Episode #177: “We’re stressed about cash flow—but I refuse to sell any of my 8 cars” (Part 2)

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[00:00:00] Ramit: On last week’s episode–

[00:00:01] Megan: I’m trying to keep up with him and with the lifestyle, but I also know that I can’t actually afford that.

[00:00:07] Jason: With baby coming, how do we figure out how much is needed from each of us to support the fam?

[00:00:11] Ramit: We met 40-year-old Jason and 34-year-old Megan.

[00:00:14] Jason: I’m sure Megan got tired of me asking like, how much does that cost?

[00:00:17] Megan: This is the first time he ever let me know how much money he makes.

[00:00:20] Ramit: Jason over focuses on the numbers, and Megan avoids tough discussions.

[00:00:24] Jason: Whatever success we’ve seen here is only because of systems that I put in place.

[00:00:29] Megan: When I say I want to do something, rather than feel the pushback, I’d rather just put on a credit card and I’ll figure it out somehow.

[00:00:36] Ramit: They’ve been together for eight years, but they aren’t married, and their finances are separate.

[00:00:40] Megan: If it’s not equal, I won’t feel equal.

[00:00:42] Jason: I think that would drastically impact my interest and ability to change income.

[00:00:47] Megan: Can they build common values around their finances and build some shared money rules? I don’t want to go backwards. I want to be improving something. I don’t want this for my baby. I want them to have a healthy relationship with money.

[Narration]

[00:01:00] Ramit: Real quick, last week in part one, you watched me review their CSP at the beginning of the episode. I read some comments on YouTube that their net worth wasn’t adding up, and you were right. I didn’t say their investments number, which is separate from their assets. It was totally my mistake, and I appreciate the comments. So here is the total breakdown. Assets, $3,070,000; investments, $859,095; savings, $27,455; debt, $778,835 for a total net worth of $3,180,715.

[Interview]

[00:01:37] Ramit: I look at where you are today, I go, wow. Some things in your numbers are incredible, really impressive. Some things are a little loose, maybe even sloppy, but they can be fixed if you have a reason to fix them. Right now it’s like, oh, I have a bit of credit card debt. No big deal. I’ll just go work a little bit more. That is probably an unhealthy way to think about money.

[00:02:03] Megan: And I don’t want this for my baby. I want them to have a healthy relationship with money.

[00:02:08] Ramit: How are they going to have a healthy relationship with money? Tell me.

[00:02:11] Megan: They have to have a good example.

[00:02:13] Ramit: Oh, so you’re saying in order to teach–

[00:02:15] Megan: I have to fix myself.

[00:02:17] Ramit: Whoa.

[00:02:18] Megan: Yes, I know, Ramit. I know this from the beginning.

[00:02:18] Ramit: In order for your kids to have a healthy relationship with money, you both have to have a healthy– is that what you’re saying?

[00:02:25] Megan: Yes.

[00:02:26] Ramit: Is there a book coming out that’s going to demonstrate this in detail? Reorder this freaking thing.

[00:02:33] Jason: It’s already pre-ordered. Don’t worry.

[00:02:34] Ramit: Love it. Love it. All right. Wow. Okay, so I love that. What a beautiful reason. I want this baby to see mom and dad talking about money. I want them to see mom saving money and saying, oh, I’m so thankful that I can save money, that dad can save money. Also, spending money. We’re so grateful that we can go out to eat sometimes. And that’s because we save our money and we’re careful with it. What do you think about that? You think that would be something you could do?

[00:03:06] Jason: Yes, definitely.

[00:03:08] Megan: Yes.

[00:03:09] Jason: As a team, we do work better when we have a shared vision and goal when it’s like, hey, we’re contributing towards this for this, or we’re not buying this for this. That’s the only way I was able ever able to buy houses and put cash down because you have to stack so much cash, was every single time that decision came up, do I want this more than the house? No. Going this way.

[00:03:32] Ramit: You need a vision. You need a reason. When people have kids, it is one of the few times in their lives that they actually pay attention to money. It’s no surprise that the two of you are here. It’s like it really changes everything, and you haven’t even had the baby yet. Like, whoa, wait till that happens. So that’s good news.

[00:03:49] That means you have a reason to change. And Megan, because you’re going to be home and because you are both going to be talking about money differently, communicating about money, this is going to be a new chapter. Can I make some suggestions when it comes to your finances?

[00:04:10] Jason: Absolutely.

[00:04:10] Megan: Yes.

[00:04:11] Ramit: Personally, if I were in your situation and I was about to have a baby, I would be saying what core values are important for the next one year? It’s like a wedding. What are the core values? For us, one of our core values was relationships. We want to make sure that the people we love are here and are treated special. What are some of the core values for the first year of having this baby?

[00:04:39] Jason: I don’t want to go backwards. I want to be improving something. So my first thing is risk reduction.

[Narration]

[00:04:45] Ramit: Listen, I talk to a lot of nerdy optimizers, and I can tell you that in 20 years of talking to literally millions of people, I have never heard a soon to be parent, say, for my new baby, my core value is risk reduction. What the fuck? I’m not even a parent, and I’m sitting here like, am I on planet Earth right now?

[Interview]

[00:05:05] Megan: Intentional time together.

[00:05:07] Ramit: Nice.

[00:05:08] Megan: Quality time, it’s one of my love languages.

[00:05:10] Jason: I would like clarity on the plan.

[00:05:15] Ramit: All these are great. These are really good. Do these feel like they’re your personal values?

[00:05:19] Jason: The ones I gave are the ones that I am thinking about and trying to get confidence in.

[00:05:25] Ramit: Okay. What about you, Megan?

[00:05:26] Megan: Risk reduction, I don’t really understand what that means for him or for us. What does that mean, buddy?

[00:05:33] Jason: How do we prevent, for example, more debt or not hitting our savings goals? I guess the big one I’ve been thinking about is, can and should I take any time off? My current plan is no, do not.

[00:05:50] Ramit: Hold on. hold on. What’s one of your core values? Quality time together as a family?

[00:05:56] Jason: Yeah. Risk reduction’s above that.

[00:05:59] Megan: For him?

[00:05:59] Jason: Yeah.

[00:06:00] Ramit: Well, now that’s important. So you actually need to agree on which values are first priority because otherwise you’ll be fighting all the time. That right there is a perfect example. He says no time. She might say, I want you to take time.

[00:06:16] Megan: Yes.

[00:06:17] Jason: She does say that. Yes.

[00:06:18] Ramit: There you go. These answers are not determined by each of you going to your corners of the boxing ring. These are determined by zooming up and creating a list of values in order. To me, it’s like, easy. I’m looking at your numbers right now. I’m like, I can manage this risk in 10 seconds. You’re going to have to make a lot of changes. It’ll be easy for me to say. You’ll have to do a lot of stuff. But risk wise, yeah, with the income like that, we could fix all that stuff. But you only get that time once.

[00:06:46] Jason: Yeah. True.

[00:06:49] Ramit: Jason, I want to go back to my 25-year-old self or 23. It’s like I would’ve said exactly the same thing. Got to optimize. Got to fucking optimize this goddamn risk. And I would’ve done it too. I would’ve crushed it. The problem is I would’ve missed the important things in life going on around me, like having a baby for the first few months of their life and my wife or my partner. That is precious.

[00:07:17] So yeah, I still would’ve fixed the spreadsheet. I probably would’ve loosened up a little bit on the risk. Instead of optimizing it 100%, I would optimize it 92%, and I would’ve been like, there’s something more important than that marginal 8%. And that is spending quality time with my partner and my baby.

[00:07:37] I don’t think there’s anything wrong with you, soon-to-be-mom, saying, hey, this is really important to me. We’re creating a new family, a new structure, and I want us to start thinking differently. It’s not just about just maxing out our 401k. That’s not the most important thing anymore. Jason, would it be hard for you to take your foot off the gas a little bit?

[00:08:03] Jason: Whatever success we’ve seen here is only because of systems that I put in place when I was in my teens and 20s. And I’d say that I’m reluctant to undo systems that are working well.

[00:08:20] Ramit: How about add on a new way of looking at the world?

[00:08:24] Jason: Always up for that. Yes.

[00:08:26] Ramit: There is so much more to a Rich Life than simply optimizing work. Yes, work hard. Definitely crush it. Win. I love that. But what else? What about having a great meal? What about talking to your coworkers or your friends? What about going on a camping trip? All of that.

[00:08:46] Because me, a guy like me, left to my own devices, I’ll sit there and just work. And yes, I’ll win. I will crush it, but I’ll probably let so many things go by in life. And what is the point of having millions and millions of dollars when you didn’t take a few weeks home with the baby? What do you say we take a look at the numbers and try to make a few changes and some agreements? What do you say?

[00:09:14] Jason: I’d love to.

[Narration]

[00:09:15] Ramit: You can hear how Jason’s instinctive reaction is to say, what got me here is saving and investing aggressively, so I want to keep doing that. Humans are really bad at knowing when to shift gears, to turn the page, to accept that they won and know that it’s time to play a different game.

[00:09:36] But Jason also said he’s always down to look at something from a new perspective. So I want to challenge both of them to get really specific about how they’re going to incorporate their core values into their lives once the baby is born. Let’s start with Jason, because I want to hear how he will create space for quality family time.

[Interview]

[00:09:57] Jason: I would figure out a work-from-home model so I don’t have to go into the office.

[00:10:01] Ramit: Great. Love that. Wow. That’s beautiful. Risk reduction, what would you do for that?

[00:10:07] Jason: Not stop working.

[00:10:10] Ramit: Okay. Not stop working. That’s one way to go. What else?

[00:10:12] Jason: Fix the CSP fixed cost by getting rid of the debt so we get all that cash back.

[00:10:20] Ramit: That’s true. Yeah. What else? Megan, let me hear from you.

[00:10:23] Megan: I want to go have these very unique moments together in the very beginning of this baby’s life where we’re not distracted by work or money, and it’s just we eat whatever we’re eating and it’s not a big expense. It’s just living in a van and go on little walks in New Zealand

[00:10:43] Ramit: Okay. I’m out of my element here, so sounds great to me. All right. Hey, listen, all the moms and dads who are watching this, I didn’t say it. I didn’t say a parent should go live in a van after three months. I did not say it. But if you want to do it, God bless. Interestingly, I didn’t hear anyone say, stop spending $4,000 a month on guilt-free spending.

[00:11:04] Jason: I think that’ll happen anyway.

[00:11:05] Ramit: That’s the first thing I would do to reduce risk. That’s it right there. That’s the ball game. Who’s spending $4,000 a month on guilt-free spending anyway when they have a baby? So let’s be intentional about it. Let’s not just let it happen. Let’s actually call it out and both agree on it. Hey, we’re not going to go to the ballet. We’re not going to eat out the same amount. We’re calm, which means we’re going to be building a family unit at home.

[00:11:33] Jason: Yeah. I do agree with that. And we haven’t gone and actually figured out.

[00:11:39] Ramit: Just do it right now. Debt payments 1,204, that’s your credit card, right?

[00:11:43] Megan: Mm-hmm.

[00:11:43] Ramit: All right. So can you guys just pay that off? What the fuck? Why are you having a baby with and going into this very, very stressful time with all this credit card debt?

[00:11:57] Jason: It doesn’t feel like a stressful time.

[00:11:58] Ramit: I actually love that. If it doesn’t feel stressful, fantastic. Don’t let a guy like me tell you it’s stressful. That’s like what people told me. Oh, you’re getting married. Going to be a tough year planning the wedding. But shut the fuck up. I could plan this wedding. My wife and I love it. And we did. We loved it. Okay, great. I love your response. You’re right. It’s not stressful. You’re about to have an amazing time. This is going to be incredible. Wow. Great. I stand corrected. All right. Still, can you pay off this credit card debt?

[00:12:26] Jason: Yes. I do want your advice though. The easiest, I think is the redirect from the savings and investment short-term, knock it out, and be done.

[00:12:37] Megan: We have a lot of cars. Do you think we could just sell a car or five of them? What do you say about that?

[00:12:45] Ramit: I would like to discuss this. I’m glad you brought it up. It’s probably the right time. What are you going to do with those cars right now as it stands, Jason?

[00:12:52] Jason: Definitely going to keep them. I’m not going to sell them.

[00:12:55] Ramit: Really?

[00:12:56] Jason: Yeah.

[00:12:56] Ramit: Why?

[00:12:56] Jason: Because I don’t want to, and I don’t need to.

[00:13:00] Ramit: Well, you do have $26,000 of credit card debt.

[00:13:03] Jason: Sure. But I have other ways I can solve that. But I’m reluctant to because I like maxing.

[00:13:10] Ramit: You love maxing.

[00:13:12] Jason: Yes, I love maxing. You’re right.

[00:13:17] Ramit: So let’s put a pin in the car thing for a second because what I want to point out is that I don’t see a category in your CSP for the baby.

[00:13:31] Jason: Right. I was playing with this number, and I think Megs, you walked away and I was like, I don’t know. I just put a number in.

[00:13:37] Megan: I really don’t know what a cost of the baby will be. I know at least as far as like this year goes, as far as medical costs, they’re covered. It’s fine. But I’ve personally spent less than $800 in preparing for this baby. I’ve gotten everything else secondhand or most of that cost is just shipping costs from other places.

[00:13:59] Ramit: I like it.

[00:14:00] Megan: And I’ve kitted both of our homes.

[00:14:03] Ramit: Whoa. So you’re telling me you’re not going to buy an 86,000-dollar SUV and a new house with a backyard right when you have a baby like every single American?

[00:14:13] Jason: My goal is actually to buy nothing. I don’t want to buy anything.

[00:14:17] Ramit: I like that the two of you have a shared, unified point of view on how much you’re going to spend on the baby. I like that. Okay, so that’s what I want for all of your finances. I want you to have a point of view. When we go on a ski trip, this is how the finances break down. For the first year, this is the change we’re going to make to our finances. And then after a year, I think it’s going to go like this, but we’ll discuss it nine months in. That’s the point of view I want from you.

[00:14:51] Jason: Yeah. I think that’s a good call out because there are some things where we understand it very well. We like travel a certain way. We like do it really efficiently, and we spend very little on it because we know how to do it very well. Same with all the baby stuff. We’re very well aligned. House stuff, we’re well aligned. It’s really whatever’s hitting the credit card is obviously what we’re not aligned.

[00:15:12] Ramit: Which is a problem, right?

[Narration]

[00:15:14] Ramit: That car discussion was truly mind blowing. To me, it’s totally obvious. Sell one or two or five cars and solve all the problems. But we have to remember that it’s not my money, and it’s not my Rich Life. And that is exactly why I backed off. That actually reminded me of Episode 151 with Peter and Megan, where they were about to get divorced, but Peter would not sell any of his seven cars.

[00:15:40] What this really reveals is you have to be extremely careful about letting purchases become your identity, because if one day you actually need to back out of that identity, it will be very, very hard.

[00:15:55] We’ll be right back after this short break.

[00:15:58] Welcome back.

[00:15:59] I’m making progress in this conversation with Jason and Megan. We’ve established their core values. They’ve started talking about paying off the debt. They have a strong point of view on spending minimalistically on their new baby, but I noticed that Jason is still obsessed about maxing out his accounts.

[Interview]

[00:16:17] Ramit: Have you all calculated how much money you’re going to have in investments over time?

[00:16:21] Jason: Yeah, I have been doing it fairly regularly. Because what I want is basically a 200k salary that comes out without hitting principle. So depending on the years, in the 4 to 5 million range. That’s been my target for a long time.

[00:16:35] Ramit: Are you on track?

[00:16:37] Jason: Yeah, I’m on track.

[00:16:38] Ramit: How much do you put in your 401k every year?

[00:16:40] Jason: It’s maxed. So what was that? 235 or something this year.

[00:16:43] Ramit: So just you alone, you’re on track to have $5.3 million.

[00:16:48] Jason: If we could maintain what we’re doing, minus the little bit we’re going over, or alternatively get the income back up, what I think only needs to be like 50k or so more and keep things the way they are, we’re very, very happy, living Rich Life, and on track.

[00:17:04] Ramit: Guess what’s more important than that. The next five years. The money is more valuable in the next five years than is it going to be 180 or 200 at age 65. You’re on track, by the way, for a safe withdrawal rate of $214,000. And that does not include any raises. That doesn’t include any bonuses you put into it. That’s just a 401k.

[00:17:29] Let me tell you how I would approach it. My approach, at 260k is, wow. I’m so thankful to myself for starting to invest as a teenager, for having a diversified income and blah, blah, blah, and great low cost investments. I’m so thankful. And now I earned the right to ease off the gas a little bit, at least for the next two years. What that means is I’m going to take some of that money. I’m literally going to take the money that I normally would’ve, let’s just say maxed out my 401k, and I’m putting it in a family fund.

[00:18:07] Jason: Yeah.

[00:18:08] Ramit: And this is going to force us to spend quality time together. It’s going to force us to have calm. I am going to put money behind my core values.

[00:18:17] Jason: Yeah, fund the value.

[00:18:18] Ramit: Fund the value. Exactly. With time and money. And the money part is easy.

[00:18:22] Jason: Yes.

[00:18:22] Ramit: The skill that I’m trying to emphasize for you specifically is turning the page and realizing what are the non-financial parts of the Rich Life. It’s up to you to choose. Are they important? Do you want to wait? But it’s just like, it’s so apparent to me. You’re a born and bred optimizer. You told me, “I love maxing.” I get it. I like maxing too. But at a certain point I go, oh shit, that money’s more valuable now than 25 years from now.

[00:18:56] Jason: I definitely agree with that. And we try very hard to live today. I don’t think we would be happy if we were only planning for tomorrow. So we do both. And when I miss maxing, it hurts. I don’t like it.

[00:19:13] Ramit: Megan, how are you feeling hearing this?

[00:19:16] Megan: I think like these next five years are so special, and I’ve broken down this baby’s life into increments of six years and how much time that I expect to get to have with this baby. And so the first six years I can claim every single weekend, and I want to claim those with time as a family and building my individual relationship with this baby, getting to go skiing and rock climbing and doing all the fun things and to give them a diversified life and experiences.

[00:19:47] Ramit: In order to do that, are you willing to be specific with your numbers? Are you willing to follow a plan that you and Jason come up with?

[00:19:55] Megan: Yes. Yes, that sounds great.

[00:19:58] Ramit: It’s about not charging credit card debt.

[00:20:02] Megan: Yes.

[00:20:02] Ramit: That’s out.

[00:20:03] Megan: That’s out.

[00:20:05] Ramit: It’s about having numbers and sticking to them, even if it means sometimes I can’t go on a trip, or sometimes we can’t do X. That’s it. The numbers are my guide because I created the numbers. That voice in your head that tells you like, oh, it’s fine. I’ll just work more. It’s fine. It’s not that big of a deal. You’ll have to find a way to replace it with a louder, more potent voice.

[00:20:27] A voice that says, no, I’m sticking to my plan because I’m creating a good example for my baby and for my family, and I am a active part of this business partnership. How much do you contribute to your 401k?

[Narration]

[00:20:45] Ramit: Before we hear her answer, I want to remind you that the I Will Teach you to be Rich podcast is now the Money for Couples show. Please head over and follow Money for Couples on Apple Podcasts, and take a quick second to leave a review on the podcast, which really helps my team and me.

[Interview]

[00:21:00] Megan: A lot. A lot for me. I will have put in $4,000 into it by the end of this year.

[00:21:08] Ramit: Great. All right. Let’s take a look. So this is the kind of specificity I want. Right now you’re annually adding 4,000 bucks, approximately. 31 years to grow. You’re a little younger than Jason. And let’s see what we got here. All right. You’re at $1.7 million.

[00:21:26] Megan: If it’s just $4,000, by little like my annual edition, that’s it? And I still make 1.7. Okay. I won’t be in the poor house.

[00:21:37] Jason: Because you started early.

[00:21:39] Megan: Mm-hmm.

[00:21:40] Ramit: Yeah, it’s impressive. Just to give you an example, if you were to contribute, let’s say $10,000 a year, that would take that number up to $2.4 million.

[00:21:49] Jason: Which is 100k a year in salary, pulled out, right, at 65, roughly?

[00:21:56] Ramit: Jason, meet her where she is. She’s not doing the math like you are. She’s just looking at the number right now. Meet her where she is. Let’s slow it down. $2.4 million is a big difference, Megan, from 1.7, just for adding $6,000 a year.

[00:22:15] Megan: Yeah.

[00:22:16] Ramit: It’s almost like the flip of a switch. You could just change your automation. The money would automatically go. You wouldn’t even know it went, and suddenly have almost a million dollars more invisible. That’s pretty cool, right?

[00:22:30] Megan: Yeah, that’s great.

[00:22:30] Ramit: All right. So what this tells me is you have a lot of control over your own finances. You talk about protecting your future self. I agree, protect, but I also see thriving. 1.7 million, 2.4 million. Hey, maybe there’s a couple of years where you work way overtime or something and you take a bunch of money and drop in 30 or $40,000. I don’t know. Oh my God, you really have a lot in your future. What do you think about that?

[00:23:05] Megan: That’s great. That means no one will hopefully have to take care of me.

[00:23:10] Ramit: I think you’re on track to do very well, and you’ve clearly invested a lot, which is really impressive. Great work. Okay. Now let’s get to some specifics in terms of the credit cards. So you have lots of options.

[00:23:28] Number one, which you should, is cut down your guilt-free spending dramatically, and take that money and start redirecting it. Personally, I would pay off that credit card debt immediately. Let’s say you cut this down to 1,000 bucks. That means you have $3,600 a month to put towards credit card debt. It would take you several months at least to pay that off.

[00:23:54] That’s one. Another is you take some of your contributions that you’re investing and you also put that towards the credit card debt. There are virtues higher than maxing out sometimes, and in my opinion, having zero debt and never going back into debt is even better.

[00:24:13] Jason: I agree. That’s worth a lot.

[00:24:15] Ramit: You could pay this debt off in four to six months. Done.

[00:24:18] Jason: For sure.

[00:24:20] Ramit: Megan, are you following?

[00:24:22] Megan: I just added up all my current numbers, and I saw where I have just money sitting.

[00:24:27] Ramit: Mm-hmm.

[00:24:28] Megan: In my gambling, which is Coinbase. I can just pull out my 7k and just pull 7k easily and bring it down to $6,600.

[00:24:41] Ramit: That sounds good.

[00:24:42] Megan: That’s card debt.

[00:24:43] Ramit: That sounds good. Just be advised of any tax implications you might have, depending on if you have to sell anything, but yes. Great. I would love that. Fantastic.

[00:24:53] Jason: Do you think, Meg, if you did something like that and then I redirected to pay off the rest, that you could keep it empty?

[00:25:04] Megan: Yeah, if we set up a better plan. Why would I spend my cash? I need my cash. What if I have to pull out cash for something? So I could just put on my Amex or my Capital One or my Apple, and then I can just spend on there and then pay off that amount right away.

[00:25:21] Ramit: This isn’t working for me. You’re about to be a mom, and the two of you are trying to get into a mature relationship around money. And you have to really turn the page on the way that you’ve been behaving with money.

[00:25:36] And part of that is starting to change the way you talk about money, the way you behave about money, and then the way you feel about money. And right there what I heard was this whole, like, I’m so innocent. Oh, it’s so funny. It’s actually not funny to be in credit card debt. And it’s not funny to be in debt when you’re about to have a baby.

[00:25:55] And it’s not funny to not have a shared vision and shared plan around money. That’s what you called me for. That’s why I’m telling you this. Where else is the rest of the credit card debt going to be paid from, the roughly $7,000 left?

[00:26:15] Jason: I’m volunteering to pay it.

[00:26:16] Megan: Where would you get the money from for that?

[00:26:19] Jason: Some of the guilt-free spending funds, but I think it would be a benefit to both of us to have yours paid off and then not filled up again. I’m suggesting we prioritize getting yours to zero and then new rule is no debt carried over on the card.

[00:26:37] Megan: I agree. That would be nice.

[00:26:42] Ramit: Okay. I like that. So what you’ve done is, Jason, you generously offered, “Let me help pay off that card, and I want to set up a new rule in this family. No credit card debt.” Is that what I’m hearing?

[00:26:54] Jason: Yes.

[00:26:55] Ramit: Great. I love that. Megan, it sounds like you agreed. I feel like that’s a big win. Let’s take the win. Great job. Nice job.

[Narration]

[00:27:01] Ramit: Let’s take a quick break to support our sponsors.

[00:27:04] Now, back to the conversation.

[Interview]

[00:27:07] Ramit: Baby fund. How much are you going to put in there? There always will be some unexpected stuff. We should probably have some pool of money so that you don’t get hit by a surprise, whatever.

[00:27:18] Jason: So the numbers I’ve got range from 12 to 20k. How do I keep this all within range and without changing things like investments and some of the other bits and bobs?

[00:27:30] Ramit: What’s the resistance to cutting investments by a few percentage points for two years? I don’t have that worry, and I love investing.

[00:27:42] Jason: I think when you unwind something like that, it’s harder to put it back. So I’m reluctant to do it because I don’t want to go through another five, seven-year whatever thing trying to get back to the investment model I want to be on.

[00:27:58] Ramit: What I’m hearing, especially from you, Jason, is basically like, my North star is maxing out my 401k. That’s crystal clear. I hear you. Being a new parent can be hard. There’s lots of things that pop up that nobody really thought through, predicted. It just happens. And if it means that for two, three years you have to cut some number– let’s say your investment rate was 12% of net, let’s just say. And you go, hey, for the next couple of years, I’m going to make it 6%.

[00:28:31] I personally have zero problem with that. I would literally cut it down a little bit proactively just to have a little pool of baby money. That way we don’t have to have these painful discussions back and forth. Great. But that’s my approach with money. It provides calm, a lot of calm with my overall financial system. Okay? That’s up to you how you want to, if you want to do it or not. All right. Your guilt-free spending is at 4,000 bucks. What number do you want to bring that down to? Because that is crazy.

[00:29:02] Jason: I have no clue.

[00:29:04] Ramit: Well, think about it. You are about to have a baby, which means already by default, you’re not going to be going to certain things at least for a while. So that makes it super easy. This is also going to help rapidly pay off your credit card debt. And in my opinion, look at this number here. Megan’s savings, only $1,455. She has less than one month’s worth of savings. That’s a problem. So that needs to be filled up. What do you want to do here? 

[00:29:40] Jason: I don’t know. I think I’d have to go look at everything that’s in there.

[00:29:40] Megan: 2k?

[00:29:40] Jason: Yeah, maybe.

[00:29:40] Ramit: You want to pick 2k? All right. So from 4,622, which is 33% in your guilt-free spending. Let’s see what happens if we put at 2,000. All right. 14%. That’s a pretty good number overall. I typically recommend 20 to 35%. 14% makes a pretty decent amount of sense because you have a baby. Again, not going to be doing certain things for a little while. That’s fine. You also have credit card debt. If it were me, I’d probably go a little bit lower just because I want that debt gone. How are you feeling?

[00:30:19] Jason: Still have questions on like how do we pay for things like the doula Megan wants or get towards a plan towards like the trip she wants to take.

[00:30:27] Ramit: Listen, guys, that’s what the baby fund is for. The doula comes from the baby fund. You need to fund that. That’s why you need to have more than $1,000.

[00:30:35] Jason: Yeah. That’s a good argument. If that’s from baby fund and we fund it there, and that’s important to Megan, then I want to make that happen.

[00:30:46] Ramit: Yes. So yes, that is straightforward, however much the doula’s going to be, and then double it. You really don’t want to be scrimping and pinching when you’re going to select the doula you really love, etc. I’m not saying you have to spend it all. Megan, you want to check in on anything here?

[00:31:07] Megan: I think that’s great. I like the idea of planning.

[00:31:11] Ramit: Great.

[00:31:12] Megan: I feel a little useless because I don’t have a real income right now.

[00:31:16] Ramit: Hold on. Very important. You are not useless just because you don’t have an income. You can be a fully functioning member of a romantic relationship, financial partnership with zero income. Your value is not just measured on this freaking spreadsheet. In fact, fuck this spreadsheet. We’re too focused on spreadsheets. You’re about to be a mom and a dad. Why the fuck are we talking about spreadsheets all day long? Have you all noticed that?

[00:31:47] Megan: I just feel, because we don’t have a good system between us, I have an anxiety about it’s not an equitable conversation. We’re not equal in this situation of going forward. It’s like, yeah, let’s save $13,000 or plan for that. For baby, that’s what it’s going to cost potentially in their first year. That’s great. But still, I don’t know how I get to have a very strong opinion, I guess.

[00:32:28] Ramit: Can I help you see how to do that?

[00:32:30] Megan: Yeah.

[00:32:30] Ramit: Okay. It’s very important that in couples where there’s wild divergence in income, and sometimes one partner earns zero, still important for that partner to have some financial autonomy. Because otherwise you’re constantly having to go and saying, please, please, can I have money for lettuce at the grocery store? It’s like, no. That’s a systems problem. That’s a communication problem. So let’s fix that. When the baby comes, who’s going to be in charge of things like shopping?

[00:33:04] Megan: Me.

[00:33:05] Jason: I don’t want to shop. I really hate it. So I’ll pay for it all if she’ll do it.

[00:33:10] Ramit: Okay, fantastic. Megan, listen to me. Let’s recalibrate the power dynamic. Don’t ask him. You’re about to be mom. You’re about to have to go shopping. It’s time for you to set some expectations. Here’s what I need. Tell him. He’s probably very receptive to it, but don’t ask him. It’s now time for both of you to start talking what you need. Go ahead.

[00:33:35] Megan: I need my own card if we’re going to spend money together. So don’t want to have to ask you for it. I just would like your HomeStreet card. That’s what we’re going to spend out of and not use credit cards. I want to have my own HomeStreet card.

[00:33:53] Ramit: So this is a debit card you’re going to use. Is that it?

[00:33:54] Jason: Yeah. Debit card is the name you’ve heard, yeah.

[00:33:55] Megan: Yes.

[00:33:56] Ramit: Okay, cool. I love what you just said, Megan. “Here’s what I need. I need a HomeStreet debit card in my name.” Fantastic. Now tell him what you are going to use that card for. Be specific.

[00:34:10] Megan: I’m going to use that for our groceries. I’m going to use that for our fuel.

[00:34:19] Jason: Baby stuff.

[00:34:19] Megan: That’s pretty much it.

[00:34:20] Jason: Stuff baby needs.

[00:34:23] Ramit: Have you all calculated how much diapers are going to cost, just out of curiosity?

[00:34:30] Megan: No, I’m going to. Don’t you know that–

[00:34:32] Ramit: You guys are the funniest parents I’ve ever met. It’s so fucking funny. By the way, for people just listening and not watching, I asked them and then Jason just shakes his head and smiles, and then Megan was just looking away. Megan, is there anything else that you’re going to spend on this debit card?

[00:34:49] Megan: No, because I don’t need to spend anything else.

[00:34:51] Ramit: Great. What else do you need to have agreements around?

[00:34:57] Jason: I think some expectations on the guilt-free spending front.

[00:35:02] Ramit: Shouldn’t you theoretically have his guilt-free spending, her guilt-free spending, and then your joint guilt-free spending?

[00:35:13] Jason: Yeah.

[00:35:14] Ramit: That’s the way to do it.

[00:35:16] Jason: Yeah.

[00:35:16] Megan: Yeah.

[00:35:17] Ramit: That’s how you set it up. So that way Megan always has a certain number or guilt-free spending. Even when she’s earning $0, she’s still getting money for guilt-free spending. So Megan, you’re like, oh, I’m good. And of course you can use that for whatever you want. You want to just save it? Fine. You want to spend it? Also fantastic. It’s up to you, but that’s the number. Same for Jason. And then of course for both of you, which would be things like quality, family time together, that’s how you fund it.

[00:35:47] Megan: That’s a great idea.

[00:35:49] Ramit: Yes.

[00:35:50] Megan: Do you think we get equal amount of money for guilt-free spending?

[00:35:53] Ramit: You tell me.

[00:35:54] Megan: In an ideal situation, we get the same amount of money. So my understanding is we add up all the things we do together, and that’s our quality of time, our guilt-free spending, and then we each get a certain amount. If we don’t get the same amount, this just goes back to it’s not equitable, and we’re not on the same page. And I hate saying it. I feel bad asking for that because I know you work really hard for your money. But if we’re going to move into this other equitable system where feelings don’t have to come into it, then I feel so much better.

[00:36:36] Ramit: What are you asking for?

[00:36:37] Megan: I’m asking for the same amount of money, whatever that is. If it’s $50 and we both just get 50 bucks a month for guilt-free, sounds great. If it’s 500, 1,000, whatever it is, if it’s the same, that sounds amazing to me.

[00:36:54] Jason: I wouldn’t like that. And the way I think about it is if I go fix my income to earn more at my time, cost, energy expense, and then it’s immediately halved, that feels weird to me.

[00:37:13] Ramit: I totally get what you’re saying, Jason. Optimizers are like, hey, if I make more, I should probably take more. And you can make the case, and actually, if the two of you agree on that, I’m totally down with it. I guess I have to say I think there’s a larger game to be played here.

[00:37:31] So you’re a high income earner, Jason. I am too. And I think that what I learned is I can afford to be generous. In fact, I can afford to be really generous. And so the person who that matters to most is my wife. I am the most generous with her. Not only can I afford to be, but I would be just as generous if I made one tenth of what I make.

[00:37:59] Another way to think about it is like we are creating a family unit together. There are three components in guilt-free spending that matter– my money, your money, and our guilt-free spending money. If it’s 50-50, great. I want you to have guilt-free spending money. What do you think?

[00:38:19] Jason: When I did have higher salary, I felt able to be more generous and did write a check, fund a thing. I did a lot of that, gave a lot away. And it does feel really good. But my plans and goals were in order. Whereas right now I have a to-do list of funding priorities that Megan and I built together of, here’s all the stuff we agree that we want to spend on when we can, and I manage saving and coming up with cash and trying to fund those. And I wouldn’t want to stop progress on that or slow it down.

[00:38:58] Ramit: The money’s going to be in guilt-free spending regardless. The question is, how is guilt-free spending apportioned? If you have $100 in guilt-free spending, theoretically it could be 20, 20, and 60 for the two of you. And Megan, ultimately the important thing is you and Jason are going to agree on some number that you are going to get guilt-free every month, even when you earn $0.

[00:39:30] Furthermore, you should also make a few rules about like, hey, if we’re going out to eat, obviously that’s coming from our joint. If you want me to go to the freaking rodeo and I don’t like the rodeo, let’s just make an agreement. The person offering it should be the one to say, hey, let me make sure that I cover that from my own guilt-free funds. It’s their responsibility. How do you both feel about that?

[00:40:01] Jason: The hard part has been we lost our feeling of guilt-free spending with the income reduction.

[00:40:10] Ramit: Yeah.

[00:40:11] Jason: That became guilt-full.

[00:40:13] Ramit: Right. Well, it’s time to recalibrate. It’s time to set some numbers. If the number, again, currently stands, TBD, but it’s 2,000 bucks, just for easy math, it might be 500, 500 and 1,000 for each of you jointly. Megan, what are you thinking?

[Narration]

[00:40:31] Ramit: Part of what I just did right there was to help them recalibrate the relationship dynamic. Specifically the one between Jason and Megan, where Megan has to ask for money and Jason decides. This is a horrible dynamic in any relationship. So change it.

[00:40:48] State your needs, then have a discussion based on your Rich Life and the numbers about what’s possible. It’s not about willingly placing yourself in a childlike position of asking for money. It’s not even about your moral value. It’s about this. How can we use our money to live our Rich Life?

[00:41:08] We’ll be back for her answer after this short break.

[00:41:12] Now back to our conversation with Megan about guilt-free spending.

[00:41:15] And for those of you watching on YouTube, you’ll notice that, yes, Jason changed locations for some logistical reason.

[Interview]

[00:41:23] Megan: If it’s not equal, I won’t feel equal. And then I’m just going to go back into old patterns. I strongly believe we should have the same amount of money in guilt-free spending. Otherwise, I will not feel equitable in our relationship.

[00:41:40] Ramit: It’s really important to know when you’re talking about setting up your financial systems, what is really important, what’s kind of important, and what’s like a give me like, all right, that’s fine. So think about it. Just to get a sense of how important is this decision, which category do you think that this decision falls in?

[00:42:04] Megan: I put it very high.

[00:42:05] Jason: I feel like it’s low because I think it’s working with the exception of taking care of the credit card stuff, which we just came up with a plan for. But if the proposal is what we just talked about, then I would say it’s high, because I think that would drastically impact my interest and ability to change income.

[00:42:35] Ramit: First of all, it’s very interesting that she instantly was like, it’s high for me. And I agree. I could hear it in your voice. You’re like, this is about feeling equitable. I totally agree. It’s high for you, Megan. I respect that. I think, Jason, your response again reminds me so much of me because it’s like, it feels fair. It feels like justice. I make more. I should take more. I get it. But what changed for me in my own relationship was the realization that our future is together. It’s not separate.

[00:43:10] This is really the crux of our conversation today. If you are building a separate life, then what you’re saying makes perfect sense. You should do it proportionally. You should get paid more. It’s incentive and all that stuff. But if you’re building a future together, then most of guilt-free spending is actually going to be together anyway.

[00:43:28] Jason: It is, and that’s where this feels different, because we set our goals together. We work on them together, save up for stuff, try to execute it. If I can find a way to go earn more for a specific goal, I will do it. But we’ve done a poor job when it’s Megan on her own figuring it out or me on my own figuring it out.

[00:43:55] And it’s not been that shared vision. So it’s almost like if we had that worked out and we were a little bit more mature in this journey, I think this could be more clear and understandable to me and maybe we can figure it out. But it does not feel like the right problem to work on now.

[00:44:16] Ramit: Well, to me, this is indicative of the fundamental problem, which is you two are living separate lives. And also, more importantly, Megan says it’s important. If it’s important to one partner, it’s got to be important to both. And your answer was confusing. It was like, “Not that important, but actually, it’s really important because if I want to make more money, it’s not provide the right incentive,” all that stuff. She’s just crystal clear. She’s like, “This is really important to me.” So if it were me, I’m sitting here saying, “Okay, I want Megan, my partner, soon to be mom, to feel good, to feel equitable.

[00:44:56] “How can I do that and still honor what I want, which is make sure that we are moving together, investing, saving, all that stuff?” You can accomplish all these things, but right now you are so focused myopically on keeping every last dollar, and that is going to be the ultimate demise here of this system.

[00:45:16] Megan is telling you, “This is important.” Here’s what I would do. I would say, “Okay, great. Let’s do it 50-50. I want you to feel good.” And I would tell her why. “I want you to feel good. You’re important. Even if you don’t earn money, I want you to know that you have guilt-free spending. You’d never have to ask me about it.

[00:45:31] One thing that’s important to me is that we hit a 12% net investment rate. That’s really important to me. That means we probably have to cut back on something. We probably have to da, da, da, da.” Great. Okay. She’s like, “Okay, I think maybe 10.” Perfect.

[00:45:56] And then you might say something like, “Hey, for my performance bonus, when I get that bonus, whatever it is, I work really hard for that. I’d like to have a little incentive, a little something because I work really hard for that.” So in other words, you’re giving her what she wants, which is important to her, and you’re saying, “This is also important to me. Can we talk about that?” How does that sound to you?

[00:46:15] Megan: I’m okay with not knowing the number right now, today, tomorrow, next week, but maybe by the end of the month or before this baby comes out, we figure out what that is. And maybe that number changes.

[00:46:31] Jason: It’s really hard for me to understand the impact and how to do that the way things are today.

[00:46:42] Ramit: I don’t think you understand when I say simple, how simple I really mean. Can I just tell you how I would do this?

[00:46:49] Megan: Yeah.

[00:46:49] Jason: Yeah.

[00:46:49] Ramit: You’re so fixated on the numbers that you’re missing what she really wants. She never once said, “I want $650 for me. $650–” She didn’t even say an amount. What did she say?

[00:47:03] Jason: She said equitable, but I immediately calculated it.

[00:47:06] Ramit: Exactly. And that is the problem. You are so numerically focused that you’re down in the weeds and you’re missing what’s actually being said here. You’re actually blind to what is happening right now. She’s not saying a number. In fact, it’s the last thing on her mind. What exactly did she say?

[00:47:24] Jason: She said, “I would like an equitable amount of guilt-free spending.”

[00:47:30] Ramit: An equal number, because that would feel equitable.

[00:47:33] Jason: Yeah.

[00:47:34] Ramit: Great. Fantastic. It could literally be $5 each, and that is perfect. So if I were you, the one who has to take some of this 4,600 bucks, pay off credit card debt, but still leave a little money, this is what I’d do. I’d be like, “Listen, I love that you said that. I want you to feel equal. I want this to be equitable. Let’s do this. For the next few months, I’m not sure how long yet, but for the next few months, we’re going to have to really focus on reducing our guilt-free spinning, but we’re going to do it your way. We’re each going to get $250. That’s what we have for our guilt-free spending each of us for the month.

[00:48:12] “So it’s going to be a big reduction, but that’s going to allow me to take the rest of the money and apply it to the credit cards. Let me deal with that. Each of us gets 250. Do you feel good about that?” Megan?

[00:48:22] Megan: I feel great about it.

[00:48:23] Ramit: What do you notice about my solution?

[00:48:26] Jason: It ignored the numbers.

[00:48:29] Ramit: Yeah, it met her where she is. She said, “I want an equal number.” Give her an equal number. Make it small. Make both of you have to cut your expenses right now. That still solves every problem, but the way that I got there was by not automatically calculating how much money am I going to lose? What’s a calculation 25 years from now?

[00:48:50] It’s like, hold on. Put all that shit out of your mind. This is my partner. She’s telling me something’s important. How can I start by saying, I’m going to assume the answer is yes. Overall, what I take away from the way that you deal with the finances is pretty complicated. Now, some of it’s just structural. It’s what you’ve chosen to do. You’re not getting married. You’re not combining all your money. That’s totally fine. That’s your decision.

[00:49:15] It necessarily means that you’re going to have more complexity. So that’s the price of doing business the way you want to do it. Accept it, create some rules, and there you go. I think a couple of things I see are like knowing how much is enough. I don’t think either of you know how much enough is.

[00:49:40] Jason: Yeah. I feel like if I can get to five, good.

[00:49:43] Ramit: Yeah, but you already got to five, as you are.

[00:49:47] Jason: I’m on plan, but it’s not there. Until it’s actually there, it’s not reals.

[00:49:52] Ramit: You can’t go 25 years feeling like you are behind. You’re already there. You just need time. The turkey’s in the oven. It just needs to cook. So right now you’re playing defense. It’s almost like you’re playing scared instead of actually patting yourself on the back. When was the last times you said to yourself like, “Fuck, I did a really good job with this”? Never.

[00:50:19] Jason: Probably never, yeah.

[00:50:20] Ramit: How funny. I say time to myself. I’m like, “God damn, this shit is on point. The system is simple. It’s running. It’s cooking.” And I think that celebration is important. I also think, Megan, you know that Jason takes a lot of pride in this. One of the things a great partner can do is to encourage that celebration.

[00:50:40] Like, “Oh my God, you’ve come so far. Look at how far you’ve come. You’ve done this for us. You’ve encouraged me.” That’s powerful. But what is enough? That’s a core question. And I can see it written all over the CSP that you haven’t answered that question.

[00:50:55] I think when you do, you will have more connection, more calm. I actually think your finances will improve even more because you can actually ease off of your finances at a certain point. Gives you time, rejuvenation. You’re not worried. You’re not constantly transferring money here and there. You’re just calm.

[Narration]

[00:51:14] Ramit: Thank you to Megan and Jason for sharing your journey, and I am wishing you the best of luck with your new baby.

[00:51:19] I asked them to let me know how they felt about their experience on the show. Here’s Jason’s video

[00:51:26] Jason: I thought that we were doing pretty well compared to folks I know, and really appreciated Ramit letting us know that the system is sloppy or has become sloppy and can be improved. We spent a lot of time understanding what does that mean and what can we do, and how do we make those changes so that we can prove over time.

[00:51:42] Starting slowly and better understanding the vision or the goal can help with execution because everyone can get on the same page, and you can then come to the numbers together. As for the specific changes, there were a few clear takeaways from the discussion.

[00:51:56] So one is redirect some pre-tax investment so that you can take care of debt faster. Another one was using some of the liquid cash and savings first before the credit cards. And then become better at planning ahead and working together to build a system that will work for the long term.

[00:52:14] Ramit: And here’s Megan’s follow up.

[00:52:16] Megan: It was a surprise for me to go through the process and to see what the emotional toll was taking on me that my relationship with money has been. I learned that I have a lot of trauma around money, and that was really helpful to just learn about myself. I now know that I can express my wants and my needs, rather than judgment. From my partner, it’s more of just like he’s only looking for the facts. He’s just looking for numbers. There’s not a judgment call on my character. Biggest changes I’ve made and have been considering is how I want to live by example and be an example to this baby who’s going to come into this world in the next couple of months, more transparency about our spending as a couple, and how we can do that together. It’s been quite the journey this late in pregnancy to try to figure this out so we can have some standard operating procedures before we welcome this newborn.

[00:53:06] Ramit: One last thing, I actually just got another follow up message right before this episode went live from Jason and Megan that I would like to read to you.

[00:53:14] “We have a new little baby boy born on Sunday. Megs is going to take off the whole first year from work. I’m working remotely for now to keep up the income. We decided to rent more rooms in our house to help with income and are now generating another $2,100 per month.

[00:53:33] “Megs has one credit card paid off, and we’re working on the others. I expect we’ll have them clear by the end of the year. We now have much better conversations together about finances and planning and are trying to learn YNAB so we can put the envelope method in place for now. We also decided that our near-term motivation is to plan a trip to New Zealand for a month in January with our little family. So we’ve lined that up and got the cost down to 5k. 

[00:54:01] “Having a joint goal and plan ahead of time aligned with our vision of a Rich Life has improved the discussion about what we are not spending on. Ramit told me to start with the vision instead of the budget, and that change along with our open conversations is resulting in better outcomes that we are both happy with.”