225. “We’re losing $5k/mo. Where is it all going?”
In this episode of I Will Teach You To Be Rich, host Ramit Sethi explores a couple's complex financial situation. Lashawn has managed the household finances for decades while her husband David remains less involved, a dynamic rooted in Lashawn's childhood experiences with financial instability. The couple maintains significant discretionary spending while carrying debt, and now face a transition as Lashawn plans for early retirement.
The episode examines how Lashawn's terminal cancer diagnosis affects their financial planning. Sethi discusses strategies for debt elimination and suggests ways to free up monthly cash flow. The conversation also covers practical steps for sharing financial responsibilities, including scheduled money meetings and password sharing, while addressing the importance of balancing financial management with creating meaningful family experiences.
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1-Page Summary
Lashawn and David's Current Financial Dynamics and Roles
In their household, Lashawn has maintained control of finances for decades, while David has remained less involved. Ramit Sethi describes David as an "ignorant reassurer," trusting in Lashawn's financial management without fully understanding the details. For Lashawn, this control provides a sense of security rooted in her experience with childhood financial instability. Despite her attempts over 15 years to involve David more in their finances, previous incidents, including a missed payment, have reinforced her tight control.
The Couple's Financial Situation and Transition Plans
The couple maintains a significant "guilt-free spending" budget of $5,000 monthly, covering expenses like dining out and vacations. However, they also carry $25,000 in HELOC debt and $6,700 in credit card debt, paying $950 monthly toward these obligations. With Lashawn's upcoming early retirement due to health concerns, Ramit proposes a plan to eliminate their debt within a year, which would free up $2,500 in monthly cash flow. He suggests reducing their discretionary spending to $957 monthly and consulting a flat-fee financial advisor for retirement planning.
Lashawn's Emotional and Health Considerations
Lashawn's terminal metastatic breast cancer diagnosis adds complexity to their financial transition. Rather than focusing on emotional aspects, Lashawn channels her energy into ensuring her family's financial stability. Ramit urges her to expand beyond her role as "financial leader" and prioritize creating meaningful experiences with her family. The couple has begun taking practical steps, including scheduling money meetings and sharing financial passwords with David. They have a $680,000 life insurance policy in place, and David aims to take a more active role in managing finances while supporting Lashawn in living a meaningful life.
1-Page Summary
Additional Materials
Clarifications
- A HELOC (Home Equity Line of Credit) is a type of loan where the borrower uses the equity in their home as collateral. It allows homeowners to borrow against the equity in their home, typically with a variable interest rate. The borrower can access funds as needed, similar to a credit card, up to a predetermined credit limit. HELOC debt represents the amount owed on this line of credit, which is separate from the mortgage on the property.
- Ramit Sethi is an American author, entrepreneur, and media personality known for his book "I Will Teach You to Be Rich" and related financial advice. He has a background in sociology and has been involved in various ventures, including co-founding PBworks. Sethi's work focuses on personal finance education and helping individuals improve their financial situations through practical strategies and advice.
- An "ignorant reassurer" is a term used to describe someone who trusts another person's actions or decisions without fully understanding the details or implications. In this context, it suggests that David relies on Lashawn's financial management without actively participating or comprehending the specifics of their financial situation. This term implies that while David may provide reassurance and trust, he lacks a deep understanding of the financial matters being handled by Lashawn. It highlights a dynamic where one partner takes the lead in financial matters while the other remains less informed or involved.
- A flat-fee financial advisor charges a fixed fee for their services, rather than earning commissions based on products sold. This fee structure can provide transparency and reduce potential conflicts of interest. Clients pay the advisor directly for their advice and financial planning services, regardless of the specific financial products recommended. This approach can help ensure that the advisor's recommendations are aligned with the client's best interests.
- Metastatic breast cancer, also known as stage IV breast cancer, occurs when breast cancer cells spread to distant parts of the body beyond the breast and nearby lymph nodes. It is considered an advanced stage of breast cancer and is not curable, but treatments can help manage the disease and its symptoms. Metastatic breast cancer commonly spreads to the bones, lungs, liver, and brain. Treatment options for metastatic breast cancer include surgery, radiation, chemotherapy, biological therapy, and hormonal therapy.
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Lashawn and David's Current Financial Dynamics and Roles
Lashawn and David exhibit a dynamic where Lashawn has long been in control of their household’s finances, while David has largely been trusting and not as involved. They're working through issues stemming from this disparity in financial engagement and knowledge.
Lashawn Has Led Family Finances For Decades, Managing Budgeting, Bills, and Debt
David, an "Ignorant Reassurer," Trusts Lashawn With Finances
David acknowledges Lashawn’s lead in managing the family finances. He trusts Lashawn to handle the financial matters, contributing to discussions about certain financial matters when called upon. However, David's limited involvement had him labeled as an "ignorant reassurer" by Ramit Sethi, suggesting he has optimistic faith in Lashawn’s abilities without knowing the details of their finances.
Lashawn, on the other hand, experiences a deep sense of security and safety from being in control of finances due to her upbringing in financial instability. This control has been hers since the beginning of their relationship, and it manifests in detailed management of both large financial goals and the invisible minutiae, such as making sure the kids' FAFSA is complete.
Lashawn Wants David More Engaged in Family Finances, but Efforts Have Failed
Lashawn has wanted David to become more engaged with the family finances for approximately 15 years, but her efforts have so far been unsuccessful. She has attempted to bring David into the financial picture, but a significant incident where David missed a payment and Lashawn's strong negative reaction led her to resume her tight control.
Financial Knowledge Disparity: Lashawn As the Expert
Lashawn's Emotional Attachment To Controlling Family Finances
Lashawn's emotional attachment to managing finances stems from her history and the sense of control and safety it provides her. She meticulously handles budgeting, bills, paying off debts efficiently, refinancing their home for better rates, and ensuring the family's financial dealings are in order. LaShawn admits to having difficulty in letting go and letting David handle finances differently, aware of the emotional management this would ...
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Lashawn and David's Current Financial Dynamics and Roles
Additional Materials
Actionables
- You can create a financial involvement plan that schedules regular, incremental tasks for the less-involved partner to take on. Start with small, low-risk tasks like reviewing monthly expenses or tracking a particular bill, and gradually increase responsibility over time. This approach allows for a smoother transition and builds confidence for the partner who is less familiar with managing finances.
- Try gamifying financial education and involvement by setting up challenges with rewards. For example, the partner who typically doesn't handle finances could be tasked with finding a certain amount of savings in the monthly budget. If successful, they could choose a fun activity or purchase for the family. This makes the process engaging and provides an incentive to learn and participate.
- Implement ...
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The Couple's Financial Situation and Transition Plans
Lashawn and David's financial habits are scrutinized as they re-evaluate their spending in light of significant debt and Lashawn's upcoming retirement.
High-Income Couple Unclear on $5,000 Monthly "Guilt-Free Spending"
The couple was unsure about their $5,000 monthly "guilt-free spending," with the expenditures including eating out frequently, shopping for clothes, and going on vacations, such as two cruises last year costing thousands of dollars. Despite having this allowance for discretionary spending, Caller #1 suggests that if there’s extra money, it often goes towards paying more on their bills rather than being entirely discretionary.
Couple Has Significant Heloc and Credit Card Debt, Which They Have Been Paying Down
Lashawn and David have a home equity line of credit (HELOC) debt of $25,000 and credit card debt of $6,700. They are currently paying $950 a month towards their debt, occasionally putting extra money, sometimes $1,000 or $1,500, to pay down their credit card and HELOC debt faster. Lashawn has been quietly putting thousands of extra dollars towards this debt. Additionally, they are paying off a house with about ten years left on the mortgage.
Lashawn's Retirement Requires Financial Re-evaluation
Lashawn has opted to retire early from her federal job due to health concerns. This decision is causing her anxiety as she is concerned about maintaining their lifestyle, paying bills, and ensuring her family is cared for after her income decreases. With this forthcoming retirement, there is an acknowledgment that financial re-evaluation is necessary.
Ramit Helps the Couple Create a Plan Prioritizing Debt, Savings, and Intentional Spending
Ramit proposes that Lashawn and David knock out their debt in approximately a year, which would free up $2,500 of cash flow monthly. Ramit acknowledges the couple's unclear financial habits and suggests a consultation with a flat fee financial advisor for various retirement scenarios. Although not explicitly stated, Ramit's dialogue implies he advises the couple on ...
Here’s what you’ll find in our full summary
The Couple's Financial Situation and Transition Plans
Additional Materials
Clarifications
- A Home Equity Line of Credit (HELOC) is a type of loan where the borrower uses their home as collateral to access funds. It allows borrowers to borrow money up to a certain limit, similar to a credit card, and repay it over time. Failure to repay a HELOC can lead to foreclosure since the home is used as security for the loan. HELOCs typically offer lower interest rates compared to other types of loans due to being secured by the borrower's home.
- Ramit Sethi is a well-known personal finance advisor, author, and entrepreneur. He is known for his practical financial advice and has authored books like "I Will Teach You to Be Rich." Ramit often helps individuals and couples with financial planning, debt management, and wealth-building strategies through his courses, blog, and consulting services. His approach focuses on automating finances, optimizing spending, and investing for long-term financial success.
- Cash flow is the movement of money in and out of a business or household, indicating how much money is available for spending and saving. Fixed costs are expenses that remain constant regardless of production levels or sales volumes, such as rent or mortgage payments, insurance premiums, and loan payments. Understanding cash flow helps in managing finances effectively, while fixed costs are essential for budgeting and financial planning.
- Ramit suggests a plan for Lashawn and David to pay off their debt in about a year, freeing up $2,500 monthly. This strategy involves aggressive debt payments to reduce fixed costs significantly. Additionally, Ramit advises seeking guidance from a financial advisor for retirement planning. The couple is encouraged to create a ...
Counterarguments
- The $5,000 monthly "guilt-free spending" might be excessive given their debt situation, and re-evaluating this amount could be necessary for a more aggressive debt repayment strategy.
- While paying down debt is important, the couple should also ensure they have an emergency fund in place to avoid further debt in case of unexpected expenses.
- Lashawn's retirement and the associated financial concerns might require more than just a re-evaluation of spending; it could necessitate a complete lifestyle change to live within their new means.
- Ramit's plan assumes that the couple can maintain discipline in reducing their discretionary spending, which may be challenging given their past spending habits.
- Clearing the debt in 12 months is an ambitious goal and may not be feasible without significant sacrifices, which could impact their quality of life.
- Reducing ...
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Lashawn's Emotional and Health Considerations
Lashawn grapples with a terminal cancer diagnosis which brings financial and emotional challenges for her family's future.
Lashawn's Terminal Cancer Diagnosis Adds Challenges to Family's Transition
Despite the emotional impact of her terminal cancer diagnosis, Lashawn is focused on her family's financial stability.
Lashawn Focuses On Finances Over Emotions and Mortality
Lashawn, who has been diagnosed with incurable metastatic breast cancer, is described as a master of compartmentalization who is focusing more on financial planning and stability for her family over the related emotional and health considerations. In conversations, Lashawn's sense of creating a safe environment for her family is tightly linked to ensuring bills are paid, attributable to her experiences when she was younger. Ramit Sethi observes that Lashawn is avoiding dealing with her mortality by concentrating on financial concerns, which she can control and optimize.
Ramit Urges Lashawn to Expand Her Identity Beyond "Financial Leader" to Prioritize Personal Needs and Family Joy
Ramit Sethi encourages Lashawn to change her focus from being a "project manager" obsessed with finances to beginning to enjoy life, like guaranteeing lunches with friends and date nights. Ramit notices Lashawn's control issues around money that create a sense of safety for her, emphasizing the limited time she has left to enjoy personal experiences and family joy.
David Aims to Actively Support Lashawn In Managing Family Finances During Transitions
David understands Lashawn's desire for him to be more involved in financial planning and expresses willingness to assist.
Couple to Work With Financial Adviso ...
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Lashawn's Emotional and Health Considerations
Additional Materials
Actionables
- You can create a joy-focused financial plan by setting aside a "happiness budget" for experiences or items that bring you and your family joy each month. This strategy involves allocating a portion of your income to activities that enhance your quality of life, such as family outings, hobbies, or vacations, ensuring that while you save and invest for the future, you also prioritize present happiness.
- Establish a family financial playbook by documenting all your financial processes and accounts in one place. This could include account details, bill payment schedules, and investment strategies, making it easier for a partner or family member to manage finances during difficult times. By doing this, you ensure that your loved ones are not left in the dark about financial matters and can step in seamlessly if needed.
- Engage in regular financial date nights ...
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