I Will Teach You To Be Rich - 156. "We have 2 kids, 3 cars...but only 1 month of savings" (Part 2)

Episode Date: May 14, 2024

In the second half of this live-recorded conversation with Paul and Morgan, 37 and 33, we dig deeper into their Conscious Spending Plan to uncover three cars (for two adults), sporadic debt management, high pet care costs, hidden student loans, and what seems like no way out from under it all.  This episode is brought to you by: Hatch | A million things don’t want you to sleep, Hatch does. Get $20 off a Hatch Restore at https://hatch.co/ramit. Rocket Money | Stop throwing your money away. Cancel unwanted subscriptions – and manage your expenses the easy way – by going to https://rocketmoney.com/ramit. ZocDoc | Download the ZocDoc app for FREE at https://zocdoc.com/ramit then find and book a top-rated doctor today. Masterclass | For unlimited access to every class and 15% off an annual membership, go to https://masterclass.com/ramit. Fabric by Gerber Life | Protect your family today with Fabric by Gerber Life. Apply today in just 10 minutes at https://meetfabric.com/ramit. Links mentioned in this episode • “We have $22k in cc debt—but I want to renovate the house” (Part 1) Connect with Ramit • Get the Podcast Newsletter and exclusive Q&A about the show • Get Money Coaching with Ramit  • Download the Conscious Spending Plan • Listen to my book—now on Audible • Get my New York Times best-selling book • Get my no-numbers journal • Other episodes • Instagram • Twitter • YouTube • Submit a question for the newsletter iwt.com/askramit  If you and your partner have a money issue and you want my help, I occasionally select a couple to work with, free of charge. Apply for my help here. Produced by Crate Media.

I'm coming to your cities. I recently did an event in New York. It was awesome. I loved bringing real couples up on stage. We had no idea what was going to happen. The crowd loved it. I was sharing real numbers. It was a blast and I want to do it again. I'm looking to coach couples on stage at my next two live events. One in Philly on June 1st, one in Boston on June 4th. If you and your partner want help connecting over money, you want to solve a big financial challenge you have, please apply at iwt.com slash live coaching. If you and your partner struggle to come up with a shared vision of your rich life, if you have different priorities about spending and saving,

if you just can't get on the same page financially, I would love to coach you live on stage in your city. It is free of charge. You can apply at iwt.com slash live coaching. I'll see you in Boston and Philly. What happens if it doesn't last? We fall more into debt or have like a bigger issue. And then?

Then have to make emergency drastic decisions. Yeah, it affects our family. It affects our family. Like what? I guess selling the house or foreclosing on your house, not having a place like bankruptcy, I guess, right? Our lifestyle would change drastically. Like I can't carry the weight of this anymore. And like our relationship would probably crumble apart. I want like big changes. Tell him. I want big changes.

Okay. So pick something. I don't want it to be on me. Okay. Welcome back to my conversation with Paul and Morgan. Paul's 37, Morgan is 33. This is part two of our conversation. Last week we learned that Morgan is the chaser and Paul is the avoider when it comes to money. Interestingly, Paul also constantly reassures Morgan everything's going to be okay without

ever really knowing how their finances work. Now I want to point something out about today's conversation. It is striking that we're about to spend so much time talking about how they need three cars but when I finally actually look at the numbers it becomes clear how severe their situation really is. What do you think the psychology is behind debating some random purchase for hours when your financial house is on fire? Well, that's a very common thing and we're going to explore that in today's conversation.

If you're listening, check out the YouTube video, especially today, because we shot this in person in New York. Now to today's conversation, I started by asking them to imagine a different dynamic, one where they're not chasing and avoiding each other. What would it look like? I think Paul and I both having more discussions and planning and having like a clear idea of and being more intentional

about what we're spending and what we're buying. Both talking things out and having goals what we want and how we're going to get there. What would it look like and feel like to you if you actually felt good about money? Feeling like I didn't have to carry the weight of all of it. Like you do now? Mm-hmm. And that weight you're carrying, like where do you feel it? Like in my chest, in my back, like in my stomach.

And you feel that weight because what? Because it's like, it feels like it's on me to restrict or I could say, all right, whatever, let's go to Florida Let's do it and then we have a lot of fun then in the back of my head Okay, now we're in this much debt I don't even know what it is because I can't see the credit card and like we'll just figure it out Are you both carrying the weight equally? No You're carrying more of it. Yeah all of it

Probably. Yeah, I Can't feel good. No You carry that all the weight of parenting? Not all of it. I carry like the emotional weight, I think. Okay. You talk about how you kind of spread out the weight of household tasks, parenting, things like that.

Wow. I think we've got... Both nods. Look at that. We've got some... Yeah. We talk about it a lot, about it a lot. We have a lot of coordination. Wow, like two kids we both Morgan has to be at work at 730. The kids are out at the door 645 a.m. Gotta do it we move I am in New York City sometimes 7 a.m Okay back and if one of them gets sick that kind of throws everything off right?

Yeah, we talk about it and one of us has to take off. We've gotten... Hold on. How come you just came to life, Paul? That was really cool. The coordination in your nods was like in complete unison. What do you think? How come you came to life on that when I asked about, do you two coordinate and share the weight with household tasks?

I think because I'm confident that we have that down. Did you all just naturally become good parents who share coordination? No, I think we've had to have a lot of conversations about it and sharing load and different responses. It's a lot. Yeah, it's a lot. making a lot of mistakes too. Having arguments. Having arguments. And adapting.

Yeah, and adapting. Definitely. I wonder what it would be like if you were to apply that to money. What do you think? It would be less uncertainty and more maybe logistical or goal oriented? Talk to me about the specifics. Just the same way you talk to me about all the parenting specifics that you do. The kids out the house at this time and that and this and that.

Tell me the same thing for money. What would it look like? Morgan, there's this much in the account right now. This is going to this. That is going to that. That is going to that. We're going to have this left over for our vacation. We're going to have this in savings. Okay.

I love that. I'm curious. How come you just got like very almost like like a caricature. Why? Like, did it feel kind of cartoonish to you to say that? No, I think I. No, I would love to be like that. Yeah, I like the way you created that vision. That's basically right.

What do you think Morgan? What would it look like if the two of you were the same with money as you are with parenting and household tasks? I think we'd have to talk about it a lot more. Like for us to have gotten to the point where we are now with those tasks, we had to have a lot of hard conversations and really like be intentional about divvying it up. Right. Would you only talk about money at 10 p.m. at night? No. Yeah. You'd find time.

And would you be the only one bringing it up? No. What do you all make of this? This analogy between how you handle your household tasks and how you're currently handling money. Find that interesting? Yeah. I thought that moment when I asked Paul to take the parenting skills that they've developed and apply it to money was really fascinating.

Did you notice how he unconsciously shifted into that cartoonish voice? Almost like he couldn't truly accept the role that he might be someone who is skilled with money, sitting down and calmly, confidently talking about money. So he just unconsciously made it a joke. Of course, I could be wrong, but I thought it was fascinating.

What I noticed more generally is that every couple has at least one area of life where they are really good. They're totally dialed in. And for two working parents, it's often childcare. They touch base frequently. They know what's going on. They've developed contingency plans if something goes wrong. In my role, the simplest thing I can do is help them connect the dots between their area of competence and money. Because money is just skill, like any other skill. And if you work at it, you can get better at it. We'll be right back after this short break. Yes, there's a lot of things that you can obsess over for your morning routine. You can drink 10 gallons of water. You can journal for an hour, you can do a cold plunge

and then stare directly in the sun. But I'll tell you, I actually found one thing that was amazing for my morning routine, for having a great night of sleep. That actually started eight hours earlier. It was going to bed on time. And the rule is if I get to bed by 10 PM, it changes everything for me the next day. I sleep well. I have good energy. I'm in a good mood. It's awesome. If you realize your bedtime routine is not setting you up for a good night of

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at hatch.co slash Ramit. Visit hatch.co slash Ramit to get $20 off and free shipping. That's Hatch.co.huatch.co.uk. Can you guess how much people spend on subscriptions every month? Well, I have tons of conscious spending plans in my inbox. So let me just open up a few and tell you right now. $124, $270, $133, $176, and $175. That's an average of about $2,000 in subscriptions per year.

Now, do you think these people who CSPs I just read know what those subscriptions are? Probably not. In fact, 75% of people have subscriptions they have totally forgotten about. So if you are trying to reduce your spending or you wish you had more money to save or invest or even just spend guilt free every month, take a look at this low hanging fruit, unwanted or forgotten subscriptions. This episode sponsor Rocket Money can help you find them easily. Rocket Money is a personal finance app

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that you could find using rocketmoney.com slash Ramith. Before we get back to their numbers, I want you to see something. Paul, you went through the CSP and you sent a little update to me on how humbling it was to go through this process. You almost looked a little like struck after doing the CSP. Do you remember that? Yeah. When putting the numbers into the current spending plan and seeing all our fixed costs,

how it's 89% of our income was pretty eye-opening. I don't think we've put that all on paper in a long time. We're in just kind of this equilibrium, at least in our minds. Seeing that all into perspective was definitely eye-opening, nerve-wracking, stressful. When Morgan and I were doing this together, there were a lot of definitely the two of us being overwhelmed. Coming to kind of hitting walls where we feel like there's not much we can do on these fixed costs. What did you feel after you got to the end?

Stressed about money. Really? A little bit. Is that the first time you felt stressed about it? Probably one of the times where I... The times feeling more stressed about money was after completing this. Seems like a tough way to live. One partner constantly feeling stressed out by money, trying to use random opportunities

to bring up the importance of money to the other partner. Partner number two feeling like, we're good. I don't really want to talk about this. In fact, we're fine. Like it used to be worse. Now we're fine. And don't really want to talk about this. In fact, we're fine. Like, it used to be worse. Now we're fine. And then never really getting anywhere. Yeah.

Yeah. That seems like it can go on for decades. Yeah. But it's not really healthy. No. Totally. Do you think that is possible to feel good about money? I think so.

It feels like, I guess, scary. Just thinking about how to get, for me to get to the point of feeling good about money feels scary. Because? I think there's going to be a lot of changes and steps involved. This is why I always ask couples about their experience doing the CSP. Yes, the numbers help me understand their situation, but I really want to see if you did it together with your partner.

I want to see if one partner had to drag the other one to do it, or if one person simply typed all the numbers and the other rolled their eyes and said, okay, whatever, trying to get out of there as soon as they could. There's this phrase, the way you do anything is the way you do everything. And I have started to see this more and more across my life. In fact, when I mentor young people, I share this advice. I tell them, someone is always watching. If you're running cross country, your partner's noticing if you cut corners at practice. If you're at work, your boss is noticing when you volunteer for a

project. They're noticing how communicative you are. And if you deliver excellence, especially if you deliver it early. And later in some closed meeting, that boss will use that moment and a hundred others to make decisions about your promotion. You may never know, but she was watching. Ultimately though, the person watching who really matters is you. Are you performing at your best? When you show up to do the CSP, are you simply going to relive the same pattern that you and your partner always have around money? Or are you going to show up fresh, ready to make a change, and focus on connecting over

money together. Someone is always watching and we see that because the way you do anything is the way you do everything. That shows up with your CSP and it shows up throughout your financial life. What's the number on investments? One percent. So you're investing 1%, alright. And your savings?

6%. 6%, which is going towards home improvements. Basically. Whatever. Let's not even get into that. Let's go back to your fixed costs, which are at 84%. Shall we go line by line here? Sure.

Alright. Your housing is pretty low, 1800s. That's 15 or 16%, really good. That's with800. That's 15 or 16 percent. Really good. That's with taxes. That's taxes and mortgage. Very good. We have a little mortgage.

We got a good rate. It's way higher than that. Do you notice that? With the renovations and maintenance and all that? It's probably more like 30 percent if we were to actually factor in how much you spent in the last 12 months on renovations. Could you ballpark it for me? $10,000?

Yeah, probably 10,000. So this number here is not fully accurate, right? Your rent and mortgage, your mortgage amount. If you were to actually factor in all the other phantom costs, it would be at least 2,800. Yeah. So do you now see that you're basically spending every dollar you make on your fixed costs? Yeah. So, do you now see that you're basically spending every dollar you make on your fixed costs? Yeah.

That's the haunting reality. We bought this house with plans to do stuff to it and we're in it four years now and we're not where we want to be. So, like saying, okay, we need to fix, not fix the finances, fix the house now and start moving it in the direction that we want it. Because fixing the house will mean what? Gratification, I guess. Will it? In my head, maybe.

Have you ever walked in your house and felt gratified? I do. Yeah, sometimes. What kind of answers, Ellen? More gratification. I don't know. I feel overwhelmed in our house because it is like not a very functional home. Yeah.

So when you walk in and when you look around, what do you feel? Like overwhelmed and stressed. Yeah. Okay. Paul, what do you think? I would think you feel a little pride. You were able to save up a lot of money. It is a functional house.

We've lived in it for four years. It's our home. It's safe and it works. And then there are moments of like, I know, I feel like I'm being negative. There's moments of appreciation. We live in a really beautiful place. Our kids are outside. We have this lake near our house. And it is like, it has the potential to be something really great. But we've always been like holding. I've been holding on to like the potential of what it could be Yeah, versus appreciating what like fantasizing like when we bought the house. We're like, okay great. We're gonna do this

We're gonna do that. It's gonna be like this and yeah not being there yet And even like how we bought the house was really impulsive like we had the money saved But it was not like okay. We found a realtor, we're going house hunting. It was like Saturday night, we're hanging out, I'm on like Redfin or something, and I see it like, oh, look, look at this house. It's in this area on a lake, let's go look at it. We went to look at this house, the realtor was like, sharky and was like, hold on, is there any other kind of realtor?

No. Okay. But she was very much like, let me take you to these other houses. And then all of a sudden it was like, oh, we're house hunting. Yet again, I am shocked at how casually people make life changing decisions with their money. On this podcast, people routinely go out for a casual weekend looky-loo around the neighborhood and then suddenly it's like they trip and fall and buy a house. Do you know how many years I've been tracking real estate prices and calculating TCO of

ownership in multiple cities? Yet people will agonize over the extra $30 they spent at Safeway last week. I simply do not get it. Let's take a look here. You have a car payments of 775 bucks. That's gas. That's gas. We don't have car payment. That's your truck gas? Yeah. Well, we have three cars. I know.

How many driving adults in your household? Just who? Two adults, three cars. What am I missing? So Morgan, she got a new car. What car? A Supra. How much?

35. Okay. Yeah. All right. Her old car, I took it as 270,000 miles on it. It's an Acura. I use it because I commute with it. So it's kind of like the beater car. Okay. If something big goes on it, it's, we'll trash it. Okay. What's number three? The Toyota Tacoma, which was my primary car and where there's nothing out on that that

I it has 175,000 miles I just want to use it as as needed getting rid of the the beater it's but it's costing money to upkeep like we just had to take it in like it's just it feels like it's just probably get a thousand two thousand we're talking about the Acura yeah two thousand dollars okay so what's the and it takes premium gas so what's the- And it takes premium gas. So what's the conclusion? What are you doing with it?

I use it to commute. I want to get rid of it. How do you make this decision? Even when we were making this, this conversation came up, this exact one. And I think Paul speaks in very extreme, like, I need this I need this other car and it's like Doesn't feel like there's room for Negotiate negotiation. Well, it's The truck has like a small cabinet we have two kids so ideally

Commuting and like bringing the kids around it has a full backseat So have the two car seats in there for the truck for the Acura commuting and like bringing the kids around it has a full backseat so have the two car seats in there for the truck for the Acura okay he wants a truck for work no the truck I mean there's like yeah stuff I pick up or if we go we go camping a lot and it holds like a lot of stuff you guys realize you have three cars for two adults yeah we spin the wheels and like kind of frustration But there was no discussion on getting rid of the car until we started going through these numbers, right? That's when it came up in

General people don't understand that owning things especially expensive things Costs you in lots of ways that don't immediately show up on your monthly spending. Think about it. If you have an extra car, you have to maintain it. You have to pay for gas, registration. You also have the mental load of deciding which car to take and, oh no, we got to go to the junkyard to get that extra part because it's about to break on the car. You also have the opportunity cost of using that money for something else like paying off debt. Now, in this conversation, I hear two things. I hear a lot of stories and I hear a lot of sloppiness. They both admit that the $750 in the spreadsheet for debt payments is inaccurate.

Instead, they both randomly throw money at the debt along with kids and renovation. And that's why the balance never really seems to change. Then groceries. On the CSP they put $1,500 a month, Morgan admits that it's not correct. Stories and sloppiness. We also got into a bunch of details about their cats, which I'm going to spare you including in today's conversation. They wrote $300 a month, but as you can imagine, like most people, they are spending a lot more on their pets than they realize.

Overall, they're not being honest with themselves about where the money's really going. One critical thing to living a rich life is you've got to be honest. Honest with yourself and honest with the people around you. Hold that thought. We'll be right back. Think of something you've been putting off for months or even years. Like when I spoke to Charlie on episode 98 of this podcast. He thought he had sleep apnea, but he had been putting off getting diagnosed and getting

treatment for over five years. And I can kind of understand it. You're not even sure which doctor to see, then you're not sure how to choose one. And when you finally find one, it turns out they can't see you for two months. That's why if you've been putting off finding a new doctor, I want to recommend today's sponsor ZocDoc. Let me tell you a few things about them. ZocDoc is a free app and website where you can search and compare highly rated in-network

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Now this is really important to me because on this podcast, yes, I do a lot of prep before the conversation, but truthfully, I have no idea where the conversation is going to go. All I can do is show up, be present, listen really carefully and be ready to pivot like an improv specialist, even trying new approaches if the guest is not responding. Now I love being able to apply lessons from different industries like comedy, design, writing to my work. And I think that's what makes this podcast special.

With Masterclass, you can learn from the world's best. For just $10 a month, an annual membership with Masterclass gets you unlimited access to every instructor. And you can access Masterclass on your phone, computer, smart TV, even in audio mode. One thing I loved about this improv class with Amy Poehler, she said, you can't be halfway in. You can't be partially committed.

And it reminded me of the exact decision I made when I was thinking about the Netflix show. Until then, I had been very comfortable living my online life. I have this little corner of the internet. I know how it works. I have a lot of control over my business, but Netflix came around and it was like,

am I ready to give up control? And I had to think about it a lot. I talked to my wife. We talked about it together. And I realized, if I'm gonna do this, I have to go all in. I have to be fully committed, even if I don't feel ready. That principle resonated deeply with me. I think it's true in comedy.

I think it's true in business. I think it's true in life. So you can learn so many things. That's just from one course on MasterClass, and you have access to all of them. Right now, our listeners get an additional 15% off any annual membership at masterclass.com slash ramith. That's 15% off at masterclass.com slash ramith. Again, masterclass.com slash ramith. Now back to Paul and Morgan. Can I show you what

it would look like if we actually added in $1,000 a month to your mortgage? Okay. I'm going to add it right here. I want you to look at the fixed cost number. What just happened? It went up to 93%. Yeah.

From 84% to 93%. So that's a lot. Now who knows? Are you actually spending an extra $1,000 a month? Is it $800, $500? Who knows? But it's probably at, I know for a fact it's at least $500 a month because you told me you spent $5,000 on the renovation so far.

And then childcare is big. $1,440 per month. That's for one? The cost is $1,440 per month. That's for one? The cost is $1,996 per month. $2,000 a month. Okay. So one child is in child care and then we pay $180 for like before care for the older daughter.

I got you. And then there's a camp. You have to pay for camp for her now. Okay. So that's the $1,996 is camp and all the childcare. There's nothing in here for miscellaneous expenses that you haven't counted, which we know when it comes to pets, cars, home, kids. We're talking hundreds and hundreds of dollars a month in here.

If we added an extra, can we say 500 bucks a month? Would that be fair? I'm just going to add it right here under blank. If we added an extra, can we say 500 bucks a month? Yeah. Would that be fair? I'm just going to add it right here under blank. I want you to look at the fixed cost number. What just happened? It's everything. That's all our money.

98% of your take home pay is going to fixed costs. Makes sense that there's nothing being invested. There's essentially nothing being saved because that money's just going to home stuff. I mean, you did account for it here, so we could take out a little bit here. Let's drop this down to 400. All right, you're back down to 92%. Fine. And then you have 1% or $60 on guilt-free spending.

I don't think so. No, we all know that. That's just what's left over in the spreadsheet. Right. All right. So I just want to zoom out for a second. How would you describe the state of your finances right now? All drastically in bad shape.

Morgan? Yeah, it's a mess. It sounds like there's no urgency to change at all. Why would you? You have three cars. You have a house. You're renovating it. You're taking trips.

Why change? Because it's not going to last. What happens if it doesn't last? I think I get, you know, I worry. Let me ask it again. What happens if it doesn't last? We fall more into debt or have like a bigger issue and then have to make emergency drastic decisions probably. Yeah, it affects our family.

It affects our family. Like what? I don't know if super drastic would be like I guess selling the house or foreclosing on your house not having a place to live. That's not that far off. Not being able. Did you know that? From what?

From where you are today. No, I didn't know. One of you loses your job. How long do you have with the amount of cash you have in savings? No. A month. And I like on my salary I don't even afford to like live. Did you hear what Paul just said? Less than a month.

Less than a month. So you can see why it's striking to me that we're over here having a 10 minute discussion about three cars. When I'm sitting here saying if one of you loses your job for any reason, you have less than one month of money in savings. And the whole like, let's spin and spin and not make decisions. You can keep doing it, just skating closer to the edge. And hopefully things don't go bad, but if they do, they go really bad really fast. Yeah.

Yeah. Our lifestyle would change drastically and I think like I can't carry the weight of this anymore and like our relationship would probably crumble apart. Just want to pause here to reflect on the difference between what their concern was when they walked in versus now. Remember that on our last episode, part one of this conversation, we spent a ton of time talking about some random $12 a month music subscription. And now in today's conversation, we realize they are essentially spending everything

they make every single month. Most couples I speak to who are in financial trouble do exactly the same thing. They fixate on one random expense because frankly, it's easier than facing the truth of their real financial troubles. My wish for everyone who listens to this podcast is that you have the courage to get honest. Honest about how much money you're making. Honest about where the money is going. Honest about what your rich life is. If you know those things, then you can redo your puzzle and make sure the pieces are going

exactly where you want. Can we talk about your accounts? The way you have your account set up. How does it work? It was Morgan's original account and the way she describes it and I agree is she, her responsibility was daycare and that money would be in there and she wanted to make sure it was always there to pay daycare on time and was worried that if we co-mingled both accounts, there would be times where daycare couldn't get paid on time.

So reading back what I just heard, Morgan, you were concerned that you needed to split out an account just for childcare because that's, you were decided to take responsibility for that. And if you had left all the money in one account, like a checking account, you thought it just would have gotten spent. Yeah, like it, or the check, the joint checking feels very like volatile. And up until this past year, we had two kids in daycare. So the cost was about double that.

Yeah, that's a lot. What do you make of that? The fact that you had to create a separate account for childcare because you were worried that the money in your checking account would all get spent. Part of it feels validating of why I'm stressed about money. But I wish it didn't have to be that way. Does it have to be that way? No. Why is it? I think because there hasn't been conversations

or behavior change to like have that. Like we just I had to adapt to what was happening versus like us adapt to our life. Yeah. If that makes sense. Yeah, it makes sense. Yeah. It sounds like it's been pretty tough to have to basically set up a whole separate account and squirrel money away so that you know your kids are taken care of instead of having a

series of real conversations with your adult partner. What do you think, Paul? Yeah, read. Why is childcare Morgan's responsibility? Why do couples split their money up by random expenses? And why does childcare and kids clothes always fall to women? I'm so sick of this s***. I'm going to tell you exactly why this is such a bad idea.

Most couples simply slide into combining their financial lives together. They actually don't have a serious single conversation about money. So what happens is one person starts to say, I'll take care of the groceries. The other person says, I'll take care of the rent. One person pays for childcare, etc. But as things change, like instead of having one kid in childcare, they have two, or they get another car, they have higher car payments. They never talk about it.

They simply struggle more and more with one person paying a disproportionate amount, the other not paying enough, and then one day they just blow up. What if instead you actually combined your income and you could have a single bird's eye view of your finances? Wouldn't that make it easier? And wouldn't it make it easier for both of you to be able to handle life's inevitable changes together instead of separately? You have to remember that most people are not bad people. They're good. But when you set your accounts up to be separate, you will handle your finances separately. Change your accounts to be combined and you will be structurally aligned, financially

aligned and in fact, even much more intimately aligned too. It suggests two things. First of all, lack of communication about the fact that you're not talking about this in a healthy way. And second, it also suggests to me that, wow, you really put your kids first because you knew childcare needs to get covered. So I'm going to move heaven and earth to make that happen. Right.

You ever missed a childcare payment? No. Hmm. We don't really, we haven't missed payments but we're like just there, like we're just at that point. Like the credit, like my student loan debt, I just like pretend it doesn't exist. That's how I've like lived the last 10-15 years of like this doesn't exist. But on the flip side like like mortgage and taxes have always been my responsibility out of my paycheck also.

So why do you all have different responsibility? Why don't you just combine your money? I think it was an evolution of like we're not married. We had a kid like earlier and we were together like four years. And it just kind of like evolved like again like adapting to the situation not like us adapting the situation. You know like. Yeah. Yeah.

And I think it was just passed from years ago that that's just what we were doing. Morgan made X she covered this this and that from that paycheck. And I covered this, this, and that from that paycheck. You see why that doesn't work in the long term, right? One person makes more money or less money. You have expenses that come, that go, and you never really adapt it. I guarantee you never sat down and said, oh wow, like, we have extra renovation costs, therefore we should talk about how to apportion that, or child care has changed, let's talk about it.

It doesn't scale. It's not a healthy way of doing things. One person paying for groceries, one person paying for child care. It seems like it makes sense in that instant moment, but it never makes sense over the long term. Is either of you passive in real life like in day-to-day life at work things like that? No I have to as a manager I'm in charge of people so I think like I I have to be direct. I think sometimes I try to put a line between work and personal and then I regress when I get into my personal life because

that's my job to do that. He manages the budget at work. He manages projects. It's his job. Okay. It's funny because usually when I talk to project managers, they're the ones who are really proud to show me their conscious spending plan. They totally took my conscious spending plan and made it into a Frankenstein monster.

It has like 500 categories. I'm like, that's not the point of the CSP. My point is to protect you from you. But in this case, opposite. You're saying I make a ton of decisions at work. When I come home, I don't want to have to make all those decisions. Therefore, Morgan, she's good with money. I'm not good with money though.

That's where I'm like constantly feel like I'm sounding like alarms. Like I'm not good with money. I'm not good with money though. That's where I'm like constantly feel like I'm sounding like alarms. Like I'm not good with money. And have you told him that? Yeah. And have you received that? Yeah, I think I'm aware of that. But then how come your response is, we're going to be okay. We'll figure it out.

Because I'll have to figure it out, I guess. Not I guess. I will have to figure it out. When? It's been a decade. Yeah, it's like another reactive, like, just reacting to what we've made versus being pro-actors. Yes. Let's buy a house impulsively, then let's react to all these expenses that come up.

Let's get a car and then let's react. Let's have a kid. Let's everything. Yeah. Yeah. Right. You think it's possible to make big, big changes with your money and get on top of it? I do.

Okay. Yeah. What would it look like? There would have to be like a fundamental shift in how we're communicating. Yeah. The conversations we're having. Yeah. And like where we're prioritizing it.

I agree. And staying on top of it. Like not letting it, taking the initiative. Yeah. Like we could easily slip back into, well I wanted that so let's, you know, let's do that. So, let's do that. Do you think you'd be willing to make big changes right now in order to get in a healthier position with your money?

I would. I would be open to that. We can do that. It's your money. I'm simply here to help. I can't drive you anywhere you don't want to go Right. This is your rich life. So why don't we make some small changes and then let's see what happens. Okay, right Here we are at your fixed cost which we're at 92%

What would you like to change? Groceries. Groceries. Okay. Right now it's $1,500. I would like love for it to be $700. This isn't fantasy world. No, I know. This is a big realistic number that you can actually hit. I think like $800. That's basically half of what you're spending right now.

Can you do that? In the conscious spending plan, we calculated it. We calculated how much we would spend at the farmers market, how much we would spend at Trader Joe's to supplement. I think it was, we came to a thousand a month. Can I just ask, y'all are spending 100% of what you make basically and you're talking about shopping at the farmers market. Just for produce in the summer, spring.

You want to change it to a thousand bucks? I'll change it to a thousand bucks. I'm just telling you. It's not going to do much. Watch the numbers. Fixed cost for currently 92%. I just changed it. You drop 500 bucks a month, you're at 88%.

Okay. We're moving in the right direction. What do you want to change next? I want to take some cash that we have and pay off the debt. So after a couple months to be debt-free so we won't need debt payments anymore Let's talk about that. Where is the money coming from? It would come from savings and in May I Would get about three thousand dollars commission, okay three thousand dollars plus another

Three thousand from savings puts puts debt at $500. I think that's like going back to what we've been doing versus like making real changes. But I'm saying after a couple months, the $750 debt payment wouldn't be on there. But we have a choice right now to make changes. The behavior has to change, which it's not. We're not doing that in this conversation. We're just kind of spinning the wheels, it feels like, right now. Ask him what you want him to do. You're totally right.

You are spinning. Tell him what you want him to do. You're totally right. You are spinning. Tell him what you want. I want like big changes. Tell him. I want big changes. Okay. So pick something. I don't want it to be on me.

Okay. Well, it's up to you now. Can you go down? Let's pause. Let's get you a break. How are you doing? I'm okay. Let me know anytime you need to. Thank you.

I can see it's difficult for you looking at these numbers. It is difficult. But if I'm here as an observer and I know Morgan is here, she's trying to get inside your head and understand what's going on, it's difficult if we can't get anything from you. So do us a favor, talk out loud. She's dropped 500 bucks a month off groceries. What do you want to do? I guess we have the car payment, the gas expense, insurance expense of three cars we can sell,

get rid of one of the cars, recoup that money. I'm not sure how much it would go down. I'm taking your car payment down by 300 bucks a month. Okay? Look at the fixed cost number. What just happened? Not much. Drop from 88 to 85.

I'm avoiding on wanting to change the mortgage or childcare cost. Those are the big numbers. It doesn't feel like how. What? You don't feel like you could. I don't feel like I could. And I, those are the big expenses. Right? What would you do at work? What? Take off your home hat and put on your work hat where you're a project manager managing

people. I come to you, I go, I got this problem and I just, I'm spending 85% of my budget on blank blank blank. Manage me. Drive it like you would drive it at work. Well, we see what the total cost is of the job and we would have to make changes to Get to that cost and you wouldn't just wait. No, you can't you do it and you'd have to forecast in Advance, huh what the changes are gonna be what's happening right now? I mean, I like this. I like this. Okay, tell me more. So how does that apply here? We have to make drastic decisions. What all it took was me asking what do you do at work and suddenly you turn to this

killer What is happening? Yeah. All right. What do you call yourself at work? I feel like you have a nickname at work What do you mean killer Paul? P.m. All day long. What is it? No What do you mean? Killer Paul. P.M. this shit all day long. What is it? No. I don't know. Well, now that's your name. Killer Paul. Tell everyone at work.

Send them an email. Killer Paul's on the case. All right. Tell us, what are we going to do, Paul? We're going to make bigger changes. How? Tell her. Yep.

So, I'm going to tell you right now what to do. Take out the four. I just want to run a... Do it. Run a scenario. Take out the 400 at the house for the rent mortgage. Just take it out. Alright. Zero it out.

Okay. Take out the 500 for miscellaneous. Okay. 500 is gone. 500 is gone. And take out... Hypothetically, take out the 700 debt payment. I don't want to see what it looks like. All right.

Zero it out. We took out what? We took out $1,600, right? All right. Tell us what the fixed cost number was. It was at 88%. Now what is it at? It's at 69.

All right. So it went somewhere. It definitely went somewhere. Tell us what you just did. I ran a scenario. All right. What was the scenario? I wanted to see if hypothetically, hypothetically, hypothetically, hypothetically, hypothetically,

hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, hypothetically, It definitely went somewhere. Tell us what you just did. I ran a scenario. All right. What was the scenario? I wanted to see if, hypothetically, if the debt was paid off and we didn't have to make a debt payment. The $500, that's in there. It was thrown in as miscellaneous, but it's a number assuming that there's a cost in there. Fine. We took it out. Okay.

And what was this rent? $400 you took off. The mortgage. That was for maintenance for the house. Right? Okay. Tell us. Why did you make that? I like what you're doing. Right now it's a hypothetical cost.

Okay. It's not... Yes, there's maintenance within the house. The home improvement right now has been on a credit card that's going—that's not even in this cost, that's—we're associating with debt right now. You cannot— Say it in plain English and say it to the person who actually cares about home renovations. Look at her. Okay.

That $400 that was put in this spreadsheet was already accounted for in our debt. So we're double counting it right now. Okay. That was good. And what does it mean for the next two or three years of your life that you just made that change as it relates to your home renovations? We're not going to be able to renovate the home in the time frame that we want to. Ask her what she thinks about that.

Toss the ball back to her. Are you okay with that? Like I have to be. Okay. Yeah. Ask her again. That's an interesting answer. But this is where you have to be honest about how you feel. Yeah. Ask her again.

Are you okay with not renovating the house? Because, tell her why. Because it is a higher, it's a cost right now that we cannot afford. Yeah. Tell them, tell them more. You care about it right now. I care about it. Tell them.

Yeah. I do care about it. I want to prioritize the house, but I want to plan forward. I don't want to just do it. No, we're not spending money on renovating. We're not. There is 600. There's no money to spend on it. There's no money spending money on renovating. We're not. There is $600 going on. There's no money to spend on it.

There's no money to spend on renovating. We're not going to renovate right now. We will use. Oh, look at her. We will use the $600 for one month. We'll go to a toilet. So there's the toilet there. And then we're not renovating the house until we have money associated for

it. I have to buy a toilet. You do it. I have to put one toilet. You have to? Yes. Have to. You don't have to.

You have to buy a toilet. You have to shop at the farmer's market. You have to buy specialty food for your cats. You have to shop at the farmer's market. You have to buy specialty food for your cats. You have to have three cars. How much stuff do you have to do? We really don't have to do anything. Well, we have to do some things that are necessities. Paul, did you hear what she just said?

We don't have to do anything. Take that and run with it. Don't just naturally be adversarial with her. What she's saying is I might be open to not renovating the toilet. We will not renovate. Ask her, ask her. Don't tell her. Are you okay with leaving the bathroom the way it is until we get our fixed costs down

and we have more of a plan to renovate that bathroom and the remainder of the house. It feels stressful because we're in the middle of a renovation. So that's where the hesitation was. So that's what it is. If you were going to get really aggressive about it, you could take your guilt-free spending, which is about $1,100 a month, and you could say, right now, we need to buckle down. We need to not eat out.

We need to not travel for a while. And we need to go pretty bare bones as a family. That's it. That's reality. There's no more easy decisions to make. You got the groceries down. You knocked a number off. Great. All other decisions are now difficult.

First of all, what the hell? Have you ever seen a transformation like that? I asked Paul to pretend this was work and it was like he kicked over a table and started using words like forecast and scenario. I have literally never seen anything like this. Is anyone else kind of impressed? What I like is how he suddenly took control. Now, obviously one exercise is not going to change anything, but for me, it was quite revealing that he can exert that kind of agency. Let's take a quick break to support our sponsors. Last week in part one of this episode with Paul and Morgan, you heard them talk about how they ended up getting life insurance after meeting with a financial advisor. Listen to what they told me. We both got life insurance, which we didn't have, which we didn't get the term life insurance.

We got term life insurance. We didn't have it. We had two kids. We're like, we need life insurance. All right. That's taken care of. You notice that first they didn't take their financial advisors bad advice, which was to we need life insurance. So that's taken care of. You notice that? First, they didn't take their financial advisors' bad advice, which was to get whole life insurance. They got term, which is a much better decision. But notice also how straightforward that was. We have kids, we need to get term life insurance in case something happens to us. We want them to be taken care of, so boom, we got it.

Check the box and move on. It's one of the key principles of my life. If you have a family that depends on you and you've been dragging your feet on getting life insurance, get it taken care of in minutes with this episode sponsor, Fabric by Gerber Life. Check the box and move on. Fabric was designed by parents for parents to help you get a high quality, surprisingly affordable term life insurance policy in less than 10 minutes. It's all online and on your schedule. You could go from start to covered

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Let's get back into it. Reality means you can't just zero out debt. Especially considering that Morgan has $15,000 in student loan debt that we haven't even talked about. So to make sure they leave this conversation with a rock solid picture of the truth, I reverted the CSP back to its usual state. Let's keep going from there. Can I just say these clothes at $180 a month? We can get rid of that.

No fucking way. There's no... I haven't bought clothes in 180 bucks a month? We can get rid of that. No fucking way. There's no... I haven't bought clothes in four or five years. Zero. I don't know where that's coming from. We're taking that away. We're at 82%. All right.

I think we were trying to account for what we had. How about just no clothes? No clothes. Can you find some free clothes for the kids? Yeah, we can figure it out. Okay. Yes. This is the kind of attitude that's like, yeah, we can f***ing figure this out.

The grandparents. The grandparents. Yes. They is the kind of attitude that's like, yeah, we can f***ing figure this out. The grandparents. The grandparents. Yes. Okay. They love buying. Bingo. Done. And you're like, by the way, can you also make our car payment?

Yeah, and take a cat. Please take them. Okay. I don't know, guys. You're still at 82% here. If you were at like 71, 72, 73, even I'd be like, okay, because you have childcare, but you're at 82% and the debt's not going away. You're going to pay off your credit card debt, but now you have student loans. I can just tell you that 82% is not sustainable.

And right now we're being pretty charitable here. There's no miscellaneous costs. Yeah. I don't know. What do you think? Based on what we've done here, we're going to have to live with the high fixed costs temporarily until we can drop some of those items like the debt and then that line item would come out and that's what we have to do. You know what's amazing?

Each of you has had a moment of brilliance with your money. You realize that? Each of you. No. Paul, What was yours? When were you at your best with money? Right before we had a kid what was happening then I was putting a lot more away And I also made a decision like financially once

Morgan got pregnant to like We need to save money. We moved in with our parents to get rid of rent altogether. That was a big change. That was huge. That was hard. That was hard. We did the max we could do there until we were like, we're losing our mind. We got to leave. You saved up enough for a 20% down payment. Very impressive. Your moment of brilliance, Morgan, was when you said, I need to set up a separate account

for childcare because I'm concerned that everything else is going to get spent. You moved heaven and earth to make that happen. You never missed a payment. What that tells me is that the two of you have the ability to make huge changes when it is important. Would you be both aligned with that? Yeah. We have to.

Yeah. Nice. What if one of you comes and says like, I really want to go to this concert. Then we call a grandparent and cry to them. I hate that. I think we need to change our behavior. Say it. What would you do?

He comes to you, he says, let's go to fish. We'd have to say no. We'd have change our behavior. Say it. What would you do? He comes to you, he says, let's go to fish. We'd have to say no. We'd have to say no. Truthfully for the next 18 to 24 months? Not really. Life is what it is for the next couple of years while you pay this debt off. And the only thing I can do here today is to show you what will happen if you continue down this path.

I can't make the changes for you. I can't shop at the grocery store for you. I can't do any of that. What I can show you is that if one of you loses your job for one month, that's it. Totally. It's end of story. Lose the house. Car's gone.

Move in with family if you're so lucky. Cats are gone. All of it. That's one month. Yeah. Right. And let's not even talk about what your kids pick up from that experience. Definitely.

When they're talking to me 30 years from now on this podcast. I don't want that. Sounds good. Right. You think you can make these changes? They are quite large. I worry that we can't. We have to create it so there's no choice.

Yeah. We don't have another choice. This was a tough conversation and there weren't any easy answers. But that's actually to be expected. When you don't talk about money for years, you often leave yourself with your back against the wall. No easy answers are available. This podcast is not about finding a magic solution to problems.

Sometimes I see comments saying, it doesn't seem like Ramit was able to help them. I'm not a magician. I'm here to help couples talk about money, sometimes for the first time ever. I'm here to help them find the truth. The truth is some things just take a lot of hard work and a lot of time. Paul and Morgan can make a change, but it will take both of them talking about money in a totally different way. It means they have to talk about money regularly, positively, and proactively together.

Now if the biggest thing that I did for them was to help them realize the severity of their situation, I'll be satisfied. Let's take a listen to their follow ups starting with Paul. The most surprising thing about the conversation with Rameet was that Morgan and I are way more removed from each other's finances than I had imagined. Neither one of us knows what transactions are taking place and when they're taking place or when they're anticipated to take place within each other's accounts. The biggest takeaway from this is for Morgan and I to have regular conversations about our finances. Whether they're difficult

conversations, they're still positive conversations if we're working toward a goal and trying to correct our finances in the short term and the long term. Changes we will be making to our conscious spending plan, definitely tightening up the fixed costs as much as we can, taking out anything additional for what we're trying to save toward home improvements and house maintenance and really trying to put that stuff toward the debt and get the debt paid off as quick as possible. I would love to be at a credit card debt by this summer and Morgan student loan debt by beginning of next year. And now Morgan's follow up.

What surprised me most was just how difficult the conversation was for me. I knew it was going to be challenging. I didn't realize it was going to be as was for me. I knew it was going to be challenging. I didn't realize it was going to be as emotional for me where Meet was really good at being very direct and getting to the root causes of everything very quickly and he was able to really facilitate a really important and hard conversation between Paul and I. I left the meeting feeling very defeated and the next day feeling pretty hopeless, but after really sitting and reflecting, I'm feeling more positive

and hopeful that with these conversations and with time, Paul and I can really turn it around and I think our rich life is definitely within reach. Some changes that we're going to make, we talked about meeting more regularly, especially in these beginning stages, weekly, twice a week. We also talked about selling the Acura, making some more lifestyle changes to get those fixed costs down. We're both working hard on finishing the book,

changing our bank accounts around, changing our weird banking situation, and being more united as a team. They have some difficult changes to make, but I do have confidence that if they stick with it and they do it together, that they can radically transform their relationship with money. Thanks for listening to today's conversation and stay tuned for next week. Thanks for listening to I Will Teach You To Be Rich. I'm Ramit Sethi.

Please follow the show on Apple, Spotify, or wherever you listen to podcasts. If you haven't read I Will Teach You To Be Rich, my book, pick up a copy. You can get it at any bookstore or any library and it will show you the specific tactics for how to build the I Will Teach You To Be Rich system into your personal finances.