231. “Our $200k in crypto is gone. Now we live with his mom.”

As financial commentator Ramit Sethi delves into a couple's financials, it becomes apparent they are facing dire straits with a significant negative net worth, excessive guilt-free spending, and a lack of a concrete financial management plan.

Couple's Assets, Investments, Savings, and Debt Show -$25,000 Net Worth

Caller #1 and David came into money through cryptocurrency investments, which they spent liberally on lavish items and upfront rent payments. Unfortunately, their current assets, investments, and savings don't make up for their debt, which includes a substantial car payment, leaving them with a total net worth of -$25,629. Amidst the emotional turmoil post the demise of David's father, both David and his mother indulged in the purchase of new cars, adding significantly to their liabilities. Now with no steady income stream and their finances tied in unstable crypto assets, their irresponsibility with investments as a form of consistent income has left them in financial instability.

High 55% Fixed-Cost Ratio due to No Rent

A surprising element is their elevated fixed cost ratio, which stands at 55% of their budget even though they live rent-free with David's mom. Without this housing benefit, their financial health would spiral out of control to a fixed cost ratio of between 75-85%, rendering their situation unsustainable. According to Ramit Sethi, their fixed cost ratio is within an admirable range, but when accounting for additional expenses like their hefty car payment and gas, it strays over 60%, revealing a precarious balance.

Couple's Guilt-Free Spending Likely Exceeds $1,312/Month

The couple admits to guilt-free spending totaling $1,312 monthly. However, with frequent dining out habits, including David eating out five times a week and Angela up to four times, plus a joint meal and their daughter's biweekly treats, it's likely their actual expenditures far exceed their stated amount. Sethi argues they're fooling themselves about their spending habits, particularly on meals out, as they're not tracking their expenses adequately.

Couple's Unplanned Finances Cause Inefficiency

The couple's unplanned and improvisational approach to money management leads to inefficiency and potential harm to their financial future. They lack a tight ...

Angela and David, along with their young daughter, are living in cramped quarters with David's mom, which is wreaking havoc on everyone's stress levels and finances.

Cramped Two-bedroom House With David's Mom, a Child, and two Adults Creates Stress

Angela and David, with their five-year-old daughter, are all packed into one room of a two-bedroom house, belonging to David's mom. The tight living conditions and disruptive dynamics are a significant source of tension and stress. Angela rates her stress at a ten and notes that both she and David's mom are very tense and stressed, leading to frequent arguments.

David's Mom Jeopardizes Finances to Aid the Couple

Throughout the last year, David's mom has been shouldering all of their expenses, putting herself in a financially precarious position. By taking on $90,000 of credit card debt and a second mortgage, some of which was to support Angela and David, she has compromised her financial stability. Ramit Sethi identifies that David's mom is now in serious financial trouble, underlining the unsustainability of the current situation.

Couple Hasn't Offered Financial Help to David's Mom

Despite the strain on David's mom, there is no indication that Angela and David ...

Angela and David are a couple who find themselves at a financial crossroads, facing the harsh realities of their aspirations clashing with the feasibility of achieving them.

Couple's Home-Buying Goal Unrealistic Given Finances

The dream of buying a home is a significant milestone for many, and for Angela and David, it's no different. Yet, the aspiration to provide a permanent home for their daughter is not rooted in the reality of their financial situation. After moving in with David's mom and with plans to build a house on her land, they find themselves unprepared as the offer is retracted and they accumulate $40,000 in debt. Renowned finance expert Ramit Sethi explicitly tells the couple that buying a house would put them in an "extremely precarious financial situation." Recognizing this, they are open to renting as a more viable option.

Lacks a Clear, Actionable Plan to Achieve Goals, Relying On Vague Ideas and "Wishes"

Angela and David's aspirations, such as moving to Colombia or Colorado, lack structured planning, accounting, or actionable steps, leading to a mismatch between what they express wanting and their actions. They are described as classic dreamers without a practical course toward their goals. Even discussion regarding Angela's potential income increase is vague and lacks specificity. Sethi advises that every financial decision should contribute to a concrete plan, which is crucial for them to transition out of David's mom's place by their target date of next June.

Couple Must Assess Expenses to Create a Sustainable Budget

The couple’s conversation about finances indicates ...

Angela, a birth and postpartum doula, showcases a strong desire for continual learning and self-improvement. However, this passion for personal development has evolved into a costly pursuit that contrasts starkly with her current financial and career situation.

Angela Invests In Unquantifiable Personal Development Courses and Retreats

Angela has spent about $15,000 over the last five years on various personal development activities, including classes, conferences, and courses. She has taken a retreat in Colombia which cost her around 2.5 million Colombian pesos, which, with additional expenses, amounted to approximately $2,400. Despite gaining new skills, Angela acknowledges that she has not been practical in applying them.

Angela is considering attending another retreat, the six-day event she has postponed for years, which is estimated to cost $3,000. Although Angela hasn't signed up for this retreat yet, there's an ongoing discussion about setting money aside for it. This indicates her continued interest in such activities, even as they strain her finances.

Self-Investment as Procrastination In Addressing Career and Finances

The conversation between Angela and Sethi reveals that her pursuit of constant learning may be a form of procrastination from making necessary financial and career decisions. Sethi suggests that Angela needs clear boundaries for spending and proposes establishing a personal spending bucket for her to know exactly how much she can spend on personal development without undermining her overall financial goals.

Angela's interest in a new retreat, especially in light of past financial strains such as having to request a deposit back from a retreat in Columbia, is pointed out by David as potentially just avoiding dealing with financial realities.

Angela Can Boost Doula Income By Expanding Her Client Base and Raising Rates but Is Hesitant

Despite the lack of specific information in the transcript regarding expanding her client base and raising rates, Angela acknowledges the potential for increasing income by taking on private clients instead of focusing on insurance clients.

David estimates that if Angela handles three births a month, her earnings would substantially increase. However, Angela expresses doubts about her ability to take on more work due to log ...

David's Financial Security vs. Angela's Struggles: Different Perspectives and Behaviors

David and Angela, a couple grappling with money management issues, exhibit starkly different reactions and behaviors when it comes to financial stress. While David maintains a more neutral perspective, aiming to stay unstressed about their financial predicament, Angela is experiencing a high level of stress. An incident from their past illustrates their challenges: despite having up to $100,000 in investments when Angela met David, they lived extravagantly on just the investments, ultimately squandering the entire sum. David's stress is influenced by Angela's desire for her own space and the pressure she endures, which also affects David's stress levels at work.

Family Histories and Upbringings Influence Couple's Financial Decisions

The couple's financial decisions are deeply influenced by their upbringings. One caller reflects on growing up in a financially secure environment provided by professional parents, but also mentions how their mother's frugal upbringing led to overspending tendencies. Angela's childhood was shaped by her mother’s need to take financial control due to her father's irresponsible monetary habits, which now mirrors Angela's reliance on David's mother—similar to how she depended on her grandmother. The recurring pattern of financial behavior includes incidents like not being able to pay for private school, which Angela associates with personal failure because of a distressing experience in her second-grade caused by her father's failure to pay her school fees.

Current financial issues reflect past experiences; for instance, David's mother is now rescuing them financially, much like Angela's grandmother had to in the past. David, with an engineering background, prefers precision in financial issues. Contrarily, Angela has internalized a perception that she can't handle numbers and tends to avoid financial responsibilities.

Addressing Ingrained Mindsets to Improve Financial Habits

Reflecting on the influence of their families, the couple acknowledges that their present financial mindset replicates past patterns. Angela, who was taught to see money as a source of stress, now strives to teach her daughter about money's abundance, despite her ongoing emotional difficulties with finances. This attempt at imparting a positive financial mindset to her daughter is a ...