, a couple earning $179,000 annually discusses their struggle with financial management despite having substantial assets and a healthy net worth. Their story reveals how childhood experiences with money shape current financial behaviors, with one partner adopting a "live in the moment" philosophy after witnessing family hardship, while the other grapples with financial anxiety stemming from parental messaging about being "broke."
Financial expert Ramit Sethi examines their situation, including their high fixed costs, minimal investments, and recent decision to purchase a second house that costs them $2,000 monthly. The episode explores how their separate approaches to finances and poor financial communication affect their ability to save and invest effectively, as well as the potential impact of their money habits on their child's financial outlook.
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1-Page Summary
Dominique and Chris's Current Financial Situation and Habits
Despite a combined income of $179,000, Dominique and Chris struggle with their finances. Their fixed costs consume 69% of their income, with minimal allocation to investments (13%) and savings (18%). A recent decision to purchase a second house has added to their financial strain, resulting in a monthly loss of $2,000 when accounting for maintenance costs.
The couple's financial communication is poor, often leading to arguments and misaligned spending decisions. They maintain separate finances and focus primarily on covering monthly bills rather than long-term planning. Their discretionary spending, particularly dining out (which happens approximately 17 times per week), significantly impacts their ability to save and invest effectively.
Influence of Past Money Experiences and Family Backgrounds
Chris's approach to money is heavily influenced by his childhood experiences of financial hardship. After witnessing his parents' struggles and the loss of their house, he developed a "live in the moment" philosophy toward spending, finding it difficult to plan for the future.
Dominique's financial anxiety stems from a different source. Her father, despite being financially stable, often claimed the family was "broke" to teach financial responsibility. This messaging has left Dominique feeling inadequate about her current financial status, despite having a net worth over $400,000 in her 30s.
Address Financial Challenges and Plan for the Future
Financial expert Ramit Sethi identifies several areas for improvement in the couple's financial management. He notes that while they have substantial assets (over a million dollars) and a respectable net worth ($425,000), their investment portfolio of $25,526 is notably low. Their total debt of $615,339 includes mortgages on properties in California and Arizona.
Sethi emphasizes the importance of making more informed financial decisions and developing a long-term perspective rather than focusing solely on monthly payments. He advises the couple to model healthy financial behaviors for their son, noting that their current tendency to say "we're broke" could negatively impact their child's relationship with money, despite their actual financial stability.
1-Page Summary
Additional Materials
Clarifications
- The percentage breakdown of income allocation provided (69% fixed costs, 13% investments, 18% savings) indicates how Dominique and Chris distribute their earnings. Fixed costs represent expenses like rent or mortgage payments that remain constant each month. Investments denote money put into assets like stocks or real estate to potentially grow wealth. Savings signify funds set aside for future needs or emergencies.
- The purchase of a second house has added financial strain to Dominique and Chris as it results in a monthly loss of $2,000 when considering maintenance costs. This additional expense impacts their ability to save and invest effectively, contributing to their overall financial struggles.
- Chris's childhood experiences of financial hardship, including his parents' struggles and loss of their house, have shaped his current "live in the moment" spending philosophy. Dominique's financial anxiety is influenced by her father's habit of claiming the family was "broke" despite being financially stable, impacting her perception of her own financial status. These past experiences have contributed to the couple's current financial struggles and their differing approaches to money management.
- Dominique's net worth is over $400,000, which includes her assets minus her liabilities. The couple's total assets amount to over a million dollars, encompassing all their possessions of value. Their total debt stands at $615,339, which includes the money they owe, such as mortgages on properties in California and Arizona.
- Ramit Sethi recommends that Dominique and Chris focus on making more informed financial decisions and shift their perspective towards long-term planning. He highlights the importance of not solely concentrating on monthly expenses but also considering their overall financial health and future goals. Sethi advises them to increase their investment portfolio, which is currently low compared to their assets, and to address their significant debt, including mortgages on multiple properties. Additionally, he suggests that the couple model healthy financial behaviors for their child to foster a positive relationship with money.
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Dominique and Chris's Current Financial Situation and Habits
Dominique and Chris’s financial habits and situation reveal stress and misalignment concerning their $180k income, high fixed costs, and a lack of savings or investments due to discretionary expenses and poor communication.
Dominique and Chris's Accounts and Spending Don't Reflect $180k Income
Despite a combined income of $179,000, Dominique and Chris feel like they are living paycheck to paycheck. They hadn’t been aware of their combined income as their finances aren’t joined, focusing only on ensuring enough money is in the bills account to cover monthly expenses. Dominique sees a huge debt when looking at the numbers, which scares her and she prefers paying off debt over investing due to her unfamiliarity with investing. Chris, on the other hand, wishes for a higher net worth and more significant savings.
A major issue is their fixed costs, which eat up 69% of their income. Investments and savings are relatively low, at 13% and 18%, respectively. This imbalance in spending priorities is exacerbated by a recent decision to buy a second house out of fear of rent hikes, leading to a monthly loss of $2,000 when maintenance costs are factored in.
Dominique and Chris Struggle to Discuss Money Constructively, Often Resulting In Arguments and Misalignment
Dominique and Chris's financial conversations often end in arguments, with both partners identifying different primary problems and lacking proactive discussion on major financial decisions. Dominique feels overwhelmed managing finances alone, especially with the added stress of their baby. Chris admits they need to communicate more about money, and an attempt to buy another car based on feeling ended in dispute due to lack of discussion and information.
They have only two months of savings and are not investing as much as they thought—a miscalculation that Ramit Sethi uncovers, leading to adjustments in their savings plan. These inaccuracies reflect Dominique and Chris's larger issues with financial communication and planning.
Domi ...
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Dominique and Chris's Current Financial Situation and Habits
Additional Materials
Actionables
- You can track your actual spending versus perceived spending by using a simple expense tracking app for a month. By inputting every purchase, you'll see the real frequency and cost of habits like dining out, which can often be underestimated. For example, you might think you only grab coffee twice a week, but the tracker could reveal it's actually a daily expense.
- Create a 'debt vs. investment' simulation spreadsheet to compare potential outcomes. Input your current debts, interest rates, and any investment returns you could reasonably expect based on historical data. This can help visualize the long-term impact of paying off debt versus investing, even if you're not familiar with investment strategies.
- Establish a 'financial date night' where you and a partner or fri ...
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Influence of Past Money Experiences and Family Backgrounds
The hosts discuss how personal upbringing and family backgrounds influence individuals' attitudes towards money, focusing on the contrasting experiences of Chris and Dominique.
Chris's Financial Hardship and Parents' Struggles Shaped His "Live in the Moment" Approach to Money
Chris highlights his family's financial difficulties, recalling that his parents struggled to afford expensive items and almost had their marriage upended due to the financial strain of supporting his motocross racing. This struggle, which even resulted in the loss of their house, led Chris to adopt a "live in the moment" philosophy, spending money when he has it because the future is not guaranteed. Although Chris desires to be more economically stable, he finds himself encumbered with uncertainty about how to better manage his finances.
Chris's Free Spending Stems From Childhood Instability
Despite his high earnings, Chris feels that he lives paycheck to paycheck and is anxious about replicating his parents' financial struggles. He recognizes the importance of addressing financial matters jointly with Dominique and aspires to improve. However, he remains influenced by his upbringing and habits inherited from his parents, such as the belief that one should spend money when they have it due to life's unpredictability. Ramit Sethi extrapolates that Chris’s detachment from investing could stem from the fact that such topics were likely absent from his childhood conversations.
Caller #1, Dominique, identifies with Chris's perspective on spending. She recognizes his tendency to spend what he earns, as demonstrated by his cavalier attitude towards making significant purchases like a car.
Father Claimed Family "Broke" to Teach Value of Money
Dominique's Wealth Anxiety Persi ...
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Influence of Past Money Experiences and Family Backgrounds
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Counterarguments
- Chris's "live in the moment" philosophy, while shaped by his past, might overlook the potential benefits of long-term financial planning and the security it can bring.
- The anxiety Chris feels about money could be addressed with financial education, suggesting that his current mindset isn't fixed and can be improved with the right resources.
- Dominique's wealth anxiety, despite her high net worth, might indicate a deeper psychological issue that isn't solely based on her father's teachings or her financial status.
- The idea that Dominique isn't living up to her father's accomplishments could be challenged by recognizing that success is subjective and personal satisfaction doesn't necessarily correlate with wealth or parental achievements.
- Dominique's recognition of Chris's spending habits could be seen as an opportunity for both to learn from each other and find a balanced approach to managing their finances.
- The ...
Actionables
- You can create a "Financial Autobiography" to understand your money mindset by writing down key financial events from your childhood to the present, noting how they made you feel and how they might influence your current financial behavior.
- This activity helps you trace the roots of your financial habits and attitudes. For example, if you remember feeling relieved when your parents paid off a debt, you might realize why you prioritize debt repayment over savings.
- Start a "Future Self" savings challenge where you save a small amount of money each week, increasing it incrementally, and label the savings account with a specific future goal or version of yourself.
- This strategy makes saving more personal and goal-oriented. For instance, if you start by saving $5 in week one and add an additional $5 each subsequent week, you could label the account "World Traveler 2025" to motivate you to save for a dream trip.
- Implement a " ...
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Address Financial Challenges and Plan for the Future
Financial coaches Dominique and Chris grapple with their personal financial challenges and seek advice to secure their family's future.
Dominique and Chris Need Open, Honest Financial Conversations, Including Shared Goals and Aligned Spending Priorities
Chris notes the importance of consciousness about each other's finances and helping each other, highlighting the need for shared goals. Dominique wants to align spending priorities and have open financial conversations to become better parents. They live together, have a two-year-old son, and maintain both joint and individual accounts. Dominique does not see the urgency in marrying Chris, who is eager to wed, signaling the need for shared financial visions.
Both express a willingness to work through their financial situation. This suggests a potential lack of deep financial discussions, hinted by Chris's reluctance to engage in a financial review ("I didn't want to do this, but we're gonna do it").
Dominique and Chris Should Create a Long-Term Financial Plan for Their Son's Future and Retirement
Dominique and Chris aim to prepare financially for their son's future and their retirement. Financial expert Ramit Sethi urges them to adjust their spending and savings habits, with an observation that the couple makes decisions based on shallow, monthly thinking rather than planning long-term. They should use tools like Google or chat GPT to understand their pension credits and consider estate planning through services like Trust and Will.
Their financial picture includes more than a million dollars in total assets, a net worth of $425,000, and savings of $13,000, while their investments at $25,526 are considered low. They also have debts totaling $615,339, including a California house mortgage around $200,000 and an Arizona house causing a monthly shortfall of $800 to $900. Dominique sees debt as a threat and fears asset loss if they miss any payment.
Sethi points out their choice-based perception, with a household income of $180,000 and ownership of two houses, they are actually doing well. Both Dominique and Chris admit a lack of investment understanding, demonstrating a need for more informed financial conversations.
Dominique and Chris Should Model Healthy Financial Behav ...
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Address Financial Challenges and Plan for the Future
Additional Materials
Actionables
- You can start a "Finance Date Night" with your partner to discuss money matters in a relaxed setting. Choose a regular evening, like the first Friday of every month, to sit down together with some snacks and go over your financial goals, progress, and concerns. This can help make the conversation more enjoyable and less daunting, encouraging open dialogue about finances.
- Create a visual financial roadmap and display it in your home office or another common area. Use a large poster or whiteboard to map out your financial goals, debts, assets, and investment plans with timelines and milestones. Seeing this daily can keep you motivated and aware of your financial situation, making it easier to adjust habits and track progress toward long-term planning.
- Engage in role-playing exercises with your child to teach fina ...
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