275. "We escaped debt so why are we still spending like this?"

Money For Couples with Ramit Sethi

Mason and Becca, a couple who recently paid off their debt and sold their home, now face the challenge of managing $100,000 in savings witho

Key takeaways

• Financial success doesn't automatically lead to confidence; many people feel intimidated by wealth due to past debt and poor money habits.

Main topics

• Debt recovery and post-debt financial mindset

Notable quotes

"We've made debt normal. We should not be living this way."

Conclusion

Mason and Becca's journey illustrates that escaping debt is only the first step; true financial

Transcript preview

Speaker 2 (0:00) Here's my question for you today. Do you know exactly what you need to do to reach your first $100,000 in investable money? Most people don't. That's why I created The Road to 100K, a step-by-step program that shows you exactly what to do, where to focus, how long it's going to take to get to 100K, and even how to accelerate your timeline. You can learn more at IWT.com slash Speaker 1 (0:27) 100K. Vacation, debt, little purchases, odds and ends things, debt. We've made debt normal. Speaker 3 (0:33) We should not be living this way. How Speaker 2 (0:36) do you decide what? you spend money on? Speaker 3 (0:39) Just buying things that we see that we want, going to Target, coming out, spending two, $300, extravagant dinners. When we're done with that, let's go bar hopping and just running up bills. Speaker 2 (0:50) You ended up with 100K in your bank account. Is that just sitting there right now? Speaker 3 (0:54) Yes. What Speaker 2 (0:55) does that feel like? Speaker 3 (0:56) Very intimidating. I don't want to be tempted to spend it. Speaker 2 (0:59) You're creating these behaviors to shield yourself from yourself. Yes. Speaker 3 (1:03) From the start, we had really bad money habits. We came from very similar upbringings. Mom Speaker 1 (1:09) or dad ever tell you to save? Wasn't a lot of open discussion about finance. No Speaker 3 (1:13) advice at all. We don't know the right steps to not get back into that creep of just swiping Speaker 2 (1:21) the card. To change your entire relationship with money, you would need to trust yourselves. Right now, you're Speaker 1 (1:28) a little wary of Speaker 2 (1:29) yourselves. Speaker 2 (1:32) Imagine you woke up tomorrow morning and you had $100,000 extra in your bank account. How would you feel? Would you be happy? Or might you feel scared, even anxious, because you don't know what to do with the money? Mason and Becca, 34 and 32 years old, used to be in debt. They have diligently paid it off. They even sold their house. And now they have $100,000. But what are they supposed to do with it? Mason applied to be here on the podcast and he said, we've spent the last three years buckling up and fixing past mistakes. Now that we've relocated to Florida and have $100,000 from our home sale, the challenge has shifted from paying off the past to protecting the future. Let me take a look at their numbers. I'm going to pull up their conscious spending plan. Assets, $11,000. Investments, $204,000. Savings, $124,000. Debt. $13,600. Total net worth, $326,567. Fixed cost, 71%. That's too high. Investments, 2%. Savings, 13%. And guilt-free spending, 14%. I have questions. This is actually quite interesting because you can tell that the day-to-day spending, the fixed cost, the savings, the investment, is out of alignment. with their net worth. And so we need to fix this so that they don't simply depend on a windfall, but they fundamentally change the way they treat money. That's what I'm going to try to do, speaking with Mason and Becca. Let's take a look at the application. So you wrote, for a long time, we lacked a unified plan, which led to significant debt. Tell me more about that. Speaker 1 (3:14) So we've had a few years of debt that we've been working hard to pay off. And we're now toward the end of that. So it's not something that we ever want to go back to since we're so close to the end of it being completely green. And we don't know the other side of that. Do you feel the same, Becca? Speaker 3 (3:34) Yes. I think we've been together for a very long time, since 20 years old. And we've, from the start, we had really, really bad money habits. We came from very similar upbringings of not having a surplus of money growing up. So I think when we started working and getting our career started, that money in our head was a reward for us to spend and to get into really unreasonable expectations of what we should be having, which is what led to a lot of debt that we got into. It wasn't until about three years ago that we, I guess, got a little bit more critical thinking on, you know what? We should not be living this way. And we need to get a handle on how we're spending our money. Speaker 2 (4:27) Take me back to that decision three years ago. Where were you? What happened at that very moment? Speaker 3 (4:33) The conversation really came up because we wanted to move out of state. And we didn't think it was possible because we were like, we don't have enough money in the bank to be able to move. But then we started to question, why don't we have enough money? Our salaries look comfortable enough to be able to do something like that. Why are we... not feeling that way. And that's when I think we really uncovered I had credit card debt, he had credit card debt. And so when we looked at it together, we're like, we have to do something about this. If we don't want to be the same place that we are now in five years, we have to make a change. So it was really starting to go, we need to hold ourselves more accountable and find a better discipline for ourselves than just... Speaker 3 (5:24) spending a ton of money and not having any plan, any budget for it. Speaker 2 (5:28) Wow. How did that conversation and series of conversations feel? It Speaker 1 (5:32) was honest. It was very, it was very brutal. Yeah. Very revealing. You took the lead and it was, it was a brutal conversation. It was a good conversation. It was no like arguments. It was just very factual. Like in hindsight, it was very much of a sit down that you recommend. Speaker 2 (5:47) Yeah. Speaker 1 (5:47) It was just our first one. So we didn't know the guidance, but it was. very eye-opening with what we had, you know, what we both owed. We put that together. We sat down, hashed out a plan, and it came up. It came through. Speaker 3 (5:59) I think I felt a little bit of disappointment in ourselves because we have worked really hard, and we grew a lot in our careers over time. And then realizing that we did not set ourselves up for success. Speaker 1 (6:12) So Speaker 3 (6:13) it was a—and I think that was part of our avoidance for a long time is go— like pretending like we are doing okay. We are setting ourselves up for success. Because I think on the outside looking in, we did look successful. We owned a home. We had, you know, our cars. You know, we were living the lifestyle that we wanted, but in our bank accounts, it wasn't reflecting that way. Speaker 2 (6:36) Wow. Speaker 3 (6:37) I Speaker 2 (6:37) wish more people talk like this. It's quite amazing. Speaker 3 (6:41) I've become very self-aware within the past few years about this. Speaker 2 (6:44) I like what you said about the fact that you had progressed in your careers and Speaker 3 (6:48) you Speaker 2 (6:49) had the nice accoutrements of things. You had the cars and the house. But when you look in the bank, when you literally say, what do we have? What do we have? It wasn't matching up to what your expectations were. I think that's really powerful. Okay, so you had this conversation. Speaker 3 (7:06) What'd Speaker 2 (7:07) you do next? Speaker 3 (7:08) We... Took out a 401k loan. Huh? I know. Okay. That's very controversial. Hadn't found my book Speaker 2 (7:15) by then. Okay, fine. We Speaker 3 (7:16) did. Just to be honest, we took out a 401k loan. We basically put our credit cards away. We're like, we're not using them at all. And we very aggressively decided to pay it off. Now we have probably close to $50,000 in credit card debt. We are down to $5,000 now. Speaker 2 (7:34) Whoa. Speaker 1 (7:35) Amazing. How's that feel? Speaker 2 (7:38) Great. Speaker 1 (7:38) Feels good. That's what I'm saying. It feels really good to be so close to green and nervous at the same time. Nervous because what? Speaker 3 (7:48) We have never had the education or the tools to know how to not put ourselves there. Speaker 2 (7:56) I Speaker 3 (7:56) think both of our families very much normalized not having money. Being in debt is very normal and everybody is. Speaker 3 (8:05) We don't know the right steps to not get back into that creep of just swiping the card and moving on with our day. Okay. Speaker 2 (8:15) This is very helpful to know. Now, you took the hard look in the mirror and you said like, we got to change the way that we do. So you took the 401k loan. You started paying off the debt. Yes. Speaker 3 (8:25) Did Speaker 2 (8:25) you know when the debt was going to be paid off? Did you calculate that? Speaker 3 (8:29) Yes. Yes, we had a plan. I think initially the 401k loan was for 18 months. We paid it off in 12. You Speaker 2 (8:36) paid off the loan? Speaker 3 (8:37) Yes. The loan is gone. That is gone. Speaker 2 (8:39) This is quite rare, by the way. So one of the reasons that nobody in the financial industry recommends people take a 401k loan is that people who take 401k loans often, sometimes, usually have bad financial habits. So they take the loan, they don't change their habits, and then they never pay the loan back. So they basically screwed themselves today. and tomorrow. Speaker 1 (8:59) So Speaker 2 (8:59) the fact that you paid it off is rare. Very impressive. Don't do it again. Speaker 3 (9:04) We don't want to. We did not want to. I completely agree. Speaker 1 (9:07) It was a good option at the time. I'm glad we got a chance to pay it off early. If that is one of the top five Speaker 2 (9:12) financial mistakes you make, okay. Like you fixed it. It's behind you. Yes. Speaker 3 (9:17) Are Speaker 2 (9:17) you married? Speaker 3 (9:18) Yes. Any Speaker 2 (9:19) kids? Speaker 3 (9:20) One kid. Speaker 2 (9:20) How old? Six Speaker 3 (9:21) years old. Speaker 2 (9:22) Six years old. Okay. Got it. So You also sold your house, I understand. Speaker 3 (9:26) Yes. Speaker 2 (9:27) Okay. How much did you buy it for? How much did you sell it for? Speaker 3 (9:29) We initially bought it for $169,000. We sold it for $289,000. $289,000. Yeah, $289 Speaker 2 (9:37) ,000. And then did you subtract out all the fees and transaction costs and stuff like that? Speaker 3 (9:43) Yes. So we ended up making about $113,000 off of the house. Speaker 2 (9:47) Got it. Okay. All right. So you ended up with $100,000 in your bank account? Speaker 3 (9:51) Yes. Speaker 2 (9:52) Is that just sitting there right now? Speaker 3 (9:53) Yes. In a HYSA. Speaker 2 (9:55) Whoa. What does that feel like? Speaker 3 (9:57) Very intimidating. Speaker 2 (9:59) I made Speaker 3 (10:00) sure, you know, I don't even, I never even activated the card for that account because I don't want to be tempted to spend it. So Speaker 2 (10:08) you're kind of creating these behaviors to shield yourself from yourself. Correct. Both of you? Yes. We both have access to that SoFi account. I'm not touching it. Speaker 3 (10:18) But yeah, we're just not touching it. Okay. Speaker 2 (10:21) Okay. I don't mind that. I don't mind it. I would like you to get to the point where you trust yourself. Sure. But I understand that right now Speaker 3 (10:28) you're Speaker 2 (10:29) a little Speaker 1 (10:30) wary of yourselves. Yes. Speaker 2 (10:32) Look, Speaker 1 (10:33) if you're sitting here Speaker 2 (10:33) saying, boo-hoo, what am I going to do with an extra $100,000? I get that. But consider this. They make $150,000 or $60,000 a year. It is very reasonable for a couple making that much. to eventually have $100,000 liquid, just as it is going to be for you to have more money in a savings account and an investment account than you ever thought possible when you're following my system. So I want you to pay attention to this and not dismiss it because whether it's today, tomorrow, next year, or 10 years from now, you are going to have more money than you ever thought possible. And you may not realize it, but you are probably going to feel the same way about money then that you do now. So pay attention because this is your future and you can apply what you learn today. I Speaker 1 (11:25) want to understand Speaker 2 (11:26) a little bit more about how money works in your relationship. Take me through how the money flows. Do you both work? Where does the money go? What happens? Speaker 3 (11:34) Sure. So we do both work. We've always just... put our money together in one account historically. And all of our money just goes to all of our bills. Speaker 2 (11:44) And how do you decide on what you spend money on? And I'm talking about for the entirety of your relationship, not just the last three years. Speaker 3 (11:54) We just swipe the card. Speaker 2 (11:55) Okay. So groceries, eating out, trips, kids. No budget. Speaker 3 (12:00) Yep. We don't talk about it. We just swipe. It's Speaker 2 (12:03) in there. We get it. We get it. And then what happens? once the bills come? Speaker 3 (12:07) Well, I think luckily we've never been in a position where we don't have the money to pay our bills. Well, you Speaker 2 (12:13) were in credit card debt. Speaker 3 (12:15) But it was never for bills. Speaker 2 (12:16) Oh, what was Speaker 1 (12:17) it for? Speaker 3 (12:18) Very mindless spending. Speaker 1 (12:20) What? That's bills. We made it bills. We made debt normal. So vacation, debt. Little purchases, odds and ends things, debt. Okay. And it added up. And I guess that our habit was Speaker 3 (12:31) just paying the minimum payment. So in our head, we are... paying it off. Speaker 2 (12:36) Got it. And just so I understand, because do you see trips or groceries or whatever not as bills? I Speaker 3 (12:44) guess I don't. Speaker 2 (12:45) Yeah. It's interesting. Speaker 3 (12:47) In my head, I think it's more, you know, mortgage, car payment, utilities. Okay. Interesting. Speaker 2 (12:52) I would say I see all of it as bills. Okay. Mortgage, Fritos, any of it, right? Disneyland. It's all bills. Some of them are. static. They're automatic. Some of them are variable because we're charging different amounts. But at the end of the month, they all transform like a fairy tale. They all end up being bills. Sure. And then I got to find a way to pay them off. Speaker 1 (13:18) Okay. Speaker 2 (13:18) So Speaker 1 (13:19) you essentially Speaker 2 (13:19) didn't track most of your spending except for the big ones. And was there ever disagreements about spending? I Speaker 3 (13:26) would say on a very minor level. You know, for me, like when we go grocery shopping, I'm a huge, let's find the best deals. I'm going to coupon cut everything where he will just go without any thought to it and just buy whatever it is. Speaker 2 (13:41) So in general, Speaker 3 (13:42) when Speaker 2 (13:44) we look at your entire relationship with money, Speaker 3 (13:46) would Speaker 2 (13:47) you say you are frugal, extravagant? Like, what do you focus on? What's your thing? Like, for example, I tend to spend money on convenience. That's like my thing. What is it for you? Speaker 3 (13:59) For me, it would be like clothing and beauty products and jewelry. Got it. Self-care. Yes. Okay, Speaker 2 (14:05) cool. That's your money dial. Okay. Mason, what about for you? Speaker 1 (14:09) I do like to get out of Speaker 2 (14:11) the Speaker 1 (14:11) house. We work from home. So getting out and being able to go eat somewhere at some of the restaurants we have in our area, I like to do that. It's something that we can do all together. It's something specifically for my son. It's something specifically for her. What would be an example? Speaker 2 (14:24) Because it's like going to the park or like going to Disney World for seven days. Definitely do Speaker 1 (14:29) Disney World. So Speaker 2 (14:31) I'm definitely a Speaker 1 (14:32) big fan. Speaker 2 (14:32) How many times a year? Speaker 3 (14:34) We have annual passes. We go Speaker 2 (14:35) all the time. How much is that these days? Speaker 3 (14:37) About $3,000. About $3,000 for Speaker 2 (14:39) all three of us to go. Oh, total. All Speaker 3 (14:40) the Speaker 2 (14:40) time. Total. Okay, $3,000. That is just the park passes? Speaker 3 (14:45) Correct. Speaker 2 (14:46) Okay. Do you do the thing where because you have annual passes, you go for like two hours and you're just like, all right. Absolutely. I'll Speaker 3 (14:51) get Speaker 2 (14:51) off work, do a ride. We Speaker 3 (14:52) get to fully enjoy it and not have to be exhausted at the end of the day. Speaker 2 (14:56) Wow. Okay. You mentioned that you are afraid of going back to mindless spending. Tell me a little bit more about that. Speaker 3 (15:06) We have really bad habits. Just going to the mall, many shopping sprees, just buying things that we see that we want. just going to Target, going in there for no reason and coming out, spending two, $300 extravagant dinners for a date night. And then, well, when we're done with that, let's go bar hopping and just running up bills, you know? Speaker 2 (15:30) What's an example of something you buy that's like kind of expensive and kind of mindless? Botox. Okay. How much does that cost anyway? Speaker 3 (15:45) Um, I don't get a ton. So maybe like $200. Speaker 2 (15:48) $200 per what? Speaker 3 (15:50) Uh, three months. For Speaker 2 (15:51) three months. Okay. All right. Oh, I mean, look, I never saw a line for Botox in a CSP, but I love it. Why not? All right. You spend on the mall, spend on eating out. And just to give me a sense of like a date night, walk me through that. Speaker 3 (16:06) Sure. So. have to hire a babysitter. So that's the first. Usually it's going to be for a good five, six hours. We'll make a dinner reservation. Dinner is going to cost $2.50. We're not ready to go home yet. So let's go somewhere else. Let's go try out this bar that we've been looking into. So we'll go there, get a few drinks. Maybe we'll go to another one. Or we'll go out with friends and meet up with them. That just gets way more expensive because we stay out later with them. And Speaker 2 (16:37) then in your own relationship, the two of you, is one of you like, hey, we maybe shouldn't do that? Or are you the opposite where you're both like, yeah, get it. Let's get that. You should get that. Are you hyping each other up? Speaker 3 (16:50) We egg each other on a lot when it comes to purchases. Like Speaker 2 (16:54) just get it. Like you like it. You should get it. I would agree with that. Speaker 3 (16:57) You look Speaker 2 (16:58) good at it. Both of Speaker 3 (16:59) us. Got it. Speaker 2 (17:00) Can you think of a time where... you were not on the same page about Speaker 1 (17:05) money? I think our timelines of maybe buying a house are different. Speaker 2 (17:09) We Speaker 1 (17:09) have sold a house. Now we have money from that. Do we want to buy a house immediately? Do we want to continue to rent to explore the area? We don't know. I'm on the latter side of that. I want to kind of wait and explore. You also want a house because that's part of your rich life. And Speaker 2 (17:25) that's fine. Okay. I like that. Have you had a discussion about exact timelines? Speaker 3 (17:32) Initially, we were thinking when we moved to Florida, it was going to be within a year. I think now that we're almost close to the year, we've set that expectation that it's not the right idea. I personally would like to do it within the next five years. He's more open-minded to it. It's kind of based off of how our finances look. Speaker 2 (17:51) Oh, good. Yeah, biggest purchase of your life. Finances should be Speaker 3 (17:55) probably Speaker 2 (17:56) the number one, maybe the number two decision. Okay, good to know. What's the plan for the $100K? Speaker 3 (18:03) Initially, it was to buy a house. And then I think we realized that if we just put that down as down payment, we'd be back to not having any savings. What? Speaker 2 (18:14) I thought that you're always supposed to buy a house immediately. Speaker 3 (18:18) Well, you know, that's what our realtor was trying to get us to do. Oh, the Speaker 2 (18:21) realtor. Speaker 3 (18:22) I know. They're not our friends. They're not your friend. Speaker 2 (18:26) Your realtor is like, they might be nice. They might buy you a nice lunch. But they are there to make a commission. I take a real job. That's how far I trust them. Speaker 3 (18:35) They're there to do a job. Speaker 2 (18:36) You work for me. I'm going to be polite to you. But that's about it. We're not going to, you know, go watch a play together. All right. So you realize that. Speaker 3 (18:44) So now it's just sitting there and we really want to find out what we should do with it. Okay. Speaker 1 (18:50) Did you ever think you'd have $100,000 just sitting in your account? Speaker 3 (18:52) No. Never. Speaker 1 (18:54) Not until way later after the house was paid off. and way down the road. That's going to be much further down. Like 20, 30 years from now. For sure. Now that we're out, we just don't know what the next step is for that. Because I agree. I think I want you to, I'd like to get you another house into a backyard with a pool and all the things. But also it could be like a good. starting point for different financial aspects, different brokerage accounts or different avenues. You mentioned something in the application about a Speaker 2 (19:27) business. Can you tell me about that? Speaker 1 (19:29) Yeah, I had an idea about starting an arcade. There was a small 800, 900 square foot underutilized building at the complex that we're actually staying in. And so I pitched them and sent them a letter of intent to... rent the space and introduce arcade. Is it like Speaker 2 (19:45) an Speaker 1 (19:45) arcade with video games? Yeah, just video games with the tap pass. Got it. What do you think of this? Speaker 3 (19:51) I think it was a good idea to help make some passive income because it could, the way that the idea was set up was to make it staffless in a very high volume vacation area. So I was on board for the idea, but I think it was just throwing out the idea, man, I would love to get some passive income. With what capital? So Speaker 2 (20:11) no Speaker 3 (20:11) plan. Got it. Speaker 2 (20:13) I'm picking up a lot of clues that their relationship with money is not really that healthy. I'm hearing phrases like passive income, which can be a big sign of a dreamer. I don't like the phrase passive income because I know the truth about what it takes. This idea that's peddled online of you can just plop a quarter into some machine and it will just print out money passively for the rest of your life. Guys, it's bulls**t. That's not how it works. In order to generate passive income, it takes a lot of work and a lot of time. And much of the time, it doesn't even work. If your goal is passive income, to me, it's an immediate red flag because it means you're trying to effectively get rich quick. So as I'm getting these clues, I'm starting to wonder, are they actually in a healthy position or Speaker 3 (20:59) not? Speaker 2 (21:00) I'm actually really glad that we get a chance to talk because if you remember, they were worried they were going to slip back into debt. And based on what I'm hearing, I think that might actually be a realistic possibility unless they make a change. We're going to look at the numbers right after this. Two misconceptions about Ramit Sethi. Number one, he doesn't like Italian food. That's not true. I like pizza. Number two, that I'm categorically against all financial advisors, also untrue. I'm simply against paying a percentage of your portfolio to an advisor. I would rather you pay a simple flat fee or an hourly rate. That is where our friends at Facet come in. Facet charges a flat membership fee for financial planning, never a percentage of your assets. And you get access to a team of CFP professionals, always a CFP, always a fiduciary, who help you create a personalized financial plan that meets you where you are. They can help with big things like investments, moving across the country, saving for kids' college, traveling in retirement, estate planning, all of it. Your financial plan should match up with your rich life vision. and Facet can help make that possible without the exorbitant fees. As of the date of this recording, Facet is waiving the enrollment fee for new annual members. And for my audience, Facet is offering $300 into your brokerage account if you invest and maintain $5,000 within your first 90 days. Head to facet.com slash Ramith to learn more about which membership option is best for you. Facet is an SEC-registered investment advisor. I'm not a member of Facet and have an incentive to endorse Facet as I have an ongoing fee-based contract for cash compensation based on this endorsement. All opinions are my own and not a guarantee of a similar outcome. When I was thinking about quitting my last job to do I Will Teach You To Be Rich full-time, I created a rule for myself. I couldn't go full-time with IWT until it earned at least as much as my monthly salary for three months in a row. And this really helped me take my business seriously. Now, for new business owners, I recommend something similar. And as you are getting set up, I also recommend keeping things simple by using Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10 % of all e-commerce in the US, including brands like Mattel and Gymshark. They've got ready-to-go beautiful templates for important things like your website, landing pages. Plus, they have helpful AI tools to make everyday tasks easier, like generating discount codes and enhancing your product images. It's like having a full marketing team behind you. They've got easy to run email and special media campaigns to help you connect with new customers. And everything is in one place. Tackle your inventory, payments, analytics, and more without having to jump from platform to platform. Speaker 1 (23:53) With Speaker 2 (23:54) Shopify, nothing stands between your idea and a real business. So go make it one. Start your free trial at shopify.com slash Ramit. Start your free trial at shopify.com slash Ramit. I want to take a look at your numbers. Sure. What was it like to do the conscious spending plan together? Speaker 3 (24:11) It was eye-opening. You know, I don't think we ever really sat down and looked at our numbers like that before. Did Speaker 2 (24:18) you have any disagreements with each other? Speaker 3 (24:21) When we were talking about it, I did see him going, oh, well, that doesn't matter. And I had to remind him that, no, that is a monthly cost. Oh, really? Yes. What's Speaker 2 (24:28) an example? Speaker 3 (24:29) Some of the subscriptions. So, for example, the annual pass we have to Disney. He's like, I mean, that doesn't have to go on there. And I had to remind him that that is a monthly cost that we pay on every month. That's right. It Speaker 1 (24:43) makes sense now that you mentioned it. I was overlooking it, and it's a 12-month-old interest purchase. And that makes… That makes it a cost. Yes. Your instinctive reaction was that doesn't Speaker 2 (24:52) matter. Why was that your first Speaker 1