Episode #171: “I got into a PhD program! But he’s only worrying about the cost”

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[00:00:00] Ramit: Today we meet David and Katy.

[00:00:02] Katy: Money conversations just make me uncomfortable.

[00:00:05] David: I don’t want to be the technician or the leader. I want to be a partner.

[00:00:08] Ramit: Katy admits she avoids money and she likes that David will take care of it for her.

[00:00:12] Katy: David handles all the finances. David takes care of all of it. And I just sit back and let him.

[00:00:18] Ramit: David worries about money. He wants to know where it’s coming from, how much it’s going to cost. He thinks logistics first.

[00:00:23] David: It was all about, like, becoming the provider, having a good career to make enough money to support a family.

[00:00:29] Ramit: They’re recently married, and sometimes it’s hard for partners to shift thinking as a single person to a joint way of thinking.

[00:00:35] David: For me, it was a lot of, like, come on, let’s go. And for Katy, she was like, I’m not sure. I don’t know.

[00:00:40] Katy: When we merged, it was very hard for me to get over that hurdle of, My money is your money. Your money is my money.

[00:00:48] Ramit: This is just one example over a deep disconnect that they have around money.

[00:00:53] Katy: Hey, I got accepted to the USFP PhD program. It was my choice to go back to school. And so there was still that little bit of, This is mine.

[00:01:03] David: Once I started asking for details about like, what does that mean for a career? What does that mean for cost right now? She just didn’t have a lot of answers.

[00:01:10] Ramit: Katy wanted to do something, and David met her news with a bunch of dream-crushing questions.

[00:01:15] Katy: All of the questions that David was asking me was overwhelming me. I just shut it down.

[00:01:21] Ramit: David, were you frustrated by the responses? Yeah. Yes. I sent her a loom.

[00:01:27] Katy: Yeah.

[00:01:27] Ramit: No, you did not.

[00:01:30] Katy: Yes, he did. He absolutely did.

[00:01:34] Ramit: Let’s meet Katy and David.

[00:01:48] Katy: I found out in March, hey, I got accepted to the USFP PhD program, and I think I’m going to do it. We’ll figure out how to pay for it, but I really want to do it. I’m really excited about it.

[00:02:06] Ramit: What did David say?

[00:02:08] Katy: You were like, how are we going to pay for it?

[00:02:10] David: Well, I think you mentioned right away, there was a scholarship. I was curious about that. I was like, wow, that’s really cool. They gave you a fellowship or there was a scholarship on the table. What does that mean? What are you going to do with the degree? What’s the dream?

[00:02:22] What’s the name of the degree? What can you do with a PhD? Where are we going? What does that mean for career opportunities? What does it cost for the university? How do we plan for this? How long is it going to take?

[00:02:44] Ramit: How long did it go for?

[00:02:46] Katy: I don’t really recall it being very long because all of the questions that David was asking me was overwhelming me and I just shut it down.

[00:02:58] Ramit: How did you respond when he asked you those questions?

[00:03:02] Katy: I just was like, well, we’re going to figure it out. I’m going to figure it out. Just really mentally shut down because there were just all these questions, like, how, why, what? And I was like, just be excited for a minute. But there were all these follow-up questions. I don’t think I had really thought through or had thought through, but in that moment, didn’t really have the mental capacity to answer.

[00:03:30] David: I wanted to focus on, what was the dream? What was the vision? Why go back to grad school? It’s a lot of work. And yeah, I do think she was pretty overwhelmed by all those questions. I also think that the timeline was pretty quick. You had to give a decision in a week or 2. And I think as that deadline approached, I felt more anxious about what that commitment was going to be.

[00:03:56] Katy’s a full-time counselor at the high school. She also is the head coach of junior varsity cheer program that is very successful, which takes up a lot of time and then we had just set up our budget or conscious spending. We were focusing on saving quite a bit for vacation. We were saving some for an emergency fund, and every dollar was accounted for.

[00:04:24] So I was just more focused, well, how much is it going to cost to save, not cost, but how much are we going to have to save? What are we going to have to reallocate? We just finished that, and I thought we got to a good place, but now we got to pivot. Which dollars are we taking away from where?

[00:04:42] The mechanics of how we were going to do that, which is why I think I wanted to focus on the dream, because at least in my personality, when I know why I want to do something, the obstacles or the process to get is justified or makes sense in terms of the brass tacks of it.

[00:05:08] Ramit: What was your reaction after the first conversation? You had a few days to make a decision. What’d you do?

[00:05:16] Katy: I did my research. I looked at how much it was going to cost for the whole program with the scholarship money and without the scholarship money. I made the decision. Truthfully, I made the decision to accept the scholarship money without talking to David first.

[00:05:33] With that came a lot of questions, and David was very much like, well, if you’re going to do this, then I need you to explain X, Y, and Z, and gave me basically a list of questions that I had to answer.

[00:05:44] And I wrote it in an email. I wrote it in a very detailed email of, this is how much it’s going to cost. This is how much I’m getting from the school. This is how much time it’s going to take.

[00:05:53] Ramit: Can I pause you? Can I see that email?

[00:05:56] Katy: Sure. The questions that I was asked was a lot for me to process all at once because each one of the questions involved such detailed responses and were conversations in and of themselves.

[00:06:17] David: So you made a decision before this email?

[00:06:22] Katy: No, no, no.

[00:06:22] David: Then you didn’t make a decision without talking to me first.

[00:06:25] Katy: We talked about it, but telling the school that I was going to accept the fellowship money, I did it, and then I told you afterwards, which is when that email was sent.

[00:06:35] Ramit: Let’s take a look at the email that Katy sent. So David asks, “Approximately how much will the total program cost to us?” “(We already know the answer to this.) 16k”. And then Katy writes, “I hate to sound dumb, but I’m confused by this question. The answer is 13,645 after the waived classes and 10k fellowship money.” So a little bit of disagreement on cost.

[00:07:05] “What are your future job opportunities and their projected salary ranges by the time you finish your degree? You mentioned wanting to contribute more. Give me the vision of that with numbers and titles if you can.” Katy writes back, “I could work at the college level with a salary ranging anywhere from 80 to 145k depending on job and location.” Okay, that was actually very helpful to see. David, you’re laughing.

[00:07:30] David: Yeah, because it was worded like it was to a client. It was like I was trying to get information. I think it was on the heels of not having a concise in-person conversation. So I put on my producer hat.

[00:07:43] Katy: I’m taking it at face value. I’m just giving him facts.

[00:07:49] Ramit: Is that good or bad?

[00:07:51] Katy: To me it’s good, but I know he wants more. He wants to see my dream in the future in my answers.

[00:08:01] Ramit: Hmm.

[00:08:03] Katy: I was frustrated that I was even writing that email in the first place, yes, and by the end, I was over it. So I didn’t give the specifics of exactly what the question was asking.

[00:08:18] Ramit: What was the question actually asking?

[00:08:22] Katy: What can you do with your PhD? What can you do? And I didn’t really answer. Yeah, what can I do?

[00:08:29] David: Yeah, just humbled by that awareness. I think in my mind it’s one thing and out of my mouth, it’s another.

[00:08:37] Ramit: It’s a phrase I like to say a lot, especially with business owners I teach in my Earnable program. I say, put your hand out and ask yourself, what do I get? If I’m devoting all this time and learning all this stuff and speaking to customers, what do I get? I better get paid more, have a flexible life.

[00:08:53] I better get something out of this. What I see is David trying to push for specificity. And Katy, I see you trying to squirrel away, evade. It’s a chase, avoid. I don’t think David necessarily worded it– this doesn’t strike me as dreaming at all to say, what are your future job opportunities and their projected salary ranges? But this is also not a good answer, Katy. I could work at the college level with a salary range of 80 to 145k. Okay, I could be a professional boxer or a professional sky diver.

[00:09:30] Katy: I understand my answer was not good at all.

[00:09:34] Ramit: And David, were you frustrated by the responses?

[00:09:39] David: Yeah. Yes.

[00:09:42] Ramit: All right. What happened after this email exchange? I just love that you’re all deciding a life-changing decision via email. This is like, I love it. So what happened after this email?

[00:09:55] David: There was a follow up.

[00:09:57] Katy: I went to work.

[00:10:00] Ramit: I went work.

[00:10:02] Katy: Yeah, I went to work.

[00:10:02] Ramit: She’s like, I clicked send and then I rolled out. What else? Okay. What happened next, Katy?

[00:10:09] David: I sent her a loom. I sent her a video message.

[00:10:13] Katy: Yeah.

[00:10:15] Ramit: No, you did not.

[00:10:16] Katy: Yes, he did. He absolutely did.

[Narration]

[00:10:20] Ramit: A fucking loom? You all think it’s nerdy for people to use my journal and talk about money together or to use my agenda or a CSP? No. David created a loom video for Katy, and yes, I did ask to see the video.

[Interview]

[00:10:34] David: I just want to lay this out for you. So first of all, we’re going to have to increase our savings rate. You were saying to not have any personal spending. I think that’s pretty unrealistic, to be honest with you. You can’t just forego living your own personal life for five years because you have to take six credit hours, assuming all the classes are three credit hours, just for easy math. Six credit hours.

[00:11:06] You said two classes a semester. Six credit hours times 450 is $2,700 a semester, $5,400 a year. This is of, course, assuming that you don’t do anything in the summer, which I think you have to consider because I want to be able to travel with you, and we’re also going to be saving for travel in parallel with this. That’s important to me, and I want to be able to do that with you.

[00:11:30] So I’m trying to figure out how to do this with the resources that we have. I think the conclusion from this is you can go ahead and get started. Financially, it’s going to work, and you have quite a few years if we’re able to just do this savings rate starting now to make this happen, and then we can figure out some other stuff here. I wonder if there’s other scholarships that you can look for or just ways to find extra cash, but, yeah, this lays it out for me in a way that makes sense and says that it’s doable.

[00:12:04] Ramit: David, you did the model, and Katy, what was your response to that model?

[00:12:10] Katy: Surprised that he put all that effort into making it work.

[00:12:17] Ramit: Why?

[00:12:18] Katy: Because at first I wasn’t convinced by his reaction that he was excited for me or happy for me. All I heard were like, how is this going to work? What is this going to cost? Money, money, money, money. Where then when I saw him make the video of how it was actually going to work, I was like, okay, so he actually does care that this is important and we’re going to make it work.

[00:12:43] Ramit: And you left a timestamp comment. You’re like, at 2.09, I think you really got this calculation wrong. So we’re going to definitely have to discuss that.

[Narration]

[00:12:51] We’ll be right back.

[00:12:54] Now back to Katy and David.

[Interview]

[00:12:56] Ramit: What did you end up deciding?

[00:12:58] Katy: I took the fellowship. I took the scholarship money.

[00:13:01] Ramit: Okay. It’s pretty impressive to get into a PhD program. Obviously, we know it takes a lot of time. Did you think it was a big deal worth spending time on the financial discussions and the relational discussions?

[00:13:15] Katy: Not in the moment, no.

[00:13:17] Ramit: Why’s that?

[00:13:18] Katy: Because I was really focused on me. It’s my education. It was my choice to go back to school. And so, yes, David is my husband, but there was still that little bit of, but this is mine, which is what stopped me from involving him as much as I should have.

[00:13:43] David: After the spreadsheet and we were like, okay, this will work, we can make this work, it allowed for that, I’m so proud of you. This is awesome. This is so cool. A PhD? Let’s talk about it. But I think that obstacle or that step for me was really important because it wasn’t just about the PhD.

[00:14:05] It was about us working together. I think shortly after this is when I maybe applied to the podcast, because hearing stories of others on the podcast, I did not want to step into a role. I did not want to create a dynamic. Katy and I just got married, little over six months ago. And so I was like, this is all fresh. This is all new. Maybe I have my strengths and she has her strengths, but we’re ultimately, I want to work together as a team. That’s what I said about being connected earlier.

[00:14:34] Ramit: Hold on. Hold on. So what kind of dynamic were you afraid that you might be creating?

[00:14:41] Katy: David handles all the finances. David takes care of all of it, and I just sit back and let him, and I’m not involved in any of it. I’m hands off. Right?

[00:14:52] David: I didn’t want to be the technician or the leader. I want to be a partner.

[00:14:56] Ramit: Katy, were you concerned about the dynamic at all?

[00:15:05] Katy: Yes and no. Honestly, money has always been a very taboo conversation for me in general. Money conversations just make me uncomfortable in general, whether it’s personal or in my profession. Having to have some sort of responsibility freaked me out a little bit.

[Narration]

[00:15:31] On one hand I can see that they approached this decision differently. Katy wanted David to be excited, to approve, to encourage. David wanted to know the details, affordability, timeline, outcomes, and then he could get excited. But on a deeper level, Katy is not being a partner in this massive decision.

[00:15:48] They’re recently married, and sometimes it’s hard for partners to shift from thinking as a single person to a unified joint way of thinking. But interestingly, I noticed this more in men than in women. In fact, I experienced this myself. Before I was married, I made all my financial decisions on my own. So for me, it took a lot of recalibration to get married and to communicate and collaborate about money. It felt restrictive sometimes, especially early on.

[00:16:15] But it was also an important recalibration so that my wife and I could grow a healthy relationship with money together. I didn’t hear that from Katy. She got in, she decided to go to the PhD program, and she doesn’t want to hear anything else. Sure, David should have replied in a different way, but being a good partner means collaborating on major financial decisions. I wanted to ask Katy about how she grew up with money now.

[Interview]

[00:16:41] Katy: We didn’t really talk about money. My parents made a great living. My father has a wonderful job that allowed my mom to stay home and raise three kids. And then when we grew up, she went back to work. My father was the provider for the family. My father was very good with money.

[00:17:04] Ramit: How do you know?

[00:17:05] Katy: Good because he was able to provide all of the things that we needed. I don’t say we were spoiled, but we definitely went through all– I have two siblings. So we all three went to private school, K through 12. We all went through college.

[00:17:24] Ramit: Would you call yourself wealthy?

[00:17:27] Katy: Upper middle class, wealthy.

[00:17:29] Ramit: All right.

[00:17:31] Katy: But I don’t really ever remember sitting down and having financial conversations with my parents about my finances.

[00:17:38] Ramit: What phrases did your parents say about money around the house?

[00:17:41] Katy: You do need to get an education, and you do need to get a job because you need to be able to take care of yourself. Because God forbid, if something were to happen to whoever you were with, you need to be able to take care of yourself. That is something I vividly remember.

[00:17:56] Ramit: Hello. How did this just come out right now?

[00:17:59] Katy: Because you just asked, I don’t know.

[00:18:02] Ramit: Do you think maybe that phrase has anything to do with the PhD, the rush?

[00:18:07] Katy: Yes, it does. Of course, it does.

[00:18:10] Ramit: How does that phrase led to the decision you made probably 20 years later? Make the connection for me.

[Narration]

[00:18:19] Before we hear her answer, I need a quick favor from you. Hit that Subscribe button because it really helps my team and me.

[Interview]

[00:18:25] Katy: I’m going to continue my education so that I can eventually make more money because if something happens to David, I’m able to take care of myself financially.

[00:18:37] Ramit: By the way, was it your mom or your dad who passed that chestnut down to you?

[00:18:44] Katy: My mom.

[00:18:46] Ramit: Would you say that maybe your decision making about the PhD was related to what you heard back 20 years ago?

[00:18:54] Katy: Oh, 100%. Yes. I don’t ever want anything to happen to David, and so I still think as much as I try and push it back, I still need to be able to take care of myself financially. I can’t rely on him if he’s not here.

[00:19:12] Ramit: Wouldn’t that imply that you would become highly knowledgeable about money and build the skills to invest and all that stuff?

[00:19:19] Katy: Yes, you would think. Yeah, I avoid it.

[00:19:22] Ramit: Yeah. How do you reconcile those two?

[00:19:29] Katy: It’s very opposite thinking, but it’s very nice to have someone like David who does take charge and initiative doing those things because in my head, and this is very like gender role, but he’s taking care of the family financially in that capacity. It is my responsibility as well, because it’s a partnership, but David can take care of it.

[00:20:00] Ramit: Just like your dad took care of it.

[00:20:02] Katy: Just like my dad took care of it. Yeah.

[00:20:05] Ramit: Okay. Boy, I’m really glad I’m talking to you now and not 20 years from now

[00:20:09] Katy: Oh, me too.

[00:20:10] Ramit: David, let’s talk about you growing up with money. What do you remember your parents saying or your family saying about money?

[00:20:17] David: A penny saved is a penny earned. My mom was not very proud of where we lived. My dad had his own business, and he did pretty well for it, for the era. We were pretty middle, middle class. I had private tennis lessons, private violin lessons.

[00:20:39] Those are not things that someone would do with the narratives I heard growing up, which I’m embarrassed that we live here, or I wish we could move here. My mom was talking about that a lot. I think my dad was relatively content with where we were.

[00:20:54] Ramit: Hold on, violin and private lessons for violin. What else did you have? That’s middle, middle class. What else did you do? Those private equestrian lessons, that’s middle class. What’s the problem? What the hell?

[00:21:06] Katy: Homeschooled.

[00:21:08] David: I was homeschooled. I was on the swim team, and I did private tennis lessons, and I did private violin lessons. Music was the thing that stuck. I deviated from sports in my early teens. I was very academically focused growing up. Education was huge. My mom is Cuban.

[00:21:26] Ramit: So education was big for both of your families and for both of you. I assume that that came up early when you were dating. That’s like a core value. I can totally understand that.

[00:21:36] David: It was all about becoming the provider, having a good career to make enough money to support a family so that my wife didn’t have to work and could raise the– that was the household in which I grew up, and that was the model.

[00:21:50] Ramit: That’s quite traditional.

[00:21:51] David: Yeah, very. Very conservative traditional roles in that sense.

[00:21:58] Ramit: So you guys both grew up in traditional households. You both have naturally adopted a traditional outlook where David takes care of the money, and Katy, she’ll ask once in a while. That’s the more traditional perspective, not saying it’s right or wrong. It’s just more traditional, but yet you’re both here. Why?

[00:22:19] Katy: I actually wanted to break the cycle.

[00:22:22] David: I don’t want that. Yeah.

[00:22:25] Ramit: Why not, though? Both your parents, it seemed to have worked for them.

[00:22:29] David: Well.

[00:22:31] Katy: Well, in conversations when money was brought up growing up, there was a looming sense and caused me to feel uncomfortable. And so as an adult, I don’t want that in my marriage. I don’t want that for our kids later on down the road. Traditions are one thing, growing up with that. And yes, my dad took care of it, so David should take care of it. That’s cookie cutter generational, but we don’t necessarily want all of it.

[00:23:11] David: And it’s not as fun. We don’t get to dream together. There’s also that traditional role thing that happens where, oh, you spent too much. I manage the money. How can you entrust somebody with a financial resource if they don’t know what’s going on? They go to the store. They don’t know how much they have to spend. For both parties. It’s like the choices are all about being very aware and in touch and tapped in, not how much money did you spend going out? That dynamic is not a fun one to have.

[00:23:49] Ramit: Well, I have to say, I really respect both of you for having this vision, both of you. It would be really easy for you to just model what each of your parents did.

[00:23:59] Katy: Mm-hmm.

[00:24:00] Ramit: They did it. The way they did it was similar. Traditional pattern, you could replicate it. I think that the path you’re choosing is a little bit harder upfront. And we’re seeing this with these conversations, trying to break old patterns, and you find yourself behaving in peculiar ways. It’s a little harder upfront.

[00:24:23] But once you get the right model, once you start seeing the benefits of like, oh my gosh, I have transparency. I have control. We both have control. We’re in this, not because I’m trying to tell you to spend less or control you, but because we both have get to make our vision a reality.

[Narration]

[00:24:44] It’s extremely fascinating that they both grew up in these traditional households. Both of them want to change it, but they’re still finding it so difficult to make that change. That is how influential our culture is.

[00:24:57] Look, I’ll show you what I mean. Let’s say your middle school kid came home from school, they got an A plus on their math test. What would you do to celebrate? I would say 90% of Americans will probably say I’d take her to ice cream. Now imagine a culture where you don’t use food as a reward.

[00:25:13] There are lots of cultures like that. But we would struggle to even imagine that from an American perspective. So here we see David and Katy both wanting a non-traditional relationship, but then Katy admits she avoids money and she likes that David will take care of it for her.

[Interview]

[00:25:30] Ramit: Let’s go into an example because I want to know a little bit more about how you think. So I understand that you recently took a trip to Japan. There was some trip planning involved.

[00:25:39] David: We didn’t make it to Japan.

[00:25:41] Katy: We wanted to.

[00:25:42] David: We wanted to.

[00:25:43] Katy: We did not make it to Japan.

[00:25:44] Ramit: What happened?

[00:25:46] Katy: Cost. It was a half-baked idea, truthfully. It was a conversation half baked. I looked online, found the tickets, said, this is how much they’re going to be. And he was like, oh my God, we’re not doing that. I’m not spending that much money on flights. And I was like, all right, fine. We’re just not going to do this anymore.

[Narration]

[00:25:59] Ramit: Let’s take a quick pause to support our sponsors

[00:26:03] Now back to the show.

[Interview]

[00:26:05] David: Okay, we got married legally in December of last year, and then we had a wedding reception party in February. There was not some clear communication about what was going to be gifted or not, so we just assumed the whole thing wasn’t going to be gifted. And in the end there were gifts. Well, is that our honeymoon money? Is that our emergency savings money? What do we do?

[00:26:32] And flights were 80% of the budget we had to Japan. I was like, how are we going to do anything in Japan? I just don’t think we can do that right now. I think we’ve got to save a little bit more and plan for that so that we can go and enjoy a really nice time and do what we want, exactly what we want. Yeah, so then Katy’s reaction was like, okay, well, then we’re not going. It’s a reallocation of resources for what you can use to get the thing that you want for what’s available to you now. That’s how I see it.

[00:27:02] Katy: I just said, all right, fine. Then we won’t go. And I just totally fond and backed out and was like, then we were not going to do it.

[00:27:10] Ramit: Wait, a minute, hold on. You said, let’s take the $8,000 and go to Japan. David’s like, no way, we can’t afford it. And then you said, fine, we’re not going to Japan.

[00:27:19] Katy: Yeah, I did, essentially, because I was like, I’m not having this conversation with you, because it’s not worth the energy. This isn’t worth it.

[00:27:29] Ramit: Notice the two different approaches to this money. Okay. Katy’s like, we have money in the bank. Let’s go to Japan. Even though financially speaking, it makes no sense. Those tickets are too expensive. You can’t only go to Japan with $2,000 for 11 days on a honeymoon.

[00:27:47] And you already have debt. It makes no sense. So then David starts raising all these things, like, hey, what about this? Da, da, da, da, da. And David’s approach is using words like reallocation of resources. When you’re talking to someone who goes, I see money in our bank, I want to spend it. And then David goes, reallocation resource. And Katy goes, I’m taking my ball, and I’m going home. It’s as simple as that. You two are speaking two different languages.

[Narration]

[00:28:17] Look, I don’t know if I’m reading too much into this or not. What I see is how even at the beginning of their marriage, Katy wanted to use their money and David became the person who had to run the numbers. Or to put it another way, he became the dream crusher. Now, fast forward 30 years, then you have a very typical, traditional relationship where the wife wants to take a trip to Disneyland and the dad is grumpy.

[00:28:39] He spends his entire time crossing his arms and saying, oh my God, how much is this going to cost us? Oh my God. We’ve heard this exact scenario specifically around Disneyland many times on this podcast. This Japan trip also provides more context for how that PhD conversation unfolded.

[00:28:55] Katy wanted to do something because after all, her mom told her, be sure you can provide for yourself in case something happens to your spouse. And David met her news with a bunch of dream-crushing questions. No wonder she ignored them. But also, no wonder he got frustrated at her lack of answers to his increasingly specific and increasingly frantic questions.

[Interview]

[00:29:18] Ramit: Do you all combine your finances?

[00:29:19] Katy: We do.

[00:29:21] David: Yeah.

[00:29:21] Ramit: Wow.

[00:29:22] David: I think that’s part of what in the earliness of having done that resulted in that earnestness to ask those questions.

[00:29:32] Ramit: Your earnestness.

[00:29:33] David: Yes.

[00:29:33] Katy: Mm-hmm.

[00:29:34] David: Yeah. Because we were Venmoing money back and forth or Zelleing money back and forth, and I was like, this is too hard.

[00:29:40] Ramit: Mm.

[00:29:42] David: We had just gotten married.

[00:29:43] Katy: We got married in December. We combined our finances after I legally changed my name.

[00:29:49] Ramit: And who took the lead on that?

[00:29:50] Katy: David.

[00:29:51] David: Yeah, me after reading your book.

[00:29:54] Ramit: Okay. And Katy, do you avoid money?

[00:29:56] Katy: Yes.

[00:29:57] Ramit: How many chapters of my book have you read?

[00:30:00] Katy: I haven’t read any of your book.

[00:30:01] Ramit: You’re an avoider.

[00:30:02] Katy: I’m an avoider. Oh yeah. I will pay attention on our money dates for maybe about 15 minutes and then I go and grab my phone and I am just tapped out.

[00:30:13] Ramit: How often do you bring up money topics with David?

[00:30:17] Katy: The only time I think I’ll ever bring up money is if I want something, like for myself. And I’ll say like, can I get this? I’ll ask him permission.

[00:30:31] Ramit: Mm-hmm. Why do you do that?

[00:30:33] David: I hate that question.

[00:30:34] Katy: And I also say that tongue in cheek too, because he’s like, you don’t have to ask me permission. You can just log into the budget and see if we have the money for it. I think it’s a habit of asking if I can get that.

[00:30:45] Because I think– no, I don’t think. I know. Sorry mom and dad, but growing up, if I were to buy something for myself that was not what they thought was something I should have purchased, I should have just saved that money instead of buying it for myself. So that’s I’m going to ask my husband if it’s okay. If I can do that, because now it’s our money.

[00:31:09] Ramit: Does David ever say no?

[00:31:11] Katy: No. He’ll just say, check the budget. Do we have money for it?

[00:31:17] Ramit: A vaguely unsatisfying answer to you, isn’t it, when he says that?

[00:31:22] Katy: Yes, because I want him to say yes.

[00:31:24] Ramit: And Katy, what if occasionally he said no?

[00:31:29] Katy: Probably give him a pout and be like, okay.

[00:31:32] Ramit: And would that answer also be satisfying in a different way?

[00:31:36] Katy: Yeah, for sure.

[00:31:41] Ramit: David, what do you make of her answers? I think they’re very honest.

[00:31:44] David: Like she said, now it’s turned more humorous, but initially, oh, can I do this? It’s like, I don’t know. You tell me. I don’t want to hold the purse strings. I don’t want to be responsible for that.

[00:31:59] Ramit: Do you see the dynamic that’s going on here? There’s multiple dynamics overlapping here. So Katy, adopting the dynamic of parent-child, she’s asking a parental figure. She calls you her husband, but in this case she’s asking a parental figure, can I buy this? And we might as well say, can I have this candy?

[00:32:21] Katy: Mm-hmm.

[00:32:22] Ramit: And we all know, as kids, you ask for a lot of stuff. Of course, you want them to say yes, but also sometimes it’s good to hear no once in a while. But the most unsatisfying answer from a parent would be, I don’t know. Why don’t you look at your conscious spending plan? Break it down. How much you got in your guilt-free spending?

[00:32:43] It’s like, what? You want crystal clear answers. And primarily you want to hear yes, but even a no is satisfying. So it doesn’t mean you’re bad people. This is super common. I actually love how honest you are about it. That’s refreshing.

[00:33:01] David: I would say it’s turned more into, just let me know. Let’s let each other know if we’re going to spend money that we think should be noted. But more of like, I’m informing you or like, hey, I’m going to do this if you see this charge come up.

[00:33:15] Ramit: That would work in a different relationship, but right now I would say you two don’t have the bonds yet, because you know what’s going to happen? David’s going to be informing Katy about all these random things. And Katy’s like, I’m not reading this stupid email. I don’t care. Or this Loom. And then Katy’s not going to inform you about anything. Because she’s like, I’m not telling you. I’m doing this. It’s my money. Katy, am I reading you right?

[00:33:37] Katy: Yeah, yeah.

[00:33:39] Ramit: David, am I reading you right?

[00:33:41] Katy: Yes.

[00:33:42] David: Yeah. I guess, I’m approaching it from like a how I would think of it kind of a thing.

[00:33:48] Ramit: I probably would not recommend just let me know. Maybe later when you all have a super tight connection and you can read each other’s minds, yes. But right now, I think that there’s probably more active work to be done.

[Narration]

[00:34:03] Here are their numbers. Assets, 97,400; investments, 31,000; savings, 14,600; debt, 34,000, for a total net worth of $109,000.

[Interview]

[00:34:18] Ramit: Katy, let’s talk about your combined gross monthly income. What is this number?

[00:34:24] Katy: 9,700.

[00:34:27] Ramit: Okay. So that’s the two of you?

[00:34:30] Katy: Mm-hmm.

[00:34:31] Ramit: And that is 116,400. Did you know that’s how much you make?

[00:34:38] David: I focused more on the net. So I was more aware of what we made because of–

[00:34:43] Ramit: Hold on. Let me ask that question again and get a yes or no answer. Did you know that’s how much you make? Katy?

[00:34:48] Katy: No.

[00:34:50] Ramit: David?

[00:34:50] David: No. Can I just say this though about my business? It’s fluctuated in revenue over the past several years. I wanted to pick the lowest possible number that I know that I could sustain as part of having a consistent CSP.

[00:35:09] Ramit: Okay.

[00:35:09] David: It is confusing for me with how much I pay myself.

[00:35:12] Ramit: You should have a target in your business of how much money you want to keep in a savings account. Typically, three to six months would be good. Ballpark. I’m ballparking. It depends on your business. And then anything above that, take a quarterly distribution. In an S corp, I had the same salary for 10 years.

[00:35:34] David: Oh, okay.

[00:35:36] Ramit: Yeah, normal salary, just stable, something I could live on. It’s the distributions that give you more control. So if you have extra money, don’t give yourself a raise, because what if your business tanks? Now you have to still pay yourself. It’s a big problem. Pay yourself a reasonable salary. And then any extra money, quarterly distribution.

[00:35:57] David: Got you.

[00:35:58] Ramit: Let’s take a look at your fixed costs.

[00:36:01] Katy: 61%.

[00:36:02] Ramit: All right. Is that good or bad?

[00:36:04] Katy: I think that’s good.

[00:36:07] Ramit: Yeah, 50 to 60% is what I advise, and 61% is within striking distance. So pretty good. Your insurance is 400 bucks. Car payment is 1,500 bucks. What is that?

[00:36:19] David: It’s a Bronco Sport, Ford Bronco Sport.

[00:36:22] Ramit: What hell is that? What is that? A truck?

[00:36:26] Katy: Yes.

[00:36:27] David: No, it’s not a truck. It’s an SUV. It’s a medium-sized SUV.

[00:36:32] Ramit: Wow.

[00:36:32] David: That includes gas for her car and my car and the car payment.

[00:36:38] Ramit: What is the car payment?

[00:36:40] David: 1,167.

[00:36:41] Ramit: What the fuck?

[00:36:44] David: It’s a 36-term finance with a 1.98% interest rate.

[00:36:50] Ramit: Yeah, that’s good, except for the part about the 1,167.

[00:36:53] David: Yeah, I know. I know. It’ll be done in a year.

[00:36:58] Ramit: How come David didn’t ask Katy, can I buy this Bronco? And then Katy was like, no. And then that was the end of it. How come that conversation didn’t happen?

[00:37:08] Katy: Because David bought the Bronco before we got married, and we were–

[00:37:11] David: We had just started dating.

[00:37:14] Katy: So he could get whatever car he wanted. It wasn’t my money. I own my car.

[00:37:22] Ramit: What kind of car do you have, Katy?

[00:37:24] Katy: Honda Civic. I love it. It’s a great car.

[00:37:28] Ramit: All right.

[Narration]

[00:37:30] Katy makes a pretty good point. I couldn’t really counter it. He bought the car before they got married, but as I shared the hypothetical conversation of David asking Katy if it’s okay to buy something, and her gruffly saying no, we all saw how absurd it was to say that out loud. Didn’t we all hear that?

[00:37:49] That’s how deeply money and gender and power dynamics affect us all. In general, I have to tell you, putting gender issues aside, I don’t think people should be asking permission from their partners for most financial decisions, but I especially don’t think that relationships should be as one-sided as they so often are often with women asking permission from men.

[Interview]

[00:38:12] Ramit: David, what do you think about your car payment?

[00:38:14] David: Well, I’m proud of the interest rate, but I’m aware of the opportunity costs of the car payment. And I learned about that after reading your book. Katy and I discussed whether or not it was worth selling or figuring out a different option. But she likes the car too. I like the car. Yeah, I’m two thirds of the way through paying it.

[00:38:38] Ramit: Cars are one of those decisions. Once you make it, it’s very difficult to– if you sell it, you still have to get something else, blah, blah, blah. Point is, if I were making 122,000, I would not be buying a car with a 1,000-dollar plus payment. That’s bonkers. Don’t do that again, okay?

[00:38:57] David: No, I plan on keeping that car.

[Narration]

[00:38:59] Ramit: We’ll be right back after this short break.

[00:39:02] Narration: Welcome back. Let’s keep going.

[Interview]

[00:39:04] Ramit: All right, let’s look at the rest of this. Groceries, $700 a month. Whatever. Clothes, $200 a month. Is that true?

[00:39:12] David: Well, our clothes really go into our guilt-free spending mostly. So you could just put all of clothes in guilt-free. That would be the easiest.

[00:39:20] Ramit: I dropped 200 off of clothes from fixed cost. It dropped it to 59%.

[00:39:24] Katy: Yeah, that’s about right.

[00:39:25] Ramit: Fantastic. Honestly, the fact that you’re at 59% with that crazy car payment is actually impressive. If you didn’t have that car payment, just to show you how insane this is, let’s knock this down to 300 bucks a month for gas just to show you what would happen. Damn, you guys would be at 45% on 122,000 income. That is outstanding.

[00:39:48] Look, you bought the car, and you’re still within your parameters. I don’t love it, but you’re still hitting your numbers. So it’s not my Rich Life. It’s yours. Your savings go– what the hell? Oh, here’s where all the money is. Your investments are at 6%, which is 582 a month. Then we discovered that it’s actually a little bit more, so 7,500 a year. Great. Your savings have a lot of money. Let’s see. Vacation, $600 a month. Gifts, 50. Emergency fund, 400. And just a random line item in savings, unlabeled, is $350 a month for a total savings of $1,400 a month.

[00:40:32] Katy: Just sitting there. Yeah.

[00:40:34] Ramit: So that’s what it is. It really is. You guys are living– from a fixed cost perspective, you’re not going crazy on food, clothes. Phone is at zero. Subscriptions are at $30. So it’s leaving you a lot of extra money. Your investments, okay, we could talk about that. Your savings, you’re saving $1,400 a month, which we can also discuss that. But the fact is you have margin to play with. I’m impressed. I’m especially impressed because look at that last line, guilt-free spending. What’s that number, David?

[00:41:11] David: 19%.

[00:41:13] Ramit: That’s good. We can knock that number down a little bit if you want to. I can show you what happens if you all keep going on this path. The question is, what kind of life do you want to lead? I can show you what the future looks like if you keep this up. Let’s not even talk about the PhD or anything like that. Let’s not talk about income changes. Let’s just talk about where you are today, and I can show you what the future looks like. So how old are you both again?

[00:41:42] Katy: 33.

[00:41:42] David: 33.

[00:41:43] Ramit: So that’s how much you currently have invested.

[00:41:47] Katy: Okay.

[00:41:49] Ramit: Let’s say that you’re currently investing $7,500 per year. And what do we say 32 years for it to grow? And what number should we put here for the interest rate?

[00:42:03] David: Can we be conservative with 6%?

[00:42:07] Ramit: You can.

[00:42:08] David: Is that too low?

[00:42:11] Ramit: Yeah. Yes, it is, I think it’s too low. Let’s model it out with 6, and then I’ll show you. I personally would do 7. That, in and of itself, is already conservative. It already accounts for inflation, but let’s start at 6 and see. What do y’all think? I’m just going to say, by the time you’re 65, how much you going to have? Katy, what do you guess?

[00:42:31] Katy: A million dollars.

[00:42:33] Ramit: Okay. David?

[00:42:36] David: 750,000.

[00:42:38] Ramit: All right. At 6%, 922,000. What do you think about that?

[00:42:44] David: Katy takes the jelly beans home.

[00:42:45] Ramit: And let’s go to 7%. I want to show you the difference between a 6% compound rate versus 7%. Again, I think 7% is quite realistic and conservative. 1.15 million.

[00:42:57] David: Yeah. I’m going to be honest. I have no scale for it for how long I need to live beyond retirement. Yeah, I don’t have a concept.

[00:43:06] Ramit: Katy, do you?

[00:43:08] Katy: Truthfully, I don’t think I have a concept either. I know that I will be working until I am 65, 70 in order for me in the profession I’m in to receive that number, that dollar amount. So yeah, I don’t really know, honestly.

[00:43:28] Ramit: A good guideline is you can take this big number, 1.1 million multiply it by 4%, and that will tell you how much you can take out every year. So in your case, it’s like about 40,000 a year, or roughly 3,500 a month. That would be your income in retirement. How would you feel if you both made, combined, 3,500 a month right now?

[00:43:53] David: No. That’s a third of our life.

[00:43:55] Katy: We couldn’t be able to do it.

[00:43:56] David: Lifestyle.

[00:43:56] Ramit: That would suck. Especially because you don’t own a house. You may. It’s possible we could talk about that if that’s one of your goals. But if you owned a house outright and you had no car expenses, etc., plus if you want to factor in social security, it starts to be okay. But it’s not great. It’s not the retirement you have in mind.

[00:44:21] David: No.

[00:44:21] Ramit: Would you like me to show you some different options?

[00:44:24] Katy: Yes.

[00:44:26] Ramit: All right. I would personally like to invest more because you’re young. And at this stage, making a few changes, literally a few changes in this spreadsheet, can yield you hundreds of thousands of dollars.

[00:44:42] Let me show you. I don’t know who you’re giving these gifts to, but sorry. Uncle and auntie can’t give any more gifts. 50 bucks goes into your retirement. We’re putting that into investments. That’s per month, by the way. Long term emergency fund, let me see. Your savings are at 146. That’s about three months. Yeah, fine.

[00:45:04] All right, leave it there. But soon, you’re not going to need to put more in your emergency fund. Because you’re going to have four months of emergency fund. So I’m just going to fast forward like a month or two or a little bit. I’m going to take that 400 and I’m going to invest it. You’re currently, at least this is what you have in your guilt-free spending, 1,738. Is this true?

[00:45:25] Katy: Yeah.

[00:45:26] David: Yeah, we’re pretty conscious about that part.

[00:45:29] Ramit: Let’s take 400 bucks off. I’m just going to show you what happened. You don’t have to do it. I’m just showing you. So this is going to become 850 in your investments. So I basically added another 10,200 per year that you are investing.

[00:45:46] David: Yeah.

[00:45:46] Ramit: Just a few minor changes.

[00:45:48] Katy: Yeah.

[00:45:50] Ramit: All right, 10,200, that sounds like a lot. Again, a lot of people go, there’s no way I can invest more, Ramit. You’re so out of touch. 10,200 I found under your couch cushions, so I’m going to drop that in here. Instead of you investing $7,500 per year, which gets you to about 1.1 million by the time you retire, I’m going to have you invest $17,700? From 7,500 to 17,700. Katy, what’s that look on your face? What did you just say?

[00:46:19] Katy: I just said wow. Because I’m so green with this. I envisioned this being so hard and it’s really not as hard as I envisioned it or thought it was.

[00:46:37] Ramit: I love that. Oh, I’m so happy. That’s a huge compliment. My whole goal is to show you, this is not some mystical thing. It’s literally as simple as Tetris.

[00:46:45] Katy: I can do this. This, I can do.

[00:46:49] Ramit: Katy, you can definitely do this.

[00:46:51] Katy: I can do this.

[00:46:53] Ramit: We’re going, why is this over here? Let’s actually move over here. Let’s see. Let’s simulate what that would like. And then we’ll decide. All right. So here we go. 31,000 currently invested. Annual addition, 17,700. 32 years to grow at 7%. Boom, $2.35 million.

[00:47:14] Katy: Mm-hmm.

[00:47:16] Ramit: That is powerful. Now, I’m not even accounting for any quarterly distributions, which David could make. And if those turned out to be, let’s be conservative, 4,000 bucks a year, which seems like–

[00:47:34] David: It’s way more than that.

[00:47:35] Ramit: 10,000 extra per year? That’s super conservative.

[00:47:40] David: Yeah, that’s super conservative.

[00:47:42] Ramit: Want to make it 20?

[00:47:44] David: Sure. Make it 20.

[00:47:45] Ramit: All right, 20. Again, because some years you’re going to take none, and then some years it’s going to be big. Averaging it out. So instead of 17,700, we’re going to make it 37, 700 per year. Guys, this is starting to become pretty interesting. Boom. $4.7 million.

[00:48:06] Katy: Right.

[00:48:07] Ramit: Whoa. And that does not factor in any additional raises, because if Katy were to go and get that job in college, and she were to increase her salary to 140k, which she– Katy, remember you just flippantly responded to that email in red? Remember that?

[00:48:25] Katy: Yeah.

[00:48:26] Ramit: But this is where it matters. Watch this. So if you were to take that job and go from roughly 60k to some number, I’m going to increase this by, just to be conservative, 10,000 per year. That’s super conservative. So now we’re at 47,000 per year. We’re now at $5.8 million.

[00:48:50] Katy: It’s like simple math almost. We’re not making these grandiose lifestyle changes. We just move some money here and there and it makes a huge difference obviously down the road. And for our family and our kids, hopefully that will set them up for success, but financially with help.

[00:49:14] Ramit: Do you know why it’s so easy to do this right now? It almost seems effortless, right? I’m just moving from here. Why does it seem so easy right now? Do you know?

[00:49:29] Katy: Because we’re starting it together. I don’t really know why.

[00:49:33] Ramit: This is so easy because you are young and you have over 30 years for your investments to compound. That’s why. It’s not because of a particularly high salary. I’m not even factoring in major salary increases here. You have 32 years to compound and your expenses are relatively low. This conversation would be completely different if your housing costs were at 38% locked in, you couldn’t really sell. They would be completely different if you had hundreds of thousands of dollars of debt.

[00:50:10] Katy: Mm-hmm.

[00:50:12] Ramit: They would also be completely different if you were both 48 years old.

[00:50:16] Katy: Mm-hmm.

[00:50:18] Ramit: You’re two young professionals, no children. You’re just married, and you have this opportunity to set yourself up to be multi-millionaires. Now you might decide, hey, we don’t need 6 million by the time we’re 65. What the fuck are we going to do with $6 million then, which will then keep compounding?

[00:50:37] instead of investing $47,000 per year, let’s invest 40 and take the seven and have a great time. Perfectly respectable. You could choose to do that. Maybe you go, I’d rather end up with 5.3 instead of 5.8. Fine. It makes no difference at that time. But that money might be much more valuable for you now. But you can make these decisions because you’re young and you have low expenses. The best part is that you can do it together.

[00:51:10] Katy: Mm-hmm.

[00:51:11] Ramit: That’s what makes me really excited for your future. If both of you are rowing in the same direction, it’s actually incredibly easy for you to be set for life. Now, I’ll tell you what will happen three or four years from now. Okay?

[00:51:28] Katy: Mm-hmm.

[00:51:29] Ramit: You’re going to have a Rich Life review. You’re going to look back at your year. You’re going to just start by saying like, what did we do that was amazing? You’re going to pull out amazing photos. It’s going to happen over a period of several days. And you’re going to relive the moments, and it’ll be awesome.

[00:51:43] What did we do that was so awesome that we want to do more of it? You’re also going to say like, what do we want to do less of? What do we want to change? Travel. Well, we said we want to spend more money traveling. Okay, let’s allocate an extra $3,000 to traveling. Cool. So now, all that infrastructure work is done. Katy will never bring up something like, hey, let’s just take a bunch of money sitting in a checking account and go spend it.

[00:52:09] Because Katy was a partner in this Rich Life review, as was David. You both were, and you both created a vision. And I don’t blame you for that conversation you had about Japan, it was a first crack. It was like, we just got married. We have some money left over. Let’s do something cool. That’s what people do. I get it.

[00:52:28] Fast forward a few years, you have to build some infrastructure, meaning the Rich Life Review, the CSP. Both of you need to be active in your regular money meetings. It just becomes a lot smoother and a lot more fun because you can really get into the nuances.

[00:52:46] David: Sounds lovely. Yeah. I want to get good at it, and it’s going to take practice. And you said the word skill, which inevitably innately means trial and error practice, doing better. Yeah.

[00:52:58] Ramit: What surprised you so far about seeing these numbers? Katy?

[00:53:05] Katy: That when you reallocated some of the money, it really didn’t make a difference or a huge dent in our current lifestyle. In my head, I’ve always envisioned like, okay, well, if we’re going to save more, then our lifestyle will have to change. But in reality, it really didn’t at all.

[00:53:30] David: This is enough for where we’re at, and we can grow. Just like we’ve talked about skill and getting better, this is someplace we can do that. Just being together in it is what’s most important to me.

[00:53:44] Ramit: Exactly. That’s it.

[00:53:46] David: I really had no idea if we were doing it right. And with moving some stuff around, I guess I just feel a level of confidence.

[Narration]

[00:53:56] Ramit: I really enjoyed speaking to David and Katy. Let’s listen to their follow-ups. First off, Katy.

[00:54:01] Katy: One of the things that I learned is that talking about money and working on the budget is not as scary as I thought it was going to be or has been in the past. The simpler it is, the easier it is for me to understand, and it’s not as hard as I thought.

[00:54:21] What surprised me was with the small changes that we made with reallocating money and putting it into our investment, how drastically the number changed. And that made me feel really good that our future is set and could be set, especially for our future kids.

[00:54:43] And some changes that we are going to make is just separating the logistics from the celebrations. One change I’m going to make is not be so avoidant when it comes to finances or money talk, but really put forth the effort to be more open and forthcoming and maybe even lead one of our money dates instead of David.

[00:55:09] Ramit: Katy shared what so many of us believe, that we think money is supposed to be hard, that it’s supposed to make us feel bad, restricted, but I don’t think that at all. If you’re willing to make changes, most people can easily find thousands of dollars per year to invest. If you set that money up to be automatically invested, you can predictably turn that money into hundreds of thousands of dollars over time.

[00:55:34] This isn’t magic. It’s not mystical, and I wish more people would shift their perspective from, I feel overwhelmed, or, how can I get ahead ever to asking a radically different question, what would money look like if this were easy? That’s one of the reasons I started this podcast. It’s one of the reasons I’m writing my new book, Money for Couples. Now, let’s check out David’s follow-up video.

[00:55:59] David: Hey, Ramit. Thanks so much for having us on the podcast. There were many things that I learned, but one of the most important to me is that in my dynamic with Katy, it’s pretty important to keep conversations about celebration and logistics completely separate from each other.

[00:56:16] Also, while she might not necessarily share the same technical interests in personal finance, it surprised me to see her still light up when she did understand the power of investing and playing with those numbers and what that meant for the impact of our future of our family. That’s something we can now connect over.

[00:56:35] Ways that we’re going to specifically make changes, for now, we’re going to shave $200 off of our current savings rate, $200 from our fixed costs, and invest that into Katy’s IRA. My business, whatever distributions I’m able to take on top of that, depending on the amount, might go more into her IRA or a solo 401k. Thank you so much for helping us understand these concepts, for chatting with us. Really appreciate your time. Peace.