Episode #180: "We have $30k in cc debt but insist on sending our son to private school"

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[00:00:00] Alexis: I’m closed off when it comes to money.

[00:00:01] Olivia: I want to talk about it every day. She does not want to talk about it at all.

[00:00:04] Ramit: Olivia’s 54, and she loves her spreadsheet.

[00:00:07] Olivia: I’m not the easiest person in the world. I do sometimes put that pressure on her, what else do I need to do?

[00:00:12] Ramit: Alexis is 55. She’s an optometrist. She would rather do anything but talk about money.

[00:00:18] Alexis: There is a righteousness of, how many more people do I need to pay so you can get this done. And it doesn’t feel good.

[00:00:25] Ramit: They live a very luxurious lifestyle, but one that they describe as chaotic, and they overspend on their son.

[00:00:32] Alexis: If money’s so tight, why do we send our kid to a sleepaway camp that costs $10,000, to the school that costs $30,000?

[00:00:38] Olivia: I want to know that in the next 10, 20 years, we are able to live our best life.

[00:00:42] Ramit: On paper, they are millionaires, but they’re spending more than they make every month. And there’s a huge secret to their wealth that they don’t even realize.

[00:00:53] Alexis: We have this high number and not the skillset to properly navigate it.

[00:00:58] Olivia: Very committed to living on what we actually make. We’re super failing at that, and now I’m paying ridiculous interest rates.

[00:01:04] Alexis: We better fix the chaos quick.

[00:01:06] Ramit: Let’s dive in with Olivia and Alexis.

[Narration]

[00:01:09] This episode is sponsored by my partners at Facet. Facet is an SEC-registered investment advisor. Investing involves serious risks, and past performance is not a guarantee of future performance or success. My opinions are included and should not be interpreted as a recommendation or research regarding any investment or investment strategy, legal or tax advice.

[00:01:27] The Facet-provided scenarios discussed are based on inputs provided by Alexis and Olivia, and are based on industry-standard assumptions. The information is for illustrative and educational purposes only.

[00:01:37] I’m got Olivia and Alexis’s CSP in front of me. I’m getting ready for our conversation. Check out what I noticed.

[00:01:43] Alexis, 55. Olivia, 54 years old. Let’s take a look. Assets, 1.3 million. Okay. Investments, 2.1 million; savings, 120,000; and debt, 474,000, for a total net worth of 3.1 million. That’s really good at age 55. Wow. Okay, let’s look at the income. Gross monthly income is 17,000 bucks or $204,000.That’s very good. Fixed cost, 88%. That’s too high. Let’s see. Housing is 21%. Groceries is 1,200. That’s fine.

[00:02:21] Oh, okay. Private school and tutor, presumably for one of their kids, 2,500 bucks. Okay. That’s a lot. And looks like 800 bucks for activities per month. Well, that’ll do it. And then subscriptions say 450. I bet it’s more. So right there we have 88%. In fact, just to prove the math out, if I zero out school and activities, let’s see what happens to their fixed cost. Drops down to 65%.

[00:03:00] So again, I’m not suggesting we cancel all kids’ activities, but we can see where a considerable amount of expense is. Let’s take a look at the rest. Investment at zero. That’s confusing because where did their $2 million in investments come? Okay, it says, comes out automatically. Seen in net income.

[00:03:22] I need to find out what’s going on with that. Savings at 13%. They have 800 bucks a month for vacations and $1,000 a month for renovations. Just looking at this, I don’t think this couple only spends 800 bucks a month on vacation. There’s no way. If you’re spending 2,500 bucks a month on private school and tutor, and then $800 a month on activities, there’s no way you’re only spending 800 bucks a month on vacation. That’s my guess.

[00:03:48] Let’s see if I’m right. Uh-oh. Okay. Down to guilt-free spending. So they are spending more than they make. They’re spending $1,000 a month on eating out. Okay, so this is exactly what I thought. They’re living a high life, which is fine if they can afford it, but it appears they cannot.

[00:04:06] 800 bucks a month is for random stuff. 800 bucks this month is for going to activities like Topgolf, and they’re actually losing money every month. All right. So we got a problem here. We have a couple who has $3.1 million of net worth, which is impressive. But on a cash flow basis, meaning cash in, cash out, every month, they are losing money.

[00:04:27] Now, sometimes this can be okay. I’ve had months where I have spent more than I made, but my net worth continued to grow. However, this is quite advanced, and you need to understand the difference between net worth, cash flow, and all kinds of stuff. Let’s find out when I speak to them, what their level of understanding of money is and what’s going on. Now let’s meet Olivia and Alexis.

[Interview]

[00:04:48] Ramit: So when you think about money, just in general, money in your house, what do you feel?

[00:04:54] Alexis: Confusion. If money’s so tight, then why do we send our kid to a sleepaway camp that costs $10,000? Why do we send our kid to the school that costs 30,000? Why do we do these things if money is so tight? And I know the reason is, he deserves everything we could possibly give him, and we want the best for him.

[00:05:12] Ramit: Oh.

[00:05:13] Olivia: We want to give him every possible opportunity to have the best life he can have. And so I understand that there are sacrifices for these decisions. This school was a dream when he was in preschool. And we went and looked at all the schools in the area, and we brought home all this paperwork to my mom and said, “I want to work to save so we can send him here one day.” And she said, “I’ve worked all my life. Send him. I have the money. I’ll pay the difference. Send him.”

[00:05:45] Alexis: And honestly, I can’t imagine sending him anywhere else because I have some phobias about schools and safety. So this school at this point in my life and some of the experiences I have make me feel like it’s a safe school.

[00:06:01] Ramit: Let’s talk about your occupations, just so I understand a little bit of history.

[00:06:07] Alexis: I’ve been an optician for 36 years. 26 years of that, I’ve been at the same company, big corporation. It’s been great, and it’s been a blessing. The past year has been very challenging. I’ve tried to work up the ladder and get promoted in the past few years, and that didn’t happen.

[00:06:31] Ramit: Got it. Okay. Thank you for that. And Olivia, what about you?

[00:06:35] Olivia: I became an entrepreneur 25 years ago. Just celebrated my 25th anniversary, and I own an event production company. I also do some commercial real estate and some commercial real estate and restaurant consulting. We also had a food and wine festival that we just recently sold. And I also was an investor in a small, fast casual franchise restaurant that I also just sold a couple of weeks ago.

[00:06:58] Ramit: Just so I understand, what’s the income difference between the two of you? Who makes more?

[00:07:04] Alexis: Olivia does.

[00:07:04] Ramit: Okay. Olivia makes more money. And has that been consistent throughout your relationship?

[00:07:10] Olivia: I’ve increased my income over the years. I probably made maybe 20, 30% more. Now I make 100, 130, 150% more.

[00:07:23] Ramit: Let’s talk about communication around money. How often do you talk about money in your relationship?

[00:07:29] Olivia: I want to talk about it every day. She does not want to talk about it at all.

[00:07:33] Ramit: Ah.

[00:07:33] Alexis: I’d rather go do the dishes.

[00:07:35] Ramit: Okay. So Olivia, you’re got the spreadsheets. You’re eager to talk about– in your dream world, what would you talk about every day for money?

[00:07:45] Olivia: I don’t want to talk about it every day, but if we could talk once a month, have a money meeting, plan and look at everything and see where we’re at. I feel alone. I feel alone when it comes to money.

[00:07:59] Ramit: You tried to talk to her. What’s her reaction?

[00:08:03] Olivia: Alexis is the most wonderful wife, partner, mother, kind. But she shuts down when it’s stuff that she doesn’t want to talk about. She’ll get defensive or set it aside, and then I get frustrated, and then I shut down, and that’s it.

[00:08:28] Alexis: That is all true.

[Narration]

[00:08:29] Ramit: It’s interesting that both Alexis and Olivia agree that they’re spending a lot of money on their son. And you might wonder why I’m not immediately telling them to cut back on the kids’ activities. Well, before I jump in and start talking about tactics, I need to understand the why.

[00:08:45] One parent’s overspending looks totally different than another parents, and there are different reasons, different motivators. If I just come in and start telling them all the things they should change, especially things that are related to their identity, they will simply go like this, no.

[00:09:03] And as we just learned, Olivia is eager to talk about money while Alexis wants to bury her head in the sand. So the challenge here is for me to understand why Alexis won’t engage with money and to give them some tools to talk about it openly.

[00:09:16] Let’s dig in after a short break from our sponsors.

[00:09:20] Now back to the show.

[Interview]

[00:09:22] Alexis: I believe that my past, growing up, I had a single mom. My dad paid child support. I don’t know if it always came on time or not. It’s not my business. But I know things were tight.

[00:09:36] And at the young age of 13, I was already buying my own clothes. I was buying my own car at 16. I was buying my brothers and sisters all their Hanukkah and Christmas presents and all this stuff, paying my mom rent. And I believe money was always needed from me. And then fast forward into other relationships I had before Olivia, I would have a big printout of my check register, and I’d write out all my bills.

[00:10:05] And if there was $3,000 in the account, the person I was with would go and everybody gets shots and spend it all. And then go out for a night, and there would be $10,000 on a credit card because that person had a great night. And there’s just random stuff. So I have, I think, scars around money. And none of that is present in my current relationship, but it’s a thing for me.

[00:10:34] Ramit: $10,000 in a night, that’s a big deal. What did that feel like after that happened once, twice, in different relationships. What did you start to feel towards money?

[00:10:45] Alexis: Very secretive, definitely. Very protective, like not wanting to talk about it, not wanting to, I don’t know, not necessarily share it because I have no problem buying things and sharing things.

[00:11:03] Olivia: She had a secret credit card and a secret bank account up until recently.

[00:11:06] Ramit: Oh. Like how recently?

[00:11:10] Olivia: I still don’t have the passwords to any of it.

[00:11:14] Alexis: It’s not that much of a secret. I’ve had a separate checking account? Checking account.

[00:11:23] Ramit: Separate is one thing. Secret is another. Which one was it?

[00:11:28] Olivia: I didn’t know about it until the past, I don’t know, six months.

[00:11:33] Ramit: Mm-hmm.

[00:11:33] Alexis: No. Okay.

[00:11:35] Ramit: How much was in it?

[00:11:37] Olivia: I don’t know.

[00:11:39] Alexis: A few hundred dollars. Not a lot. Nothing to write home about.

[00:11:43] Olivia: You were having your direct deposit of your paycheck going into there. I was looking at the statements wondering, because we’re spending more than we’re making, and I was trying to dig in to figure out why and solve it. And I said, “I don’t see your direct deposit coming in. Where is it? I haven’t seen it in five months.” And then you’re like, “Oh, it’s in this other account.”

[00:12:06] Ramit: What was the reason for having that separate account, Alexis?

[00:12:09] Alexis: It was going to be where I put money into that I earn. I have a Etsy shop. I am pursuing other avenues to possibly make income, such as notary. I have an Etsy shop, digital marketing, wherever it ends up. But originally, that’s what the account is set up for.

[00:12:32] Ramit: I have no problem with separate accounts. I actually think everybody should have a separate account. They have access to it. No questions asked money. There’s a variety of reasons for that. But secret, that’s a bit of a different issue. So I understand this was separate. Would you say that this was secret or not?

[00:12:51] Alexis: I don’t feel like it was secret. because I feel like the day I went to the bank, I told her I was going to the bank, and it was a few years ago.

[00:12:57] Olivia: I knew you were opening up a business account and had been working on some side hustle things, which I try to be very supportive of. But I didn’t know that you were having your paycheck instead of going into our family account, your paycheck going into some other account. And I didn’t also know about the– was it the Capital One or the Amazon card? I didn’t originally know about those cards either.

[00:13:19] Ramit: What do you think is going on, Alexis, that there’s obviously this lack of communication around money?

[00:13:26] Alexis: I’m closed off when it comes to money. It’s also not being comfortable talking about it in general, but maybe even specifically with my spreadsheet person. There’s maybe judgment or confusion about you spent that on that, and we have no money, but yet Olivia spends that on that, and we have no money. Or I don’t do this around the house because I pay for this, and I pay for people to help you do this.

[00:14:07] But there is a level of, I’m here, and you earn this much. There is that. There is an inequality. And I don’t think the inequality is of malice. It’s because there’s only genuinely love between us. But there is a righteousness of, I pay to get that done. I don’t have to do that. How many more people do I need to pay so you can get this done? There’s that, and it doesn’t feel good.

[00:14:49] Ramit: When was the last time you talked about this openly?

[00:14:54] Alexis: Right now.

[00:14:55] Ramit: Okay. How long you been together?

[00:14:58] Alexis: 17 years.

[00:14:59] Ramit: Well, maybe you’ve just been busy for the last 17 years. What do you think? It’s interesting. Couples will talk about– you have a son. You’ve obviously talked about so many things, so many intimate things. You’re in your 50s. Retirement is potentially around the corner at some point. Couples talk about a lot of stuff. You just have to in the course of being together, but not this. What do you make of that, Alexis?

[00:15:29] Alexis: I have no idea right now. I’m just fighting the tears at the moment.

[00:15:32] Ramit: It’s okay. It’s okay. You don’t have to fight the tears. If they’re coming, they’re coming.

[00:15:36] Alexis: Yeah.

[00:15:36] Ramit: You have plenty of time together. But let me ask again. What do you make of the fact that you two have talked about surely so many things, but really not money?

[00:15:48] Alexis: It’s not for lack of her wanting to talk about money because, like she said, she could talk about it every day. This is our one thing keeping us from having the 10 10.

[00:16:02] Ramit: Olivia, hearing what you heard Alexis describe, any of that surprise you?

[00:16:07] Olivia: I’m not the easiest person in the world. I can be a bear. I deeply, deeply love my wife. And I do think that sometimes I can, I work on not being in my ego, of not judging, of being patient and having grace in all parts of my life, and most importantly with her.

[00:16:28] Ramit: What do you make of the fact that Alexis believes that you haven’t truly talked about money in 17 years?

[00:16:40] Olivia: We had therapy 14 years ago and the beginning of our relationship, which really helped us to be better communicators. And we talked about money a little bit then. And How to Be Rich came on Netflix. I went crazy. I watched it and then I made her watch the whole thing with me. I got the book. I got the journal. Sometimes I bring it out. I’m like, “Come on, let’s do a chapter.” And she’s just like, “Oh my God.”

[00:17:06] Alexis: I got laundry to do.

[00:17:08] Olivia: She’s like, I have to go. I have something I have to do.

[00:17:10] Ramit: When you bring that out, like the journal, which is really fun, it’s like the no numbers journal. It’s not intimidating. It’s really beautifully created. You bring that out. Olivia, what is your energy when you bring that journal out?

[00:17:26] Olivia: Babe, I’m going to grab the book and the journal while we go to dinner. Let’s jump in and get on chapter 2.

[00:17:34] Ramit: Okay. And then, Alexis, what’s your energy when Olivia says, “Let’s do chapter 2?”

[00:17:39] Alexis: We never did chapter 1 because I would find a reason not to do it. And that is nothing personal to you. I just avoid.

[00:17:53] Ramit: I know it’s not personal. I don’t take it personally. Not at all. It’s fine. I’m going to guess, Alexis, it’s not that you have studiously opened the book and said like, “Hmm, this is not for me. I really don’t appreciate the structure that he chose for chapter 3. But I much prefer the journal. It’s so much more friendly.” I’m guessing it’s not that. It’s just money is this word, and I don’t want to be near it. Am I reading that correctly? She’s nodding her head yes. Okay.

[00:18:28] Alexis: Yes.

[00:18:29] Ramit: So Olivia, you’ve basically never gotten to chapter 1 of any of the book or any journal with Alexis. And what does that feel like for you, Olivia?

[00:18:39] Olivia: Frustrating, disappointing, stifling. And then I definitely hold some resentment in the past few years, especially since my mom passed, and I feel this responsibility. My mother was my security blanket. No matter what, if I fell, she was always there to pick me up, pick us up.

[00:18:56] She loved Alexis like a second daughter. And now I don’t want to mess it up. I don’t want to mess everything we’ve built. And so there’s this added pressure. But I do know that in the past few years, these patriarchal roles that society plays on men and women and who makes more and who should be doing what, you fall into that.

[00:19:18] I do. I hate that I am sometimes physically limited, and I also want things to be in order, in place, very zen. We have a 10-year-old, and things always feel chaotic. And I do. I do sometimes put that pressure on her, like, I’m making all this money. I’ve paid for the cleaning people. I’ve paid for the organization company. What else do I need to do so things are done?

[00:19:49] Alexis: It would be so cool to say we paid for the cleaning lady.

[00:19:52] Olivia: I know, I know. No, I know. I 100% know that I’m doing that, and that’s not nice. And that’s mean, and I’m sorry because I don’t want you to feel that way. I love you. It’s our life. It’s our money. We’ve built everything together. I can’t even do what I do if I don’t have her.

[00:20:09] Ramit: So Olivia here describing the frustration and resentment, Olivia also describing your need for order, I understand that. I also love a nice, calm place with everything in its place. I love order. And then I hear that frustration. There’s laundry over there, and I find myself saying these phrases, I made this much money. What do I need to do?

[00:20:33] Then Alexis, you spoke up just now. You said, “Hey, it sure would be nice if you said our money. Remember how part of what we’re talking about is that Alexis does not engage with money. But I just heard her engage with money loud and clear. What did she say, Olivia?

[00:20:51] Olivia: That she wishes that I would say that it’s our money.

[00:20:55] Ramit: Okay. How do you want to respond to that?

[00:20:57] Olivia: I am sorry that I do that. It is our money. This is the life that we’ve built together. And going forward, I will not do that. And if I do, please call me out so I can be better.

[00:21:13] Ramit: That was a pretty interesting moment to me. I spent 15 minutes hearing Alexis talk about how she avoids money, but then, wow. Alexis, when you spoke up, I was shocked. Hold on a second. Here she is speaking up loud and clear, advocating for what she wants. Olivia, I was a little surprised you just barrel rolled past it.

[00:21:33] But I want to take that as an example because I wonder if there’s a lot of communication happening that both of you are not cognizant about. Right there, that was really cool to see one person say, “Hold on a second, this is what I want.”

[00:21:46] And then Olivia, with a little bit of coaching to say, “Oh, wow. You’re right. I know I’ve done that in the past. That’s not the right way for me to talk about money. It’s our money. From now on, I will refer to it as our money.” Thank you. Boom. That’s the way that we get people involved with money is we hear their whispers and we treat them like screams.

[Narration]

[00:22:11] Ramit: Have you noticed that we create narratives about our lives? We say, “I’m really busy.” Or, “I’m just not good at money. Or, “I can’t get fit.” It’s really easy to get caught up in the trap of the very story that you’ve created for yourself. Olivia is telling herself, “My wife isn’t interested in talking about money.” And suddenly she interprets the world through that narrative. Everything she sees becomes confirming evidence, and anytime there’s an example that doesn’t fit that narrative, she discards it, just like she just did.

[00:22:46] Now, Alexis is talking about money. She just did. And I bet she actually does it in lots of ways that neither of them is aware of. Parents know what I’m talking about. If you start suddenly calling your kids shy and then they start behaving in that way, suddenly everything they do is just another example of them being shy. They start to live up to the story you’ve created for them, even if they don’t want to. Now, this can happen for children, it can happen for partners, it can even happen for yourself, and it happens all the time.

[00:23:17] I think this is a huge moment for Olivia and Alexis, and you can tell by the way they speak to each other that there’s a lot of love here. They respect each other. So I see progress that just needs a little fine tuning. But they’re not out of the woods yet. We still need to address their spending habits, especially the one around their son, and I need them to understand this secret that’s been driving their wealth. I mentioned it in the beginning of the episode. They don’t even know what this secret is yet.

[00:23:44] Before we get back to the interview, I need a quick favor from you. If you are enjoying this show, please hit the Subscribe button. It really helps me, and it helps my team.

[Interview]

[00:23:52] Ramit: Alexis, how did that feel to be acknowledged from Olivia?

[00:23:56] Alexis: It was great. And interestingly enough, we had a conversation that was very much like that yesterday. It was about dishes being in the sink, and she was a bear about it. And I’m like, you could just say, “Hey, babe, can you get the dishes done? I noticed you didn’t do them last night. Can we get in the habit of doing it?” And I can respond easier and feel safer responding that way.

[00:24:24] Ramit: Is it true that the last time you saw a therapist was 14 years ago?

[00:24:30] Alexis: Mm-hmm.

[00:24:31] Ramit: Is it maybe time to set another appointment for these little things like the things I’m just pointing out right here? This is what a great therapist can really, really dive into and not only give you some tools, but also help you recognize those challenging parts of yourself and your partner and just help you build these bonds.

[00:24:52] Okay. Cool. I love this. Olivia, when you think of money in the family, this family, you used the word resentment, and you have described how you have wanted to talk about money, but Alexis avoids talking about money. So what have you done as a result?

[00:25:12] Olivia: I do try to create plans around money. I have expressed in sometimes frustrated ways, but lots of times in very vulnerable ways, that I feel alone about money and scared, and that I want her help.

[00:25:33] Ramit: You mentioned your mom was your support system. What way was she your support system?

[00:25:38] Olivia: She just always sent me in the right direction. My mother was fiscally very conservative and responsible. In my late 20s or early 30s, I had racked up $30,000 worth of debt, credit card debt and whatnot. And somebody suggested that I declare bankruptcy, and I would just be able to wipe it up.

[00:26:00] And so spoke to my mom. She’s really the best person I’ve ever known. And she said, “Did you spend the money?” I said, “I did.” She’s like, “Okay, so this is a question about character and who you are as a person.” And she’s like, “Who are you going to be? When you look at yourself in the mirror, who are you going to be? What do you want to represent as a person?”

[00:26:23] Because that’s all we have, is our character. She paid off my debt, and I took seven years for me to pay her back every penny. But it was an incredible lesson, and it was an incredible lesson in who she is and who she’s taught me to be.

[00:26:35] Ramit: I appreciate that. Sounds like she had a lot of wisdom to share, which you are now sharing with your son. That’s generational wealth right there. It’s not always about a cheque. It’s about the lessons that our parents teach us and that we absorb, adapt, and then pass on. It’s really beautiful. Your mom also helped out with money?

[00:26:59] Olivia: She helped us with the down payment on the first home we bought together. She helped with his school. Our goal, was to create a multi-generational house, so the house we’re living in right now, we purchased it together– my grandmother, my mother and I, and Alexis– for us all to live here and support and take care of each other.

[00:27:23] As my grandmother was getting older, she’s now 98, she was the guiding force in helping us do this. And now here we are. We actually moved in, and a few weeks later she was diagnosed with cancer, and about a month later she died.

[00:27:38] Ramit: Wow. It’s really something special that you have this many generations who spent that much time together. That does not happen that often. I’d like to learn a little bit more about your son. You mentioned that you don’t want him to have any debt and that he deserves everything he can possibly get. Tell me your philosophy with money and your son.

[00:28:07] Olivia: We want to give him this great life and every experience we can. We want him to understand the power and responsibility of money. We did not realize when we went to a fancy private school that then there’s this pressure that all his friends– we’re probably one of the least financially wealthy families.

[00:28:27] I remember the first time he went to his best friend’s house, which is millions of dollars, 6,000 square foot, massive, on an acre with every game and toy there is. And he’s like, can we just get one of those houses? And I’m like, “Well, it doesn’t work that way.”

[00:28:41] Ramit: What did you say to him exactly?

[00:28:42] Olivia: I said, “We have a lovely house, and everybody’s houses are going to be different and different sizes, and I’m glad you had fun here, but no, our house is our house, and this is their house.” I remember recently, I had three boys in the car, and they were talking about money and who’s worth more money. And I’m just a preacher around the value of a person is not their bank account or what kind of car they’re driving. So I just try to keep having that conversation with all of them.

[Narration]

[00:29:11] Ramit: Many of us overfocus on the price of lettuce, but we genuinely ignore the true costs of where we live and how we live. The fact is, you’re probably not going to move into a new neighborhood full of fancy houses and still drive a 25-year-old car. You might, but you probably won’t.

[00:29:31] If your neighbor decorates their home in a certain way, chances are you’re probably going to want to do that too. And if you don’t believe me, just take a look at the people around you, your coworkers, your neighbors. Look at what they’re wearing, and then take a look in the mirror. Are you wearing something similar? Odds would suggest, yes.

[00:29:49] We are social animals. We adopt the cultural morays of the people and the things around us. And it’s important to remember that you yourself are not isolated from the cultural context in which you live. You’re not some stoic statue that moves into a certain neighborhood and keeps the exact same habits and practices and things. Wrong. You’re not going to remain a stoic statue when you move into a new place. You’re going to adopt a lot of the things around you. That’s human nature, and that’s what we see here.

[00:30:20] Alexis and Olivia moved into expensive neighborhood. Could they afford it? Maybe. But what they didn’t realize is that their kid would be influenced by the things around them, the cars that people drive, the size of other people’s homes. Kids do it. Adults do it as well. So when you start to run your numbers, don’t forget the thing that will never show up on your spreadsheet, which is the influence of the people around you.

[Interview]

[00:30:42] Ramit: You also mentioned that you don’t want him to have debt or student loans.

[00:30:47] Olivia: 100%. No.

[00:30:48] Ramit: Okay. Why is that?

[00:30:49] Alexis: I don’t mind student loans. I had student loans. I had to put myself through college. So I don’t mind that, but I do know that I want to make sure we have his college paid for, the majority of it, but I also don’t think it’s a bad thing for him to if he needed a loan, if we couldn’t do something. He could do that and learn that responsibility.

[00:31:12] Ramit: Have you talked about what schools you might pay for or what you would say, Hey, that’s out of our affordability?

[00:31:21] Olivia: [Inaudible] and Tufts is out of my affordability. But to me, my job as a parent is to just unconditionally love him and help him find his greatness and to support him in that direction and teach him to be a kind and apathetic, loving person.

[00:31:36] Ramit: Is it to unconditionally pay for him as well?

[00:31:39] Olivia: No, but if I can make it easier for him, that that security blanket that I always had would be there, I’d love to be able to do that.

[00:31:49] Ramit: Okay. Alexis?

[00:31:51] Alexis: I didn’t have that security blanket. However, anything that we can do and provide for him, of course, I would love that, as long as he’s a responsible human being. We have not thus far taken care of any kind of prepaid college plan for him. We have future inheritance that was earmarked for him, and that was our plan. We still have a little bit of time. But college is at the same time of real retirement age for us.

[00:32:25] Ramit: Mm-hmm. Do you see the relationship between the way that the two of you treat money today and your ability to provide for your son tomorrow?

[00:32:38] Olivia: Yes.

[00:32:40] Ramit: Okay. You do, Olivia. Alexis?

[00:32:44] Alexis: I think I do. Yeah.

[00:32:45] Ramit: The decisions we make today are the ones that affect us tomorrow and for generations to come. To me, that’s why I was so excited to get a chance to talk to you. You clearly love your son. You’re clearly providing a lot for him. You want to provide even more. I love that sentiment. But in order to do that, the stakes are high because you actually need to connect over your money now.

[00:33:08] Olivia: Yeah, for sure.

[00:33:10] Ramit: Alexis, you mentioned that you have started to cut back on time at work. It’s been a challenging year for you. Is the intention that eventually maybe you leave your job and work from home or stay home?

[00:33:26] Alexis: I do believe my son and my wife thrive when I’m home more. However, financially they don’t. Ideally, yes, I would like to pivot into part-time or possibly leaving and starting my own business.

[00:33:49] Ramit: Is there any thought about, he’s 10. You’ve got seven, eight years with him until he goes off to college?

[00:33:57] Alexis: I work for Costco. I started there 26 years ago. Thought I would always work there to the day I die because the day I die, all my life insurance policies, my family’s taken care of. Two years ago, I sat on a jury. I was in jury duty school shooting. My life drastically changed. I have a little bit of PTSD over it, but sitting in that jury room, I came home one night and told her I was ready to quit my job.

[00:34:26] And he’s so little, and I don’t want to miss it, and I also want to be more present to guide him and help him with any obstacles he could have mentally or emotionally. I just want him to be safe. There’s too many kids shooting schools, and I want to know the signs to look for in other people or how to protect himself.

[00:34:52] I just want to be present. And so that has driven me a little more to want to be home more with him. If finances weren’t concerned, I would be that tomorrow, and I think that everyone would be happier, ideally.

[00:35:11] Ramit: It’s got to be really difficult to have seen what you saw on that jury and then to have your own son, especially in this environment where we hear horrible news every week.

[00:35:26] Alexis: His school’s important because I know it’s safe.

[00:35:28] Ramit: I look at the CSP, I see these big numbers, and I’m always curious why. And this is why, for me, a spreadsheet is not enough. Numbers don’t tell the story. You tell this story. The numbers just reflect your story. So now knowing what you saw on that jury, what too many parents have seen, I can understand why you are devoting a lot of money and a lot of tension to towards schooling. So let’s try to keep that.

[00:36:01] Let’s honor what you prioritize, and we’ll try to figure out what your Rich Life is and how we can use your money to live it. So now we can look at the CSP and at least I can put on a new set of lenses that I can understand it better with Alexis and Olivia lenses to help me put myself in your shoes. So I’d like to pull up the CSP. I’d like to walk through it with you. What was it like doing the CSP?

[00:36:29] Olivia: I loved it. I loved it.

[00:36:31] Ramit: Olivia, I know you loved it. You’ve been wanting to do for the last 15 years. I know that. Alexis, what was it like for you?

[00:36:37] Alexis: It was a very pretty spreadsheet.

[00:36:39] Ramit: Okay. Wow. Say it again, Alexis. Let Olivia hear you say that again.

[00:36:44] Alexis: It was a very pretty spreadsheet.

[Narration]

[00:36:46] Ramit: We’ll open up their conscious spending plan right after this.

[00:36:50] Welcome back. Let’s keep going.

[Interview]

[00:36:52] Ramit: But Alexis, I’m curious. Olivia’s been trying to get you to engage with money for a long time. The CSP is really engaging with money, so I’m a little pleasantly surprised. What made that achievable for you?

[00:37:07] Alexis: Because I know how much it meant to her.

[00:37:10] Ramit: Wow.

[00:37:12] Alexis: Because I know that her reaching out to you and the opportunity to be here, she was ecstatic. And I was like, “Okay, this is a sign that we get to do this. This is our biggest obstacle, and we get to overcome it so she could sleep at night, and we get to where we want to be.”

[00:37:37] Ramit: I love hearing that. It’s very sweet. And I’m happy that I can be a reason for couples to come together. My vision for you is that you two create your own vision and work on it together. All right. Let’s put this beautiful thing up here and take a look. All right. Let’s go through this. Let’s see. Olivia, can you read off the word in bold and the full number next to it?

[00:38:03] Olivia: Assets, $1,351,000; investments, $2,179,087; savings, 120,000; debt, 474,000, which gives us a total net worth of $3,176,087.

[00:38:30] Ramit: All right. What do you think of that number?

[00:38:33] Olivia: I’m excited about it, and I’m proud of it. I want to double it.

[00:38:36] Ramit: You want to double it because what?

[00:38:40] Olivia: If I can be at six and have the house paid off, I know that we can feel really safe retiring and living a comfortable lifestyle.

[00:38:50] Ramit: Okay. All right. Alexis, what do you feel about those numbers?

[00:38:53] Alexis: I like to have the security to know that retirement will be easy at the same time as sending a child to college.

[00:39:01] Olivia: I will add something to that. One of my priorities is my health. I am obese. I want to be here longer for my son, and I also want to be more fit for my son. And so recently we sold our food and wine festival. Recently we sold our restaurant.

[00:39:17] I’m learning in my life, because I said yes, yes, yes for many years, now I’m saying, no, no, no. I want to work the least amount of possible to make the most amount of money as possible so I can focus on my health and the quality time I have with my wife and son.

[00:39:33] Ramit: Wow. Beautiful. Now that’s a vision.

[00:39:35] Olivia: And to me, there’s nothing more fun than me getting to spend time with my wife, my son, and my friends and family.

[00:39:42] Ramit: Okay. That’s the kind of vision I can work with. I can make that work.

[00:39:45] Alexis: I’m the same.

[00:39:46] Ramit: Okay, good. And we can use money to make that easier. Health and money, those two can work together. Fantastic. Quality time together. We can use money as appropriate to do that. Now, we don’t need money for it, but can certainly make it easier and more experiential. Okay. Beautiful. Let’s keep going. Let’s take a look at the incomes this time. What is your combined monthly income?

[00:40:15] Alexis: $17,050.

[00:40:18] Ramit: So $204,000 is what you make as a household per year. Did you know that? Alexis says, no. Olivia, did you know that?

[00:40:29] Olivia: I did.

[00:40:30] Ramit: 50%, as usual. Thank you very much for maintaining my statistics. All right. And just so everybody knows, Alexis, they’re going to ask, “How could you not know how much household income you make?” I’m asking for them, not me. What’s your answer to that?

[00:40:45] Alexis: I guess I just never added it up because I do know how much she makes, and I do know how much I make.

[00:40:50] Ramit: That’s a honest answer. That’s honest.

[00:40:52] Alexis: I just never added it.

[00:40:53] Ramit: Yeah. You look at your paycheck. It’s the same probably every month, and maybe a couple of exceptions, but most people don’t add it up. So anyway, Alexis, thank you for the honesty. You’ve joined a large legion of people who also don’t know their household income.

[00:41:09] Alexis: I know now.

[00:41:10] Ramit: All right. Let’s keep working down the list. This is where the numbers become quite interesting. Your fixed costs are 88%. That’s pretty high. Typically I recommend 50 to 60%. So do you know, without going line by line, why your fixed costs are so high?

[00:41:28] Olivia: I think my son’s schooling. I think we spend a lot of money, on food. I think those are the big ones.

[00:41:39] Ramit: Okay. Let’s look. So first of all, your mortgage is fine. It’s nothing notable. It’s 21%. It’s no big deal. Your car payment is 1,100 bucks, fine. It’s a little high, but it’s fine. You make $200,000. You have $500 a month of debt payments. What? What is this? Why do you have debt?

[00:42:00] Olivia: We just have credit cards. I know. It’s just ridiculous.

[00:42:02] Ramit: Hold on. You have a net worth of $3 million, and you have credit card debt? This is a major problem. It tells me that there is chaos in your financial life. That’s why when you talked about you’re busy, I said, “Are you busy, or are you chaotic?” There’s a difference.

[00:42:20] Alexis: I think we’re both.

[00:42:22] Ramit: Yeah. And I don’t mind busy, but chaotic, frenetic, pulling your hair out, something’s always wrong, that, no. And we can work around that. Especially when you have a net worth of $3 million, there are things you can do.

[Narration]

[00:42:39] Ramit: One of the central stories in America that we tell ourselves is, “I’m busy.” “How’s it going?” “Things are crazy.” “What are you doing next week?” “I haven’t even looked yet. Things are just crazy.” Can you imagine asking someone, “Hey, what are you doing today? And they just calmly lean back, take a sip of coffee and go, “Just enjoying life.” No, it’s so foreign. It almost sounds like a movie.

[00:43:05] While I understand that people have careers and kids and commutes, and to-do lists, I have to tell you that I intentionally made a decision to never define myself by being busy. In my family, my mantra is we fight for simplicity. And to me the opposite of chaos is simplicity.

[00:43:24] So by creating that value, by articulating it explicitly, it means I try to make my life as simple as possible, and that extends to every part of my life, but it specifically includes how I treat money. I automate my bills and my investments.

[00:43:39] Everything flows smoothly. We review our finances about once a month. My wife and I have not bought a house, in part because at this point in our lives, it would be more complicated than renting. We fight for simplicity. With the time that I get back from this simple life, I get to do the things I love. Spend time with my wife and my loved ones, travel, even just sit and watch TV.

[00:44:02] It is yet another narrative that we create for ourselves that we always have to be productive. That even in our times of rest, we feel guilty because we’re not doing something productive. No. Maybe you love the idea of simplicity, maybe not.

[00:44:16] Your values are yours. But the real point here is to deeply question the stories that you’ve been told, the stories you repeat, and the stories that you believe. Now, remember, I told you there’s a secret to Alexis and Olivia’s wealth that they don’t even realize. We’re about to dig into that. So let’s get back to the conversation.

[Interview]

[00:44:34] Olivia: A lot of our wealth is tied up in our retirement accounts, our investment accounts, and our house.

[00:44:43] Ramit: Okay.

[00:44:44] Olivia: So very committed to living on what we actually make.

[00:44:47] Ramit: Well, you’re not doing that.

[00:44:49] Olivia: Yeah. I’m failing at that.

[00:44:50] Ramit: I’m very committed to flying, but that doesn’t mean I can jump out of a plane and flap my arms. That’s not how it works.

[00:44:57] Olivia: I get that we’re super failing at that, and now I’m paying ridiculous interest.

[00:45:01] Ramit: What did you put on the credit cards that caused you to go into debt?

[00:45:05] Olivia: I don’t even know what we’ve thrown on it, but just stuff.

[00:45:08] Alexis: Yeah, it’s random. I know I have–

[00:45:12] Olivia: Got some furniture on that one card.

[00:45:15] Ramit: So I looked at your credit card statement. The nearest one, there were some $25 charges here and there. And I’m looking through the thing and I’m going, “This doesn’t add up to a $5,000 balance that you have on it.” And then I realize you carried over a balance of something like 4,400 bucks from the prior month.

[00:45:36] Olivia: Oh yeah. We have cards that we’ve been carrying over for three years.

[00:45:41] Ramit: Why?

[00:45:43] Olivia: I have one event where I make a large sum of money, and then I have a couple of smallers. And what happens is I am robbing Paul to pay Peter, Peter to pay Paul. And I get that lump sum of money. I pay a bunch of stuff off, and then it builds again. And not living within our means. I’m a foodie, and even when I cook at home, I can’t buy the regular mushrooms. It has to be the king oyster mushrooms. I overspend on food. I overspend on going out.

[00:46:20] So there’s a bunch of that that super adds up. When we go on a trip, we spend, and then I let the card sit there, thinking, “Oh, I’m going to get this. This is going to come, and I’m just going to pay that off.” And then I don’t. I know I’m spending more than I make, and I know that when I’m spending it, I shouldn’t be spending it. And I still spend it.

[00:46:40] I am like, “Oh, well, this is going to happen, and that is going to happen, and this is going to happen.” This year, one of my income streams is like 20, $30,000 less than it’s supposed to be.

[00:46:54] Ramit: And you didn’t adjust your spending?

[00:46:55] Olivia: Did not adjust my spending.

[00:46:58] Ramit: So let’s talk about this. You are living an extreme version of irregular income. And that uncertainty is one thing, but you’re not actually changing the sensitivity of your spending. You’re actually living the high life, buying awesome mushrooms regardless of what you make. And it all comes back to a money type. So in your case, Olivia, it’s so interesting because you have all these spreadsheets, quite detailed with them, optimizer to some extent, but I would propose you are also what I call a dreamer. A dreamer says the next deal, it’s right around the corner. It’s going to change everything for us. Any of this sound familiar?

[00:47:45] Olivia: Sure. Yeah.

[00:47:46] Ramit: I’m not so sure you both have a cohesive philosophy around money. It’s scattered. Maybe we might describe it even as chaotic. And that’s what I’m seeing here. Good news is we can change it. We just need to first acknowledge what’s going on here. Let’s keep looking at the CSP.

[00:48:03] So I see lawn, pool, and home maintenance worth 300. Babysitting for 400. Private school and tutor is 2,500 a month. That’s the school part. His activities are 800 a month. Subscriptions are 450 a month. I think it’s a lot higher than that. Is it? It’s got to be.

[00:48:24] You like to live the good life. I don’t have any problem with that. I like to live a very nice life myself. I can tell though. I can spot it. Somebody who’s living a very nice life is probably not spending $450 a month on subscriptions. It’s probably more than that. Maybe considerably more, depending. Wow, they’re both just smiling and looking down.

[00:48:52] Olivia: I was the one that, I was looking at stuff and I’m like, “Oh my God, we’re paying 300 and something for Comcast, and we also have Hulu, Netflix, and Disney, and this and this.” I’m like, “It has to stop.”

[00:49:04] Ramit: We need to be more systematic about it rather than just like, “Oh my God, this is crazy. Let’s chop it all up.” That doesn’t last. That’s just fleeting motivation. We need to have a philosophy. What kind of family are we? What’s important to us? And then we’re going to do a lot of that, and then naturally we’re going to do a lot less of this. That’s what we’re going to work towards, creating that Rich Life vision. Let’s take a look at the rest of this. Your investments are at least post taxes at zero. Investments say is zero. Are you investing anything pre-tax?

[00:49:40] Olivia: I’m not. She is.

[00:49:42] Ramit: How much are you doing, Alexis?

[00:49:44] Alexis: 11% in my 401K.

[00:49:47] Olivia: And then they match.

[00:49:48] Ramit: So you’re putting about 10, 11,000 in per year. Okay, got it. And Olivia, what about your businesses? Have you been doing investing?

[00:49:59] Olivia: No.

[00:50:00] Ramit: Wow. Why is that?

[00:50:03] Olivia: Because my mom was my security blanket, and so she had been saving to give that to me. So she left me with a lot of money.

[00:50:12] Ramit: Let’s talk about that because this starts to actually to tell a much fuller story. Do you know how much your inheritance was from your mom?

[00:50:22] Olivia: About a million.

[00:50:23] Ramit: Okay. I have 736,000. Is your number different?

[00:50:28] Olivia: Well, no, that was in the inheritance account. And I have been using it. We’ve been spending around 30,000 to 40,000 more than we’re making, and so I’ve been tapping into that

[00:50:44] Ramit: Per?

[00:50:44] Olivia: Per year.

[00:50:48] Ramit: Yeah. All right. This is starting to tell a story. Look at this. If we look at the investments where you have 2.1 million, so about 730,000 of dollars of that came from an inheritance. Okay. That’s important to know. We’re going to break down the rest of that right now, but that is quite a big clue in this story.

[00:51:18] Now, Alexis, you’ve been working at Costco for, I think you said over 20 years, and your contributions to the retirement, they’ve been pretty nominal, and yet you have built a very large portfolio, which is quite amazing. You have made a considerable amount. So your Costco retirement plan has $1.2 million in it. You contributed $119,000.

[00:51:50] Alexis: I know.

[00:51:51] Ramit: Okay. That’s good. That’s great. Your employer contributed $90,000. That’s great. But you know what the greatest part of all is? The stock gain was $985,000. Now, this is remarkable. If anything, what this really tells you is if we actually calculated how much money you made per year, you would be highly compensated.

[00:52:21] So you mentioned you’re an optician, and it sounds like you’re a little frustrated with work. Understandable. You’ve been there a long time, etc. But if we look just at the numbers divided by the number of years, you were highly paid. Now, I do want to point out that I also noticed 86% of your investments are in Costco stock.

[00:52:40] Olivia: It used to be 100%.

[00:52:42] Alexis: It used to be 100.

[00:52:43] Ramit: Is anyone else freaked out by this as much as I am?

[00:52:46] Alexis: I only got freaked out about it because Costco’s been brought up a few times in the press lately, but yeah, they made it so that you can’t do 100%. They changed it about four years ago. You can have no more than 50%.

[00:53:02] Ramit: Amazing. Now that is a great company, honestly, because they are diversifying for you. So just so everybody knows, sometimes you can make more money having your money in a winning stock. If you work at Microsoft or more recently a company like Nvidia, you’re making millions.

[00:53:23] And of course people who are there are like, “I want to ride this rocket ship.” The problem is that you have all of your financial and career capital in one company. So if Nvidia or Costco goes through a downturn, which every company does, not only do you lose potentially your retirement, you probably lose your job at the same time, which is financially devastating.

[00:53:45] So we never want to have an overwhelming percent of our money in one stock, even if it seems to be going up and up and up. It’s just not good risk management. 86% freaks me out. I have a philosophy of no more than 10% of my net worth in one individual security. I don’t even get close to that right now, but 86%, whoa. That’s highly risky.

[00:54:11] All right. So some risk management work we can do here. But anyway, overall, I just want to say yes, while we have some risk management issues, $1.2 million, nice. The fact that most of it came from the stock gains I would characterize as great, but also lucky. Y’all see that?

[00:54:37] Olivia: Mm-hmm.

[00:54:38] Alexis: Absolutely.

[00:54:39] Ramit: I would all further categorize the inheritance in your investments as lucky. Nice but lucky. So we are now talking about almost $2 million in luck from your investments. And I want to now pull up your CSP again. What is the number you have total in your investments? 

[00:55:02] Olivia: $2,179,087.

[00:55:06] Ramit: Right. So out of $2.1 million, I would say $2 million is luck.

[Narration]

[00:55:14] Ramit: Did you just hear what happened? That’s the secret. The secret to Alexis and Olivia’s wealth, the factor they haven’t realized until this very moment is that they are primarily wealthy because of luck. It’s not diligence saving. It’s not some choice that they have made consistently over time. They pretty much got lucky, and that is dangerous.

[00:55:38] Luck is not a financial strategy. In fact, when we look at it from this perspective that almost all of their gains have been due to luck, to me, that’s actually pretty dangerous. Let me recap the key details one more time because we moved through it quickly, and we threw a lot of numbers around.

[00:55:55] Alexis contributed a small percentage of her income into a 401K, and over 26 years, that came out to about $119,000 of contributions. Her employer matched her contributions, adding another 90k to the 401K. That’s pretty good. But what’s insane is that that money put into that one stock, the $209,000 of joint contributions turned into $1.2 million.

[00:56:20] Costco has performed very well. But to put things into perspective, if Costco had not performed that well, their net worth would not be close to what it is. Now, I’m thrilled that their Costco stock performed well for them. However, we can’t count on one stock performing well over time. That was luck. They benefited from it, but that was luck. Similarly, the inheritance of about a million dollars of their net worth also was not due to their own savings. Most of their net worth was pure luck.

[00:56:56] We’ll get back to Alexis and Olivia after a quick break to support our sponsors.

[00:57:02] Let’s get back to the conversation.

[Interview]

[00:57:04] Ramit: What does that tell you?

[00:57:06] Alexis: That we better fix the chaos quick.

[00:57:09] Ramit: You’ve gotten lucky. I’m happy for you. But that’s not going to get you to where you need to go. If you didn’t have the inheritance, if you didn’t have the Costco run up in stock, you would be in a very different financial position. I talked to a lot of people and for whatever reason they just ended up on the bad side of luck.

[00:57:26] Their dad lost their job when they were 16. Their family never recovered. Somebody in their family was an alcoholic or they got sick, and they just ended up on the bad side of luck. You ended up on the right side of luck financially speaking. However, luck is not a financial strategy. We got to build a real strategy here.

[00:57:45] Continuing down on your CSP, I see no other investments. I see savings goals. You’re saving $800 a month for vacations and $1,000 a month for renovations. And then we got to the guilt-free spending part. What is this? Can anyone explain these numbers to me?

[00:58:07] Olivia: Eating out, $1,000 a month. Buying random stuff, 800 a month. Going to activities, $800. Yeah.

[00:58:20] Ramit: We all know that this is not accurate, right? We all agree there’s more that’s not counted here?

[00:58:25] Alexis: God, I hope not.

[00:58:27] Olivia: I hope not.

[00:58:28] Ramit: Statistically speaking, nobody’s numbers just add up to round numbers. Oh, eating out 1,000; random stuff, 800. It’s never that. So we know that these numbers are artificial. When it’s artificial for guilt-free spending, especially for people who are overspending who have credit card debt, it’s always more. It’s never less.

[00:58:46] So you’re spending more than you make every month. This is a major problem. And I will say that I have had months where I’ve spent more than I made. My net worth continued to grow. My cash flow took a hit, but I knew it, and I had a strategy of how long I would go into the red. So it’s not a sin to go into the red if you have a deep reserve, but that’s quite advanced. Most people should not be doing that. Why are you going into the red? Why are you spending more than you make?

[00:59:21] Olivia: I am not being disciplined. We’re not being disciplined as a family.

[00:59:23] Alexis: We weren’t prepared for the lucky, maybe. We have this high number and not the skillset to properly navigate it.

[00:59:33] Ramit: Exactly. And you’re like, “Oh my gosh, we found ourselves at 3 million, which is way more than I thought. And yet, day to day situation is actually we’re spending more than we make.” So at the beginning of this call, Alexis, you said, I’m confused because we have millions of dollars, but we’re having to cut cable. What do you make of the situation now?

[00:59:56] Alexis: It’s chaotic, if that’s the right word. It’s chaotic.

[00:59:59] Ramit: I agree. It’s chaotic. Is it confusing, or does it make sense to you?

[01:00:03] Alexis: I think you’re breaking it down, and it’s starting to make sense. And maybe those spreadsheets are worth a look.

[01:00:13] Ramit: Could we look at your fixed costs, and could we look at your guilt-free spending, and could we make some cuts to it?

[01:00:20] Olivia: I think we have to. It’s not even, can we. We have to.

[01:00:23] Ramit: I agree.

[Narration]

[01:00:24] Ramit: Olivia and Alexis have some very specific goals. Alexis wants to work fewer hours so she can spend more time with her wife and son. They want to have enough money to retire comfortably, and they want to fund their son’s college education. I took their financial information and, with their permission, shared it along with their goals with our partners at Facet. And Facet was able to provide four different financial scenarios to help Olivia and Alexis reach their goals. Let’s listen in.

[Interview]

[01:00:52] Ramit: These were specifically geared around the life you told us you wanted. So scenario one is you keep your current spending, and you send your son to what we’ll call a great college. Great college. Expensive. So you can keep up with your current spending, which is a negative cash flow of negative 30 to 40k a year. You can fully fund a high-end private college which would be about $342,000. And you can do this if you retire at the age of 70 and 69. And Olivia just put up her arms in a big X sign saying no. And Olivia, I assume that is because you don’t want to work till 70 and 69.

[01:01:45] Olivia: No, I do not.

[01:01:46] Ramit: Okay. Alexis, how do you feel about that?

[01:01:49] Alexis: No.

[01:01:49] Ramit: Both said no. Okay, great. We’re in agreement.

[01:01:52] Olivia: On the same page.

[01:01:53] Ramit: We’re on the same page. This is great. All right. Let’s talk about scenario two. In scenario two, you can retire at 63 and 62 while earning 50% of your income until 66 and 65. In this scenario, you can cover four years of public in-state school. But you’ll have to reduce expenses by $1,200 a month.

[01:02:23] Olivia: That feels possible.

[01:02:26] Alexis: I don’t know how I feel about that.

[01:02:28] Ramit: Scenario number three is you can semi-retire at 63, 62 while earning 50% of your income until 66, 65. You can fully fund college at a higher tier private school, and you can do this if you reduce your base expenses by $1,600 a month.

[01:02:53] Olivia: I’m still spending more than I make in any of these scenarios. I thought you were going to tell me I needed to work harder and get another job, make more money.

[01:03:03] Ramit: That’s what over spenders always want. You making more money is not going to solve the problem. You’ve already told me you have health issues. Earning more is not going to solve the spending problem that you have. You have to control the spend. Right now every extra dollar you make is likely to be spent. There’s almost no point to earning more right now. You need to plug the leaky holes in your bucket before you go out and get more water.

[01:03:28] Let me give you scenario four, the final scenario. In this case, Alexis cuts back to 50% income in six months. Alexis semi-retires at 63, full retirement at 65. You can fully fund your son’s private college education, and you can do this if you reduce expenses by $2,000 per month.

[01:03:58] Alexis: Done. What do I got to get rid of?

[01:04:01] Ramit: Wow. Motivated by retirement. I see it. All right. So hearing all of those, you can see that they vary. There’s trade-offs to make. There’s private school, public school. There’s years you retire, and then there’s amount you cut your spending by. Which of these strike you as, “Yes, like I want to do this.” And which of these are like, “I don’t want to touch that?”

[01:04:33] Alexis: I love number four, of course, because it gets me where I want to be sooner, and it still gives him private college if that’s the route.

[01:04:48] Olivia: Getting to four should be a priority for our family. As much as it’s scary, I miss her when she’s not with us. I work my schedule around him. Most of the time I get to take him on the play date, or I get to go see him at batting practice, or a tennis clinic, or at a birthday party or whatever. I get to have those experiences. Getting to four should be a priority for our family with him. And I miss her. I miss her not being with us.

[01:05:19] Ramit: Okay. I love hearing it.

[01:05:21] Alexis: I had no idea that this was even a thing to present to us, four options. Had I known that, we would’ve talked about finances a million years ago.

[Narration]

[01:05:32] Ramit: This right here is why I decided to partner with Facet. So many people get stuck on planning for their futures because of these different variables, like, what age they want to retire at, planning for paying for kids’ college tuition, or wanting to support a parent or loved one through their own retirement. Facet can give you specific simulations no matter what your personal variables are, to help you map out a plan so you can turn your dreams into a reality.

[Interview]

[01:05:58] Ramit: It’s like walking into an empty house. It’s hard to make sense of where things should go, where do you put the bed and the this and the that. Sometimes you need somebody to paint a vision for you. Here are some options. Now tell me which you want to do, and then we can dig into that. That’s why I was very pleased to be able to have Facet prepare these for you. And I can see your eyes light up. You’re starting to be like, oh, that one, but let’s tweak it this way.

[01:06:27] Olivia: It’s amazing.

[01:06:29] Ramit: I’ll tell you what, out of these scenarios, the biggest takeaway for me is that it’s very clear you need to cut your spending. That part is crystal clear. Regardless of what you choose, we have got to build the skill of properly managing your money. And so philosophically, what I might say is we are a family who is calm with money, not chaotic. That’s the new money value. That’s the way I describe it.

[01:07:04] Alexis: I like it.

[01:07:05] Ramit: First step is probably for both of you to come together and to redo this with accurate numbers. We’re going to treat this like a science experiment. We’re going to get all the numbers out on paper, everything, and then we’re not going to make a moral judgment. We’re not bad people because of these numbers. We might lack the skills to properly spend, and we’re going to build those skills.

[01:07:29] We’re going to create a new structure for our family when it comes to money. So suddenly, doesn’t it start to become crystal clear? You go, “Oh my gosh, we’re going to go out to this nice dinner, or we’re going to spend on this or that,” and you’re like, “Wait a second, that spending today directly affects when she and we can retire and how much time we can spend with our son.” It’s quite stark.

[01:07:56] And suddenly when you’re making certain decisions, you’re going to be faced with 500 of them in the next 60 days. Are we going to do this? And you go, “Hold on a second. Who are we again? Oh, we are a calm family.” Makes it very clear what to do with the decisions. Okay, let’s talk about cutting some spending. Let’s look at the fixed cost. Your debt payments are $500 a month. How much is on your credit card debt?

[01:08:23] Olivia: We have around 30,000 in credit card debt.

[01:08:26] Ramit: 30,000?

[01:08:28] Olivia: I think so.

[01:08:29] Ramit: Okay. That needs to be paid off. In a family that has a net worth of $3 million and income of $204,000, it’s just unacceptable. That’s my philosophy, is we are a debt-free family.

[01:08:44] Olivia: Yeah.

[01:08:44] Ramit: So that can be paid off tomorrow. Why? How would you pay that off? Anybody have any ideas?

[01:08:51] Alexis: The 120.

[01:08:52] Ramit: Yeah. The one 20 sitting here in cash. I would like to see you have a healthy emergency fund. Six months of expenses is great, but 120k when you have roughly 20k of credit card debt should be paid off tomorrow. Get rid of it. That’s cool. That’s going to save you 500 bucks a month. We’re on our way. Let’s give ourselves a round of applause. That’s good. All right. We’re getting there. Let me put up some other stuff up here. You tell me. How can you shave $1,000 off of your monthly spend?

[01:09:28] Olivia: Got to eat out less.

[01:09:30] Ramit: Okay, good. Right now it says $1,000 a month. Is that accurate, or is it more?

[01:09:34] Olivia: It depends.

[01:09:35] Ramit: It’s more. All right. It’s 1,500. So how much are you legitimately going to spend eating out per month?

[01:09:43] Olivia: I’d love to cut it to 1,000.

[01:09:45] Alexis: We should look at it this way, as how many times a month? Because we eat out for convenience. We got to go. We’re in a hurry. I got three business meetings, and I need to go get coffee. So how many times a month do you need that convenience, whether it’s for his food, my food, your food on the go?

[01:10:09] Olivia: Let’s say we do dinner out one time a week. That’s big for us because normally it’s three. Then I’ll say for me, I’ll try to keep to one time a week, like lunch, breakfast.

[01:10:30] Ramit: Okay, great. You see how by talking about ahead of time, by planning it, it actually becomes something really fun for the family. It becomes something that the family looks forward to, not something that’s done haphazardly, because we’re in a rush. Do you see how the chaos up here leads to all of these downstream negative effects? Just a little bit of forward planning and actually deciding, what do we want our month to look like? Because our month turns into our year and our year turns into our decade, and our decade turns into our retirement.

[01:11:07] Alexis: Olivia, we were just talking about how we have to lay down a calendar with him so he knows what his week looks like, and we don’t even know what our week looks like sometimes. And so this is going to be really good executive functioning skills for all of us.

[01:11:26] Ramit: There you go. You’re teaching him about money by learning about it yourself. It’s about, do you deeply understand and enjoy money yourself? Are you a good model for that? Does your son see you talking about money, being grateful for money, spending money meaningfully, making choices, and then are they involved? That teaches them about money. How much does it cost every time you eat out?

[01:11:55] Olivia: Between 60 and 100.

[01:11:57] Ramit: Let’s say 100. Roundup. 100, including tax, tip, all of it.

[01:12:02] Olivia: Yeah.

[01:12:02] Ramit: Okay, great. 100 bucks. So you said you want to go out four times a month.

[01:12:06] Olivia: Yeah. It’s 400.

[01:12:09] Ramit: All right. Let’s make it 500. I don’t want you to go from 1,500 to 400 in one month. It won’t sustain. So we have cut the CSP down already $1,000, but realistically we’ve actually cut it down by more than that because I think you were eating out more than what’s on here. Okay, good. Hey, can we just keep going because I think we’re making some good progress? Buying random stuff. What the hell is this?

[01:12:33] Olivia: Several months ago, I bought a new recliner that was 300 bucks.

[01:12:36] Ramit: For what?

[01:12:38] Alexis: I’ll tell you why. Olivia’s grandmother lives with us. She’s 98. She had a stroke. She’s bed bound. We got a recliner so we can have–

[01:12:48] Ramit: Fine. Listen, if you’re going to pull out a 98-year-old stroke victim, grandma, it’s hard for me to argue against that. Fine. You win this one. All right. Granny, you’ve lived a good life. You deserve whatever. The recliner is the recliner. Buying random stuff for $800 a month in a family that’s overspending by $50,000 a year, uh-uh. It just can’t happen. You’re living like you make half a million dollars a year, and you make 204,000.

[01:13:20] Alexis: Yeah.

[01:13:20] Ramit: Sending a kid to private school, plus all the accompanying activities, it can be done, but the lifestyle you’re living cannot be done on $200,000 a year. And that is not a message that you need to go increase your income. I know that’s what you’re hearing, but that’s not the message. The message is you actually have to cut your expenses.

[01:13:39] Olivia: Not selling foot pictures online somewhere.

[01:13:41] Ramit: I wish. I freaking wish that my foot’s been out there for 10, 15 years. I never got one offer. Where is everybody? Even when I posted about not getting foot offers, I did get a couple of foot offers. I’m going to be honest. They were from guys, and I don’t think they were serious.

[01:14:00] I think they were doing it out of pity. Like, “All right, bro. I’ll pay you 20 bucks for your pathetic foot pics.” And then it actually even felt worse. I was like, “Who wants to be the pathetic foot guy?” Let’s get back to this random stuff. Who’s the one who’s buying the random stuff?

[01:14:18] Alexis: Both of us.

[01:14:18] Ramit: Both of you. Okay. How do you want to solve this?

[01:14:22] Olivia: We should make it that when we purchase something, we discuss it and make a decision about it and understand how vitally important it is, or how unimportant it is, and is it worth going against the plan we’re trying to get to here?

[01:14:41] Ramit: I can’t imagine what would make me go against the plan except a true emergency, somebody getting ill, something really bad. Eating out, my son wanting a new toy, that would not even enter the discussion. That’s because a plan makes it easy to say no. It shouldn’t even enter the discussion. I think you probably both don’t have guilt-free spending money for each of you and then for the two of you. Is that correct?

[01:15:10] Olivia: Correct.

[01:15:11] Ramit: Okay. So basically every decision you’re making is just like, it’s an automatic yes. It’s like, “Oh, we want this. Let’s just get it.” That’s how you’ve gotten into this position. You have no constraints. You have put no rules upon yourself. We thrive under constraints.

[01:15:28] Let’s do this. I’m going to just make up a number here. Let’s say that typically I recommend for guilt-free spending 20 to 35%. You two are going to have to rerun your numbers because there’s a lot of missing stuff. But let’s just say typically a couple spending 20 to 35% on guilt-free spending.

[01:15:47] In your case, you’re getting closer to retirement. You want to continue living a very high life, and you have fixed costs that are expensive, such as your son’s school. Fine. Maybe that means that your guilt-free spending probably needs to be 12 to 15%. 12 to 15% of net pay. Perfect. So just to make a easy math example, just to show you what I mean. Let’s say that ends up being $1,000 a month.

[01:16:14] The way I would do it is I might do, Alexis gets 200, Olivia gets 200, and then the two of you, the family gets 600 a month in guilt-free spending 20%, 20%, 60% for the two of you. That’s just a guideline. You two can decide how you want. Imagine if you had that guideline and then one of you’s like, “I want to buy this thing to get a massage.” Cool. That’s your guilt-free money. Don’t ask me. It’s up to you. Go ahead, do what you want.

[01:16:50] You have your money, but if it’s for the house, then both of you have to agree. If it’s for the family, both of you have to agree because it’s coming out of that fund. But there’s a limited finite pool. What do y’all think?

[01:17:01] Olivia: I like it.

[01:17:02] Ramit: Can I just point out a couple of things for me? If it were me, I would really consider how much maintenance we need to do and how much we can pay for. For example, it sounds like you have some weekly stuff. Even making it biweekly would save you thousands per year. So there’s something to consider there.

[01:17:20] $800 a month of activities for 10 years old is a lot of money. You have to remember that $800 a month today is taking away from your ability to retire and from his ability to potentially go to a school you want to send him. So you need to make that decision for him. Remember, you have no constraints on your spending. So you’ve essentially pushed it to the limit on everything, and it’s actually causing a lot of problems.

[01:17:42] You’re lucky because you have this millions of dollars that’s sitting there. That’s why I’m not pushing super hard on you to bring it down to 60%. But at 88%, it’s an unhealthy percentage. That number needs to come down. Finally, subscriptions at 450, which is actually probably more. Immediate cut. I would bring that down to 100 bucks. Again, I would make it special. These are the things we choose as a family. We are simplifying our life.

[01:18:09] Then home renovations, I wouldn’t be doing that. Random stuff would be gone. I would leave myself a couple hundred bucks a month, and we would discuss it as a family. What are we going to do? Activities, I would be strategic about that. I would bring that down to 200 bucks a month.

[01:18:24] But the fact is, you’re paying a lot of money for his private school. That’s where your guilt-free spending money is going. We value that. It’s important for safety, for his development , so we’re going to do that. As a result, we are not going to do X, Y, Z, and it’s a black or white decision we’ve made.

[01:18:41] You two clearly have a lot of love for each other and obvious love for your son. You have more control over your life than you think. Your son did not trip and fall into robotics, baseball, and tennis. You said yes, and you can also say no. Saying no does not mean you love him less. Saying no actually means love. Love isn’t about just blindly spending money. It’s about time. It’s about articulating your values.

[01:19:14] Your son is lucky to have both of you. And your son will be eternally grateful just four years from now, by the time he’s 14, to see all the changes his moms have made. He’s going to be thankful to his moms. You’re going to be thankful. You’re going to be much more relaxed, and your finances and health are going to be in a way better position. That’s a Rich Life.

[01:19:38] I see such a bright light at the end of the tunnel for you two because doing it together, you can make bigger changes faster than you ever thought. And at the beginning of the call, I noticed a bit of the separation of not talking about money, but the more we talk, the more I see you two coming together, with your son at the center of it. Obviously love for him, but you just have to create that vision for your family, and money has to become part of it. And in a vision, it’s not all about saying yes. It’s also about what we say no to.

[Narration]

[01:20:12] Ramit: Thank you to Olivia and Alexis for sharing their story with us today. I gave them some homework to do. First things first, they need to take an honest look at their spending, and they need to redo the numbers in their CSP. They made a lot of progress over the course of our conversation today, and if they are able to create a financial strategy that doesn’t rely on luck, I’m confident they can reach their goals.

[01:20:33] Let’s take a look at Olivia’s Follow-up.

[01:20:35] Olivia: I thought you were going to tell me that I needed to work more. I didn’t realize that I was a dreamer. I guess I am. I was also taken back by this realization that we’ve had a lot of luck with my mom leaving me money, even though I had always planned for that and knew she was my savings and my blanket.

[01:20:57] And with the luck we’ve had with Alexis’s 401K sucker punched me that without those two things, we would not be in a very good situation seven years from wanting to semi-retire. We have to get really serious about cutting back in everything. I think we live this lifestyle where we think we make a lot more than we do.

[01:21:25] Change is already in the works. Already paid off a couple of cards. Have a few more cards to get paid off in the next week or two. Also, Alexis and I are committed to working together and really diving into our expenses to see prices where we’re going to cut. Anyway, just really grateful for the opportunity and for the shakeup in our life, because we really needed it.

[01:21:47] Ramit: And now let’s hear from Alexis.

[01:21:49] Alexis: When Ramit gave us the four options that he had planned out with Facet, I think it was surprising to see that there’s a plan as long as there’s actionable steps to get there. I was fascinated by it. I’m still fascinated by it. I’m totally about what’s behind door number four, which has me retiring in April. Mind you, we’ll have to get things in action. So maybe April really turns into May or June, which is totally fine.

[01:22:20] The word luck came up, and it’s so true that we are so lucky of how we made the investments and how things happened. And with that luck, we get to learn how to spend money. We’re having discussions about money with our son, which is amazing, and explaining to him different things and opportunities that might present itself, seeing how we can cut our budget every month, or our lack of budget.

[01:22:49] The other two words that came up in our conversation that really stuck out for me were chaos. And we have a very, very fast-paced life, and it is chaotic sometimes. And because of that chaos, that’s how we’ve treated our finances. So that ties in with the next word, calm. I would love, and I know Olivia would love a zen financial life. So that is one of the biggest schools I look forward to, is shifting out of chaos and having an exact plan, how we’re going to get there in calmness, and peacefulness, and zen.