221. “I’m almost 40 and still living paycheck to paycheck”
In this episode of I Will Teach You To Be Rich, host Ramit Sethi works with a couple earning over $130,000 who find themselves living paycheck to paycheck. Despite their income, Romy and Travis struggle with minimal savings, high fixed costs, and conflicting money mindsets shaped by their respective upbringings—leading to tension in their relationship and financial decision-making.
The episode explores how the couple develops a concrete plan to improve their situation, including specific budget adjustments and a commitment to save 15-20% of their monthly income. Through financial therapy and education, they address both the practical aspects of their money management and the underlying communication issues that have contributed to their financial challenges.
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1-Page Summary
The Couple's Money Mindset and Behaviors
Romy and Travis, a married couple, struggle with financial management due to patterns inherited from their upbringing. Romy, who witnessed her parents' financial stress and her father's death leaving no savings, tends to worry about money. Travis, influenced by his mother's carefree spending habits, maintains an overly optimistic attitude about generating income without proper planning.
Their different approaches create tension in their relationship, with Romy often "begging" and "nagging" Travis about finances while he responds with reassurance rather than action. This dynamic has led to trust issues, evidenced by Romy opening a secret savings account.
Their Current Financial Situation and Numbers
Despite earning a substantial combined income of $130,560 annually, the couple's financial management raises concerns. They have minimal savings of $5,500 and investments of just $45. Their fixed costs consume 76% of their income, including a $130,000 home loan at 10.5% interest. Their total net worth stands at $2,983, with significant spending on groceries ($1,114 monthly) and dining out.
Strategies and Steps to Improve Their Finances
Working with financial advisor Ramit Sethi, the couple develops a concrete plan for improvement. They agree to save 15-20% of their monthly income for emergencies and make substantial cuts to their spending: reducing their eating out budget from $350 to $175 and grocery expenses from $1,114 to $714. Through various measures, they manage to decrease their fixed costs from 76% to around 64% of their income.
The couple also commits to improving their financial communication through education and accountability. Travis agrees to learn about finance and budgeting, and both partners commit to financial therapy to address their money-related communication issues. Both express relief and optimism about their new financial direction, with Travis committing to prove his dedication through action rather than just reassurance.
1-Page Summary
Additional Materials
Actionables
- You can create a visual savings tracker to make your financial goals more tangible and motivating. Draw a large thermometer on a poster board and fill it in as you save money, setting milestones that correspond to your savings goals. This can be a fun and encouraging way to see your progress, and you can place it somewhere prominent in your home as a daily reminder of your financial journey.
- Establish a monthly "finance date" with your partner to discuss and review your budget, savings, and spending habits. During this time, you can use apps or spreadsheets to track your expenses and savings, set new financial goals, and celebrate achievements. This regular check-in can help maintain open communication about money and ensure both partners are aligned with their financial objectives.
- Experiment with a "no-spend" challenge for a set period, such as a week or a month, to identify unnecessary expenses and boost your savings rate. During this time, only spend money on absolute necessities and track everything you wanted to buy but didn't. At the end of the challenge, review the list to see which expenses you can eliminate or reduce in your regular budget, potentially finding new ways to save money that you hadn't considered before.
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The Couple's Money Mindset and Behaviors
A couple, Romy and Travis, struggle with their financial behaviors and mindset, reflecting patterns from their upbringing and causing strain in their relationship.
Avoiding and Mismanaging Money Reflects Upbringing
Wife's Parents Always Stressed About Money; Father Died, Leaving Mother Without Savings
Romy, the wife, grew up in a household always stressed about money. Her father was a factory worker and her mother a teacher; they lived in a wealthy suburb, which made her painfully aware of their financial limits. Sometimes Romy found no lunch waiting for her after school. When her father passed away suddenly, her mother was left with no savings, creating a significant amount of anxiety for Romy. This non-enjoyable atmosphere was something Romy noticed during her upbringing, and now she finds herself in a similar situation.
Husband Thinks He Can Fish For Money Without Budgeting
Travis, the husband, grew up with a carefree attitude toward money, reflecting his upbringing experiences. After his mother sold their house, she spent all the money, leading to a poor financial situation. This experience likely shapes his current attitudes toward money, where he displays a confidence that he can generate money as needed. He doesn't mind losing everything because he feels he can just pick up the pieces.
Pattern of Avoidance and Financial Irresponsibility in Relationship
Both Romy and Travis have seemingly repeated their parents' patterns of financial behavior. Romy's role is similar to her mother's—the worrier, while Travis behaves like Romy's father—the avoider. Despite acknowledging that past approaches toward money in his youth were "quite irresponsible," Travis continues to avoid truly addressing financial planning, reflecting a pattern of avoidance and financial irresponsibility in their relationship.
Couple Struggles to Have Productive Conversations About Money
Wife "Begs" and "Nags" Husband About Finances
The couple struggles to have productive conversations about finances. Romy often feels unheard and begs Travis to work with her to make financial plans. She describes feeling ...
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The Couple's Money Mindset and Behaviors
Additional Materials
Actionables
- You can create a 'financial autobiography' to understand your money mindset by writing down your earliest money memory, how your family discussed money, and how these experiences shape your current financial behavior. This self-reflection can reveal patterns you may want to change or reinforce.
- Establish a 'money date' with your partner where you discuss finances in a neutral setting, like a coffee shop, to encourage open communication without the emotional weight of being at home. Make it a regular event to build trust and partnership in financial decision-making.
- Star ...
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Their Current Financial Situation and Numbers
Romy and Travis, a highly skilled couple with a combined gross monthly income of nearly $11,000, translating to about $130,560 annually, are facing financial management issues that are leaving them with insufficient savings and high debt.
Couple Earns $130,000 Annually, but Has Low Savings/Investments
Romy and Travis have a significant income but their investments and savings do not reflect their earning potential. Ramit Sethi points out that the couple’s investments are only $45 off their $130,000 income, which is strikingly low. Despite their high income, they have managed to save only $5,500. This imbalance is further exacerbated by their fixed costs, which are between 60-66% of their income, owing in part to caring for their mothers and Airbnb expenses. Their savings rate stands at 16%, which is relatively high for their income level, while investments are at a paltry 10%.
Debt: $130,000 Home Loan at 10.5% Interest
Travis and Romy are in the process of buying land, which will cost approximately 2.5 million rand or around $130,000. They have taken out a mortgage with a hefty 10.5% interest rate to finance this expense. Their current debt includes a $130,000 home loan at this high-interest rate, which contributes to their financial strain.
Income Misaligned With Spending and Fixed Costs
The couple's financial issues are compounded by a staggering 76% of their income being allocated to fixed costs, which leaves very little room for savings or investments. Their total net worth is $2,983. Caller #1 admits to lacking a compulsion to save, viewing property as a kind of enforced saving, since bill payments take precedence over savings or investments, indicating that mandatory expenses take up most of their earnings.
Both Romy and Travis admit to struggling with budgeting, particularly in the areas of grocery and dining out. Their monthly groceries amount to $1,114 without any budgeting, leading to impulsive purchasing of high-end food items. The couple also spends liberally on dining out and coffee, wi ...
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Their Current Financial Situation and Numbers
Additional Materials
Clarifications
- Ramit Sethi is a well-known personal finance advisor and author known for his practical advice on managing money effectively. In this context, Sethi highlights the discrepancy between Romy and Travis's high income and their low savings and investments. He suggests that their financial management does not align with their earning potential and recommends strategies to improve their savings and investment habits. Sethi's insights underscore the importance of aligning income with savings and investments to achieve financial stability and growth.
- Caller #1 and Caller #2 are anonymous individuals mentioned in the text who provide insights or perspectives on Romy and Travis's financial situation. They are not directly identified by name but are referred to as callers to maintain their anonymity in the discussion. Their input helps shed light on different aspects of Romy and Travis's financial challenges and behaviors.
- Net worth is the total value of assets owned by an individual or couple, minus any liabilities or debts they owe. Savings rate is the percentage of income that is saved or invested rather than spent. Investments typically refer to assets purchased with the expectation of generating income or appreciation in value over time.
- The land cost mentioned in the text is approximately 2.5 million rand. To convert this amount to dollars, you can use the prevailing exchange rate between the South African rand and the US dollar. The specific exchange rate used in the text is not provided, so the exact dollar equivalent may vary based on the exchange rate at the time of the transaction.
- Lack of compulsion to save indicates a lack of strong motivation or driv ...
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Strategies and Steps to Improve Their Finances
A couple takes decisive steps to address and improve their financial situation with clear strategies, unified priorities, and a commitment to communication, education, and accountability.
Couple Agrees On Financial Priorities, Building Emergency Fund
The couple, working with financial advisor Ramit Sethi, realizes the importance of prioritizing their finances.
They Save 15-20% of Income Monthly For Emergencies
Caller #2 mentions a desire to have a year's worth of savings and contemplates beneficial financial allocations, indicating an agreement to focus on building an emergency fund. Caller #1 shares this priority and expresses eagerness to save aggressively right after getting paid. After negotiating, they agree to start saving between 15-20% of their income monthly for emergencies, which was the result of a conversation about the necessity of savings, given their high-risk situation.
Agree to Allocate 10% of Income Towards Investments
Although the provided text does not discuss this, in the context of prioritizing finances, such an agreement aligns with a broader financial strategy that would likely include investing as a part of future financial planning.
Couple Aggressively Aligns With New Financial Priorities
The couple, guided by Sethi, looks to realign their spending habits to be more in line with their new financial priorities.
Reduced Eating Out Budget From $350 to $175
Sethi advises them on systematic changes, like cutting back their eating out budget significantly. They successfully reduce it by 50%, cutting it from $350 to $175 a month.
Cut Grocery Expenses From $1,114 to $714
They also undertake other strategic spending cuts, managing to decrease their grocery expenses from $1,114 to $714 by deciding not to buy clothes for six months and handling day-to-day expenses more judiciously.
Reducing Fixed Costs From 76% to 63% of Income
Through various measures, including canceling an extravagant gym membership and further scrutinizing their eating out budget, they manage to decrease their fixed costs from 76% to around 64% of their income. Travis even considers taking another $75 off the eating out budget to lower fixed costs further.
Couple Commits to Communication, Education, and Accountability for Financial Progress
The couple acknowledges the need to boost their financial communication. Sethi advises them to discuss and dream together regarding the use of their money, thereby fostering more effective communication regarding their expenditures.
Husband Agrees to Learn About Finance and Budgeting
Caller #1 wants her partner to educate himself on finances, suggesting a system where a portion of income is ...
Here’s what you’ll find in our full summary
Strategies and Steps to Improve Their Finances
Additional Materials
Clarifications
- Caller #1 and Caller #2 are pseudonyms used to reference the couple in the text. Caller #1 represents one partner in the couple, while Caller #2 represents the other partner. These pseudonyms are commonly used in media or narratives to maintain anonymity or simplify storytelling.
- Ramit Sethi is a well-known personal finance advisor, author, and entrepreneur. He is known for his practical financial advice and popular books like "I Will Teach You to Be Rich." Sethi often emphasizes automation, psychology, and personal development in managing finances. His work focuses on helping individuals take control of their money and build wealth through strategic planning and mindset shifts.
- The text mentions specific financial percentages and amounts, such as saving 15-20% of income monthly for emergencies, allocating 10% of income towards investments, reducing the eating out budget from $350 to $175, cutting grocery expenses from $1,114 to $714, and decreasing fixed costs from 76% to 63% of income. These figures represent the couple's financial commitments and adjustments as they work towards improving their financial situation under the guidance of a financial advisor.
- Financial therapy is a specialized form of therapy tha ...
Counterarguments
- Saving 15-20% of income for emergencies might not be feasible for all couples, depending on their income level and existing financial obligations.
- Allocating 10% of income towards investments may not be the best strategy for everyone, as it depends on individual risk tolerance, financial goals, and the economic environment.
- Reducing the eating out budget by 50% could be too aggressive for some, potentially leading to a feeling of deprivation which can be counterproductive in the long term.
- Cutting grocery expenses significantly might result in a lower quality of diet or require more time spent on bargain hunting, which could be impractical for some families.
- Reducing fixed costs from 76% to 63% of income is a substantial change that might not leave room for unexpected expenses or quality of life considerations.
- The husband's commitment to learning about finance and budgeting is positive, but it should be acknowledged that no ...
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