Episode #143: “I maxed out my credit cards on our $45k wedding. Are we broke?”

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[00:00:05] Amy: There were definitely a couple of times where I had $10,000 in my savings account and then frivolously drained it. That’s, I think, what freaks Tori out so much, is that when we first started dating, it is like Jekyll and freaking Hyde. It’s two different people. Like last week, we brought in, truly $5,000 just in one week, and she still felt super guilty about, I don’t know, I think we maybe spent $75 on a date. It definitely feels sometimes like a divided effort, not a united effort.

[00:00:35] Tori: It is stressful, very stressful.

[00:00:38] Ramit: If one of you were to become injured for three months and you couldn’t bring in any income, what would happen?

[00:00:44] Tori: I think we would lose everything. Credit cards are already completely maxed out. We would have to either sell or rent the house. And then God forbid, emergency bills and all that that comes with it. Yeah. In some deep shit, that’s for sure. I could cry right now, honestly.

[Narration]

[00:01:00] Ramit: Meet Amy and Tori. Amy’s 28. Tori’s 27. They’re recently married, and suddenly they feel like they are drowning with their finances. We’re going to start at how they got married and how they spent tens of thousands of dollars on their wedding and put it on a credit card. Listen to what happened next.

[Interview]

[00:01:20] Amy: Our wedding was approaching and we were feeling the stress financially.

[00:01:26] Ramit: How many months out was your wedding when you wrote this application?

[00:01:30] Amy: Our whole wedding planning process was only four months.

[00:01:33] Ramit: Well, I guess since it’s only four months, you might as well just take me back to the beginning.

[00:01:36] Amy: Okay.

[00:01:36] Ramit: What happened?

[00:01:38] Amy: I had recently quit my job, so I went on a trip with my mom, and I fell in love with this wedding venue. So we’d been engaged for a year and a half. We hadn’t really been planning anything. And then this wedding venue spoke to me. I called Tori while I was out of town. I was like, would it be crazy if we got married in September this year? She was like, no, that’s not crazy. I’m like, perfect. And within a week of that tour, they sent a contract to us.

[00:02:08] Ramit: How much was the contract for?

[00:02:10] Amy: Just the venue, it was about 25,000.

[00:02:13] Ramit: Okay. Is that what you expected?

[00:02:16] Amy: For me, yes, because I have a degree in events. So I think I’m also very desensitized to how much events cost. So I knew that it was like venue cost, food and beverage, open bar. I was thinking about all the things that we wouldn’t have to spend the money on because it was all included with the venue. So to me it felt super logical, and I had a lot of hope for more contribution from family.

[00:02:40] Tori: I didn’t think that it was actually going to get to the contract part. I was like, ah, this is kind of going to flop. I was like, this is just her being super excited, coming home. She saw the place for the first time, so I just thought she was just super excited. And then there was a contract.

[00:02:59] Ramit: All right, so you signed the contract. What happened next?

[00:03:04] Amy: I’d say, from my perspective, we started reaching out to family to gauge how much they were going to be able to contribute. I know very specifically what I expected and how I pitched it. I was like, if my parents do 10 to 15 and my grandparents do five and then each of your aunts and uncles are able to do two to three, I felt that that would cover the majority. And then I was also like, if we do a registry that’s only cash funds and we don’t ask for gifts– we were only doing 50 guests, so I was like, if our 30 friends contribute a hundred dollars each, then that averages 30,000. So I added it all up and I was like, I feel we’ll have about 30,000.

[00:03:54] Ramit: We’re going to make a profit off this one.

[00:03:56] Amy: Well, no, because I knew like the venue wasn’t the only cost.

[00:03:59] Ramit: Okay, true.

[00:04:01] Amy: I hoped that that would be covered and then everything else would only be our problem.

[00:04:06] Ramit: So you were thinking 25 to 30k from family, and how did family end up contributing?

[00:04:15] Amy: Maybe like 10,000.

[00:04:17] Tori: 15.

[00:04:19] Amy: 15.

[00:04:20] Tori: Yeah, I’d say 15.

[00:04:21] Ramit: That’s a lot of money, right?

[00:04:22] Tori: It is a lot.

[00:04:25] Ramit: All right, so you were expecting 25, you got 15. What happened next?

[00:04:30] Amy: It just as weddings do, was more than we could have anticipated, so it fell on us. And in such a short timeframe too. I feel like when people are getting married and they plan a year or two years out, those deposits don’t stack up like that. It felt like we owed someone $5,000 every week or two.

[00:04:54] Ramit: All right. And the 35k that you both discussed. Where’d you come up with that number? Uh-oh, got quiet.

[00:05:05] Amy: I think just observed averages. It wasn’t really based on anything about us.

[00:05:17] Ramit: Well, I observed that billionaires have multiple mansions in multiple cities, as well as multiple private jets. So should I use that as my guideline?

[00:05:28] Amy: No.

[00:05:29] Ramit: Oh. All right. So you just picked 35k out of the air.

[00:05:36] Amy: Pretty honestly, I think so.

[00:05:37] Tori: I’ll go into it bit deeper because I feel like we knew we could at least put 25 on credit cards. We were like, we know we at least have that.

[00:05:47] Ramit: What, what, what? Wait, that’s not the direction I thought that sentence was going to go. You know you can at least put 25. Is that because your credit card limit was 25?

[00:05:58] Tori: That’s the limit that we had, and we were okay, maybe family could put towards the rest. It was not thought out, I will say. I mean, it was thought out, but it wasn’t really written down and we didn’t stick to it.

[00:06:13] Amy: it wasn’t saved before.

[00:06:15] Tori: No.

[00:06:16] Ramit: Okay.

[00:06:17] Amy: Yeah.

[00:06:17] Ramit: Bills started piling up. You signed the contract, now you’ve got more stuff to sign. And then what were you feeling at that moment, Amy?

[00:06:25] Amy: Overwhelmed, in over our heads, like we were drowning.

[00:06:28] Ramit: Hmm.

[00:06:29] Amy: And just like it was an inevitable drowning from how close the contracts were. Again, let’s say that you booked your wedding a year out. Maybe you would only lose a $5,000 deposit and call it a day. But for us it was such a quick turnaround that there was too much to lose, to not move forward.

[00:06:52] So I was like, okay, now what do we do with this knowing that we’re going to be under this wave? I feel like I was calling out for help before drowning and hoping that someone would pull us out.

[00:07:03] Ramit: Hmm. How much did you end up spending total for the wedding?

[00:07:06] Amy: I’d have to look at the budget again because I think we stopped updating it a month out.

[00:07:13] Ramit: Because you just know it’s horrible. And at a certain point, I don’t even want to look at how much it’s costing because we know that it’s way more than what we talked about two, three months ago, six months ago.

[00:07:24] Amy: Yeah. If I pulled up our wedding app right now, I could tell you what it was as of probably a month before, but I think it would end up being maybe 5,000 more than that.

[00:07:37] Ramit: Sorry, you said the magic words, if you pulled– pull it up. Let’s see it. Hold that thing up to the camera. What app is this, by the way?

[00:07:44] Amy: Zola.

[00:07:45] Ramit: All right. Tell us a number and then we add 5,000 to it. Go ahead. What do you got?

[00:07:49] Amy: Okay. Hang on.

[00:07:50] Ramit: She goes, if I pulled it up, like it’s the most unlikely thing in the world. I’m like, get that app out. Let’s go.

[00:07:58] Amy: Okay. Let’s see.

[00:07:59] Tori: Oh God.

[00:08:02] Amy: So it was at 44,000?

[00:08:07] Ramit: Whoa. Okay, 44.

[00:08:09] Amy: Yeah.

[00:08:10] Ramit: Uh-huh. And what do we see beneath it?

[00:08:12] Amy: So venue was 6,650, food and beverage, 18,000 photographer, 3,100, florist– I will say I’m really proud of how we saved money on our florals. It was only $1,000.

[00:08:26] Ramit: Wow.

[00:08:27] Amy: Our minimum quote for florals was six. Violinist, 375; hair and makeup, 750; wedding planner, 2,000; videographer, 3,500; flight, 200; saxophone, we didn’t end up paying for it, but someone paid for it from our family at 600. Rentals, we didn’t have to do. Cake and dessert was included with the venue. Officiant, our family member did. So that might be– oh, then there’s more. Invitations, 100. This is what’s in there.

[00:09:04] Ramit: I think we get it. So 44. Did that number surprise you?

[00:09:07] Amy: Yeah, because I stopped looking at this, but I will say this is actually, I’d say if it’s off, maybe by 1,000 or two. It’s pretty up to date.

[00:09:17] Ramit: Should we add another 5,000 to it?

[00:09:20] Amy: I’d say two.

[00:09:21] Ramit: Okay. So 45,000, let’s just say. 45,000. All right.

[00:09:27] Tori: That’s a lot. That’s not what I wanted to spend for sure.

[00:09:32] Ramit: How did you pay for it?

[00:09:34] Amy: Where we could, credit cards, and when we needed cash money, it was all of our resources.

[00:09:44] Ramit: What is that? Savings?

[00:09:46] Amy: No, just as we made money, we threw it at vendors.

[00:09:52] Ramit: Oh.

[00:09:53] Amy: Yeah.

[00:09:54] Ramit: How much credit card debt did you walk out of the wedding with?

[00:09:58] Amy: 45,000 for me, but I wouldn’t say that’s all from the wedding now. It’s also–

[00:10:05] Ramit: A little thing called interest.

[00:10:07] Amy: And called not having a 9-5 and steady income and then focusing all the way on the wedding.

[Narration]

[00:10:13] Ramit: What you just heard is incredibly common with large purchases. I’m talking about weddings, travel, houses. I did this myself. I had a number for our wedding. Remember, I had been saving for over a decade before I even met my wife. When it came to the wedding, I knew that we wanted to have a beautiful, big wedding with all of our family.

[00:10:33] And accordingly, I gave myself a healthy margin of error because everybody told me, take your wedding budget and double it. Well, in my case, it was more than that, and by the end I simply stopped looking at it. And I wrote a book on money. What’s the lesson here? The answer is to acknowledge that you and me and all of us are mostly the same.

[00:10:59] Forget that phrase personal finance is personal. A better phrase is most of us are mostly the same. Once you internalize that, you’re going to start planning for all the predictably large expenses you have coming up in the next 20 years. And what’s important is to also add a healthy margin of error because once you start to overspend on these things, and you will overspend, because, again, most of us are mostly the same, you’ll have money set aside, and even an extra $5,000 or $10,000 in unexpected expenses will not cripple you.

[00:11:34] Of course, this means you have to know your numbers, and it means that you probably need to economize on certain things today so you can feel comfortable tomorrow.

[00:11:44] We’ll be right back.

[00:11:45] Now back to the episode.

[00:11:47] With Amy and Tori, there were just a few other clues that really stood out to me. They put their wedding on a credit card, which is insane. Do not do that. Amy left her job during wedding planning. Wedding planning is one of the most expensive times in a couple’s lives. Bad move. And finally, they didn’t save or plan ahead. They just booked a venue because it spoke to her.

[Interview]

[00:12:08] Ramit: How was the wedding, by the way?

[00:12:09] Tori: It was amazing.

[00:12:10] Amy: Beautiful.

[00:12:11] Ramit: All right. I love a good wedding, and I love talking to couples. And a beautiful wedding is a beautiful thing. Every anniversary we look back at our photos and videos and we see things that we didn’t even know were going on at our wedding, and we love it. So congratulations to you.

[00:12:31] Amy: Thank you.

[00:12:32] Ramit: So you walked out of there with roughly 40,000 or so of credit card debt. When did you realize?

[00:12:42] Tori: I would say on our honeymoon.

[00:12:45] Ramit: Where’d you go?

[00:12:46] Tori: We went to Greece.

[00:12:47] Ramit: Okay. Is that included in the 40k?

[00:12:50] Amy: No.

[00:12:50] Ramit: How much did that cost? That’s so interesting.

[00:12:55] Tori: It is interesting.

[00:12:56] Amy: Well, that is part of my credit card debt. Yes. But that wasn’t part of the wedding budget. 10,000, let’s say. Maybe eight, accommodations.

[00:13:09] Ramit: It’s never lower. It’s always higher than you think.

[00:13:13] Amy: Yeah.

[00:13:14] Ramit: All right, let’s say 10k. So 45k for the wedding. 10k for the honeymoon. That’s 55k. What else?

[00:13:22] Tori: I’d say eating out. That was definitely–

[00:13:25] Amy: While we were on the honeymoon. So yeah, we were definitely thinking and talking about money as we were flying home.

[00:13:33] Tori: It definitely got rough. Yeah, we were stressed.

[00:13:35] Ramit: What happened specifically when you were flying home? What do you remember?

[00:13:40] Tori: I just remember us being super on edge, just not wanting to eat out, very conscious of spending.

[00:13:49] Ramit: All right. Anything else we’re missing here? You got the wedding. I’m talking about everything related to matrimonials, wedding, honeymoon. Go ahead.

[00:14:00] Tori: We just bought a house.

[00:14:01] Amy: A year and three months ago.

[00:14:03] Ramit: And when did you leave your job, Amy?

[00:14:07] Amy: May this year. We got into the house September, 2022, left my job, May, 2023, planned the wedding two months after leaving the job. And then got married September, 2023.

[00:14:20] Ramit: All right, that’s a lot of change in one year.

[00:14:23] Amy: Mm-hmm.

[00:14:25] Ramit: How much were you making at your old job?

[00:14:27] Amy: 60,000.

[00:14:28] Ramit: All right. And as an entrepreneur, in the last 12 months, or since you left, when you came back from the honeymoon, how much did you make?

[00:14:36] Amy: Say 1,500 a month on average. 7,000 total. And September was a complete wash, like $0 in September.

[00:14:45] Ramit: All right. You took a huge pay cut basically becoming an entrepreneur.

[00:14:47] Amy: For sure.

[00:14:48] Ramit: All right, fine.

[00:14:49] Tori: So I was a firefighter. I was making pretty good living, nothing too crazy.

[00:14:56] Ramit: What does that mean?

[00:14:58] Tori: How much was I making?

[00:15:01] Ramit: Yeah.

[00:15:01] Tori: I think around 60,000.

[00:15:03] Amy: Firefighting was not making 60,000. I can tell you that right now.

[00:15:07] Ramit: What was it making?

[00:15:08] Amy: She was taking home $1,600 every two weeks. Yeah. I think we used to say your salary was about 40,000.

[00:15:18] Ramit: Wow. Okay.

[00:15:20] Amy: Big difference.

[00:15:21] Tori: That’s right. That’s right. Thank you, babe. I appreciate that.

[00:15:23] Ramit: So we got to talk about this house.

[00:15:26] Tori: We paid all of our debt off. We were very strict. We wrote smart goals. Every week we’re budgeting. We got what we wanted, and as soon as we started to get in the house, she was just like, all right. Like, woo, we’re done. We got the house. And I think finances just started– They weren’t as strict anymore. Once we got into the house, it was a little bit more lenient, I think, because we finally achieved our goal.

[00:16:00] Ramit: Let me ask a couple of questions. How did you decide how much you could afford for your house?

[00:16:06] Amy: What is the process when you go to get a house? They tell you what you can afford. That’s how.

[00:16:12] Ramit: Oh, shit. What’d they tell you?

[00:16:14] Amy: 360. Mm-hmm.

[00:16:17] Ramit: All right. That’s not bad. Back in the day, they would’ve proved you for $1.1 million. Yeah. This shit is crazy.

[00:16:25] Amy: Thank God they didn’t do that.

[00:16:26] Ramit: Yeah. All right. 360, not bad, whoever your broker was. So you said sounds great. I’ll go ahead and take that loan. What was the interest rate you got?

[00:16:36] Amy: Yeah, I’d like to get into that. We are in a new construction home. So one thing that we certainly didn’t know is that when you go under contract, your interest rate is not locked.

[00:16:51] Ramit: Right.

[00:16:51] Tori: Mm-hmm.

[00:16:52] Amy: We were very much unaware of that.

[00:16:55] Ramit: Okay.

[00:16:55] Amy: And we were very much, I think, naive to the idea of interest rates going up quickly, so we went under contract November, 2021. The interest rate at the time was 3.75.

[00:17:06] Ramit: Yeah.

[00:17:07] Amy: Our mortgage payment was supposed to be 2,400. At the time, we were paying 1800, in our one-bedroom apartment, so we were like, okay, $600 more to own it, three bedrooms, da, da, da. By the time that we were able to actually lock our interest rate, it had just been going up by 0.25% monthly. So now we’re at 5%.

[00:17:34] Ramit: What’s the payment per month now? Used to be 2,400, right?

[00:17:38] Amy: Was supposed to be, never was.

[00:17:39] Ramit: Supposed to be. Right, right. And how much are you paying now?

[00:17:42] Amy: Yeah. The mortgage is 2,970, and then the HOA is 200.

[00:17:47] Ramit: Oh damn.

[00:17:48] Amy: We only saw prices going higher. I don’t know if you can remember November, 2021, but the way it felt, something about the vibes in November, 2021–

[00:17:58] Tori: It was like, hurry up and get your house now.

[00:18:00] Amy: Literally, I don’t know, and maybe it was our friend. It truly felt like everyone was talking about it. If you don’t get in now, it’s just going to be way more expensive. So it felt urgent.

[00:18:12] Ramit: All right. So let me see if I get this straight. Amy, you left your full-time job, became an entrepreneur, took a huge pay cut. You both spent $55,000 on your wedding and honeymoon. And then you have this house which is costing way more than you thought every single month. Okay.

[00:18:28] Tori: Yes.

[00:18:28] Amy: Yes.

[00:18:28] Tori: You missed one.

[00:18:29] Ramit: Oh, tell me.

[00:18:31] Tori: I left firefighting as well prior to her leaving.

[00:18:36] Ramit: Oh.

[00:18:37] Tori: So left both left our jobs.

[00:18:38] Ramit: What’d you leave to do?

[00:18:39] Tori: Before this I was a barber, so I actually went back to doing hair.

[00:18:44] Ramit: How much did you make?

[00:18:45] Tori: I was making 48,000.

[00:18:47] Amy: I knew we were going to be in debt. I didn’t know how much at the time. Now all of my credit cards are maxed out. I think Tori’s. We were kind of living off of mine and it’s literally not possible now.

[00:19:04] Tori: We’re trying to find what is the best thing to do because at this point now, I think we are suffering. We have no credit cards to lean on. There’s nothing to lean on. We have limited amount of resources as far as income coming in. We’ve tried what we can, like we stopped eating out, and little things like that, so we are just really looking for help.

[00:19:26] Ramit: What does it feel like when you talk about money today with each other?

[00:19:30] Tori: It is stressful, very stressful. I think we just get so frustrated because I think we know how much debt we’re in and we don’t know how to fix it, and we don’t have much income coming in to save us. We’re not asking family because we already asked them. So I think we get frustrated at each other.

[00:19:51] Amy: It definitely feels sometimes like a divided effort, not a united effort. And it sucks.

[Narration]

[00:19:56] Ramit: There’s not a lot of planning going on here. It seems quite impulsive.  The honeymoon they described is what really got me. If you find yourself on a trip and you’re on edge because of how much the freaking shrimp cocktail cost, you have taken a very wrong turn.

[00:20:15]  By the time you take a major trip, if you’re following the I Will Teach You to Be Rich system, you should have already been planning it for months or over a year. You should have been putting money into a specific savings account named Greece Honeymoon. You should have done an 85% estimation of the costs and then added 15% on top for things you did not anticipate.

[00:20:37] But you should never, ever get to a restaurant on vacation and worry about the price of a dish. If you do that, that is a haunting reminder to you that you got your planning wrong. And whether it’s a pasta dish or whether it’s buying a house you can’t afford, it’s very important for you to know that you can live a rich life if you plan ahead.

[Interview]

[00:21:02] Ramit: I understand the mechanics. You both left your jobs. You bought a house. You got married. I get that. Do you know why all of that happened?

[00:21:12] Amy: Firefighting was making her miserable. And so as her partner, I’m like, you deserve to not feel that way. The moment that we closed on the house, literally that day, she left firefighting. I feel like I got pushed off of a cliff at my 9-5 where it was just becoming a toxic work environment, and I felt like I physically couldn’t stay there anymore.

[00:21:34] I knew in the back of my mind that the wise thing to do before leaving your 9-5 was to have three months saved up and no debt and all these things. We were not in the ideal position for me to leave my job, but it just felt no longer livable to be there. But definitely the wedding was a frivolous, impulsive choice that put us way deeper down.

[00:21:59] Ramit: Talk to me about that. Why did it happen?

[00:22:04] Amy: Just excitement, honestly. We got engaged March, 2022, and we started planning right away. We wanted to get married in Greece, and then we had family that said they couldn’t travel. I just could no longer see the vision of getting married. I was like, okay, if it’s not Greece, I don’t want it. So I think the fact that I was able to envision getting married anywhere again made me so excited that I just was like, let’s go, nose dive.

[00:22:39] Ramit: Tori, what about you?

[00:22:40] Tori: I don’t want to say I wasn’t ready for the wedding. When it came to the wedding, I was definitely more so like, I know this is not feasible right now. We just bought a home. I don’t want to have this right now.

[00:22:54] Ramit: Did you say that? Did you say that to her?

[00:22:56] Tori: I did. I did.

[00:22:58] Ramit: And then what happened?

[00:23:01] Tori: It was like things were just going so quickly. I wanted, I don’t want to say my– I don’t know say this. We were both really excited for the wedding, but I knew in the back of my head, and I don’t think I spoke up as well as I should have. I think in that time I really should have stood on my own two feet and just said, hey, we are not having this.

[00:23:25] We are not in the financial position. We do not have a lot of income coming in. No, this is not happening. She was really, really excited, and so I was like, okay, you’re a planner. We’ve done this before with the house. It’s all worked out. You have a background in planning, and you’re good with money. So I think this would be a good idea. But in the back of my head, I knew that we did not have the financial means to go that far.

[00:23:56] Ramit: Because saying no would make you what?

[00:24:01] Tori: Would make me look bad. It would make me look bad, and I just feel like– I didn’t want her to be sad. I didn’t want her to feel like we couldn’t do it.

[00:24:13] Ramit: Saying no about money, will that make Amy sad?

[00:24:16] Tori: No. I don’t know. I don’t know. I didn’t want to crush her bubble.

[00:24:26] Ramit: And then the house, why’d you buy the house?

[00:24:29] Tori: Good question.

[00:24:30] Amy: To stop wasting money on rent is what it felt like at the time.

[00:24:33] Ramit: Hold on, hold on. I’m about to rip off my skin off and devil is going to come out right now. Hold on a second. Editors, make sure we get this. You’re going to show my real side here. You were wasting $1,800 a month on rent going nowhere, building no– finish the sentence for me please.

[00:24:53] Tori: No home, no equity.

[00:24:56] Ramit: No equity. Can’t find a nickel after 30 years. All of your peers are fucking rich. They own country clubs all because they started by buying one single family home. That’s the American dream. You have to build equity.

[00:25:12] Amy: At the time, my credit score was 800. I was making a comfy 60,000. She was in a steady job. I had $25,000 saved and counting.

[00:25:25] Ramit: Can I ask a question? Because you said that we did it with the house and things worked out, but the house is costing you hundreds of thousands of dollars more than you thought it would.

[00:25:38] Tori: Right.

[00:25:40] Ramit: Did it work out?

[00:25:41] Tori: I would say no. Everything I see now, no.

[00:25:47] Ramit: At each step, it was just like turning the temperature up a little bit until it started boiling. And you didn’t realize what was happening along the– am I correct? I don’t mean to put words in your mouth. There wasn’t necessarily a vision. It was a lot of escaping from something bad, AKA jobs.

[00:26:10] It was, oh my God, everyone’s talking about this. I don’t want to miss out, FOMO. Let’s go. And where do we get our information? We get it from the broker or the lender, the last places we should get information from. And the wedding, it’s like, oh shit, we signed the contract. We got to go.

[00:26:28] Tori: Yeah.

[00:26:28] Amy: Mm-hmm.

[00:26:28] Ramit: Less of a vision, more reactive. I want to add a layer to that, which is affordability, because the worst thing financially speaking in a situation like this to be house poor. For example, how often did you use to eat out and how often do you eat out now? Look at those big smiles.

[00:26:48] Tori: We used to eat out and go on dates all the time.

[00:26:51] Amy: Yeah.

[00:26:52] Ramit: And now?

[00:26:53] Tori: May once a month. Now we really don’t go out. We can’t afford it.

[00:26:57] Amy: And the mentality around it is we don’t deserve– she used the words the other day, we don’t deserve.

[00:27:04] Ramit: Uh-oh, puritanical penance. Y’all made a mistake. You followed the American law and now just the da da da part of that American dream is you rush into huge financial decisions without thinking them through, and then you spend the rest of your life doing penance feeling guilty about it.

[00:27:23] Amy: Last week we brought in truly $5,000 just in one week. It was like the best. Both of us had the best week that we’ve had financially in both of our businesses, and she still felt super guilty about, I don’t know, I think we maybe spent $75 on a date.

[00:27:41] Ramit: Tori, I’m curious about your money upbringing.

[00:27:46] Tori: Okay.

[00:27:46] Ramit: If you had to describe it in a word or two, what would you say?

[00:27:49] Tori: Money was actually not a topic in the household at all. If my parents were to talk about money or speak about money, it would say, hey, we’re having a grown-up conversation. You need to leave the room.

[00:28:01] Ramit: Whoa. Wow. So you weren’t exposed to it. That’s an adults’ topic. And what other phrases did your parents say about money?

[00:28:10] Tori: Money is evil.

[00:28:12] Ramit: Ooh.

[00:28:14] Tori: Yeah. Very poor mindsets for sure around money.

[00:28:21] Ramit: What else?

[00:28:22] Tori: The people at the top can get a little greedy, things like that.

[00:28:27] Ramit: Uh-huh. Are they religious?

[00:28:28] Tori: They are. They were.

[00:28:31] Ramit: Okay, okay. They were. All right. And as you got older into adolescence, you became a teenager, what do you remember about money in your family?

[00:28:41] Tori: Both of my parents passed away, so I did not have a clear foundation on money, even getting in college, taxes, things like that. So I really had to learn that myself and with the people around me, which were as young as I was, so that was extremely difficult.

[00:28:58] Ramit: Mm-hmm. And were there moments where you remember your parents being elated about money, or stressed out about money, or other emotional arcs?

[00:29:10] Tori: Yes, my mom was very stressed out about money. At a point in time, we were sleeping in our van.

[00:29:20] Ramit: What? How old were you?

[00:29:22] Tori: I think I was about 10.

[00:29:25] Ramit: You remember this?

[00:29:26] Tori: Yes, I remember this.

[00:29:27] Ramit: And you mentioned that you remember your mom being stressed out about money then. What was she saying?

[00:29:33] Tori: Crying, very emotional, just very poor mindset, saying she wants to be able to provide for her kids, and things like that, and she’s not able to do that. Yeah.

[00:29:47] Ramit: Do you ever get emotional about money?

[00:29:51] Tori: Yeah.

[00:29:52] Ramit: You do?

[00:29:53] Tori: I could cry right now, honestly.

[00:29:55] Ramit: What! If you need to cry, cry. It’s a safe space here. But I have to say I’m surprised by your answer because in our time together, I haven’t noticed you being particularly emotional about money. You’ve both shared some tough stuff you’re going through. So when you say you get emotional about money, what are those times when you do?

[00:30:20] Tori: It’s more about like when I have money, I try to keep it and hold onto it. I think lately what’s really been getting in and Amy is she’s very optimistic and like, everything will be fine. And like, no. I go back to the time of thinking that I was living in a van, so I’m like, I don’t want to go back there.

[00:30:47] Ramit: Right. It’s totally natural. When you discuss big moves, like cutting your incomes, or buying a house, or signing a contract for a wedding, it seems to me that that must feel pretty uncomfortable for you.

[00:31:06] Tori: Yeah, it is. Extremely.

[00:31:08] Ramit: Do you speak up?

[00:31:12] Tori: I do, but I don’t think I have a say sometimes.

[00:31:19] Ramit: Uh-huh. Why that?

[00:31:21] Tori: I don’t know why. I don’t know if it’s because of like, well, now I’m realizing this is an adult conversation, so I just don’t feel like I have much of a say.

[00:31:35] Ramit: Still feel like you’re sitting at the little kid’s table, right?

[00:31:38] Tori: Right. Exactly.

[00:31:39] Ramit: You’re an adult. You’re a married adult, in a marriage, living in a house that you bought with your wife. Amy, what do you think when you hear this?

[00:31:53] Amy: I never realized that. Yeah, that’s a very interesting connection. And there’s definitely times where I wish that, like with the wedding, for example, if it had been approached in a gentle manner, I think I would’ve been really receptive to it. I think I needed [Inaudible], but it was just tiptoeing.

[00:32:21] Ramit: Yeah, lot of tiptoeing. I agree.

[00:32:23] Amy: Yeah. I definitely want her to feel comfortable, in a nice, respectful, gentle manner. I think we’ve both learned a lot from this, but if there’s something where she feels strongly that it’s a no and I’m in the clouds, I want her to be able to say, hey, babe, I know you’re really excited about this and I’m also excited about this thing, but it’s not feasible.

[00:32:48] Here are the repercussions that could happen from it. Because, for example, with the wedding, I don’t think I would’ve taken it as, oh, she doesn’t want to marry me. It wouldn’t have necessarily hurt my feelings. It would’ve hurt my ego for a minute, for sure. We could have slept on it and talked about it and been okay.

[00:33:08] Ramit: Yeah. How about you, Tori? What do you feel hearing that from Amy?

[00:33:14] Tori: I feel good. I feel like we’re finally getting to a place where I feel like we can maybe start really talking about money.

[00:33:24] Amy: I’d never made the connection of why she didn’t feel as comfortable to speak up, so it helps me to know how to approach future things. I have some financial trauma unrelated to family too.

[Narration]

[00:33:42] Ramit: Okay, if I had heard that last exchange as 22-year-old Ramit, the part where Tori said she doesn’t feel like she can speak up about money, even though she’s a grown adult, I would’ve rolled my eyes. Younger Ramit would’ve said, grow up. You’re an adult. It’s your responsibility to speak up. Otherwise, you don’t get a complaint about all the bad things that happen to you.

[00:34:03] But let me tell you why I think about things a little differently now. Tori has gone through a lot. She lived in a van for God’s sake. Is it fair to have the same expectations for someone who grew up with this difficult relationship with money? They’ve both made some poor financial decisions and now they’re paying for it. But this reminds me of that phrase, would you rather be right, or would you rather be married?

[00:34:26] Amy isn’t here to lob got yous at her wife. They’re married. She could actually help Tori a lot by creating a space and gently nudging her to speak up, to ask for what she wants, and to slowly take responsibility. And Tori should recognize that her passivity isn’t serving her and candidly make it a top priority for her to work on, whether that’s getting a coach, a therapist, and or taking the initiative on money conversations in the household.

[00:34:56] Now, it might take more time to encourage an uninterested partner to speak up and get involved. It will definitely feel frustrating at first, but that’s what loving partners do.

[00:35:07] We’ll be right back.

[00:35:09] Now back to Amy and Tori.

[Interview]

[00:35:11] Ramit: Amy, what do you remember about money growing up in your family?

[00:35:15] Amy: Nothing negative. If there was any financial stress, I wasn’t really aware of it. I was raised just by my mom until I was 10, but my grandparents were super involved, so it was like if my mom had to go to work, I’d be at my grandparents’ house. She got into an apartment just us two when I was five. She bought her first house by herself. She had me really young, so she bought her first house by herself when I was eight or nine, which means she was 25. It was built from scratch too. I remember going after school in my uniform and taking progress photos.

[00:35:49] Ramit: Wow. Was she proud?

[00:35:52] Amy: For sure.

[00:35:53] Ramit: How do you know that? What did she say or do to make you instantly say yes?

[00:35:58] Amy: How often we would go check on it.

[00:36:01] Ramit: Aha.

[00:36:01] Amy: Yeah. And how much she would just want to see the progress of it. And then she met my stepdad a year or two after we got in the house and she ended up selling it because he had a bigger house. So she sold it and she still to this day talks about how that was a big mistake. She wishes that she would’ve kept it. I could have lived there. She could have rented it out. We drive past it every Christmas.

[00:36:27] Ramit: She jokingly, but half jokingly, mentions that she regrets selling it.

[00:36:34] Amy: Not jokingly, very much like, this is my advice to you.

[00:36:37] Ramit: Oh, the advice is buy a house and don’t sell it? Is that what it is?

[00:36:42] Amy: Essentially. I don’t think she would want us to be house poor forever in order to keep a house, but she must have not had a issue to pay for it. So she’s, I think, saying like it’s a good investment and something that she knows she could have had to this day and paid off by this point.

[00:36:58] Ramit: All right. What else happened as you got older and became a teenager? What do you remember about money in that family?

[00:37:06] Amy: My parents had BMWs, big house.

[00:37:11] Ramit: Whoa.

[00:37:12] Amy: Yeah, they bought me a car when I was 16.

[00:37:15] Ramit: What kind of car?

[00:37:16] Amy: A Toyota Corolla.

[00:37:18] Ramit: That’s a very nice car.

[00:37:19] Amy: A 2008 in 2008.

[00:37:21] Ramit: I love that model.

[00:37:22] Amy: What I love that they did was I got a job when I was 16 and so they really encouraged me because they were like, every dollar that you save will match.

[00:37:32] Ramit: Wow. So they were quite savvy with money.

[00:37:36] Amy: I feel like they did it really well. Every dollar that I had saved went to college. I don’t have any student loans.

[00:37:44] Ramit: That’s cool.

[00:37:44] Amy: And then I also had scholarships.

[00:37:46] Ramit: Sweet. Love it. All right, great. When you graduated from college, what was going on with money for you? Talking early 20s here.

[00:37:58] Amy: Yeah. I graduated six months after I came back from study abroad and I was broke as a joke. And actually, you’re a therapist for me. No, now that I think back to it, there were a couple of times, and I know I’ve said this to you, Tori, but I didn’t think about it, but there were definitely a couple of times where I had $10,000 in my savings account and then frivolously drained it.

[00:38:25] That’s, I think, what freaks story out so much is that when we first started dating. It is like Jekyll and freaking Hyde. It’s two different people. I would spend on my Amex for two weeks and then I would pay it off and then I would spend on my Visa for two weeks and then I would pay it off. I never had outstanding balances.

[00:38:46] Tori: You never had a debit card.

[Narration]

[00:38:48] Ramit: I’ve made the comparison of finances and fitness many times before. As someone who’s gone through my own major fitness journey, I’ve had to confront my own invisible scripts and to get a lot of help from other people to change the way I feel about fitness and to change my own behaviors around fitness.

[00:39:05] It’s for that reason that I can recognize so much of what Amy’s saying. What I hear is a lot of yo-yoing. For some people this happens with their food, with some their spending. There are a lot of emotional reasons, including shame at play. There’s math involved, and there are often biological factors at play too.

[00:39:25] One thing that stands out to me is how sporadic and episodic or spending is. It’s a lot of saving and then a sudden amount of spending. A lot of people who have struggled with their weight will recognize the very same pattern. The solution, of course, is not to simply try harder. It is to have a powerful, specific vision of why you want to change, and then it’s about getting help.

[00:39:49] It definitely involves creating systems that encourage your success. Now, I have to admit this is actually a lot easier with money than with food and fitness. With money, I can set up automatic savings and investing so the money flows right out of my paycheck. That’s Chapter 5 of my book, I Will Teach You to Be Rich.

[00:40:09] I wish I could automate my workouts. I wish. I mention this because in the last few years it’s become taboo to talk about food and fitness and finances. But as someone who’s changed my own life around fitness and food, it was incredibly challenging. It was really hard, and it’s one of the things that I am most proud of. And it’s why I have a lot of empathy for people who struggle with their health or who struggle with their money.

[Interview]

[00:40:36] Ramit: What do you think’s going on when you’ve got money sitting in a savings account and then on a recurring basis it seems to go? Your savings account is not building. It’s actually being depleted every few years. What’s going on there?

[00:40:50] Amy: In the past, I don’t know. It’s not like I had a big 10,000-dollar goal and I emptied it out for that.

[00:40:58] Ramit: Mm-hmm.

[00:40:59] Amy: I think it felt like a safety net. And at my young age, at the time, 19, 22, it just felt like, hey, good for me. I got money in my account. I don’t have any major thing to spend it on.

[00:41:11] Ramit: At 22, I get it. It’s a little different. And people are not really thinking ahead that much with their finances and the fact that you had that much in your savings, great. What’s up with this financial trauma that you mentioned?

[00:41:22] Amy: I had an ex steal from me twice or three times.

[00:41:26] Ramit: What? What happened?

[00:41:29] Amy: The first time that I noticed he had somehow cashed my tax return check.

[00:41:37] Ramit: What? For how much?

[00:41:40] Amy: 900, which at the time felt a lot. It is.

[00:41:43] Ramit: It’s a lot of money.

[00:41:43] Amy: But it felt like a lot.

[00:41:45] Ramit: All right. So then what happened?

[00:41:49] Amy: We broke up, got back together, and then he used my credit card, my personal credit card for a few off and on charges that I didn’t notice because they were so small. And then what the big kicker was that he used my, at the time, corporate credit card.

[00:42:04] Ramit: Whoa. Holy shit. Hold on. First off, when he was buying these little purchases, what was he buying? Like corn nuts? What are we talking about?

[00:42:15] Amy: Well, the big one that stood out was Hooters.

[00:42:20] Ramit: That’s not that subtle.

[00:42:24] Amy: It was not. That was when I noticed that–

[00:42:27] Ramit: Dude, if you’re going to you’re going to– look, Ramit’s safety advice for all the thieves out there who are trying to steal from your girlfriends, go ahead and don’t go to Hooters on that stolen credit card. What do you say? Any place but Hooters.

[00:42:42] Amy: Yeah.

[00:42:43] Ramit: Okay. All right. And then what did he charge up on the corporate card?

[00:42:47] Amy: It was Ubers. Accounting called me into their office one day, and I only used my corporate card when I would travel for conferences, so that would be once a month maybe. So if I wasn’t traveling, my corporate card was in my wallet, in my closet. It wasn’t even on me. They call me into the office and they’re like, hey, super gentle, I think you accidentally used your Amex for Uber.

[00:43:12] We’re going to take it out out of your paycheck. Just wanted to let you know. And I just immediately was like, okay. So I took all his shit out of a the house, changed the locks the same night. It felt like being cheated on.

[00:43:26] Ramit: Would you like to share a message with him. Say whatever you like. Go ahead. What do you want to tell him? You don’t have to, but the airwaves are yours.

[00:43:39] Amy: Just that I’m a really nice person for not reporting him to the IRS.

[00:43:45] Ramit: True.

[00:43:45] Tori: Or she came to the dark side. She changed teams on you, buddy.

[00:43:54] Ramit: And Amy, what happened to allow you to not feel that sense of scarcity and betrayal anymore?

[00:44:03] Amy: I think the level of commitment that we’re in and probably bits of therapy, but I think really the level of commitment and just trying to have a mindset of, it doesn’t need to be 50-50, it’s just who wants to, who can, what makes the most sense for both of us, especially pre-debt. It was just, hey, I’ve got it. Don’t worry about it, and vice versa.

[00:44:29] Ramit: Got you. Glad to hear that you’ve seen therapist. Are you currently seeing one now?

[00:44:36] Tori: No.

[00:44:37] Ramit: No. How come?

[00:44:40] Amy: We can’t really afford it. We went on Tori’s firefighter health insurance, the same therapist who we know and love was 30 or $35 a session. And then when Tori left fire, we used my corporate insurance, and it was $90 a session, which we were still doing. And then without insurance, when we both left our 9-5s, it was 135, which we did a couple of times and now we haven’t been since before the wedding. But yeah, we want to go back.

[00:45:11] Ramit: Okay. I hate to hear that the prices are so high and your expenses are so high that you can’t do that because it’s important for your relationship. Let’s see what we can do. Why don’t we take a look at your numbers and let’s see what we find out. Tori, why don’t you read off the words in bold and the numbers next to them? Let’s go through your net worth numbers here.

[00:45:34] Tori: We got our assets, current value of the car, home, property, and businesses.

[00:45:39] Ramit: How much is it?

[00:45:41] Tori: 450,000.

[00:45:46] Ramit: Okay, great.

[00:45:47] Tori: 401k on retirement, all investments, 0.

[00:45:50] Ramit: Mm-hmm.

[00:45:51] Tori: Savings, 0.

[00:45:53] Ramit: Mm-hmm.

[00:45:53] Tori: Debts, student loans, credit cards debts, mortgages– I don’t know why I’m over here scared. Sorry, I don’t know why I’m getting so nervous.

[00:46:12] Ramit: Go ahead, say it out loud.

[00:46:16] Tori: 424,065.

[00:46:19] Ramit: $424,065. All right. What’s your total net worth?

[00:46:24] Tori: 25,935.

[00:46:26] Ramit: All right.

[00:46:28] Tori: Hmm.

[00:46:30] Ramit: What do you think of those numbers?

[00:46:33] Amy: It’s not negative.

[00:46:35] Tori: It’s not negative but it’s not the best.

[00:46:38] Ramit: Okay.

[00:46:39] Amy: Not more than I had before we got the house.

[00:46:42] Tori: Yeah.

[00:46:43] Ramit: Right, right, right. Just so we confirm the debt, Amy, you have $44,000 on credit card debt. Tori, you have $17,000 in credit card debt, and your mortgage is $362,000. Right?

[00:47:02] Amy: Mm-hmm.

[00:47:02] Tori: Correct.

[00:47:03] Ramit: Any other debt? Student loans?

[00:47:07] Tori: I do have student loans way back when for high school. I think it’s 13,000.

[00:47:14] Ramit: I’m going to add that because we need to.

[00:47:17] Tori: Okay.

[00:47:18] Ramit: So $424,065 plus $13,000 is $437,000. So your total net worth is about $13,000. All right. Let’s look at the income. This time Amy. Go ahead and give me your combined gross monthly income.

[00:47:47] Amy: $10,411.

[00:47:49] Ramit: All right. What do you think about that number?

[00:47:52] Amy: I think that’s the minimum that we need to exist.

[00:47:57] Ramit: Okay. And if we just multiply that by 12, you make $125,000 a year as a household. Okay. All right, let’s keep working our way down. Your fixed costs, Amy, what is this number here? Combined fixed cost number. What does that number say?

[00:48:14] Amy: 89%. Not even close to ideal.

[00:48:19] Ramit: It’s pretty high.

[Narration]

[00:48:20] Ramit: Just a reminder, I recommend that this number is anywhere between 50 to 60%, depending on your age, your existing finances, and your income. You can get your own conscious spending plan template to calculate your fixed costs at iwt.com/csp.

[00:48:39]  Now back to the show. 

[Interview]

[00:48:40] Ramit: So let’s break it down. Your mortgage is 2,940 a month, which is higher than you expected. You got your utilities at about 500 a month. So if we add both of those up, that’s about 33% of your income.

[00:48:57] Amy: Mm-hmm.

[00:48:59] Ramit: Of your gross income. I want to talk about this. It’s really important. So there’s this rule. It’s called a rule, but it’s really just a guideline of your total housing costs should be less than 28% of your gross income. In your case it’s 33. It’s a little higher than I would like, but if they had let’s say a high income, could probably make it work. If they live in a high cost of living area, I can understand.

[00:49:31] Amy: Doesn’t feel like 33%. It feels like 80%.

[00:49:35] Ramit: Yeah.

[00:49:36] Amy: Every month is challenging

[00:49:38] Ramit: And so we go down to insurance at 227, no big deal. Car payment at zero. Love that. Love it. And then we go down to debt payments, and this is where it all becomes clear. So your monthly debt payments, Tori, what’s that number you see here for the both of you that you’re both spending?

[00:49:58] Tori: $3,051.

[00:50:01] Ramit: So right here, this is the ball game. Your housing costs are already high. Now, you could maybe pull it off, again, if you had a high income, if you had no car payment, which you do.

[00:50:13] Tori: Mm-hmm.

[00:50:13] Ramit: But if you have a high housing cost and high debt, you’re effectively broke.

[00:50:22] Amy: Mm-hmm.

[00:50:24] Ramit: You can’t get out of that cycle. That is why you’re feeling stressed. That’s why you’re feeling overwhelmed. That’s why you’re feeling disconnected about money.

[00:50:33] Tori: Yeah.

[Narration]

[00:50:34] Ramit: This is what I love about the conscious spending plan. It allows you to surgically hone in on your expenses so you can instantly see what’s working and what’s not working. In their case, you can see that combination of housing expenses and debt mean that they don’t have enough money. That’s it. That’s the answer.

[00:50:51] It’s not Target. It’s not some random knick-knack. This is the big win to focus on. And their financial situation is exacerbated by the variable income, the mounting interest. And one last thing that I notice, Tori’s salon lease is accidentally included here. So when I remove that and adjust her income, suddenly their fixed costs are 99%. They are truly broke

[Interview]

[00:51:21] Ramit: Your investments are at zero, so you’re contributing zero to investments right now. It’s a big red flag. Savings are at zero. In fact, let’s go back and look at– you have $0 in savings. Holy shit. Just for a moment, I know we’re focusing on the negative, but I just want to do this for a second. If one of you were to become injured for three months and you couldn’t bring in any income, what would happen?

[00:51:44] Amy: I can’t even imagine. There would be no options.

[00:51:52] Tori: I don’t even want to think about it.

[00:51:53] Amy: We’d be winging it.

[00:51:55] Tori: Oh my God. Yeah.

[00:51:56] Ramit: I think winging it is a metaphor. Can you be more specific?

[00:52:00] Tori: I think we would lose everything. Credit cards are already completely maxed out. There would be no paying the mortgage. We would have to either sell or rent the house. We would have no income to sustain I think just life in general. And then God forbid the emergency bills and all that that comes with it. Yeah.

[00:52:26] Ramit: Amy?

[00:52:27] Tori: In some deep shit, that’s for sure.

[00:52:29] Ramit: Amy, I noticed you have a bit of a look on your face. What’s going through your mind right now?

[00:52:36] Amy: Tori’s thought is always like, sell the house and move in with your mom. I was waiting for her to say that.

[00:52:42] Ramit: I think you wouldn’t be able to pay your mortgage, wouldn’t be able to pay for basic stuff, except maybe to pay a little bit off on the credit card and then run back up even more. It’ll be catastrophic. That’s just reality.

[00:53:06] Tori: I would say for me a big thing has been– a big topic that I know we both do not like to talk about. I always say you know should we rent sell the home? I know that’s a big chunk of change. So that’s been a huge topic that I know we both hate to talk about because we love our home.

[00:53:32] Ramit: Okay, okay. So that’s one of those topics that everyone walks on eggshells around.

[00:53:38] Tori: Yes.

[00:53:39] Ramit: Yeah. You don’t even really bring it up because you know what the other person’s going to do, and if even there’s a whiff of it, things get tense. Right?

[00:53:46] Tori: Mm-mm. Uh-huh. Yeah.

[00:53:48] Ramit: All right. You have three bedrooms, right?

[00:53:50] Amy: Mm-hmm.

[00:53:51] Ramit: Would you be open to sublet, or roommate, or something for the bedroom or no?

[00:53:59] Amy: I think I’d be open to a single roommate with no pet.

[00:54:02] Ramit: Look, can I just show you something? If you were to get a roommate, I want to show you how that would affect your numbers, because at this stage it’s really important to actually use some numbers in decision making. Okay?

[00:54:12] Amy: Mm-hmm.

[00:54:13] Ramit: So how much would you make from an extra roommate?

[00:54:19] Amy: I feel like 1,200 is fair.

[00:54:23] Ramit: 1,200. All right.

[00:54:24] Tori: 1,500. I would like at least 1,500

[00:54:27] Ramit: I’m just going to keep it really easy just to show you the math. So let’s go 3,291, which is Amy’s net income, 3,291. I’m going to add 1,500 to that. So that becomes 4,791. I’m just going to plug it in instead of 3,291, it’s now 4,791. Look at the fixed cost number. It’s currently at 99%. I think that’s high, but it’s in the ballpark. It went down to 83%.

[00:54:58] Amy: Yeah.

[00:54:58] Ramit: In a way, it makes a difference. It definitely makes a difference, but it’s not nearly enough.

[00:55:05] Amy: One thing I should circle back to is the 9-5 job that I just got.

[00:55:10] Ramit: You got a job.

[00:55:12] Amy: Yeah.

[00:55:12] Ramit: Okay. So you put the entrepreneurial thing on pause.

[00:55:17] Amy: On less priority.

[00:55:18] Ramit: Less priority, and you went and got a 9-5 job. Okay. How much–

[00:55:22] Amy: I start January 2nd.

[00:55:23] Ramit: Oh, is that reflected here in the income?

[00:55:26] Amy: No, because it wasn’t confirmed when we did this.

[00:55:30] Ramit: Well, fantastic. Let’s go ahead and update it.

[00:55:32] Amy: I just signed the offer letter yesterday.

[00:55:34] Ramit: Good job. How much?

[00:55:36] Amy: 70,000.

[00:55:37] Ramit: What the fuck? All right, hold on. I’m taking this roommate out because you’re not getting a roommate. 70,000. Oh wow. That’s pretty good. All right, so watch this. I’m going to net you’re at 4,200. It might be plus or minus a little bit, but again, we’re being rough. Watch what happens to your fixed cost number. It goes from 99% to 89%. So it goes in the right direction.

[00:56:03] Amy: Yeah.

[00:56:04] Ramit: But?

[00:56:05] Tori: It’s still not enough.

[00:56:07] Ramit: It’s not enough.

[00:56:09] Amy: Yeah. My goal is to sustain the nine to five and still have stylings. Lately I’ve been making, like last week I made 2,500 just in one week. Now I know that’s not every week.

[00:56:24] Ramit: How much are you going to make over the course of a year? Be conservative.

[00:56:29] Amy: Even if it’s $1,000 a month.

[00:56:31] Ramit: All right.

[00:56:32] Amy: 12,000.

[00:56:34] Ramit: All right, let’s do that. Again, let’s just forget about taxes for the moment, and let’s just say instead of 4,200, it’s 5,200 a month. You’re netting an extra $1,000 a month. Okay?

[00:56:48] Amy: Mm-hmm.

[00:56:50] Ramit: Your fixed cost rate, 89%, they’re down to 79%. What do you see, Amy?

[00:57:00] Amy: Definitely some relief.

[Narration]

[00:57:01] Ramit: This exercise shows you why you should be extremely careful about adding expenses to your fixed costs, because once they’re there, they are very hard to remove. It would be really hard for them to sell their house. Now I’m not just talking about logistically, I’m talking about psychologically. Also that credit card debt they ran up for the wedding and a variety of other things, that’s drowning them.

[00:57:25] You can see how when it comes to our money, we often make individual decisions without seeing the big picture. And then one day we wake up and we realize, oh, no, I don’t want this life. Now, they do have options. They’re young, so time is on their side. They can get a roommate. Amy got a new job and she’s going to be earning more. But even if they do all of this and it works perfectly, they’re still not in a great place, and the fact is that they will probably be setting themselves up to burnout.

[Interview]

[00:57:57] Ramit: You both made a series of decisions. What decisions did you make that led you to this place? What were they? Just enumerate them for me.

[00:58:06] Amy: Wedding.

[00:58:08] Ramit: Mm-hmm.

[00:58:10] Amy: Leaving our jobs.

[00:58:11] Tori: Leaving our jobs. I would even say for me getting the salon suite.

[00:58:16] Ramit: Yeah. What else?

[00:58:20] Tori: The house.

[00:58:21] Ramit: Yeah, all those. Okay. So at each step, you got it and you were like, we’ll figure this out later.

[00:58:29] Tori: Yeah.

[00:58:31] Ramit: Later is now. You can’t go wrong. We’ll try something. If it doesn’t work, we’ll try something else. Let’s loosen it up a bit. Somebody throw something out.

[00:58:40] Tori: I would say let’s take the house away.

[00:58:43] Amy: Everything else is not optional. As of now the mortgage is not optional. The idea of could we get a roommate paying 1200 a month, or could we rent the whole house out and live somewhere else, but our credit is so fucked that we couldn’t move into an apartment.

[00:59:08] Ramit: Mm-hmm. True. So you do have some optionality here, but truthfully, it’s not going to move the needle.

[00:59:16] Amy: Mm-hmm.

[00:59:16] Ramit: All right, so what do you want to do, Amy?

[00:59:21] Amy: Find a single friend that doesn’t have a pet that wants to live in the room.

[00:59:27] Ramit: So that has now dropped your fixed cost down to 70%. What else? Tori, it’s your turn.

[00:59:34] Tori: I would say cut all subscriptions off probably.

[00:59:38] Ramit: So watch. 115. I’m going to just literally zero it out. All subscriptions canceled. Now, I don’t know if this is realistic or not, but let’s go ahead and do it. Zero takes you from 70 to 69%. We’re now at 1% increments.

[00:59:54] Amy: Doesn’t make a difference.

[00:59:56] Ramit: Yeah, it’s meaningless.

[00:59:58] Amy: And even groceries. And groceries are only that high because we make an effort to eat at home.

[01:00:05] Ramit: Yeah, so what’s your conclusion from this so far?

[01:00:09] Amy: To me it’s either decrease the mortgage in some way, whether it be a renter or fully renting it out. The optimist in me wants to think Tori’s business has been growing and will continue to grow next year and make more. My business is doing the same, and I can try to keep up with it with a 9-5. I feel like the only way is to increase income.

[01:00:38] Ramit: Uh-oh, you said it. Ring the bell. They always say it. People who are overspending always say– what do they say, Amy?

[01:00:47] Amy: Increase income.

[01:00:48] Ramit: We just got to make more money.

[01:00:50] Amy: Yeah.

[01:00:51] Ramit: It doesn’t work. Trying hard is good. I love to see it. It seems like you both are willing to play ball. I love that. You’re getting jobs. You’re working hard. I love that. That’s great. But sometimes working hard cannot make up for a structural problem.

[01:01:08] Amy: What can you do about that?

[01:01:11] Ramit: Let’s look at your income. No. You can’t declare bankruptcy making $135,000 and going, oh, we can’t pay this off. No. Sometimes I think that when we have really big challenges in life, we dance around it, but sometimes the solution is just to walk through the fire. We need to face the problem and just own it. Go straight at it.

[01:01:35] Amy: Yeah.

[01:01:35] Ramit: So let me ask you this. If I were to give you three options, change nothing, change a few little things, or make major changes, option 1, 2, and 3, which option would you choose?

[01:01:50] Tori: Major changes.

[01:01:52] Ramit: Mm-hmm. Amy?

[01:01:54] Amy: Mm-hmm. Number three.

[01:01:55] Ramit: Okay. Everybody says that.

[01:01:57] Tori: Not until it’s time to do the hard work.

[01:02:00] Ramit: Okay. Awesome. So is this the point where you have to make major changes or is it you want to wait a few months and see how things go?

[01:02:10] Tori: I don’t.

[01:02:11] Ramit: Amy?

[01:02:12] Amy: I want to wait two months.

[01:02:14] Ramit: Tell me.

[01:02:15] Amy: See how things go.

[01:02:16] Ramit: Tell me. Play out two months. What happens?

[01:02:19] Amy: I’m starting to make steady income.

[01:02:23] Ramit: Mm-hmm.

[01:02:24] Amy: Tori’s feeling like the benefits of her business advancing like it has been, and just seeing if we can actually pay things down instead of just sustain.

[01:02:37] Ramit: All right, let’s take it methodically and just break it down. Who knows? Maybe this shows something interesting. You got your debt payments. You have 44 plus 16, let’s just call it $60,000 on credit card debt. Right?

[01:02:50] Amy: Mm-hmm.

[01:02:51] Ramit: All right. Have you ever calculated how long that’s going to take to pay it off?

[01:02:56] Amy: I think I saw something sickening like 15 years or something crazy.

[01:03:01] Ramit: 15 years. Yeah, that’s crazy. Let’s look it up. It will take you 530. That’s so many months. I have to pull out a calculator. 534 months divided by 12. Amy, read the rest of this.

[01:03:12] Amy: With a minimum payment, it will take you 534 months to be rid of your debt. In that time, you’ll pay 124,319 and 7 cents in interest.

[01:03:25] Ramit: 534 months is how many years, Amy?

[01:03:29] Amy: 44.

[01:03:35] Ramit: So how old will both of you be in 44 years when you’re finally debt free?

[01:03:40] Amy: 72.

[01:03:43] Ramit: Wow.

[01:03:43] Tori: And I’ll be 71.

[01:03:46] Ramit: Happy retirements. Amy, what do you see? What are you thinking right now as we look at this stuff?

[01:03:52] Amy: No way.

[01:03:53] Ramit: Bingo. No way. You want to put, what, an extra 1,000 bucks towards this? You want to see what happens?

[01:04:01] Amy: Yeah.

[01:04:02] Ramit: Instead of 3,051 a month, let’s put 4,051 a month. All right. That is going to take you 18 months to get rid of your debt.

[Narration]

[01:04:17] Ramit: Okay, let me cut in here for a second. This conversation took a very confusing turn because they told me that they were paying the minimum, which, according to two different credit card debt calculators, would take them decades to pay off. And it took me re-listening to our conversation and re-analyzing the math to figure out what actually happened.

[01:04:38] I realized that they’re actually paying a lot more than the minimum, approximately $2,000 a month more, which is a huge amount, and that means their debt will actually be paid off in about two years. Now, remember Amy had previously resigned herself to paying the debt off over 15 years, which she called sickening, and now she realizes it can be done in two years.

[Interview]

[01:05:06] Ramit: That’s two years. You will need to pay a total of $78,821, which includes almost $17,000 of interest. What do you think of that?

[01:05:28] Tori: That’s a lot.

[01:05:30] Amy: I think that people who are used to talking about debt might be like, oh, good for you. You can do it in two years. But to me, I’m just like, that is never something that I thought we would be grateful to see. I never thought it would be, oh, instead of 44 years, it’s two. No, two still sucks. To be paying interest at all sucks. It just feels unfair, which I know we did it to ourselves. It just feels like, fuck, man, $16,000 of monopoly money is what it seems like to me. It’s not anything that we actually spent money on and enjoyed. It’s just accumulated.

[01:06:14] Ramit: Let me reframe what you told me. It does suck. I totally agree with that. If you follow a plan like this, you are working insanely hard for the next two years just to get to zero.

[01:06:27] Amy: Mm-hmm.

[01:06:28] Ramit: Okay?

[01:06:29] Tori: Yeah.

[01:06:30] Ramit: I do want to say that I want you to be mindful of the language you use because you did make the choice all the choices that got you into this debt. Nobody forced you to sign anything. You also did enjoy your wedding. So when you say it’s not like we didn’t enjoy, you enjoyed it. We have to be honest about that. What do you want to do?

[01:06:59] Amy: I know we’ve said before that if selling the house meant we could both immediately pay off all of our debt, we would do it

[01:07:08] Ramit: How much did you buy the house for?

[01:07:11] Amy: 374-ish.

[01:07:13] Ramit: 374. And according to a real rough comp, you could sell it for 450. Let’s just say you were to able to sell it for that, 76,000 more, minus fees, taxes, etc. I don’t know. You might take home 35, 40k. Now,35k would really help towards your debt, though. I’ll tell you that, massively.

[01:07:42] Your debt wouldn’t be fully paid off, but it would take a huge chunk of it out right there. Where that really matters is here. So remember that your current housing cost is 32 or so percent. If you could basically go back and live where you used to live as an example, saving $1,000 a month, that $1,000 a month could be redirected to paying off debt faster, which in my opinion I would do, I would split my money up and put some of it towards the mortgage, some of it towards saving, some of it towards investing. I would get that habit going, and that would be with you forever. You would lock in those savings for as long as you lived in that place.

[01:08:27] Tori: Yeah, I think that sounds like something I would want to do.

[01:08:31] Amy: Sounds good in theory. I just now feel we wouldn’t be accepted to live in any apartments. Our credit scores are trash.

[01:08:43] Ramit: Yeah.

[01:08:44] Tori: Yeah.

[01:08:45] Ramit: Any other options you have?

[01:08:47] Amy: Living with my mom again.

[01:08:48] Ramit: What do you think about that?

[01:08:51] Tori: I love her mom so I wouldn’t mind, and I don’t think–

[01:08:57] Ramit: Wait a second.

[01:08:57] Tori: She would either.

[01:08:58] Ramit: Would she be open to it or not?

[01:09:01] Tori: She would.

[01:09:02] Amy: Would love it.

[01:09:03] Ramit: So look, I’m not telling you got to live with your mom. Here’s what I am telling you. If I were in your situation and I was like, damn, this fucking sucks. I’m paying all the money I make to credit cards. Every month we sit at home and stare at the wall because we can’t do anything because our expenses are too high. And even I am getting a 9-5 job. And even if Tori does better, we’re basically taking all that money and shoving it to all these expenses. And once the debt’s paid off, we still have these high costs.

[01:09:39] Is this the life we want, the current scenario you’re in? Let’s actually play this out with some real numbers because I think we’ve had enough of just like, let’s just make these decisions and it’ll all work out. Let’s actually model it and simulate it. For the next two years, you don’t go on vacation. You’re not buying gifts, it’s going here.

[01:10:02] And you do have a little bit of money that can be saved, which you should for sure save and invest. But aside from a little bit of guilt-free spending, it’s all hands on deck to pay off credit cards. Cool?

[01:10:19] Amy: Mm-hmm.

[01:10:19] Ramit: All right. Then one day your debt gets completely zeroed out, two years from now. It’s not that long away. Zero. Watch what I’m doing. Zero. Holy shit. Look at those fixed cost numbers. They just went down like crazy. It’s down to 38%. This is insane.

[01:10:41] Amy: It’s hard not to look at that and think like, fuck, we didn’t have to be here four months ago.

[01:10:49] Ramit: What does that mean?

[01:10:52] Amy: I think the wedding is just what sunk us because it’s where our debt came from. So it’s just rough to see those numbers and know we could be thriving right now.

[01:11:03] Ramit: But let’s acknowledge that you made decisions that didn’t serve you. And here you are today. Let’s put that aside and let’s look to the future. So in two years, which will be very difficult for you for two years, but it can be done, it absolutely can be done. Especially, I know this because, Tori, you seem like you’re ready to buckle down and do it. Am I reading you right?

[01:11:28] Tori: I am. Yeah.

[01:11:30] Ramit: Tori’s afraid of ever going back, so she’s ready to do what needs to be done. Amy, you told me a couple of examples where when you had a mission, you were able to save a bunch of money and be extremely meticulous about tracking your money, right?

[01:11:48] Amy: Mm-hmm.

[01:11:49] Ramit: So this is your mission if you want to accept it. It’s hard, but it’s not that complicated. Yeah. Goes like, all right, sold. What’s next?

[01:11:58] Amy: I love how you put that. I’m like, fucking challenge accepted. Yeah, I don’t think I looked at it the same as Tori, so I’m glad it was reframed. Yeah, we never imagined ourselves taking two years to pay off debt, but it is where we are and it’s better than 44 for sure, and in being able to imagine a scenario where we can still keep and enjoy our home feels worth it to me because I think our life value is still more paying it off for two years and making sacrifices than it is selling our house that we literally created ourselves and moving in with parents and a nine-year-old.

[Narration]

[01:12:47] Ramit: Let me offer a few thoughts on our conversation. First, some of the numbers here were a little confusing today, and we were a little looser than usual, but I also have to say that’s normal when we are talking about people’s money. Usually, the first time people do the CSP, it is a mess. I don’t mind because you can iterate on it and improve it.

[01:13:07] Here are the key insights. First, they spent way, way too much on their wedding. Next, they put those charges on their credit card when they could not afford to pay it off that month. That’s a huge mistake. They reduced their income while moving into a new house, which is a dangerous combination that people often make.

[01:13:27] The good news is that they have options. They could live minimally for two years and pay it off, or they could sell the house and move in with mom to supercharge that timeline and do a complete financial reset. Now, no matter what they choose, Amy and Tori are going to have to completely reconceptualize their relationship with money and with each other.

[01:13:48] They’re going to have to talk about it as partners. They’re going to have to create a rich life vision together that they are both methodically working towards. They’re young and they can make dramatic changes if they want to. Let’s listen to their follow-ups, starting with Tori.

[01:14:05] Tori: Me and Amy really thought this debt was going to take us so long to get down. It was literally wearing a tearing on us. And I think now that we have a plan, we’re able to execute. The aha moment for me was learning that I had childhood trauma, that I didn’t feel like I could speak up in the relationship when it came to finances, especially. That for me was just such a big life lesson, so I really appreciate that.

[01:14:35] We decided that we are going to keep the house, which I know my wife is so excited for. So we’re going to keep the house. We’re not going to be moving to mom’s. We are going to stay home where you’re going to make sure that we are paying off our credit cards.

[01:14:50] We’re going to make sure that we make a solid plan each and every month and every week. And we’re going to make sure we revisit those finances and we’re looking at them carefully. One of my big goals is making sure that we invest and have an emergency plan. So that’s something I really want to implement into our finances.

[01:15:10] Ramit: And now Amy’s follow-up.

[01:15:11] Amy: Hearing Tori say that she has always felt like she was at the little kids table and not feeling empowered to have the conversations when it came to our finances was a really big moment for us. Also for me to see the amount of times that I’ve actually had money in the bank and then spent it, we’re in the same place right now. It just makes me feel a lot better that it doesn’t mean just because right now we don’t have all the money in the bank that we can’t get there again. What we really learned is a realistic timeline for when that debt can be paid off.

[01:15:44] It’ll take us about two years which is unfortunate but also pretty comforting to have an actual number and timeline on that. Our plan is to stay in our home. We won’t be renting it out at this moment. We won’t be selling it, and we won’t be moving in with my mom. Our roommates at the moment will be moving out shortly. With my new income, we have the ability to pay the mortgage comfortably and pay our minimums on the credit cards and then some.

[01:16:13] We’ll be continuously re-evaluating our CSP and seeing how much more we can put toward credit cards and how that can adjust our debt payoff timeline. But now we know exactly how much we need to put toward our debt each month, and anything more can go just to expedite that.

[01:16:31] Ramit: Okay. I am a little surprised with those follow-ups. On the positive side, if they truly dial in their finances, then in two, maybe three years, they can be in a totally transformed place. I’ve seen people do this, but you have to be totally aligned. You have to be rowing in the same direction and have a very powerful vision.

[01:16:53] On the other hand, it’s really hard to make a radical change overnight. It’s just human nature. It’s hard to do. And I didn’t hear a lot of decisive changes that Tori and Amy want to make. So I hope for the best. Tori and Amy, I want to thank you again for coming on the show, for being so open. Please keep me updated. I do wish the best for both of you.