Episode #105: What’s the point of tracking every penny?: Ramit’s 3 Lessons from Ep 104

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[Narration]

Ramit Sethi: [00:00:00] Have you ever wondered why people suddenly seem to be so obsessed with creating generational wealth or all the unwritten rules of money that we have in America that we follow but no one actually tells us why? Every week, I’m going to be writing my new observations about money and psychology on a special podcast newsletter. You can get it for free at iwt.com/podcastnewsletter. You will not find this material anywhere else, so get on the newsletter for free at iwt.com/podcastnewsletter to hear about money and psychology every single week directly from me.  

[Interview]

Ramit Sethi: [00:00:42] How are you both feeling about today’s conversation?

Jesse: [00:00:46] I’m feeling hopeful, excited. We were never really good at talking finances. I feel like I’m getting better. I’m definitely the problem. She wants me to communicate better, but it’s become habitual for her to almost gatekeep. This conversation is going to be most helpful for us to continue in the right direction.

Stacey: [00:01:03] I’m excited. Jesse and I talked last night to say like, are we on the same page before we jump on this call. What are our goals and our expectations? I think I’m just excited to see if you hear something that we can’t see or hear ourselves. 

[Narration]

Ramit Sethi: [00:01:18] A couple of days ago, we heard Episode 104 with Stacey and Jesse, and I want to share a few key lessons from that episode. Recall that Stacey makes a lot more money than her partner Jesse, and she desperately wants for him to be engaged, but she’s also set up a system where she controls everything financially related in their relationship. 
I was struck by how complicated of a financial system Stacey has built. She’s got 32 categories. They’ve tracked everything for over 10 years. And I’m just thinking to myself, what’s the point of all this? What does it get you? Because their system is actually more complicated than my system. 

[Interview]

Ramit Sethi: [00:02:08] So you decided to take control of your money. You’re on top of it. How many different Excel spreadsheets and budgets do you have? Tell the truth.

Stacey: [00:02:16] One Google spreadsheet, but it probably has 20 hidden tabs over the last 10 years.

Ramit Sethi: [00:02:24] How did I know that?

Stacey: [00:02:24] Yeah.

Ramit Sethi: [00:02:26] And how diligent have you been in tracking your spending? Let me guess. Extremely. Go ahead.

Stacey: [00:02:30] Correct. We both have used an app that I love for the last 10 years to track every expense. Anytime we swipe our credit card, it goes in, and I trained Jesse to do the same thing.

Ramit Sethi: [00:02:44] Jesse, you do that?

Jesse: [00:02:45] Yeah. 

Stacey: [00:02:47] It’s the data.

Ramit Sethi: [00:02:47] Oh, wow.

Jesse: [00:02:47] I’m not as diligent as her, but, yeah, it will track down to the penny, even on cash.

Ramit Sethi: [00:02:52] And what does that get both of you?

Stacey: [00:02:56] It’s very satisfying for me to have the data to tell me what we’re spending on. It actually helped us when we were filling in the conscious spending plan.

Ramit Sethi: [00:03:04] So you track everything. You’re tracking the price of Brussels sprouts over time, so you can trend that from 2010?

Stacey: [00:03:11] No. But how much we spend on groceries per month, clothing, transportation.

Ramit Sethi: [00:03:17] How many categories do you have?

Stacey: [00:03:19] More than we should. 

Ramit Sethi: [00:03:22] How many? Tell me.

Jesse: [00:03:22] Oh, hang on.

Ramit Sethi: [00:03:24] She’s going to pull it up right now. This is amazing. Oh, my God. Look at that. She’s like, finally. It’s been 13 years, and finally, someone asked me a question about my app. Okay. Tell me how many categories.

Jesse: [00:03:35] Do you want sub-categories too as well?

Stacey: [00:03:37] Eight high-level categories.

Ramit Sethi: [00:03:38] No, I want all of them. Don’t be BS me. Oh, wow. She just took a deep swallow.

Stacey: [00:03:44] Probably 20.

Ramit Sethi: [00:03:45] Everybody watch. However long this takes, I’m going to run completely dead air. I will burn literally gigabytes right now, just watching them. Look, he’s still counting. This is unbelievable.

Jesse: [00:04:01] Thirty two.

Ramit Sethi: [00:04:02] Thirty two. Wow. So simple. You ever hear me say that phrase, fight for simplicity in your finances? You ever heard me? Yeah. She’s going, yeah. She goes, yeah, that’s a great phrase. I chose not to adopt that. That’s great for other people, not for us.

Stacey: [00:04:15] I’m learning. I’m learning.

Ramit Sethi: [00:04:16] What kind of emotions do you get when you log in, and you track stuff, and you change the– what do you get?

Stacey: [00:04:22] I feel satisfied or I feel better that I just played around in the spreadsheet because it feels like work, and the work is never done.

Ramit Sethi: [00:04:33] It feels like work because what is it that you’re actually doing?

Stacey: [00:04:37] Working to not a lot of outcome or results.

Ramit Sethi: [00:04:42] Total three-dollar questions. Tracking a budget. For what? Tweaking a spreadsheet. For what?  

[Narration]  

I’ve said it before, I’m going to say it again. The more successful you get with money, the more you have to fight for simplicity. Fight for it. It’s got to be a key priority. It’s so easy to get a 401(k) from that old job and another one over here, a credit card you open up at Express because you literally want to save 10 fucking percent off of a shirt. Don’t ever do that. And all kinds of assorted bullshit in your system.  

And suddenly, one day you wake up, you don’t know what flows where. You don’t even know how much money you have because it’s all in a million different places. Fight for simplicity. 

And you know what else? I have to say, so many people are obsessed with this idea of precision rather than getting the broad strokes right. Recently, I posted on social media about conscious spending plan, the four categories, the four numbers you really need to know in your spending, fixed cost savings, investments, and guilt-free spending. I had 3,000 questions about categories. Ramit, where do car parts go? Ramit, what about cavities? I was like, who cares? Seriously, these are minute questions. 

Use the system, adapt it to what you need, and then move on. The goal here is not to get everything absolutely, precisely right. That’s not the point. The point is that it’s simple enough so that you can deeply understand it and move on.  

Now, there are a couple of ways that I account for little details. I add 15% to fixed costs because everybody forgets about stuff. I always am conservative with my numbers. But if you want to put cavities under fixed costs because you get one every year or you want to put on your guilt-free spending because you love candy, it doesn’t really matter. Get 85% of the way there and then move on with your life.  

A simple financial system is one where you track a few key numbers, you have room to account for mistakes, late fees, overspending because your college roommate came in from town, all of that stuff. You build a healthy buffer. You have a couple of credit cards, a few bank accounts, an investment account, and then you get on with your life.  

I don’t have any problem talking about death. I really don’t. I think sometimes we avoid talking about it as if it’s not going to happen. But this is a sure thing. It’s going to happen to us. My feeling is we might as well talk about it. 

[Interview]

Ramit Sethi: [00:08:08] You like to worry?

Jesse: [00:08:11] Less so than Stacey, but, yes, still.

Ramit Sethi: [00:08:14] What do you get out of it?

Jesse: [00:08:15] Out of worrying?

Ramit Sethi: [00:08:17] Yeah.

Jesse: [00:08:24] I worry a lot that if she suddenly is out of the picture, for whatever reason, I am in a lot of trouble.

Ramit Sethi: [00:08:38] Because if she were hit by a bus– by the way, I love this morbid conversation where we’re talking about one person’s premature death who just happens to be sitting right in front of us.

Jesse: [00:08:48] We’re okay. We’re both European. We talk about death a lot.

Ramit Sethi: [00:08:51] Fantastic. All right. Great. So if she were to get hit by a bus, you still have $1.2 million, and you’re young able-bodied guy. It’s not the number that concerns me. It’s that everything beneath it, which is you would have no idea how to manage it on a day-to-day basis. No idea how life insurance works. No idea what investments are or how they interact with your savings. None of it. Would you agree?

Jesse: [00:09:23] I would agree.

Ramit Sethi: [00:09:24] See the issue? You have no fingerprints on your finances at all. You’re merely a passive observer in your financial life, and she doesn’t like it. And if she gets hit by a bus tomorrow, you’re fucked.

Stacey: [00:09:43] Actually, he’s not. The life insurance– 

Jesse: [00:09:46] That is a conversation we’ve had.

Ramit Sethi: [00:09:48] What do you mean? He can get a big old life insurance check. That doesn’t mean he’s going to know how to use it.

Stacey: [00:09:52] That’s true.

Ramit Sethi: [00:09:54] I’m serious. You know that I had the same conversation with my wife, right? It’s like, look, I could be the money manager in our relationship, but I’m not going to be. We got to both do it in case I get hit by a bus, because I need a second set of eyes, and because it’s just more fun.  

[Narration] 

I remember talking to my parents about setting up a will, and I was encouraging them saying, look, we might as well talk about this now. You don’t want to leave your family with a bunch of accounts where we don’t even have login information. You want to come up with your decisions now. Let’s just do it. Get it out on paper, be clear about it. There’s no problem talking about this stuff.  

I think a lot of us are afraid to talk about money and death because we are afraid of money. We’re also afraid of death. And putting those together is absolutely terrifying for a lot of people. I think a lot of you actually believe that if you have some life insurance policy, you’re good. Wrong. 

Handing over money to a grieving family without the wisdom to go along with it is actually doing a disservice to your living family members. Talk about money now. Get good at money. Build habits and rituals together with your family. That is how you create a rich life for multiple generations. 

When I was studying persuasion in college, we studied a lot of health psychology. And health psychology has this concept of adherence. How many people actually take the medication that’s prescribed to them? You would think that if it’s a life or death situation, 100% of people will take their medication. Wrong. The adherence numbers would shock you. Sometimes they’re 30 to 40% of people actually taking their medications. Some of it has to do with cost, convenience. Some people forget. Some people just don’t want to take it.  

But when I understood this, I became a lot more compassionate because if people aren’t even willing to take life or death medication, then we realize how hard it is to stick with a gym routine. And that’s why my entire life’s work has been focused on simplicity and focusing on the high leverage areas, not 300 categories of budgets.  

[Interview]

Stacey: [00:11:56] He was debating to get a gym membership. So he’s had some physical ailments in the last couple of years. His physiotherapist recommended a gym or rather a treadmill. We didn’t want to buy a treadmill to fit in the house. There’s a gym near our house and near Jessie’s business that he can easily go to. It’s 15 bucks a month. And he hemmed and hawed about whether we could afford it, and I was like, we’re not poor anymore. We can afford that.  

It made me realize, a, he doesn’t understand that, and, b, that such an insignificant amount of money per month– you’re not really going to find a cheaper gym. It’s already a discount gym. He felt like he had to figure a way around not spending it instead of just talking to me about the expense. We had a discussion about it and was like, we’re not poor anymore. You can get this. And think it still took him two weeks to actually buy the gym membership.

Jesse: [00:12:58] I drag my feet on a lot of random expenses because I’m always trying to save money.

Ramit Sethi: [00:13:05] Why?

Jesse: [00:13:05] I just have it in my head that– I mean, I don’t personally make a whole lot, so I feel like the household doesn’t necessarily make a whole lot, which is not really the case. About a week later, I did finally pull the trigger, got the membership, and I’ve been trying to do as much stepping or walking, sorry, as I can.

Ramit Sethi: [00:13:21] Cool. I’m glad you got the membership.

Jesse: [00:13:24] Thank you.

Ramit Sethi: [00:13:25] Would you consider that discussion or series of discussions a success?

Jesse: [00:13:32] Yes. Oh, 100%.

Stacey: [00:13:33] I want Jesse to be reasoning like, I’m getting this gym membership. It’s $15. This is the decision I’m making, and just buy it. 

[Narration]

Ramit Sethi: [00:13:41] What you want to do is not depend on willpower because that fades away. You want to build systems so that by waking up, breathing oxygen, and drinking water, you are basically doing the right things. For example, if you don’t want to worry about tiny little questions, then use my concept of a worry-free number. Anything below 20 bucks you don’t even think twice about, or 50, or 100, or 5,000, depending on your level of net worth.  

You want to build systems so that if you claim health is important to you, that you actually pick a number and you say, okay, every year I’m going to spend 3% of my gross income on health, or 10%, whatever your number is. And suddenly, it’s not, should I go to the gym or not? It’s, I need to spend $300 a month on health. Where am I going to allocate that money? 

Thanks for tuning in to this Thursday episode of Lessons Learned. Don’t forget to go back and listen to the full episode with Stacey and Jesse on any podcast player or, of course, on YouTube. I’ll see you next week, and I will also see you on my podcast newsletter this Saturday where I share material that is never shared publicly at iwt.com/podcast newsletter.