81. “We’re broke—but $55,000 private school tuition is a non-negotiable” (Part 2)
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Before we start today's show, I have a really exciting announcement that I've been wanting to share for a long time. On January 1st, 2025, I'm releasing a new book called Money for Couples. For the last three years, you've heard me on this podcast speaking to different couples every single Tuesday. I've spoken to over 170 couples on this show about their money psychology, the money messages they heard from their family, the peculiar dynamics that they have around money and where they get stuck.

and how they can get on the same page. Well, behind the scenes, I've been working on the definitive book to help couples get on the same page with money, and that's what I wrote for you. It's coming out January 1st, and in the book, I'm going to share how to talk about money, including the exact words to use, when to talk about it, how to teach your kids about money, even the exact agenda and account setup that my wife and I use in our finances.

I'm going to show the tactics to make instant improvements, like how to set up your accounts to automatically work together and how to assess your financial health.

And finally, you're going to get a deeper understanding of money psychology in your relationship. And you're going to discover why you and your partner see money differently and how to get on the same page. Now, it's one thing to listen to couples or watch couples every single week. I love doing that for you. But it's a whole different thing to be able to have the book and to be able to work through it with your partner. Okay?

I'm so excited to get this book in your hands. You can pre-order it using the link IWT.com slash money for couples and stay tuned for a lot more on this book this year. Again, go to IWT.com slash money for couples to pre-order my new book about getting on the same financial page as your partner.

Um, what the hell is going on on this podcast that like 80% of the people who come on here go through massive screening, fill out applications, they never actually read my book. Is anyone else puzzled by this? Look, a lot of the questions that you ask me about money are answered directly in I Will Teach You To Be Rich. How do you pay off your student loans? How do you automate your finances? Where do you start investing and how do you handle big purchases?

I wrote this book as a six-week program so you can follow along on your own or with a partner. If you want to improve your finances, I recommend you get the I Will Teach You To Be Rich book. It has over 18,000 reviews on Amazon. Get it at iwt.com slash book. On the income that the two of you make, you make too much money to be behaving this way. There are second prices that are going to have to be made. So goodbye, Tesla.

goodbye to a lot of the expensive things you would have ordinarily done because you were taking all of that money and redirecting it to $55,000 a year for private school. Are you both mentally centered and emotionally ready for that? That is a struggle. That will definitely be a struggle. So the question simply asked is, are we setting ourselves a failure? Well, what's the worst case for you two?

financially speaking. Continuing down the path we're on. It's slow. Yeah, for sure. The path that we're on is the worst case. Wow. Wait until you hear this episode. Sarah and Kevin make over $250,000 a year, but they're broke. They recently sold their house and paid off a bunch of debt. But six months later, they're back in $50,000 of credit card debt again.

In part one of our conversation last week, we discovered some of the psychology behind how they treat money. And they told me about some of their fears about repeating some of the generational money mistakes that their parents made. But at the end of the conversation last week, there was a big surprise. They told me that they've decided they're going to spend $55,000 a year on private school for their children. In today's conversation, I want you to make sure that you listen until the end.

Today, something quite amazing happens. Please make sure you follow through until the end. And remember, you can watch this episode on YouTube. As always, the body language and the facial expressions tell you so much more than just listening. So remember to follow me on YouTube. You can search for Ramit Sethi and of course on Apple and Spotify. I am Ramit Sethi and this is I Will Teach You To Be Rich.

Are there any other things that are really important for the two of you to start doing? Saving for the girls' school next year. What? How many? What? Where'd that come from? We haven't talked about that at all. No. So they're in private school. And so we had to switch their school. It's for all three. It's about, without financial aid, it's about $55,000 a year. What the fuck? How are these secret expenses coming up right now? $55,000, what else? Um...

This next year, I think that's it. That's all. I mean, the school. Don't you have to make a donation to these private schools too? No. Okay. She's like shrugging. All right. Okay. So 55, where's that money come from, by the way? So this was our first year and we used some of the house, the money that we, when we sold the house, we used it to pay it for the first year. And where's it going to come from next year and the year after and after that? Great question. That's.

We're asking ourselves that same question. All right. How do you think we should fix this problem? Let me lay out the elements just so you hear me, because I know you're embroiled in all the weeds. Here's what I see. The two of you make a high income. You make like $210,000 a year in base salary. You have $180,000 of debt. Of that debt, $50,000 is credit card debt. Mm-hmm.

You have $93,000 in savings. You have some things you want to do. You want to buy land, et cetera. You have three kids. So you guys basically just want to be upper middle class in terms of income, but essentially have no net worth for the rest of your lives. No. That's what people who end up, they live in a nice neighborhood. They live in a nice house. Their kids go to private school and they have nothing. That's exactly what they say.

What if you lived in an area with a better school district for your school-aged children? That would require moving out of state. And would you be open to that or no? Well, not with his job, no. Okay, no. Okay.

And would there be any other places within the state that you'd potentially be able to move to? No, we are in the best school, high school, school district in the state. Okay. Got it. And have you both agreed that this is like, it's either private school at 55 K or homeschooling? Has that been, that's the discussion you've agreed on Kevin? Well, really it's been just private school.

More private school. I have entertaining in my head the possibility of wailing one child. It's so hard. It's very difficult. Okay. It sounds like this private school is one of the things that is critical to you. Yeah. Why don't we see if we can make it work, and that will tell us in very stark numbers, and then we can decide what our options are. How about that?

All right. So payoff credit card debt was number one. School payments, number two. Is there anything else that are the big rocks for you? Well, I want to say the house, but... You're shaking your head. What are you thinking? That's not happening anytime soon. This was a house you wanted to build. You told me it was a dream of yours since you were young. Okay. And you say it's not happening anytime soon. Why?

Well, because my kids' education, because it's a sacrifice that I had to be willing to make for my children to be and have the education that we want them to have. Okay. I can respect that. Sometimes these trade-offs are really hard. There's a vision we have of our life as we expected it. And then other things come up that you never could have predicted.

And suddenly that dream you had, that crystal clear vision of what you want in your life is just not within reach or it's a trade-off. Have you ever thought about that before? Um, and small things. Yeah. Um, but in big dreams, I'm always been the one that's like, I'll make it happen. However I need to. I'll make it happen. How do you make it happen? Usually, um, pushing harder. Um, um,

Sacrificing. Expanding myself. Running myself ragged typically. What would your kids think about you when it comes to money? Do you think that they see you running yourself ragged sometimes? Mm-hmm. Yeah. Let me explain what's going on here. Sarah and Kevin have decided that they absolutely, positively must live in a specific neighborhood that has the best school for their girls.

Not only that, they've decided to spend $55,000 a year on private school. When I ask if they'd be willing to move anywhere else, they say no. Okay, fine. I can respect that. If you asked me if I was willing to wear Crocs, I would say no too. I've learned that it's not helpful to tell people they simply cannot do what they want to do, especially when they can technically afford it. So I'm going to do a little exercise with them.

I'm going to show them exactly what this private school will cost. I want them to be able to internalize and visualize what their life will be like for the next 10 plus years if they choose to go down this route. And this is something that most of us never do. We stay at the surface level. We say things like, I want that car or I want to take this vacation. I want to buy that house.

But we never interrogate that belief and say, okay, how is that going to affect our lives? That's because we very, very rarely understand the relationship between what we buy and how it affects our finances. Many of us don't even understand the relationship between our finances and our day-to-day lifestyle.

That's what I want to change. So let's start with how Sarah and Kevin talk about money with their kids. Sarah told me that she's had a dream for a long time of building a house for their family. I'm going to ask her what her children would think about their parents' financial choices. You think they care about this land, this house that's in your head? Yes and no. I think that, I think partly they see how much

I want it. And so I think they want it for me. And we talk, I talk about it and I talk about dreaming with them and I talk about, I get, I've gotten there and what do they want? What do they want their rooms to look like when we do this and to try and get them to be a part of the process. So I think they're invested in that way. Let me ask you a question. Do you talk to them similarly about your investments and your savings? Yeah.

What lesson do you think you're communicating to them? To dream, but not be realistic. Maybe. And that maybe success is buying a house or buying something. And maybe it is for them. Who knows? That's their future. It's not us to decide. But gosh, I really would like for them to see mom and dad, your own words, being good stewards of money. Okay, everybody, sit down. We've got 50 bucks.

and we're going to go out to one place to eat. How do we want to choose? Well, we can't do it all. We only have 50. Oh my gosh, if we choose that one appetizer, we're not going to be able to buy anything else. Then a little bigger. The 13-year-old, quite savvy. You can do a lot with a 13-year-old. Wouldn't it be nice for them to learn about trade-offs like you are learning about trade-offs right now? Yeah. So the excitement that you have communicated to them about this house, I love that you are able to do that.

I love that. I think we might need to redirect it into something else for the next while. Trust me. If they see you getting excited, they're going to get excited. Yeah. Yeah. All right. So paid off credit card debt, school and the house, it will certainly take you time to come to terms with that. But do you feel deep down that you could come to terms with not moving forward on this house for the next year?

Let's say 10 years. Eventually. Okay. That's a fair answer. Can I tell you something? There are things that I would not be able to come to terms with. It would be really hard for me to, and some of them are materialistic. Like I've gotten used to certain things that I like. If you told me I could not do it anymore, it would be really, it would be devastating for me. I mean, I remember when I was like seven years old, like, well, so my parents,

bought land like gosh when I was really young to be able to build on and I think I was like six or seven around that time period and then that never happened they ended up having to sell it and um and I remember like hearing about that and getting to design

a house and I was seven and on the old computers, I would go and try and draw my own houseplants. Playing Barbies, I just wanted to set up the house. I didn't care about actually playing. I just wanted to build and create. So this has literally been my entire... My grandfather was a builder. It is in my blood and I love that kind of stuff. And so...

It's very much a passion. This is going to be a passion project. Well, there is a possibility in the future at some point. But if right now with the current income, even if the two of you make $100,000 a year more, that house is not in your future for at least the next decade. In my opinion, it is respectful to tell people the truth. Looking at their income and expenses and their financial habits,

Sarah and Kevin have no chance of being able to build a house in the next decade. Now, I never would have told them this at the beginning of our conversation. I needed to understand their finances. I needed to understand their attitudes. But now I get it. And I've built some trust. I think that a lot of us spend our lives dreaming about something big that we want to do. I find that less than 5% of us actually try to plan it out.

Oh, Ramit, we want to live in Rome for a month someday. Awesome. I go, that sounds amazing. How much would it cost? Can you get time off work? What about your kids? For most of us, we simply defer these logistical questions until someday in the future. And I think the reason for that goes quite deep. Some of us don't want to look into it because the reality might be too scary. That the dream we've been telling ourselves we want to do for our entire lives is

actually might not be possible. It's too scary to think about, so we never open a single calculator. But if someone comes to me and they ask for help, I believe it's respectful to tell them the truth. Now that Sarah knows she cannot build a house for at least the next decade, she can start to go through a process, probably starting with grieving and eventually accepting it, which will allow her to focus on a more realistic tomorrow.

This is what I mean when I say in order to live a rich life, you've got to be honest with yourself and with the people around you.

You know how many people's conscious spending plans I see every week? What's fascinating is the categories of spending, especially the ones where people spend way more than they think they do. For example, subscriptions. Let's take a look at some recent numbers on how much people spend on subscriptions. $100 a month on subscriptions. $205 a month. That's from someone spending 76% of their take home each month on fixed costs.

$211 a month, $147 a month, and $487 a month. This is literally thousands of dollars a year, and most of us have forgotten about all the subscriptions we are actually paying for.

Thankfully, this episode's sponsor, Rocket Money, can help you easily find and cancel those unwanted subscriptions. Rocket Money monitors your spending and helps you lower your bills so you can grow your savings. Rocket Money will even try to negotiate lower bills for you by up to 20%. Just submit a picture of your bill

and Rocket Money takes care of the rest. They'll even deal with customer service for you. Rocket Money has over 5 million users and has saved a total of $500 million in canceled subscriptions, saving members up to $740 a year when using all of the app's features. Stop wasting money on things you don't use. Cancel your unwanted subscriptions by going to rocketmoney.com slash Ramit. Give it a shot at rocketmoney.com slash Ramit. That's rocketmoney.com slash Ramit.

My team and I create tons of material every single day. Scripts, voiceovers, emails, all kinds of material that we need to be good and we need it to happen fast. And one of the things we use is Grammarly, especially their new AI tool. For example, every Saturday, we send out my podcast newsletter. I break down an anonymous person's conscious spending plan. And I like going really deep to break down the numbers and show you things you might have missed in your own finances.

Well, guess what? That is a lot of copy. Before, it would take my team a ton of time to work through everything I had written and edit it and make it right for email. Now, Grammarly does it for us in seconds. Grammarly Premium actually gives us suggestions on how to make our writing more impactful for you. It identifies gaps in the writing and shows personalized suggestions to improve the whole thing. And it can even add images like that.

Save time with one click and go from editing drafts in hours to seconds. Get AI writing support that works where you work. Sign up and download for free at grammarly.com slash podcast. That's G-R-A-M-M-A-R-L-Y dot com slash podcast. Easier said done. I hear...

making up for the past, the credit card debt. I hear incurring over half a million dollars for our children in school. That's important to you. Okay, you want to send them to private school. I hear you. But I don't hear anything about going and getting ahead. $200,000, $300,000 a year. What a tragedy it would be to simply be treading water for the rest of your lives. Is there anything we can do about that? Yes. What? Putting money into investments. Yeah. Yeah.

I'd like to, because right now it feels like you're swimming against the current, doesn't it? Everything you're doing, it's just like, why is this so hard? And then we get a cash infusion. We sell the house and then we're back in debt and then we get an inheritance. But we already know if we spend that, we're going back into debt. You're just swimming against the current. Nothing's changing. And don't you think if you make an extra $150,000 a year, you're going to find some other way to spend that money? Yeah. Yeah.

So you've got to start getting ahead even while you are dealing with some of these things. Okay. All right. If you want to do all these things, let's just say that's $1,000 a month for paying off your credit card debt. I'm just picking a number out of the thin air. If you did $1,000 to pay off this credit card debt, by the way, it would take you five years to pay it off.

And you would pay on a $50,000 balance, you'd pay $42,000 in interest. So that sucks. But all right, let's just say $1,000. You could change the numbers dramatically if you do 2,000, but I'm just giving you an example. School is going to be how much a month? It's 5,500. Okay. Let's just say 6,000. Okay. 6,000 a month. And your investments should be what? What's a number we can pick as a ballpark? Well-

10%? Yeah. Let's say 10%. And should it be gross income? Let's start there. 10% of gross income. What's your gross income? 23? Gross annual income. Sorry, annual. No more monthly. Say it out loud for me, please. No more monthly. I'm going to rip this tendency out of your mouth if I have to come over there myself. Say it. What's the number?

230 annual income 230 all right no more monthly i want that haunting you listen if anyone wants to buy a recording of me saying no more monthly send me a note

You cannot live a rich life if you are only focused on what's happening this month and next month. It's like trying to drive while only looking five feet in front of you. You have to use a financial system to automate your expenses and your saving and your investing so you can finally look ahead. Now, if you already have that system and you still find yourself constantly playing small and only talking about month by month by month,

Focus on changing your language and your money psychology to an annual perspective. Just start by saying, what is our rich life this year? And map it out accordingly. If you don't have that system, you can use my book to get it set up. And if you need a little implementation help, you can join my money coaching program at iwt.com slash money coaching. So six, seven, eight, 9,000 a month just to achieve these basic goals.

well they're not basic but these important things to you what do you all think about that so it's um it's a large amount it's a lot yeah any any questions so far all right what's i notice you know it's looks a little tough for you tell me what's going through your head right now just yeah is it tough to start to

like get into the numbers like this? Yeah. I think that at this moment, it can feel like you're watching your dreams get calculated away. And I want you to stick with me. This moment is really difficult because you have to confront reality and it's going to be hard. I can't, I wish I could make it all easy, but it's not. But I can tell you that if you're able to confront reality and make some tough choices, that you have a very, very bright future ahead.

Okay. Okay. So let's take it step by step. And if you feel overwhelmed or you're not sure about something, tell me. Okay. All right. So what we see now is that your fixed costs are 151% of your take-home pay. What does that tell you? Our fixed costs are too high. Let me repeat that number for you.

I usually recommend that fixed costs be 50 to 60% of take home pay or after tax pay. Their fixed costs are 151% of take home pay. They are spending more than they make every month on their fixed costs alone. I want you to hear the details in this next exchange. It is so revealing.

This next exchange is going to show you that it's actually quite easy to overspend in part because you and I don't make decisions based on some spreadsheet. In fact, most people rarely even make decisions based on numbers at all. No, instead we buy the family SUV or the gym membership or even the private school for the girls. We create meaning and we try to buy what we think is a rich life, but we almost never buy numbers.

Here's the trick. In order to live a rich life, a truly rich life, you have to deeply understand your numbers. So I'm going to try to help Sarah and Kevin get from 151% to 50 to 60%. But you can imagine how difficult this is going to be. For Sarah and Kevin, it will feel like cutting off parts of their lives.

But this is part of the process for them to understand what it will truly cost if they want to live in this specific area and send their kids to this expensive private school. Yeah, you're going broke every month. So that's not going to work. And also, we haven't even actually factored in paying off your debt. So let's go ahead and do that. Let's just start with $1,000 a month towards your debt. Shit, now you're at 160%.

But guess what? That's reality. We're going to put everything out on the table and then we're going to figure out what to do. So your rent is 16%. Is your rent really low? What is it? Low cost of living over there? Um, comparatively. Yeah. And we downsized quite a bit. All right. That's pretty good. 16%. Don't move. Okay. I know you want to, but please don't. Cause if you move, it's going to be somewhere more expensive, right?

- Yeah. - Don't do that. I'm just telling you. I rarely am that directive, but I'm like, you got a good thing going here. Don't mess with it. Insurance, whatever. Car payment, yeah, your car payment is, you can't afford it. You can't afford these two cars. Like not even close. So that will have to be made a change.

So I want you to start changing some of these numbers. Take that car payment and cut it in half. Let's watch what happens to that overall number. All right, so 1,000 takes it from 160% to 149%. What do you think? It was a slight drop. Yeah, slight drop. To me, the way I look at it is, okay, I should probably do that, but holy shit, like how am I actually going to get to 55%? It actually does not feel right.

Possible. Correct. Okay. Can you spend less than $1,500 on your groceries every month if you were really thoughtful about it? Yes. Yeah. Yeah, we can. How much? How much can you take that number down reasonably? I would say maybe $1,000, maybe $1,200. Pick a number that you are confident you can. Probably $1,200. All right. Make a change. Okay.

You're at 146%. All right, we're moving in the right direction. I like what I'm seeing so far. All right, kids activities, $8.99. Yeah. What do you want to do here? Can I just tell you a quick story? My sister took horseback riding lessons when she was a kid. She did it like two times. She loved it. You know what my mom did? She pulled her out of that shit. She's like, we can't afford this. You had two rides on a pony. You'll remember that forever. You're done.

I wish you could do it all. Yeah. What decisions do you want to make here? So I have a question. Knowing we're doing this off of base salary, is this something that we could decide, I guess, year to year? Because we do know we have things coming in and like soccer for our oldest is $2,400 a year. And so-

If we choose to, okay, so we know that I'm going to make an extra, I don't know, $5,000 one month. What was that word you just said? An extra? No, it started with an M. Sorry, I'm not aware of what that word is. No, it was after that. Every month. Month. Sorry, I don't know what that word means. An extra $20,000.

Per year. Thank you very much. An extra $20,000 this year. And we're like, okay, we want to make sure the girls have activities. Okay. Here's how you do that. Absolutely. You can set up a rule for the two of you that says any additional amount we make above our salaries gets allocated in this way. But here's the trick.

You can only do that taking last year's bonus that's now in your account and use it for the future year. Yeah. Do you see how you haven't been doing that? Yep. And that's screwed you. Yeah. Because you're basically counting on all this money now. And if it doesn't happen, you're in real trouble. Right. So I say we put it at zero. Okay, go ahead. Make the change.

And that'd be one of those rules. Okay. You know what's really cool about what you just did? It's very courageous, I think. It's very courageous for you. Clearly, you care about your kids and their activities. I know both of you do. For you to say, we're going to take them out of these things, you may not want to. I'm sure you don't. But sometimes parents cannot afford it. Very courageous. Girls' school...

You have 5,801 here. Okay. And you told me that's one of the important things you want to do. Okay. Subscriptions. Fix this, please. Yeah. This is a lot of the business stuff. Take it out. Take it out. Just give me what's in here for personal. Two...

700 maybe? I'm going to say 700. Let's talk about this. 700. Uh-huh. Jam, Pilates, food delivery, food service, all that stuff. Yeah. Is all that continuing? No. Okay. Take it out. It says zero. You don't have any like Hulu or Netflix or something? Oh, yeah. So, yeah. I mean, I'll say 100 bucks. Okay. 100 bucks. Fine. I can get with that.

We have a miscellaneous amount here that automatically adds 15%, which I think is good. So you're currently at 125%. First of all, I've never clapped at someone spending 125% of their income on fixed costs, but I'm going to take the win on this because we went down from 150 to 125. That's not bad. That's not bad. However, you don't have enough money to pay for this lifestyle.

It's like an Indian parent congratulating their kid for getting a 98%, but then going straight for the jugular and asking what went wrong for that last 2%. I have been trained well. Right now, I'm in no rush. I want them to feel the exhaustion of everything they've just cut, only to realize that it actually made no difference at all. They are still spending more than twice as much as they can comfortably afford. It's untenable.

I need them to feel this frustration before they finally decide if they're willing to make a real substantive change. I don't know if it'll happen, but I know that right now they are not ready. They are still telling themselves stories that are totally untethered to their financial reality. This is when I decide to make a gentle suggestion. One of the worst feelings in life is feeling stuck.

You hear it sometimes with podcast couples here. They feel stuck around their money. I felt stuck in my business. I had made a bunch of decisions years ago and I woke up feeling trapped. So after thinking about it, feeling stuck, not sure what to do, I went to a CEO council that I'm a part of and I just laid it out. And after listening to me, they were like, oh, it's so obvious. You need to change this, move this person over here, change this resource allocation. Boom.

I wish I had done it years earlier. If you feel stuck in your career and you also wish you had a group of peers who could help you get unstuck,

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When you become a member, you get matched with a group of eight to 10 peers. Then you meet with your group twice a month for 90 minute facilitated sessions and have real time messaging access to the entire community. Learn more at sidebar.com slash Ramit.

and join thousands of top senior leaders from companies like Microsoft, Amazon, and Meta who have taken the first step towards accelerating their careers. That's sidebar.com, S-I-D-E-B-A-R.com slash R-A-M-I-T. When I was in my early 20s, I was not into clothes. I wore free t-shirts from tech companies, and I really did not want to seem like I tried too hard.

But I started to realize that clothing is the first thing people see about you. They don't see how nice I am or how much I know about personal finance. They see what I'm wearing. And like it or not, that shapes a lot of how people perceive you.

Now, I take a lot of pride in the clothes I wear. And I love knowing that when I buy something, I'm going to keep it for years and I know that the people who made it were paid well. I actually hired my wife, who runs Next Level Wardrobe, a luxury personal styling company, to style me for my Netflix show and all of my events, including what I wear day to day for more casual outfits.

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Elevate your style using Next Level Wardrobe at nextlevelwardrobe.com slash Ramit. That's nextlevelwardrobe.com slash Ramit. Can I make a suggestion? Can we take, just to view this correctly, can we take the girls' school in row 17 and move it to guilt-free spending? Yeah. Let's just see what that does.

okay all right so look what just whoa holy what happened to the numbers dramatically tell me what just changed what changed in your fixed cost percentage it went from 124 to 76. okay 76 is within striking distance of 60. yeah that's a big change and then what happened to the guilt-free spending number what is that number at right now um

48? Yeah, 48. And it should be 20 to 35%. Yeah. Okay. Whoa. So I'm seeing some things happen here. Can I tell you what I see? Yeah. I see that your fixed costs are still over what they need to be. But 76 is within striking distance of 60. It's achievable. You could do it. You can never get from 150 to...

It's just, you can't, you can't cut your way down that much. But 76, we could make some things happen here. Now let's look at your guilt-free spending number should be 20 to 35%. It's 48. You're spending way too much on guilt-free spending. However, at least you're in the universe. Okay. What I want to point out is that you have no vacation, no eating out, no nothing. Okay. And there's one more thing I noticed here, which is you have no savings and no investments. Okay.

So we have problems, but at least we're starting to chip away at things and see if it is possible. Yeah. What do you take away from this example, what we're doing right now? That there are sacrifices that are going to have to be made. Okay, I need to admit something. Technically, their kids' private school should be a fixed cost. That's because they've indicated there's no way they're going to eliminate it, and it is a long-term expense. You know why I didn't count it there?

Because this is my show. And once in a while, I get to break the rules. I'm doing this for a reason. I do not want to break our momentum right now by getting into this semantic debate. And, oh, if we move it over here, technically it's going to do that. Because ultimately, that's not what I'm trying to accomplish here. I don't care about the semantics as much as I care about helping them make a psychological breakthrough and change their financial reality.

All right. I want to give them a totally new way to look at their money. And if I have to break one of my own rules, I'm cool with it. It's kind of like someone coming in and rearranging your living room. Suddenly you can see it from an entirely new perspective. All right. So we got to put in some money for investments. Throw that in there. It's probably 1100. There you go. Beautiful. 1200 bucks. Fantastic. All right.

Now we've got to get some savings in there because I know you have savings, but it's not. The reason that I insist on savings is that I'm trying to get you away from this episodic problem you have, which is you kind of just wait until you have this inflow of cash and then you just like randomly disperse it. I don't want that anymore. I want a system. So every month you are moving towards your goals. Give me a savings goal here. Give me 5%. Oh, okay.

Nice. $600 right on the money. All right. Okay. We're still a little high, but we're getting there. How much are we going to make on the bonus and distribution? I need to factor those in now. Well, for me, I think minimum will be about $20,000 this year. Okay. $20,000. Cool. And what about for you, Kevin? Bonus-wise this year, let's just spend, plan on $50,000.

Five zero? Five zero. All right. That makes things a little better. 70,000. Can I just make a point, Sarah? If you think about your expenses, are there areas in your business that you can cut down on? Yes. Like how much? I would say probably 90%. What the fuck? What? Yeah. Wait, this is cool. Like what's the dollar amount that you could eliminate if you needed to tomorrow? Because you do need to. Um...

Yearly. Okay. Yeah. Give me yearly. No, monthly. I was just trying to stay away from our monthly word. Good job. I would say monthly, probably $3,000. Wait, which one? Let's say 3,000. 3,000. That's $36,000 a year. You feel you can comfortably cut that right now? Yeah. Yes. That's pretty awesome. What do you think is going through my head right now?

I should do that. Yeah. And what else? What are you going to do with that money if you cut it all? Tell me exactly what you do. Tomorrow you go and eliminate all that stuff. What happens then? It's freed up for other things. Like what? To come over and do debt and all the other stuff. Yes, that's fucking awesome. We're finding $36,000 under the couch cushions. But the key is we got to actually pick up the money from the couch and then we got to put it in the right place we want it to go.

Okay. That's pretty awesome. So that's not even your distribution. We're talking about expenses right now. You could stop spending and you can transfer, you can add $3,000 a month to your income. Yeah. Yes. So you tell me, how would you decide right now you have an extra $3,000 per month to do something with?

It's like you're playing Oregon Trail and you get to choose where do you want to go in your wagon. What do you want to do? Well, so if we just add an income, it'll adjust those numbers. Go ahead. Love to watch the flow. Oh, shit. What does that number say on fixed costs? It's below 60%. 57%, my friends. And we haven't even touched the bonuses. We are. We're getting there. I feel a little hope. What do you feel?

Feeling good. Feeling better. Yeah. We're getting there. Step by step. This is good. I just want to point out what just happened. Sarah, you got this business. Yeah. You had it all kind of conflated in with your personal. We fixed all that shit. It's separate now. Now that you have clarity, you can finally start to take a magnifying glass to that business. Every dollar you spend is a dollar that could be in your family's

So, you know, if there's things that you need to spend on, absolutely spend on it. But if there's things that you're just like, these are nice to have, I don't really need it. Goodbye. Right. And what that did was it made a dramatic change in your family's personal finances. I think now that you have this much more efficient way of looking at your business, I actually think your expenses will be lower. Potentially your income will be higher. And I think your profit margin is going to go way up.

In my Earnable program to help you launch and grow your business, we talk about this. Some people come in, they have no business idea. Fine, we help them find one. Others already have a business running and we help them grow it. You can find a link to join Earnable in the show notes. But we're not done with Kevin and Sarah yet. You could take some of that $93,000 in savings and you could apply it towards the debt.

You don't have to do it all. You could put some of it towards it, like paying an extra $25,000 towards credit card debt or even, hell, $50,000. That changes things dramatically, especially from an interest perspective. What do you think about that? I was wondering if we should do that from the, like, that should be our next move. What's the interest rate again on that credit card payment? It's high. It's an indulgence. It's like 26% or something?

I think it's 20. I think mine are 20. So it's a lot. All right. Yeah. I can't tell you exactly what to do on that. It's up to you. But if it were me, here's how I would think about it. I would be, okay, $93,000. My expenses for fixed costs are $9,400. So I have like 10 months of expenses banked, roughly. I go...

I don't want to pay this fucking interest. It's really high interest. I want to take some of that money and I want to apply it and pay it off immediately. I personally would take the 50K from the 93,000. I would pay the credit card debt off right away. But more importantly, because I don't want to get back in this situation again for a third time, I would create very clear rules on what our spending changes are going to be. Mm-hmm.

can never get back into credit card debt again. Like, that's the commitment. What do you both say about that? Yes. I never saw such a big smile. All right. Yeah. All right. You both agree. Sarah, do you agree? Yes. The next one is the car. But I honestly, in the state we live in, in the conditions that we're in. Yeah. We don't have public transport. So. Not sure what options we have. You guys have $2,000 a month in car payments. Mm-hmm.

With the lifestyle you want to live, you cannot be driving a $75,000 or so car. You can't. Not if you want to have the private school and all this stuff. You have to be basically the way you're living, the way you want to live. You're telling me, you're telling me we want to pay off our credit card debt, which means you want to put at least a thousand dollars a month towards it. Maybe more. We want to invest at least 10%. We haven't even talked about savings. And we want to send our three daughters to private school.

What that means is the rest of your life is going to essentially look like you don't earn very much money at all. So goodbye, Tesla. And goodbye to a lot of the expensive things you would have ordinarily done because you're taking all of that money and redirecting it to a considerable amount of expenses, like $55,000 a year for private school. Are you both mentally centered and emotionally ready for that?

Mentally ready? No, I honestly will say. But yeah, mentally not ready. Sarah? That is a struggle. That will definitely be a struggle. I think the thing that we, the one thing we have said, and Kevin mentioned it earlier, is that it is a non-negotiable for us.

The school. The school. Yeah, the school. And so if that's true, then we have to be willing to do it. So I'm telling you, I'm not trying to scare you, okay? What I am saying is you guys want to live an elite lifestyle. It is elite. I'm speaking financially speaking. Of $55,000, which is quite expensive. I get it. I know many families who pay for private school. You have your reasons. I totally respect that.

The implications on your income, especially considering you have this debt load of 150,000 plus, means that realistically, a lot of other things are going to have to be cut to the bone. So I don't want to sugarcoat it for you because the worst thing I can do is we play around with some numbers here and we leave and you go and basically spend the same way you've been spending on day to day. And in a year, you actually have more debt

And you're like, what the fuck? We tried and it's not working. This is a radical reconceptualization of the way that you treat money. Okay. I can see from the nods on your faces, you're both getting it. Eyes wide open. Love it. Kevin, I'm happy that you're discussing things like, what are we going to do with the cars? You know, and I think the two of you probably need to go a little further on that, but I like that you're both open to it. You know, you came on this call saying communication is an issue.

I feel like we're actually having a very constructive conversation with some very difficult numbers here. How do you both feel about it? Yeah. Yeah. Cool. We've made some tough calls already. The house, not going to happen for at least 10 years. Okay. Kids, activities, not going to happen this year. Okay. Tough. No doubt. It'll take time to internalize that. But gosh, I feel like we're just moving along and we're at least seeing that there's possibility. But I have to say one thing to you.

I want to talk about the kids' school right now, okay? Because you're going to have this distribution stuff coming in. You also have this inheritance that's floating around. And hopefully every year you both have a nice, healthy distribution. I want to give you some different ways of thinking about your children's school. You've told me that it's a non-negotiable. Totally fine with me. My job is to help you figure out how to do it.

And the problem is once you put your kids in this school, you can't just pull them out. It's very disruptive. So how do you think about that? What would you do to be absolutely certain that you can afford this school for the next 12 years? Apply for financial aid. Okay, that's good. You definitely should. Yeah. I don't know. What if you wait one year? What do you mean? What if you waited one year and instead of incurring the fees-

Let's say this year you waited one year, took all the money you normally would have spent this year, banked it. And then by the time you put your kids in this school, you have a war chest. So if something goes wrong, you do not have the pressure of, oh, my God, where are we going to find six thousand bucks a month right away? They're already there.

At the school. What? I mean, this was, they're in the middle of their first year. Oh, well, okay. That option's out the door. Yeah. All right. So what the fuck? You signed them up for this school without even knowing where the money was coming from? Yeah, well, we pulled from the house. That house is not like the giving tree. That thing doesn't last forever. All right.

Do you see the, I get it. They're already there. So we can't do that. Do you kind of see though the behavioral issue here? Yes. What is it? Just articulate it back to me. It's, and you're speaking in terms of what, like we're putting the cart before the horse, I guess is the thing. Yeah. Yeah. Like on the income that the two of you make, you make too much money to be behaving this way. If you want to get to a level where you are

financially comfortable, potentially one day, you know, financially very successful, then you can't keep thinking this way. This is truly insane. They literally signed their kids up for a $55,000 a year commitment for 12 years with no idea how they're going to pay for the second year or anything beyond.

What is the end game here? Do people who make these decisions ever stop to think, hmm, what if something goes wrong? What if one of us gets laid off? What if we can't keep up our lifestyle that we have now committed ourselves to for over a decade? Why am I even asking this question? I already know the depressing answer. The answer is people do not make a plan. They do not think beyond the month and they simply hope things go all right. And when they don't and it ends disastrously,

The people have no idea what actually just happened. And that's when they start going on Twitter and saying, life sucks, this is horrible. Life sucks, yes. Life sucks for me right now having to imagine how bad things can go. I'm truly at a loss here. I think in my conversation with Sarah and Kevin, I wish I had taken a break to get my composure back. So what I tried to do was I tried to summarize where we were in part just so I could remind myself what in the hell is happening right now.

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You have your fixed costs at 53%. That's fucking awesome. Is anyone else excited by that? Yeah. All right. I think that's amazing. Shit. I just realized I made a mistake. We took the kids' school. Where did we put that? Is that in fixed costs right now? Yeah. Fuck. All right. Well...

I'll tell you. Okay. It's a technicality. I'm just going to tell you why I'm a little, it's a little, we're playing a little bit of tricks and it's not good, but I'm going to tell you. So if we move that 5,800 back into fixed costs, you'd be way over. Right. And the fact of the matter is that, that your girl's school is a fixed cost because you have zero intention of ever stopping paying that money for the next 12 years. So technically it is a fixed cost. And what that really says is you're still over $1,000.

on fixed costs by a lot. So look, we're playing some games with the CSP. I don't really like it, but there's no other way to do it. The implication here is that basically you need to keep getting your bonuses and distributions and you need to be setting them aggressively aside in savings. All right. That's that. And it also implies that you don't have much else to spend for guilt-free spending on anything.

And that's something that I, I, it troubles me because most couples, they want to go on vacation. They want to do fun things. They want to do that. And I don't like setting up a system where you, you can't do it because you're not going to actually listen. You're just going to be like, fuck all this. So you really have to be thinking about what is the marathon that we are running. So you have a marathon of at least 12 years of high expenses and

That's the way you chose it? Okay. That's how it's got to be. All right. What questions can I answer for you? This is me putting the onus on them now. I have helped them as much as I can. Now it's on them. Watch what happens. Well, I got a big one. All right. I heard you all throughout and keep pinging and diplomatically about the school thing.

as if it's going to set us up for failure as we run for a marathon and try to maintain this cadence, this velocity. So the question simply asked is, are we setting ourselves up for failure? I can't say yes or no. You are setting yourselves up for a very difficult rest of your lives. The reason for that is...

you first, you have some difficult habits that you've already exhibited. So it's not like we're starting from a blank page. Sure. That's number one. Two, $55,000 a year of a fixed expense for at least 12 more years is extremely high. At your income level, it is very challenging. At your income level with your spending habits, it's

Everything has to go right in order for you to do it. Could you do it? Yeah, I think so. If you were to radically change the way you manage money, it could happen. But you two would have to be a completely unified team and you would also have to be lucky. The good news is that you have a high income

household income with the possibility of making more, that part is really promising. But I don't like to only count on making more money in the future. I can't build a life around some hope. Well, you know, reality check, a 38 and 43-year-old couple have $150,000 net worth. Proportionally to our revenue, it is ridiculously low.

all of our 14 years of marriage led us to this. Right or wrong, here we are. This is it. Now we're looking at the biggest chunk, the principle that we set ourselves, that our kids will get great education. And in the current plan that we've put together, it is obvious that it is what drives our lifestyle

overall down. And so those are all the thoughts, you know, it is. Are you asking if it's worth it? It's worth it. If it's, I mean, where it is worth it for, we know it is worth it for education, for our children's education, because we, we've told ourselves that for the longest time. But I'm just wondering whether we could make it work differently. Should we just play for a second and see what happens if,

We entertain the idea of not spending $55,000 a year on private school. Yeah. Why not? Does it make you nervous to explore this? I think so because then my next question is, okay, then where do they go to school? What do we do? And what do we do with the 5,800? Let's open it up. I'm going to copy this sheet. Now, go ahead. Why don't you have a conversation about what you would do with 5,800 bucks a month?

I think just based off of this, I think increasing our investment is going to be a big deal. It's always going to be into savings so that we can stay in a 5% to 10% mark and 10% mark for investment. I think you're right in terms of investment. We probably need to target maybe, let's say, 15%. Then the savings...

Okay. So comparatively you added, that was 600. So you added a thousand dollars. So you added $2,000, which is, so it left, it leaves us with three, $3,800 that we can put back in and fix costs. Or guilt-free. Oh, it's usually guilt-free. There's something. I forgot about that one. I mean, I think that in terms of guilt-free spending,

It should be, I mean, the dining out, those kind of things. And that puts us at just over 5,000. So we still would have about 800 left. Correct. And that's the 100 for 800 for the kids activity. For the kids activities. Or the car, whichever we took out. We took out both. But yeah, I mean. It's something. Yeah. And the investment is important. Yeah. What are you all noticing? And what are you both feeling? Conflicted.

It's a bittersweet. I feel air in my lungs, but I feel like they're constricted at the same time. My lungs are constricted at the same time. What does that mean? Meaning that I feel like there's a sense of relief that, oh, look at that. We don't have to shrink our life and we can actually look up to the future. And by the same time is the constriction that I feel is

the best investment that you can make for your children is their education. And we equated that, we equate that to financially because it might be educational challenge as parents. So we try to say here, private school, do a better job than we can do. Yeah. Is that true? Jokingly, it's true.

On the academic side, yes. But hold on, hold on, hold on. Because I mean, it's funny, but you mentioned that you were potentially going to homeschool them. Yeah, I mean, and that's with, I mean, with help and that would be the worst case thing. I get not worst case. That's not true. That would be. Well, what's the worst case for you two, financially speaking?

Continuing down the path we're on. Yeah, for sure. The path that we're on is the worst case. You wrote me, I'd love for Kevin and I to be able to talk about money without being scared the next conversation will be the end of our marriage. Yeah. I mean, it's not like we're just talking about the weather. This is 10 out of 10. That's what you wrote. 10, 10, 10. Yeah. So the school, it was presented as a non-negotiable. I get it. We talked about it at length.

Is it not? Is it an option? Because if it's an option, that opens up an entirely different lifestyle for you. Well, I think that at this point, anything's an option. Now that's a good answer. I can work with that. Can I tell you something? I'm sure you have your reasons for wanting to send your daughters to private school. And if that's what you choose to continue doing,

Okay. It's your money. It's your choice. I guess I want you to be able to zoom up. I understand if there's one of your daughters needs extra help and the private school is the best place to do it. I totally get that. But I want to look at this in the totality of your girls growing up with parents who are not worried about money every single day of their lives.

of passing on some of the things you picked up with money, Sarah, and changing that. Generational messages are real. And I wonder which of these decisions would provide a real change for your daughters. The school, changing the school. To what? To cheaper slash free options. Could be.

I think for children to be able to see their parents feeling good about money, teaching them valuable lessons about money, that changes the dynamic a lot. Forget about money, just seeing parents actually being able to breathe. Yeah. Like I was telling you, I feel like I could almost physically, I could actually breathe just by walking out through this exercise. If this is a reason why our marriage would continue to be stressed,

then it has to be considered. Let me share the follow-ups because this is a situation we have never had before. After each conversation, I ask my guests to follow up and send me the answers to a few questions that I have for them. Sarah and Kevin did write back. Let me read what they wrote. Sarah said, I think the thing that surprised me the most were the numbers. We've never calculated our finances in such a way that gave us a completely clear picture of where we're at.

It was hard, crushing at points, but motivating and encouraging as well. Our conversation really drove home how I have to start taking more responsibility with our finances. Money doesn't have to be scary. We definitely have some hard decisions to make, but now I believe that we can get to a place that will allow us to build a healthy relationship and pay off and keep off all the debt. Here's what Kevin said.

Okay. Well, I appreciate Sarah and Kevin coming on and being so candid in this conversation.

I wasn't satisfied with those answers. I wanted to know specifically what changes they were going to make. Also, they were supposed to send me their updated CSP with the decisions they made. But after the first follow-up, we never did. I really hope that Sarah and Kevin find these last two episodes eye-opening. And I genuinely hope that they are able to recommit to making a change. The stakes are very high.

Their family's future and their happiness and relationship depends on it. Thank you for listening. I'm Ramit Sethi. Thanks for listening to I Will Teach You To Be Rich. I'm Ramit Sethi. Please follow the show on Apple, Spotify, or wherever you listen to podcasts. If you haven't read I Will Teach You To Be Rich, my book, pick up a copy. You can get it at any bookstore or any library, and it will show you the specific tactics,

for how to build the I Will Teach You To Be Rich system into your personal finances.