Episode #142: “We have a $2.3M net worth—but we cut coupons”

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[00:00:00] Ramit: You wrote the application, correct?

[00:00:02] Rachel: I did. Yes.

[00:00:03] Ramit: So some of the words you used were, “awful argument, sad, seemingly insignificant, frozen, paralyzed. It’s like I can’t breathe.”

[00:00:17] Rachel: I am actually shocked he’s been able to juggle the money as he has been able to. But recently, Brian has talked about retiring early, within the next year and a half. That has completely paralyzed me. And the fight was awful. Since I don’t know anything about his income, I don’t know if we’re prepared and I am the saver. I am the planner. I don’t want to lose this life that I have. I love it. We love it, and I don’t want it to go away.

[Narration]

[00:00:56] Meet Brian and Rachel. Brian is 56. Rachel is 51. They’re both lawyers. This is Brian’s second marriage and he has two 22-year-old daughters. Now, Brian recently mentioned that he wants to retire in the next two years, which caused Rachel to start panicking about their finances. In today’s conversation, I want you to listen closely for ways to apply these lessons to your own finances.

[00:01:23] I think you’re going to hear how our money psychology shrinks our view to only consider one or two options. But I also think that you’re going to hear how you can expand your vision of what’s possible. And if you could do that, you’ll often find creative ways to live a rich life. I have to tell you that I really enjoyed this conversation. So listen in as we meet Rachel and Brian.

[Interview]

[00:01:48] Rachel: The one thing that got us into this huge argument was about money, and it was crazy. It was like we were from two different universes and we weren’t even speaking the same language. And there was just all kinds of misunderstandings on both sides, and it was really bad. It was really horrible.

[00:02:12] I have been trying to talk to him about money recently because he seems to have been dropping some hints that he might be having some issues paying some of the bills. It wasn’t something that I could specifically put my finger on, but I felt like I really needed to talk to him about it. And he kept actually asking, why do you keep bringing this up? Why do you keep asking?

[00:02:43] Ramit: What was your intention when you walked into that office? What were you really trying to get?

[00:02:48] Rachel: I was trying to help, honestly. I feel like I have a bigger cushion than he might have, and I wanted to see if there was a way that I could help him out so that he didn’t feel pinched.

[00:02:59] Ramit: Did you say that to him?

[00:03:02] Rachel: No. He went on his computer and he wrote this Post-it note, and he said, there you go. Here is the amount of money that I have left over at the end of the month. And I said, well, that would feel horrible. I don’t want you to feel that way. So what if I just contribute? The bills have gone up, the ones that you’re responsible for, and we haven’t changed our agreement since the beginning, paying some of the bills.

[00:03:36] He and I have always kept all of our finances completely separate, so his income goes into his accounts. He pays certain bills out of those. Whatever is left over, he has the ability to go ahead and do whatever he wants with that. Same thing on my side.

[00:03:55] Ramit: Okay. All right. All right. Brian, I’d like to ask you your perspective on that meeting. Do you remember being in your office when that happened?

[00:04:03] Brian: I do. Yes.

[00:04:05] Ramit: Walk me through your recollection.

[00:04:07] Brian: Actually, ironically, I was paying bills at the time. I had come to the conclusion that that particular month was going to be tough. I’ve never not paid the bills, so I don’t recall that part of the conversation where I would’ve said, I can’t pay the bills. I believed her, but I also think I was at that standpoint where I was frustrated and probably feeling– it’s probably my old Italian pride.

[00:04:39] I’m traditionally the bill payer. And I think I probably reacted in a way that I don’t normally react. And I felt badly about it. It wasn’t some knockdown drag out thing, but we were definitely raising our voices at each other.

[00:04:58] Rachel: I do remember him saying that it was probably his pride that got in the way.

[00:05:02] Ramit: How did you receive that when he said that to you? It’s pretty unusual, honestly, to hear somebody say that.

[00:05:07] Rachel: It felt amazing, and I felt badly that I had approached him in a way that even caused this. I was just trying to help.

[00:05:17] Ramit: Okay. I’d like to just understand a little bit more about the relationship. So I understand this is both your second marriage, is that right?

[00:05:24] Rachel: No, just Brian’s second marriage.

[00:05:27] Ramit: Brian’s second marriage. Rachel, your first marriage.

[00:05:29] Rachel: Correct.

[00:05:30] Ramit: Okay. Sorry about that. Glad I clarified. And how long have you been married for?

[00:05:35] Brian: Eight years.

[00:05:37] Ramit: Okay, great. You kept your money separate. Was that a conscious decision, or was it, we just slid into it because we never joined our accounts.

[00:05:48] Brian: I think it was a bit of both, to be honest with you. Our expenses have gotten a little more higher as we as the marriage has gone on. We talked about it when we were first getting together. We each had a comfort level with keep our accounts separate but with the understanding, I think, that based on our income levels, I was going to be able to pay for the utilities.

[00:06:17] We have a second property that she is primarily responsible for, that she pays the bills for. So my understanding is we went into it with the plan to keep things separately unless something happened and we couldn’t anymore.

[00:06:32] Ramit: Just out of curiosity, why did you decide to keep it separate? Not that it’s right or wrong. It’s just a little unusual.

[00:06:38] Brian: From my perspective, I think it was just something we were both used to. Rachel has always just been meticulous with her finances. In my first marriage, I was the only person with an income. My ex-wife wasn’t working, so I got into that habit of paying for everything, and I felt like I didn’t want to put pressure on Rachel, and I didn’t think that I needed to.

[00:07:06] Ramit: Makes sense. That’s typically what happens. So when you got together, you talked about it a little bit. You both decided, hey, we’re in our late 40s. We’ve been doing this our individual ways for a while. Let’s just keep that going. Let’s make an agreement on I pay for this, you pay for that. That’s how it’s gone for the last eight years.

[00:07:27] Rachel: Actually, from my side, I would say that is not why I wasn’t into it.

[00:07:32] Ramit: Oh, tell me.

[00:07:33] Rachel: To be perfectly honest, Brian had had some trouble with money in his marriage, and I had heard about that and, as he said, I have always saved. I did not want to be in a position where there were money issues. I also came into the marriage with property, and honestly, I wanted to make sure that nothing happened with that property, that we didn’t lose it, that I was the one that was taking care of it, I was the one paying bills on it, and I was the one who was responsible for all of the bills on it.

[00:08:11] Ramit: Okay, that’s a different story. Which one is it?

[00:08:15] Brian: Wow. I’m really surprised. The money problems that I think Rachel’s referring to, my ex-wife had put a lot of money on a credit card, and she was somewhat irresponsible with money. And so part of my divorce settlement was actually paying a lumpsum to her and pay off her debt so that I felt I was coming into the marriage pretty free and clear. So I didn’t mean to act all surprised when Rachel said that, but I am actually very surprised.

[Narration]

[00:09:03] Ramit: That was quite revealing. It’s actually very common that couples learn something new about each other on this podcast. And the reason is that most of us stop having deep conversations after we date for a while. This is especially true around sensitive topics like how we feel, and money, and frankly anything else that we walk on eggshells around.

[00:09:25] The first clue I noticed was that their money is separate. That’s not necessarily bad, although most successful couples tend to have their finances joined together. What separate accounts usually reveal is that the couple never had a series of specific conversations about money, and almost always separate accounts reveal that they don’t have a joint rich life vision together.

[00:09:50] You can also tell that their financial system is clunky. With one person randomly paying certain expenses, then they have to decide on vacations every single time. The third clue is that Brian and Rachel realize they have totally different perspectives on why they keep their money separate.

[00:10:08] However, the next clue was that this is Brian’s second marriage. Now, it’s very common that second marriages have separate finances, often because money was an unhappy issue in their first marriage. I do want to add that I appreciate their communication style, especially him admitting his pride was getting in the way.

[00:10:28] We’ll be right back.

[00:10:30] Now back to the show.

[Interview]

[00:10:32] Ramit: How often do you talk about money in your relationship today?

[00:10:35] Brian: Often in terms of trips, in terms of, now, more recently, bills.

[00:10:42] Ramit: How often? Daily, weekly, monthly? What are we talking about?

[00:10:47] Brian: I would guess weekly. Probably Rachel more than I.

[00:10:51] Ramit: Rachel, you agree? Weekly, you bring it up?

[00:10:54] Rachel: Yes, but more in a way, like the grocery wouldn’t accept my coupon, or something like that.

[00:11:01] Ramit: Hold on, hold on. I just need to look at your income really quick. Okay. Thank you. Just wanted to confirm that.

[00:11:09] Rachel: Okay. I deserve that.

[00:11:11] Ramit: How much time do you spend cutting coupons every week? Tell the truth.

[00:11:15] Rachel: Actually, Brian’s the one that cuts coupons.

[00:11:18] Brian: There’s the irony. I do, I do.

[00:11:22] Ramit: What coupons are you the most proud of? You get the two for one, three for one. What do you get?

[00:11:27] Brian: It’s the $20 off for the purchase over a certain amount, which is ironic because you still have to pay that certain amount to get the $20 off. So I think I fool myself sometimes.

[00:11:39] Ramit: I know. I grew up. My mom was a master coupon cutter and just had a file. Just boom. She knew every date, expiration date, all of it.

[00:11:48] Brian: Yeah. I get it.

[00:11:50] Ramit: Rachel, when you think about money, what words come to mind for you?

[00:11:58] Rachel: Fun, freedom, and saving.

[00:12:03] Ramit: Okay. You wrote the application, correct?

[00:12:06] Rachel: I did. Yes.

[00:12:07] Ramit: Okay. So some of the words you used were “awful argument, sad, seemingly insignificant, frozen, paralyzed. It’s like I can’t breathe.” Do you remember writing that?

[00:12:26] Rachel: I do. Absolutely. And all of those fit. Up until now money has been representative of fun and freedom. But recently, Brian has talked about retiring early, within the next year and a half, and that has completely paralyzed me. And the fight was awful.

[00:12:48] Ramit: So overnight you started feeling differently about money after he brought up potentially retiring.

[00:12:55] Rachel: Yes. Because we would be living only on my income for a while. And since I don’t know anything about his income, I don’t know if we’re prepared. And I am the saver. I am the planner.

[00:13:10] Ramit: So you keep your finances separate, being married eight years, but each don’t know about each other’s income, expenses, anything.

[00:13:18] Rachel: Not at all.

[00:13:19] Ramit: But then this bombshell comes out. Brian goes, hey, I’m thinking about retiring, right around the corner, and what did your mind start telling you?

[00:13:30] Rachel: Holy shit, what do we do? I didn’t know anything about anything. I didn’t know anything about what he had saved, and I didn’t know anything about what the bills were that he was paying. He’s always talked about retiring, but it became serious about a year ago where he really decided that this is really what he wants to do. And Brian has always been very cavalier about this, so every time I’ve tried to talk to him about it since, he’s been like, oh, we’re fine. Everything’s fine.

[00:14:08] Ramit: Ah. Are you fine, Brian?

[00:14:11] Brian: I believe so. Our plan is before I retire, the house is completely paid off, which is probably our greatest expense. I would have a retirement account to draw from, so we wouldn’t just be on Rachel’s income. So that’s one of the things that I didn’t really understand about that part of the conversation, is why she was under the impression that we would have to be living on her income.

[00:14:43] I would have to take a little bit of umbrage with the word cavalier. I don’t want to discount what she’s feeling, and I certainly didn’t mean to give you that impression. But I’m fairly confident.

[00:14:55] Ramit: Rachel, I’m curious. Brian’s reaction saying not only do I think we will be okay, but I think we’re going to be quite easily okay, more than, okay, how does that make you feel?

[00:15:12] Rachel: I wish it would make me feel secure, but honestly, it doesn’t. I wish I would feel comfortable.

[00:15:19] Ramit: What would make you feel secure?

[00:15:25] Rachel: Honestly, I don’t know. I really don’t. I think the amount of money that he’s talking about that he would get in retirement is significantly less than what he thinks it is. So I don’t know. There isn’t a number that I could put my finger on. Honestly, I don’t know.

[00:15:48] Brian and I have an amazing relationship. We travel the world together. We have tons of fun, and we have a lot of respect for each other for how hard we work. And I love the way that he provides. But my fear is if his income is gone, that we won’t be able to live on the money that he’s bringing for retirement. Also, I don’t want to lose this life that I have. I love it. We love it, and I don’t want it to go away.

[Narration]

[00:16:28] Ramit: It’s striking how many Americans follow the exact same script with their money, but they don’t realize it. Here we understand that they want to pay off their mortgage early, a big clue, and that she’s afraid of having enough while he tries to reassure her. I would say that probably 90% of Americans think exactly this way, and yet if we examine these concepts a little more deeply, everything falls apart. For example, you heard me ask Rachel, what would make you feel secure, and she just simply said, I don’t know.

[Interview]

[00:17:06] I almost lost a house. I almost had a house be repossessed because I lost my job and I had to actually move to take a job in a different city and get an apartment there in order to pay for the mortgage payments on that house while the guy that I was dating at the time and living with lived in that house rent-free, expense-free. And I know that that creates a lot of my fear.

[00:17:40] Ramit: Do you want to send him a message worldwide right now? You want to say anything to him? Go ahead. The airwaves are yours. You can say anything you want.

[00:17:47] Rachel: No.

[00:17:48] Ramit: Anything.

[00:17:49] Rachel: It’s all good. It’s all been forgiven. It worked out well.

[00:17:52] Ramit: That’s enlightened of you.

[00:17:53] Rachel: And Brian’s my guy.

[00:17:54] Ramit: Okay. I love it. Beautiful. That is interesting, though. Can you just take me back to what money messages you received growing up from your parents?

[00:18:03] Rachel: You saved and saved and saved.

[00:18:05] Ramit: Did you grow up in the Midwest?

[00:18:07] Rachel: Yes.

[00:18:08] Ramit: Okay, keep going.

[00:18:10] Rachel: Yeah. You worked as hard as you could in order to bring in money. You saved it for some indeterminate period. You didn’t even say, I’m going to save it until retirement, and then I’m going to spend it or enjoy it. It was just, I’m going to save it forever and just keep piling it up that you didn’t go into debt unless it was good debt. And good debt was buying a house. But mostly, it was just you worked and worked and worked and worked in order to maximize your income in order to bring in as much money as you could.

[00:18:51] Ramit: Okay. And what did they do for a living?

[00:18:53] Rachel: One was a teacher. One was a librarian. They’re semi-retired.

[00:18:59] Ramit: Okay. Is it for the money or because they enjoy it?

[00:19:03] Rachel: I think it’s for the money. They worked to save up money until retirement, and then they retired. They took a short period of time off, maybe a year, and then they were back to trying to make money again.

[00:19:20] Ramit: Yeah.

[00:19:22] Rachel: I don’t know.

[00:19:22] Ramit: What’s their financial situation now?

[00:19:25] Rachel: I think they’re really well off from what I understand, but they just want to continue to bring in money.

[00:19:32] Ramit: Okay. So they taught you these thrifty frugal lessons early on. What about going to college? How did you pay for that?

[00:19:41] Rachel: They did pay for that and they helped me out with the bills.

[00:19:44] Ramit: Grad school?

[00:19:47] Rachel: Same thing. They paid for that and they helped me out with the bills.

[00:19:51] Ramit: Whoa. All right. And then as you got into your 20s, what happened? Was there ever a day where they stopped paying?

[00:19:58] Rachel: Yes.

[00:19:58] Ramit: Are they still paying?

[00:19:59] Rachel: No. Oh God, no. Yeah, they stopped paying.

[00:20:02] Ramit: Okay. So you graduated from grad school and then it was like, okay, you’re on your own?

[00:20:08] Rachel: Actually, no. They came to me my last year in grad school and said that they needed me to buy a house because they needed to take money off their taxes and they needed a write off.

[00:20:25] Ramit: What the hell? All right.

[00:20:27] Rachel: I said I didn’t think it was a good idea. I hadn’t graduated. I didn’t have a job, and I didn’t know where my income was going to be once I graduated.

[00:20:38] Ramit: Did you end up buying the house?

[00:20:39] Rachel: I did because they told me that either way, they were going to stop paying for my rent at the time.

[00:20:46] Ramit: So you get the house, and then what happened after that?

[00:20:48] Rachel: So I graduated, I got my first job, and I was working at it for about a year. And then I was running out of work, and they told me that they couldn’t afford to pay me anymore. So they gave me two weeks notice. I got every job that I could possibly find right away in order to pay for the mortgage and the expenses on it. But it was draining my savings account. So I actually asked my boyfriend who was living with me at the time, if he could help me out, if he could loan me money.

[00:21:27] Ramit: Mm-hmm. And then? Did he?

[00:21:29] Rachel: He said no. He said he was sorry, but I needed to figure it out on my own.

[00:21:34] Ramit: What do you think about that looking back now?

[00:21:38] Rachel: It sucked. Oh my gosh. They actually had me take out a school loan. They put the down payment on it, and then they had me take out a school loan in order to pay for it.

[00:21:50] Ramit: This is what we call being given a gift with strings attached, 30 years of strings. It just keeps coming.

[00:21:59] Rachel: It wasn’t till later, till it hit me that my savings were being drained and I was getting really close to my bank account being at zero.

[00:22:08] Ramit: And how did you feel then?

[00:22:10] Rachel: I was terrified. I didn’t know what to do.

[00:22:13] Ramit: Mm-hmm. And then when your boyfriend said no, how’d you feel then?

[00:22:20] Rachel: Terrified, desperate, confused, angry.

[00:22:25] Ramit: Mm-Hmm. Angry at?

[00:22:27] Rachel: Him.

[00:22:28] Ramit: Angry at him. Okay. Did you ever call your parents and ask them to help?

[00:22:33] Rachel: I did.

[00:22:34] Ramit: What happened?

[00:22:35] Rachel: They said they would not.

[00:22:38] Ramit: Why?

[00:22:46] Rachel: Because I had just come back from my first trip overseas and they told me that I should not have taken a vacation. I shouldn’t have taken a trip, and I should have known better and had listened to them.

[00:23:02] Ramit: Wow. It’s difficult to hear.

[00:23:07] Rachel: It was very difficult.

[00:23:08] Ramit: How old were you at the time?

[00:23:11] Rachel: Probably would’ve been around 26 or so.

[00:23:18] Ramit: It’s like, what am I supposed to do as a 26-year-old? Sit in this house that I didn’t even really want? That’s it for the next 35, 50 years? Just sit?

[00:23:29] Rachel: Right. I actually asked them that, like, what are you supposed to do? And they said, wait till retirement.

[Narration]

[00:23:34] Ramit: Let’s review the financial lessons that Rachel learned from her Midwestern family. First, frugal parents told her to save, save, save, then work, work, work, and then die. Second, they paid for a lot of her early life, including school. Third, they told her she needed to buy a house for a tax write off, which worked until she got laid off, and then suddenly they told her they couldn’t help her because she’d taken a vacation and instead she should have sat on her porch and waited until retirement. What a beautiful circle of life. I’ll call it the American buy then die cycle.

[00:24:11] Hold that thought. We’ll be right back after this.

[00:24:14] Let’s get back to Brian and Rachel.

[00:24:16] She has another very formative money experience that she shares with me right now.

[00:24:22] [Interview]

[00:24:22] Ramit: A little birdie told me that you used to have a financial advisor. Is that true?

[00:24:26] Rachel: Oh God, yes. Yes.

[00:24:30] Ramit: Why the, oh God? I thought financial advisors are always great. After all, the Vanguard behavioral study told me that they add one to 3% returns. That’s why every AUM financial advisor tells you that you need a financial advisor. Are you telling me that’s wrong?

[00:24:45] Rachel: I am telling you that is completely wrong.

[00:24:47] Ramit: What happened, Rachel?

[00:24:49] Rachel:  After I lost that first job, I got a phone call about a year later from a financial advisor, and he said that my former employer had hired him to handle the retirement accounts through that office. So he made arrangements for us to meet.

[00:25:10] Ramit:  I know he paid for the coffee. That’s so nice. What a nice guy. And then what happens at that meeting?

[00:25:15] Rachel: He talks to me about what my plans are, and I say that I want to save money for retirement, so he starts to talk to me about a Roth IRA. He actually didn’t mention anything about safety. He just said, I know that your goals are growth, and you need to have a financial advisor that watches your accounts because if you are invested in an account with another Vanguard type place and the fund starts to lose money, you want somebody watching over it so that you can get out of it right way.

[00:25:55] Ramit: Like a hawk. The minute the market goes down. My local Midwest bank works faster than any number of milliseconds that the high frequency traders in New York work at. Fine. I have to say, I am surprised he did not mention safety. They love to mention safety, especially with women. They fucking love it. It drives me insane. Okay, go on. So he says, growth. You go, sounds good to me.

[00:26:23] Rachel: I actually asked him how much he was charging. I was like, what are the fees?

[00:26:30] Ramit: What did he say?

[00:26:30] Rachel: What am I paying for this?

[00:26:31] Ramit: Tell me.

[00:26:32] Rachel: He told me not to worry about it.

[00:26:35] Ramit: Ah, fuck this guy. It’s so dismissive. Well, the fees are the fees. It’s nominal. What we’re really focused on is long term. We want to make you money over the long term. Right?

[00:26:47] Brian: It’s like right off the book.

[00:26:48] Rachel: And he said he wasn’t really making money from it. Since I wasn’t writing him a check, he’s like, you’re really not paying for me, really.

[00:26:59] Ramit: That’s a lie. That is a straight up lie. 100% a lie, as you later discovered, I assume.

[00:27:05] Rachel: I called him on it and I said, there’s no way you’re doing this for free, so just tell me what this is. And he’s like, well, it really varies. I can’t really tell you. And I was like, okay, give me a range. And he’s like, well, with most people, it’s about 1%. Some pay 1.25, and then others pay about one and a half. But he’s like, it’s really not that much money. And if you think about it, you really want somebody to be looking over these accounts.

[00:27:41] Ramit: Longterm.

[00:27:41] Rachel: Exactly.

[00:27:42] Ramit: He’s coin-operated.

[00:27:44] Rachel: He’s very smart.

[00:27:45] Ramit: He’s like those things you used to take your kids to in front of Kmart. You put a quarter in and you ride the merry-go-round. He’s coin operated. You transfer over an IRA and he just harvests those AUM fees. All right, so he’s charging you, let’s say, 1%, but that’s just the fee. Then there’s all the backend fees that he’s secretly charging, right? What kind of funds did he get you in?

[00:28:07] Rachel: Yes. I was invested in what he called A funds, I believe he called it. And those are front-loaded funds. And I asked him what that means. And he said, all of the money comes off the front when you invest in them. And I was like, oh, I don’t want that. And he said, no, that’s really what you do want because your goal is the long-term and your goal is retirement and the long term returns. So you really want that money coming off the top, and then it’s gone and you don’t need to worry about it anymore. And then all you need to focus on are returns.

[00:28:43] Ramit: Let me translate. I’m going to add a large, fat larded up fee on top of this fund, and I’m just going to put it right at the front. So it’s essentially like you buy this fund and this fat fee just goes to the advisor, and it takes years for you to basically work that fee off. And then once that fee’s worked off and you’ve been paying fees the whole time, now you can actually start to get the full benefit of that mutual fund, which actually usually turns out to be not a good fund anyway.

[00:29:13] Rachel: Yes. So we meet once a year. I actually, sadly enough, invested with that guy for over 12 years.

[00:29:23] Ramit: Wow. How much total did you invest?

[00:29:26] Rachel: $5,000 a year times 12 years, $60,000, maxing out the Roth for 12 years.

[00:29:35] Ramit: What happened by the end of 12 years? Or are you still with this guy?

[00:29:39] Rachel: No, I totally got rid of him. I started to get suspicious towards the end because he wouldn’t really give me an answer. And I was reading about investing and I kept saying like, I don’t really want to pay fees. I don’t want to pay loads. He kept saying, don’t worry about it because you’re making money, which was true. Actually, the statements that I got, I didn’t really look at how much money I was making, but all of the funds that I was invested in, each statement had a positive return in the list.

[00:30:14] Ramit: What happened eventually to make you decide, I’m done with this?

[00:30:17] Rachel:  I started reading more about investing and said, I think I want to actually do this myself. And he said, well, you’re going to lose all your money. And I said, what do you mean? I’ve been investing with you for a while, so what does that mean? And he said, oh, well you are invested in B funds. And I’m like, what’s that? And he said, they’re backloaded funds. And I asked him what that meant and he said, you have to be invested for a certain period of time to not have to pay fees when you sell, when you get out of the fund.

[00:30:57]  And I was like, well, how long are the ones that I’m invested in? And he was like, well, I’m not really sure, but I think most of them are the 10-year ones,  and that’s because you said you wanted to stay with us for the long term. You said you wanted to– yes. So I actually did stay with him for a couple more years, but I started actually paying attention to the statements that I’d gotten from the bank because I thought honestly that if I started to pay attention to the statements, I could figure out how long I needed to be with them until I could actually sell.

[00:31:32] And it was unbelievable. It was so eye-opening. I had kept every single statement that I’d gotten, every quarterly statement that I’d gotten for the entire period. I started looking at the returns. They were nothing. Nothing, nothing. It was like $10 and 47 cents. Everyone actually had a plus on every single statement, so each one was making money, but when you actually figured out what that percentage was, it was unbelievably low. And then some of them were a dollar and 7 cents, or something like that.

[00:32:13] And I was like, oh my God, what is happening to my money? Because that’s the one thing that he would always emphasize. Every time I met with them each year, he’d be like, well, you’re looking at your statements. I’m sure you’re seeing you’re making money. And I was. I would always look down the statements. I would see the plus sign and I wouldn’t really pay attention or do the math on how much I was making.

[00:32:33] So I was making nothing. And then I started realizing how often they were turning over my money. And it was unbelievable. Seven funds that I would be invested in each quarter, at least five to seven of them, every statement, would be turned over. I was tracking it, and it would be like, oh, this fund is gone and now it’s this new fund, and this fund is gone and now it’s this new fund, and this fund is gone and now it’s this new fund. And then they were adding two new funds every statement. I have to assume it’s fees.

[00:33:11] Ramit: Fees are part of it. So sometimes they do it because they get trading fees. That’s absolutely true. And then sometimes, because they’re all part of the same fund family at a bank, a lot of these funds are complete dog shit. So after a while, they shut down the underperforming funds. And through a process called survivorship bias, they only leave the “good” funds, and then they introduce new ones.

[00:33:34] So to the investor, when they go to the website 10 years later, all they see are five star funds. Oh, these funds are all amazing. Well, all the dog shit ones got taken out with a bullet put in their head. You never know that. They’re not required to tell you that. It’s a very, very subtle trick that the average investor would not know about. Except you got smart. So you got out, what’d you do with the money now?

[00:33:59] Rachel: I decided to move it into a Vanguard fund. He talked me out of it for a couple of years, but finally, I just realized there’s no way to get to the 10 years because you’re constantly taking my money in and moving it around and taking it out. So there’s no way to avoid those fees. The sad thing was that, oh God, I maxed out a Roth at $5,000 a year for 12 years.

[00:34:30] So I had a $60,000 in there. When I went to contact Vanguard to roll my money over, I asked them what the balance was on the account and, found out that my $60,000 contribution had decreased to 56,000 and some dollars. I not only lost any money that I would’ve gained in that account, I actually lost part of my full contribution.

[00:35:09] And so I contacted Vanguard and in order to not just feel so defeated, I deposited the difference in the money into the Vanguard account in order to at least have my beginning balance be $60,000 because I just felt awful. I didn’t have that money to waste.

[00:35:37] And that’s more than 12 years gone. But I do have to say I have had that money in a Vanguard account for about 10 years now, and that I’ve never put another dime to it. And that $60,000 is now over $230,000. I’ve never done anything to it.

[00:35:59] Ramit: Wow.

[00:35:59] Rachel: Right?

[Narration]

[00:36:00] Ramit: The advisor told her, if you put money in a Vanguard fund and you lose it, nobody’s watching over it. Yeah, okay. When I warm up my chicken for 60 seconds, you think I pull it out at 48 seconds, I go, magnifying glass? Is there still salmonella in there? Can I put a thermometer in there?

[00:36:16] No, I let the chicken cook. It’s exactly what you’re supposed to do with your investments. By the way, did you catch the other thing? After 12 years of investing and paying $60,000 in fees, she actually had less money than when she started. This is one reason why I discourage you from paying a percentage-based fee to any kind of advisor. You want to pay a flat fee? Love it. Hourly fee? Great.

[00:36:39] Do not pay a percentage-based fee, though. If you want someone to help you with your investments, you can check out one of our sponsors, Facet, where you can get your own CFP for a flat fee. Check them out, including the special deal they have for IWT listeners at facet.com/ramit.

[Interview]

[00:36:56] Rachel: It made me mad too because I always thought that I would be able to recognize somebody that didn’t have my best interest in mind.

[00:37:10] Ramit: Yeah, you caught it 12 years late, and I really wish that you had not had to go through that. But you got smart, and I appreciate that. And you’re seeing the results in your portfolio. So glad you got out. All right. Yeah. Round of applause. Exactly. All right. How do you feel about that entire experience, Rachel? When you look back on it, what words come to mind for you?

[00:37:30] Rachel: Angry, confused, taken advantage of.

[00:37:38] Ramit: If I can, I’d like to add one more word for you to maybe add to your repertoire as you look back, which would be proud.

[00:37:44] Rachel: Thank you. I appreciate that. Actually, after I lost all that money, I didn’t look at my accounts until a couple of weeks ago to prepare for the show.

[00:37:54] Ramit: Oh, wow. What was that like?

[00:37:57] Rachel: It was shocking. The balance is much, much higher than I ever expected.

[00:38:02] Ramit: You like that Vanguard money, huh?

[00:38:04] Rachel: I do. I am very happy with that.

[Narration]

[00:38:07] Ramit: Honestly, amazing. I don’t mind someone making a mistake with their money, not even one that lasts for years. What I absolutely love is that Rachel got wise and she took control of her money. She analyzed those statements and she had the courage to call her advisor on his BS and move away to a low-cost brokerage.

[00:38:29] And all those tricks you heard, A funds, B funds, survivorship bias, are just scratching the surface of the weapons that Wall Street uses to siphon money away from individual investors like you and me. That’s why I’m so focused on you understanding how money works.

[00:38:46] I don’t need you to understand every technicality of investing, but I believe that the majority of your money should end up in your pocket, not some AUM advisor who’s really a salesperson disguised as an advisor and is instead using your A fund money or your financial fees to pay for his BMW.

[00:39:05] No. You can get my book from Amazon, Target, any independent bookstore, or the library, to take control of your own investing. And if you need help, join my money coaching program.

[Interview]

[00:39:16] Brian: My parents we were probably upper middle class, is what I would say. I went to private schools for grade schools, high school. Those were paid for by my parents. College was paid for by my parents. Grad school was paid for by my parents. They gave me my first down payment on the house.

[00:39:37] Ramit: How much did they give you?

[00:39:40] Brian: It was about $15,000.

[00:39:45] Ramit: What year are we talking about?

[00:39:46] Brian: That would’ve been 1996, I believe. My dad is very much like her parents, hard work, ethic. You work hard, you move up, you earn more, you save, you invest. So more recently, especially in my relationship with Rachel, she’s really filled me with vigor for that type of attitude again towards it. But growing up, I think I was a little bit more sheltered with money. I probably didn’t have the appreciation for it.

[00:40:21] Ramit: Would you say you were spoiled?

[00:40:25] Brian: Boy. In all honesty, yes. I hate to use a negative word, but I think it’s a fair word. I would say I was spoiled. Yeah.

[00:40:34] Ramit: Okay. All right. And then you have two children. How old did you say they are?

[00:40:38] Brian: They’re 22. They’re twins.

[00:40:40] Ramit: Okay. Did they go to college?

[00:40:43] Brian: They did. Ironically, my father, who is still with us, paid for their college. I paid some of it. He paid the majority of it.

[00:40:54] Ramit: Did you tell him, hey, I’m going to need some help from you, or did you ask him? How did that happen?

[00:40:59] Brian: No, he is that dad/grandpa that just– he was a CEO of a bank for a long, long time, did well. He retired early, which maybe I want to follow in those footsteps in a way. And he had planned all along since their birth that– he told me from day one–

[00:41:20] Ramit: Got it.

[00:41:21] Brian: To allow him to do that.

[00:41:23] Ramit: That’s cool. I appreciate that. All right, so they’re 22. Are they done with school now?

[00:41:31] Brian: Well, they are. One is considering going back to school, and she’s probably going to have to decide here in the next few months. The other one graduated, is working a part-time job, and still trying to figure some things out, I think with career and whatnot.

[00:41:49] Ramit: Well, congratulations. Two 22-year-olds who are, at least for now done with school. That’s a big accomplishment as a parent. So congrats to you.

[00:41:57] Brian: Thank you.

[00:41:58] Ramit: What is the financial relationship between you and your daughters now?

[00:42:06] Brian: So one of them, currently, the one that’s thinking about going to grad school is fairly self-sustaining right now, is making enough money. She has two part-time jobs, but she lives in a house with, well depending on the month, four to six other girls, and makes enough to pay her share of the bills and still live fairly comfortably.

[00:42:31] The other one is the one that I’m helping out a little bit more. I’m still paying about three quarters of her rent and helping her a little bit with the bill. She makes enough to barely scrape by, but I don’t really want her to do that. So I’m continuing to contribute some towards her monthly expenses. And then I’m paying for both their auto insurance and medical bills at this point as well.

[00:43:02] Ramit: What about their cars?

[00:43:04] Brian: Yes. Back to my dad, when they both graduated, his gift to them was cars.

[00:43:10] Ramit: Where did he get them?

[00:43:12] Brian: Used cars. 2012 Elantra and a 2012 Civic. But they’re okay. Those cars will probably last a few more years.

[00:43:25] Ramit: Okay. How much are you paying for your second daughter that you mentioned part of her rent, etc.? How much is that per month total?

[00:43:36] Brian: Well, it was 1,400 a month. Now we’ve cut it down to 700 a month to see how she does. She had about $5,000 in a savings account, and she is starting to drain that. So I don’t know that the 700 is sustainable. We haven’t talked about increasing it yet, but it’s something that I’ve been thinking about.

[00:44:02] Ramit: What about decreasing it? You ever talked about that?

[00:44:06] Brian: We are encouraging her to look for a better job, to the point where we can be eliminated altogether. I think we’re hoping that something hits and she eventually gets to the point where she can make enough to be self-sustained. But no, I have not specifically said we’re going to cut it down even more.

[00:44:27] There’s already been some back and forth. There was a certain amount that we were, myself and my dad, allotting her to help her get through college. She graduated two years earlier than my other daughter. She got a two-year degree versus a four-year degree. But then when we pulled back the money, the response was, well, you planned for four years. I only went two. So where’s the rest?

[00:45:01] Ramit: How’d you respond to that?

[00:45:03] Brian: I was taken aback. I said, that’s not how this works. That money was earmarked to get you through school, not through life. Maybe I should have cut it off altogether. I don’t know. Maybe that was a bad parenting decision. I don’t know. But that’s when I ended up cutting it in half.

[00:45:22] Ramit: I think that as people get older, I want them to, as much as possible, eliminate any open-ended expenses they have with no end in sight, ones that are not core to them. So if I were in your position, speaking as a total third party who doesn’t know the family dynamics or anything, I’ll say, look, if you want to help your kids out, great, do it.

[00:45:42] But just set a time limit. What I’d like to do is I’d like, for the next three months, we’re going to keep things the same. Then we’re going to ratchet down to this, then we’re going to ratchet down to that. I want you to succeed. I don’t want to take away any support immediately, but I also need to look out for my own retirement.

[00:45:56] Brian: Rachel and I ironically had just had that discussion a few days ago that that might be the best path. So I think you’re absolutely right.

[Narration]

[00:46:06] Ramit: What do you think? If you had to diagnose what’s going on right now, what would you say? I thought Brian’s story was really interesting about his dad helping him, even spoiling him, and now I notice that he’s paying for one of his grown daughter’s rent. And when he mentions reducing that number, she resists. What we can see here is that the way we treat money is passed down from generation to generation.

[00:46:35] Let’s take a quick pause for a message from our sponsors.

[00:46:39] Let’s get back to the show.

[Interview]

[00:46:41] Rachel: Brian is trying to protect me by being more confident about the money so that I don’t feel anxious, and I think he is paying out more money than he really has because he doesn’t want me to have to pay more.

[00:47:05] Ramit: Got it. All right. Brian, what do you think’s going on here?

[00:47:08] Brian: I think that’s actually a pretty fair statement. I do want to protect her. I know how she feels about money. I know how she worries about it. I don’t want to use the word minimize necessarily, but I try to have this demeanor where, you know what? It is going to be, okay. We’ll figure it out. We’ll look at the numbers and go from there. But yeah, I love her to death. I don’t want her to worry. I hate when she worries. I hate when she’s upset.

[00:47:39] Ramit: Why do you hate when she worries?

[00:47:43] Brian: Honestly, I love her that much. I know how she struggled growing, with a lot of the monetary issues, and the parental issues, and whatnot, and I know she is so good at saving money, and she’s on Quicken more than I’m in court. And that she is just so good with it, and I don’t want to knock her off that path if I don’t have to. So I’m probably being well overprotective, but that’s my nature. Not saying that’s good, but I do think that that is a big part of it.

[00:48:30] Ramit: I appreciate that. What do you think about that, Rachel?

[00:48:33] Rachel: Oh, I think it’s amazing and I love that, but if it is causing him anxiety, if it is causing him to struggle, I would never, ever want that for him. And I really want to help him out.

[00:48:50] Ramit: I’d like to look at the numbers that you two put together. What was it like doing this conscious spending plan together?

[00:49:02] Brian: I didn’t find it that challenging as far as putting it together, the results and the come to Jesus, like, whoa. I didn’t realize the expenses were that much until we journalized it. That part was definitely sobering. Definitely.

[00:49:20] Rachel: I would say eye-opening, very eye-opening. I did not realize what Brian was paying for expenses on his side, and I am actually shocked he’s been able to juggle the money as he has been able to, and I appreciate that. But I really, if he needs help, want me to be able to help him. I want him to tell me and be open with me.

[00:49:49] Ramit: All right. Let’s come up with a way to do that today. That’s why we’re here. And again, I just appreciate the two of you did this together, and I can tell that there have been some revelations, which is awesome. Rachel, let’s work through these. Under net worth, the words in bold, just read that out loud and then read the number next to it, please.

[00:50:07] Rachel: Okay, assets are 805,000.

[00:50:11] Ramit: Mm-hmm

[00:50:11] Rachel: Investments are– wow– 1,054,173.

[00:50:20] Ramit: Mm-hmm.

[00:50:21] Rachel: Cash value of pension is 480,212. Savings is $78,245. Debt is only the mortgage and it’s a balance of $95,745. For a total net worth, which is amazing, is 2,321,885.

[00:50:50] Ramit: What do you think of those numbers?

[00:50:55] Rachel: I think it’s amazing, but I’m going to have a but because a lot of that money isn’t making income, so it doesn’t mean anything until it’s sold, or it doesn’t mean anything if we keep it.

[00:51:17] Ramit: What do you think about the numbers, Brian?

[00:51:21] Brian: This is, I guess, where we differ. I see the bottom line, and it’s certainly, hey, pat ourselves on the back. We’ve done well. I do certainly understand that probably between the second house and then we own some land that’s thrown into the assets as well, that’s probably combined about a million or so.

[00:51:50] Ramit: Whoa. What? kind of land? What’s this land? I don’t know too many people who just own land.

[00:51:56] Brian: So we own some vacant land, about 40 acres, that we plan to build on come retirement.

[00:52:03] Ramit: That’s a lot. All right. Let’s take a look at the income, shall we? Let’s have Brian do it. Brian, gross combined monthly income. What number do you see?

[00:52:12] Brian: Current monthly combined income, $22,525.

[00:52:18] Ramit: All right. That’s $270,000 a year. Did you know you made that much in your household income?

[00:52:28] Brian: Ramit, I mentioned before how generous my dad is. He generally will give us, around Christmas time, a fairly substantial gift of money. It’s generally 30,000.

[00:52:44] Ramit: Okay. He gives you 30,000 at the holidays. Okay.

[00:52:46] Brian: Correct. So I think that was included. We just delineated that over the monthly income as well.

[00:52:53] Ramit: That’s fine. But the question, did you know that your household combined income was $270,000 a year?

[00:53:00] Rachel: No.

[00:53:02] Ramit: Okay. What’d you think it was? Did you have any idea at all?

[00:53:06] Rachel: I assumed it was probably around 175 or so combined.

[00:53:16] Ramit: This is actually really funny because on this podcast, 50% of the people I talk to don’t know how much their household income is. They literally have no idea. Here it’s a beautiful explanation where literally on this call, 50% of the people in this relationship don’t know how much they made and 50% do. Beautiful. I love it. All right, so you thought it was about a $100,000 less. Rachel, technically, seeing these numbers, shouldn’t that make you feel more comfortable?

[00:53:44] Rachel: I don’t know. I don’t know how to read it. Yes. The answer is yes, of course it should, but no, it doesn’t necessarily.

[00:53:56] Ramit: Wow. Is it possible that perhaps the numbers on the page are totally uncorrelated with how you feel about your money?

[00:54:04] Rachel: Absolutely.

[Narration]

[00:54:06] Ramit: I just love it. Human psychology never gets old to me. Here we have a couple worth $2.3 million still cutting coupons. Grandpa writes a check for $30,000 in a single month. And we have one partner who feels anxious about money, and even when she realizes they actually make $100,000 a year more than she thought, it doesn’t change her feelings at all.

[00:54:33] Everybody say it with me together. The way you feel about money is highly uncorrelated to the amount in your bank account. In fact, everybody pull out your phone right now. Add your five friends or family members to a text, and just send them this message. Don’t even add any other explanation. Just literally type this right now.

[00:54:52]  The way you feel about money is highly uncorrelated to the amount in your bank account. Don’t say anything else. Just hit send. And when you get a bunch of bewildered reactions, screenshot that and DM me on Instagram and send it to me. You know I love this stuff.

[Interview]

[00:55:07] Ramit: All right. Your combined fixed costs are at– what numbers is, Rachel?

[00:55:11] Rachel: Combined at 71%.

[00:55:13] Ramit: All right, so what do you think about that number?

[00:55:16] Rachel: I think it’s high.

[00:55:17] Ramit: It’s a little high. It should be ideally 50 to 60. And if you’re trying to retire early, maybe even lower, but we could talk about it. So your mortgage is $1,702. What’s your interest rate on this mortgage?

[00:55:32] Brian: 2.25, I think. 2.25.

[00:55:37] Ramit: What the fuck? All right.

[00:55:39] Brian: Yeah, we got lucky.

[00:55:40] Ramit: That’s pretty good. I’m just going to read this off with no commentary.

[00:55:46] Rachel: Oh, no.

[00:55:51] Ramit: You’re paying $2,500 extra per month your mortgage. I have no comments. I just want to point that out, and we will come back to that. For everyone listening and watching, you can make your own judgment about whether that’s a good idea or not. Gifts are at 500 bucks a month. It’s a little unusually high. Not saying it’s wrong. Just asking, are gifts a really important part of your rich life?

[00:56:21] Brian: For me, it’s more around the holidays. I tend to go big, and one of the gifts is usually a trip of some sort or just something like a baseball game. We’re trying to see all the baseball stadiums because I’m a big baseball fan, and so we’ll maybe go out to California and see the Padres and the Dodgers play, those types of trips. So most of that gift budget is later in the year. Yeah.

[00:56:49] Ramit: All right. Fine.

[00:56:50] Rachel: You called me.

[00:56:51] Ramit: Brian, what’s this line, contribution to child living expenses? How much is–

[00:56:55] Brian: Yeah. $1,220 a month.

[00:56:59] Ramit: Everybody look at Rachel’s smile right now. Rachel’s like, get him, Ramit. Brian, what’s up with this man? That’s a lot of money.

[00:57:07] Brian: That includes the 700 that I have been contributing to the one daughter towards her monthly expenses that I’m trying to see if I can cut again.

[00:57:18] Ramit: Try? Here. Look straight in the camera. Tell her what you want to tell her. My editor will cut this into a beautiful thing. We’ll put some music, we’ll put some Hans Zimmer at the end

[00:57:29] Rachel: Haman Taj.

[00:57:30] Ramit: Yeah, it’ll be done. It’ll be done. All you need to do is just look in the camera and say what you got to say. I have a feeling it’s not that easy.

[00:57:36] Brian: Yeah.

[00:57:37] Rachel: Yes. And phones.

[00:57:39] Brian: Yeah, so I pay for their phones, which is $160. And then the insurance, Ramit, one of my daughters had an accident the first year she got her license, and her rates are just outlandish. The rest of that balance is insurance rates per month that I’m continuing to pay.

[00:58:02] Ramit: Let me ask you a question. First of all, I totally understand you want to help your daughters, and all jokes aside, I get it. I also understand that even if you want to taper off your contributions to your daughter, you would want to do it gradually. You wouldn’t want to just go cold Turkey. I totally get that. What if, as we go through these numbers, we discover that in order for you to continue contributing $1,220 a month to your daughter’s rent, etc., you would have to work an extra 5, 7, 9 years?

[00:58:41] Brian: I’m sorry, I was gulping at the very thought of that. So yeah, I would obviously prefer not to, but I think I get the point you’re making.

[00:58:51] Ramit: Okay. Cool.

[00:58:52] Brian: Yeah.

[00:58:53] Ramit: We will look at the actual numbers, but I could never come here and tell you or anyone what to do with your money. And I certainly can’t come on here and tell a parent, stop what you’ve been doing for the last 22 years and do it my way. That’s not going to work.

[00:59:10] What I can do is show you some different permutations and maybe what some decisions are costing you and just put it into real terms because ultimately you have to come to your own decision about how you want to do your money, and then how the two of you want to come up with your vision for your money.

[00:59:24] If it were up to me when I’m talking about a couple in their 50s, considering retiring early, I would want this number low. And I want it low for two reasons. One, I want it low because I want you to take the extra money you have now while you’re both working and making a very high income to be able to aggressively invest. Because this is the most income you’re going to make together as a household.

[00:59:49] And then secondly, I want low fixed costs because in retirement, you can then sustain yourselves for longer and actually have a better life if your fixed costs are low. The good news that I see from looking at your fixed costs is your major expenses are well under control. Do you know the two major expenses that people overspend on in their fixed costs? What Do you think, Brian?

[01:00:17] Brian: Mortgage.

[01:00:18] Ramit: Yeah.

[01:00:23] Rachel: I am actually laughing at that because Brian is listening to your book on CD and he came home several weeks ago–

[01:00:29] Ramit: CD. What? Hold on. What?

[01:00:33] Brian: Yeah. Like I said, I’m 56 years old.

[01:00:37] Ramit: Wait. Hold on a sec. Hold on, hold on. I have to get this mic. No one has ever seen me take this off mic. I’ve never even taken this off. Hold on.

[01:00:48] Brian: Yeah. That’s the one.

[01:00:50] Ramit: Okay, I have the I Will Teach You to Be Rich on CD. Hold on. I need to dust this thing. I’ve never opened this. Look. I swear to God. Oh my God.

[01:01:00] Brian: Yeah.

[01:01:00] Ramit: I’ve literally never opened this. Let’s just look at this because you’re the first and maybe only person I’ve ever heard. Wow. This is the first time literally seeing– I Will Teach You to Be Rich by Ramit Sethi, an unabridged performance by the office. This is unbelievable. I have never met anyone who got the CD thing, so thank you.

[01:01:18] Brian: Yeah.

[01:01:18] Ramit: You made my day.

[Narration]

[01:01:20] Ramit: Beyond meeting the first person who’s ever bought my book on CD, what’s really important is the idea that as you get older, you really need to accept that you are at your peak earning years, which means that you should probably be saving and investing aggressively, especially if you didn’t start early in life.

[01:01:40] I really want you to think of your finances as a wave that you’re surfing. When you’re young, you have a lot of time, but not much money. So what’s important is to set up the habits of automatic investing. The habits are much more important than contributing $10,000 a month.

[01:01:57] As the wave of life goes on, you might have kids, or you might buy a house, which means that for a while you may not be able to contribute as much to your investments. And that’s okay, to intentionally dial down your savings or investments. But then you get back on track. Always increasing your percentages as your household income increases.

[01:02:20] In fact, one of the most profitable decisions you’ll ever make is to simply increase your savings, contribution, and your investment contribution by 1% every year. You do that, it’s worth tens of thousands, often hundreds of thousands of dollars to you. Now, as you get into your peak earning years, you really focus on contributing as much as possible so you can surf out of that wave into a calm retirement for the next 20 to 40 years.

[01:02:45]  Also, if you want to get my book, you can get the CD version or you can also get it on Audible. I will add a link below.

[Interview]

[01:02:54] Ramit: All right. So what’s up with these investments, this $1,054,000 in investments? What type of investments are these?

[01:03:00] Brian: Mine is the 401k that, I don’t know, the latest value is 460,000. Then I have a pension as well.

[01:03:12] Ramit: 460. What’s the other 600 or so, $550,000 here? Rachel?

[01:03:18] Rachel: 593,900 and something, 90, yeah, is a combination of my deferred compensation and my Roth IRA.

[01:03:34] Ramit: All right. Very nice. All right, cool. So these are solid investments. That’s good. They’re making money. They’re compounding. Love to see it. And Brian, you used to be contributing double?

[01:03:46] Brian: I used to contribute 20% until we made the decision to blitz the mortgage the way we did.

[01:03:52] Ramit: How did you decide that?

[01:03:54] Brian: Well, when I say we decided, I might be giving myself too much credit.

[01:04:02] Rachel: It’s okay he knows.

[01:04:04] Brian: She had mentioned it to me and why it might be a good idea, especially I think in light of my retiring to get rid of that big an expense. So it certainly made sense to me, but in all honesty, as I was reading the book, listening to the podcast, I started thinking, wow, maybe that money is better invested, especially since our mortgage percentage rate is so low. And so that was certainly one of the things we wanted to open the door on.

[01:04:44] Ramit: Did you ever bring that up with her?

[01:04:47] Brian: Uh, Yeah, actually, we’ve talked about that a lot. Yeah.

[01:04:53] Ramit: Rachel, what’s your take?

[01:04:55] Rachel: I haven’t been very open to that. No.

[01:04:57] Ramit: Did you hear your mom and dad’s voice in your ear saying, pay off the debt? Well, the only true American is one with a paid off mortgage, that kind of thing?

[01:05:07] Rachel: Yes. And I do feel like housing is one of the bigger expenses that we have. And when his income leaves and he retires, it’s only his pension that he’s going to be able to access for a couple of years. And so it’s my income and then his pension, which is significantly less than what he’s making.

[01:05:30] Ramit: All right.

[01:05:31] Brian: I spend a lot of my, I guess, guilt-free spending on my hobby, which I’ve been doing since I was a little boy, which is card collecting. Now I’ve reached that point in my life where I think it’s time to start selling stuff instead of collecting it as much.

[01:05:53] Ramit: Oh.

[01:05:54] Brian: And so that’s another thing that we’ve been talking about as far as supplemental income and whatnot.

[01:06:00] Ramit: How much did that make you, ballpark?

[01:06:03] Brian: Depending on how often, I wouldn’t sell it all at once. I just don’t think that would be plausible, but over the course of may be five to 10 years, probably another 10 to 15,000 a year.

[01:06:22] Ramit: A year?

[01:06:23] Brian: Yeah.

[01:06:23] Ramit: It’s worth 150,000?

[01:06:26] Brian: Probably. I’ve been collecting since I was 13

[01:06:30] Ramit: What are these? Baseball cards?

[01:06:31] Brian: Yeah, primarily.

[01:06:32] Ramit: Damn. That’s cool. I thought you were just say 10 or 15. I was like, all right, let’s get back to this. 15k a year times 10, that’s a lot of money, man.

[01:06:41] Brian: Yeah. It’s just sitting right now instead of being active.

[01:06:47] Ramit: You’re right. Maybe it’s accumulating value, but if it’s me and I am– I think you’re 56 years old, right?

[01:06:56] Brian: Correct. Yeah.

[01:06:56] Ramit: I’m 56 years old and I, I’m sitting on 150k, I’m like, damn, let me put that to work. Let me take 85% of that and invest it because I know that’s going to compound, and let take the rest of it and go have a nice vacation. Again, I don’t have the emotional connection that you do. I understand. Like you said, you may want to drip it out, but it’s awesome to know that you’re sitting on this asset that you could capitalize on. Well done. All right, cool. All right. So overall, going through those numbers, how do you feel about it? Rachel, what do you think?

[01:07:37] Rachel: I feel like the numbers must not reflect something because I think Brian is secretly more anxious about things than he’s willing to admit. So I don’t know what’s going on. I honestly don’t.

[01:07:57] Ramit: Well, we know why Brian’s anxious. I’ll show you. Well, first of all, you two have your money separate. Okay. That’s important to, again, I’m not saying it’s wrong, although I think you probably shouldn’t combine it after eight years. But I just want to point out why Brian is anxious. It’s very easy to see. The answer is?

[01:08:15] Brian: Yes.

[01:08:16] Ramit: See, this number?

[01:08:17] Rachel: Yes.

[01:08:17] Ramit: Read it out? What I’m pointing out for everyone listening is they’ve split their expenses and incomes, so I can see all their fixed costs broken out by each partner. And Brian’s fixed costs is 79%, 79, and Rachel’s is 54. And when combined it’s 69. So Brian, when you hear your fixed costs are 79%, what does that tell you?

[01:08:46] Brian: It was literally a smack in the face when we were doing the CSP, to see that number. So yeah, it was a mind-blowing experience.

[01:08:57] Ramit: That’s why you’re stressed out. So the good news, as I said, is that I think there’s some things we can change. What I’d like to do, because you’re both very smart, is I’d like to ask you to take a crack at this. So where would you like to start to reduce these numbers? We are now looking at their fixed costs.

[01:09:15] Rachel: Oh, I hate the idea of it, but I think you probably have to take out extra to the mortgage.

[01:09:24] Ramit: Hold on, hold on, hold on, hold on. That’s a big move. Let’s just talk about that.

[01:09:29] Rachel: Yes.

[01:09:29] Ramit: All right, so you want to what, just simply stop putting that money? Is that what I’m hearing?

[01:09:37] Rachel: I would prefer to find some other outlet that would reduce this fixed dog cost other than that, honestly.

[01:09:47] Ramit: Let’s talk about this. The interest rate being 2.25%, if we’re looking at it purely from a math perspective, which is not how anyone looks at money, but I’m just going to give you the math, I look at this and go, hey, I’m comfortable having a little bit of debt, like a mortgage, because I know that instead of paying my mortgage early, I would take the 2,500 a month, and I would invest it knowing that I could get about 7%.

[01:10:22] But some people, I’m assuming this might be true of you, Rachel, just hate debt. They just hate it. They hate a mortgage. They hate it. And they go, I don’t care about all this math. I just want to get rid of this mortgage. Which one is it for you?

[01:10:37] Rachel: I hate it. I just want to get rid of it. And the fact that I almost lost my house because I couldn’t afford to pay a mortgage, really scares me. I know that it shouldn’t. I know that that is something that happened in a different situation with a different person, and that is not where we are right now, but the fear of not being able to afford a mortgage just terrifies me, which is actually really ridiculous because we have a second home that’s completely paid off.

[01:11:10] Ramit: You could do it any way you like, but each one has its costs. So right now the cost that you are incurring is that Brian is really stressed out about money. You’re actually losing a lot of money that you could make investing $2,500 a month, which is a lot of money.

[01:11:32] Rachel: Yes.

[01:11:33] Ramit: So that’s the cost. But you feel safer. Makes sense sometimes. But on the other hand, we can’t have it all because Brian is a giver. Brian has said he gives to his kids. He gives to you. He’s very generous. And finally, looking at these numbers, he’s shocked. You’re shocked. Everybody’s shocked. Well, the math just doesn’t add up if we want to do it all.

[01:11:58] Rachel: Yeah.

[01:11:58] Ramit: So let’s play it out. Let’s just play this. Let’s say right now you’re currently paying $2,500 a month to your mortgage, extra. I want to zero that out for a second. Okay. Let’s just see what happened. So say it, Brian. Tell us what just happened.

[01:12:20] Brian: Wow. Fixed cost just went down 13% from 79 to 66. Rachel’s fixed cost just went down from 54% to 36%, so that’s an 18%.

[01:12:33] Ramit: Yeah. And then can I show you something else that’s kind of magical? So let’s say here that we do– I’m going down to investments now, and I’m just putting it in a taxable account, 2,500 a month. And I’m going to take all that money that you two were pre-paying, your 2.25% mortgage.

[01:13:00] Rachel: I think it’s actually a two and a half, but I understand.

[01:13:03] Ramit: All right. And I’m just going to plug it in to show you how much additional you could make just by investing it. Again, simple investments. So let’s just say zero. That’s your current principle. We’re going to just keep it simple. It’s going to be $30,000 a year. How many years should we assume that this happens?

[01:13:24] Brian: 10 to 15.

[01:13:25] Ramit: All right, let’s say 15, just to see. And what interest rate should we assume?

[01:13:30] Brian: I think seven or eight is pretty normal.

[01:13:33] Ramit: Seven, just to be conservative. All right, so this is the money that you’re currently pre-paying. Rachel, what’s that big smile on your face before I even click calculate?

[01:13:42] Rachel: I don’t even want to see what it is. I don’t want to know.

[01:13:46] Ramit: There’s no secret A fund here. There’s no bullshit survivorship. There’s nothing. Just pure math. Look at that number. $806,000.

[01:13:56] Brian: Wow. Oh my gosh.

[01:13:59] Ramit: Look at the face, both of them.

[01:14:02] Rachel: Damn it.

[01:14:03] Ramit: What do y’all think?

[01:14:06] Brian: But a good damn it. Oh, damn.

[01:14:10] Ramit: Rachel, talk to me.

[01:14:11] Rachel: Oh.

[01:14:12] Ramit: I love your reaction. Tell me what’s going through your mind right now.

[01:14:16] Rachel: Oh, it’s great. But I wanted it to be really low because I want to keep putting extra the mortgage and not have a mortgage in two years.

[01:14:29] Ramit: Well, look, the good news is you can. If you want to, you can. Okay?

[01:14:35] Rachel: Yeah, but Brian can’t afford it. Realistically, he is really anxious, and I get it. And I am here and I’m with you in order to try to help. And so it’s not fair for me to say, I am not going to make that sacrifice in order to help him.

[01:14:57] Brian: I think we could afford it. I think with the tweaking of the fixed costs, I am definitely now looking at what Ramit just did and saying, as much as I want to take that burden off, and I agree with you, it would be a great form of relaxation, wow. What we would potentially be giving up to do that is wow. It’s just sobering.

[01:15:29] Ramit: I’m hearing both of you acknowledge that, oh my gosh, maybe the way I was thinking about it was not right. Gosh, I see the math, but I still feel this way. What about you? I’m seeing this in front of my eyes, and it is a beautiful thing. So you’re on the right track. Maybe Brian goes, hey, instead of selling my baseball cards over 10 years, I’m going to sell them over three years because then I could fund even more.

[01:15:53] In fact, let me show you what that looks like. Hey, Brian, how much if you sell it– well, it’s same amount. Let’s say you sell it over three years. You’re going to make what, 150k? Should we say a 100k, just to be conservative?

[01:16:03] Brian: Yeah, let’s do a 100, just to be conservative.

[01:16:05] Ramit: All right. So let’s say we start off with a $100,000. Let’s just pretend you sold them tomorrow.

[01:16:11] Brian: Mm-hmm.

[01:16:13] Ramit: And then you add $30,000 more. So essentially, we just added your baseball cards in here.

[01:16:20] Brian: Okay.

[01:16:21] Ramit: Instead of it, at the end of 15 years being 800,000, it turns into $1.08 million. So the money starts to get larger. And then what happens is if you extend it just to 20 years, 1.7 million. It starts to really, really grow. At a certain point, you can’t stop it. We’re talking about a lot of money here. I’m not saying sell your baseball cards tomorrow. I’m just saying you have a lot of options.

[01:16:52] Brian: Mm-hmm.

[01:16:52] Ramit: And that’s a good thing.

[01:16:54] Brian: That’s comforting. Yeah

[01:16:56] Ramit: All right. All right. Let’s keep going. That comes down to here. I’m taking their gifts from fixed costs and moving him down to savings, the gift category. All right, so you’re now saving for that every single month. And then at the end of the year, you know exactly how much you can afford for a baseball game, et cetera.

[01:17:13] Brian: Mm-hmm

[01:17:14] Ramit: All right. Oh my God, that takes Brian down to 56%, which is you will not be stressed about your day-to-day money at 56%. You’re going to feel good. Rachel, you’re at 33, which is starting to concern me. Why aren’t you spending a little bit more on something? But we will worry about that. That’s another problem we can work on.

[01:17:34] Rachel: Because you took the extra out of the mortgage.

[01:17:37] Ramit: Yeah, that’s true. Do you want to pay towards the mortgage?

[01:17:42] Rachel: Oh, I do. I would love to.

[01:17:44] Ramit: Brian does not? Do you want to do that?

[01:17:46] Rachel: I don’t have a problem with that at all. I would love to.

[01:17:50] Brian: Are you sure?

[01:17:51] Rachel: Yes.

[01:17:53] Brian: Okay. Well, you seem pretty positive.

[01:17:56] Ramit: This is a big decision. Go ahead, if you want to discuss it.

[01:17:59] Rachel: I don’t think there’s really a discussion. Why are you concerned about it?

[01:18:04] Brian: Well, just the fairness of it. We agreed we were going to try to pay it off together, and it’s both of our debt together. And I don’t want you to potentially get to the point where you’re hurting a month or two in a row and say, well, gosh, darn it. I wish Brian was doing his part and, I don’t know. I don’t want to derail you from what I know is very important to you.

[01:18:33] Rachel: I think that that’s really, really sweet. But it, I think, would help me honestly in my rich life. That is just my personality, and I want to get it paid off as quickly as possible. I don’t want to lose momentum. I don’t feel strapped at all. I don’t have any problems paying that money.

[01:19:03] It’s not the money that I live off of, and I don’t want you to struggle in order to help contribute. I honestly want you to feel as relaxed about money as I feel right now, where I don’t have any issues paying for anything. We’re living our best lives, in my view, and I want you to have that– but right now, I don’t see it. I don’t feel it. I feel fine.

[01:19:36] Brian: I’m okay with it. I hurt for her. I know she’s being brave, and I want to feel like I’m contributing, but maybe that’s more my issue than anything.

[01:19:53] Ramit: Seems clear to me, Brian, that you are contributing.

[01:19:57] Rachel: Oh, absolutely.

[01:19:58] Ramit: It’s clear from the math. Would we all agree?

[01:20:00] Rachel: Absolutely. Yes. And that’s what I was going to say. I in no way feel that he’s not contributing. He is so generous. He contributes so much and more than just monetarily. He is just amazing, and I love him to death.

[01:20:15] Brian: No, I think it’s a gut-check moment for me to get over that. I think that that pride and tradition and all that certainly play a large part in that. I’m grateful. I think that’s fantastic. I think that frees up money. I love you very much. Why don’t we see how it goes for the year? And if we like the track we’re on, we’ll keep doing that. I’m fine with that.

[01:20:41] Rachel: Taking this away from him doesn’t affect the way that I feel about him in any way. As a matter of fact, in some ways, it like makes me love him more.

[Narration]

[01:20:54] Ramit: Now, there’s one thing I really want you to take away from today’s conversation. That is that there’s usually a lot of different paths to a rich life. If you really want to pay your mortgage off early, fine. If you want to help your daughter with her rent, okay. But in order to find the best path, you have to acknowledge how you feel about money. You have to run the numbers, and you’ve got to have a series of healthy joint conversations about money. Now, Brian and Rachel did all of those things, and I’m very proud of them. Now let’s listen to their follow-ups. First, Brian.

[01:21:34] Brian: The thing I learned the most was how effective communication can be. Sometimes these issues are hard to talk about, even when you’re very honest and open, like Rachel and I are. But we have found that talking about money is not nearly as hard as we thought it was.

[01:21:49] So we’ve been doing that a lot more lately. Biggest surprise was how easy it is to tweak certain things. If you really dig deep and see where you’re spending too much money, it’s not that hard to change that. And our plan going forward, we’re going to compromise. I think we’re going to continue to pay off the house with an extra payment, but we’re going to cut it in half.

[01:22:10] So we’re going to use the other half of that extra mortgage payment we’ve been making and invest that. So that’s our plan for the house going forward. And we’re still working on stuff then to figure out how to cut our expenses and increase our investment. So I think it’s a good plan going forward, and we’ll see how it goes.

[01:22:29] Ramit: And now, Rachel.

[01:22:30] Rachel: I learned that I am going to have to definitely let go to those lessons from the past and those experiences from the past that no longer serve me. I was very surprised to find out how much I am holding on to almost losing my house.

[01:22:44] And from talking to you, I realized that that experience had a lot more to do with the relationship that I was in at the time versus the financial position we were in. Going forward, Brian and I are going to look more closely at his fixed costs and hopefully move forward together in order to help him retire early.

[01:23:06] We are taking away the extra to the mortgage from him so that he can actually put more money into retirement, but it was a really great experience. We really, really appreciate it, and thank you so much to you and your team. Take care. Bye-bye.