Episode #123: Ramit’s travel tips, real estate FOMO, and talking to kids about money
This is a special solo episode where I answer questions from members of my Money Coaching program. In today’s episode: My favorite services that I use when I travel, how to handle FOMO when you’re investing, and also how to handle traveling with other people.
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Tools mentioned in this episode
[00:00:00] Ramit: Welcome to a very special episode of the I Will Teach You to Be Rich podcast. Today I’m going to talk about my favorite services that I use when I travel, how to handle FOMO when you’re investing, and also how to handle traveling with other people, among many other Q&A’s.
[00:00:17] Uh, just a little context on where these questions come from. I’ve been running a Money Coaching program for a lot of my readers, and we have a monthly call. Every month, I come on there, do live Q&A, and we also have a Slack community where people ask each other questions. We have a ton of channels. Investing, spending, relationships, all kinds of stuff.
[00:00:38] So I picked some of the best questions that people have been sharing with each other in there. And just so you know, if you’d like to join the Money Coaching program, you can get in at iwt.com/moneycoaching. That is the only place to ask me Q&A about money. So with that said, let’s jump into today’s questions.
[00:00:59] Jane wants to know how she should talk to her kids about money. In the Money Coaching community, she asked, “I’d love to get some real advice about talking to my kids about money. They are nine and 11, and it seems that their interest is mainly to benefit themselves, e.g., video games, clothes, etc. I would love to get them more actively involved in our money decisions. I’m hesitant to bring up exact figures with them because I don’t want them sharing those numbers around school or our community.”
[00:01:26] Okay, Jane. At roughly nine, 11 years old, there’s a few things that would be amazing to get your children involved with. And I firmly believe kids should be talked to about money, and they should be involved in the money process as part of being a member of a family. Now, of course, as they get older, they get access to more money. They get the ability to be more responsible and plan for bigger things. But let’s start at around the age of 10.
[00:01:56] So they can be helping grocery shop. Here’s how much we have for groceries this week. Here’s what we need to get. Can you help me plan it? They can be planning a dinner out. Here’s how much we have for the family. Where do you think we should go? Oh, check the menu online. Will we be able to make pay for everything. What about tax? What about tip? How much do we tip?
[00:02:18] These are things that they can be doing at that age with a little bit of help. As they get a little bit older, think about the things they like. You mentioned they like video games, clothes, shoes, etc. So let’s say they want shoes. Help them make a plan for how they are going to earn money to get those shoes.
[00:02:35] And of course, the younger they are, you can make it a little easier for them. You can help get them supplies for something like a lemonade stand. You can match whatever money they make doing chores or going around to neighbors. You can match it one to one. The point is not for them to have to earn every single cent right now.
[00:02:51] It’s just the idea that you can actually earn money by working hard. And finally, as it comes to planning vacations, even at a young age, nine, 10, 11, they can do this. Now, you don’t have to tell them your entire income or entire vacation budget, but what you can say is, okay, we’re going to be gone Thursday through Sunday. I would like for you to help us plan what we’re going to do Saturday morning.
[00:03:17] The amount we have for our family is $200. Look around at Virginia, where we’re going, and look up some places. What do you think you want us to do? Of course, this builds on the skills of them helping you grocery shop, helping order dinner for the family because they have to account for all the phantom costs, taxes, tips, taxis, etc. And you’re going to watch them as they become savvier and savvier with money. Great question, Jane. Keep me updated. Love to know how it goes.
[00:03:49] Aisha asks, “What do you do when you feel like you made a wrong choice and you have regrets in spending your money? I spent money on something I thought would help me in my life, but it hasn’t. Now I regret spending that money. It was a recurring service, and now I’ve stopped it, which is good, but I still feel bad about spending what I did.”
[00:04:06] In this question, you can hear a lot of hot emotions. Regret. I still feel bad. And this is a big clue for me when I’m listening to people talk about their money decisions, these hot emotions. Because my philosophy is hot to cool. Money is always going to be emotional. I will never tell, someone stop feeling that way about money. But what I want you to do is replace some of the emotions you feel, some of the negative ones with positive ones about your rich life, and also to go from hot to cool.
[00:04:40] Cool means saying something like, wow, I really enjoyed spending money on that thing. I think we should do it again. Or you know what? I bought this thing. It wasn’t for me. I learned my lesson. I’m not going to do it again. You can see the difference between cool emotions, emotions that you are in control of, versus, I regret that. I made a horrible mistake.
[00:05:01] Those are hot emotions, and those tend to overwhelm us. So with spending, I want to give you one principle. The more money you spend, the more money you’re going to waste. It’s totally normal. I want to emphasize this because you never hear anybody in the money world talking about this. Most people in the money world are obsessed with waste.
[00:05:26] Oh my God, we got to find the waste. Government waste, personal waste, waste, waste, waste. If you’ve ever run a business, if you’ve ever run a restaurant, if you’ve ever done anything of any meaning whatsoever, you know that there’s a certain percentage that is pure waste, and that’s life.
[00:05:41] If you try to go through life eliminating waste a 100%, you’re probably not doing anything very interesting. So the more money you spend, the more you’re going to waste. Now, is that the best thing? No, I don’t want you to be wasting 40% of your income. Of course not. But in my case, for example, sometimes I might order something from Amazon, and maybe one out of 80 purchases doesn’t work, or it’s not for me.
[00:06:08] Okay. Most of the time, I try to return it, but once in a while, I can’t. I just don’t get around to it. I have other stuff going on, etc. Donate it. And did I lose 10 bucks or 40 bucks? Sure. In the grand scheme of things, I have to allow for a little bit of waste because I’m running a complex system. And if you are working at a job, if you’re running a household, if you’re managing your own money, you are managing a complex system, and you’ve got to allow for a little bit of waste.
[00:06:36] So Aisha, two things I’ve given you. One, bring the emotions from hot to cool. Say, hey, I spent money on this. Here’s what I thought it was going to do. It didn’t do it for me. I learned my lesson. I’m not going to make that mistake as I continue on my rich life. Second, understand that there’s always going to be a little bit of waste. You shouldn’t look to waste money, but you can accept that once in a while, you’re going to make a mistake with your money, and that’s okay.
[00:07:04] Eric asks, “How do you merge two different dream vacations when traveling with a spouse?”
[00:07:09] Ooh, I love this question. The best way to do this is to create a shared vision of your rich life. So let’s say one of you likes to wake up at 7:00 AM when you’re traveling, get going, and the other wants to have a leisurely morning and lounge around, have a nice long breakfast. So it would be easy to point at your partner and be like, oh my God, it’s so annoying. We’re never going to have the chance to be in France again. We need to get up. You’re always so lazy on the– don’t do that.
[00:07:37] Before you go on vacation, create your vision of the trip. What’s going to make this magical for both of us? And you can start off by asking that. Hey, what’s going to make this a magical trip for us? And you can ask each other even more questions. Hey, tell me about how you like to travel. I noticed that when we’ve traveled in the past, you’d like to wake up early and get going. Tell me more about that. Where’d that come from?
[00:07:57] And if you’re really genuinely curious, you might discover that they grew up only taking three vacations in their entire family history, and they always went with their big family, and they spent the entire day out because they knew they wanted to see everything because they knew they would never come back.
[00:08:14] So that’s actually really interesting. That’s a big clue. Maybe you ask your partner, how did you feel at the end of the day? How do you want to feel at the end of our days when we now travel? Oftentimes, we simply carry the lessons we learned from childhood into our current situation, even though our financial reality might be totally different. Maybe they didn’t have enough money to take a longer trip.
[00:08:36] Maybe you do. You can also ask, what if you knew that we could go back to visit? How would that change things? Would it mean that we maybe don’t need to see every single thing in one day, or would you still want to see it? Ask in a genuinely curious way. Then tell them your perspective. I grew up taking more vacations. Um, we’d have a slow morning, then we’d come back and nap in the afternoon. Probably the downside is that we didn’t see as much as you did when we would go places.
[00:09:05] And tell each other how you want to feel. I want to feel relaxed. I want to create memories. What do you think is a good way for both of us to get what we want? This is the beginning of a beautiful conversation. Notice that it’s so much deeper than mere tactics, so much richer than pointing the finger and telling someone else you are wrong, and I am right. So you ask, what do you think is a good way for us to get what we both want?
[00:09:31] Start off by writing down your three key travel values. Maybe they look something like, memorable experiences, great food, and laughing a lot with you. That sounds pretty good to me. I did the same thing when my wife and I were planning our wedding. We wrote down our key values, and that helped us sort through the thousands of decisions we had to make about what type of flowers, and, uh, what type of food, and what clothes. We had three to five key values that we could lean back on. So really important.
[00:10:02] And then once you have those values, suddenly these decisions become a lot clearer. Now, on a tactical level, let’s say you’re taking a five-day trip. You might decide, we’re going to get there in the middle of the day on Tuesday. We’re going to relax that day. The next morning, we’re going to pack it all in, then we’re going to relax, then we’re going to pack it up– a lot of push and pull. You can do that.
[00:10:23] Or you might have this trip be totally packed and the next trip totally leisurely. Or you might let one person propose the trip, the other one review it, give some suggestions. There’s lots of tactical ways you can come up with a shared vision, but the key is to not skip this step. This step is actually the most important, which is to understand your partner’s perspective and jointly come up with a rich life vision for how you want to travel together.
[00:10:50] From James, “What are some services you use to make traveling easier?”
[00:10:56] All right. The obvious ones are TSA PreCheck and Clear. If you have certain credit cards, they’ll credit you for Clear, etc, but that’s table stakes. Next off, I use TripIt, which is an awesome service. It’s an app, and it will automatically monitor your inbox, take any travel confirmations that come in there, and put them in this nice app. It will send you alerts. It organizes everything. So when I get up to the airport, if I need to pull up a confirmation number, I know exactly where it is.
[00:11:30] I have an Amex Platinum that allows me access to lounges in certain airports, which is pretty nice. But I’ll say the biggest thing that I do for traveling, which makes my life easier, is I have created an SOP, a standard operating procedure, along with my executive assistant. And this outlines every little detail about how I like to travel.
[00:11:55] And whether or not you have an assistant, I think this is really helpful because it just documents what’s in your head about the type of preferences you have for traveling. So here’s a few things that are in my SOP. What airlines I like to fly in what order. So if there’s not a certain flight available on this airline, go to the next. That way, I never end up flying American Airlines. Nobody wants to fly American.
[00:12:21] Next up, what seat. I know what seat I like to sit in, and that would be a window seat, blah, blah, blah. So that is written down. Now, if that seat’s not available. I have the next one listed. There’s a lot of other detailed preferences. For example, not having me land in JFK at 4:45 on a weekday. Why? Because then I’m going to be sitting in traffic, rush hour traffic, for an hour and a half.
[00:12:49] So there are little tweaks that all can be written down, and then my assistant know it, and over time, she gets really good at intuitively knowing what’s going to be a great flight for me. Obviously, in there would also be, um, number of connections I’m willing to do, which is zero– any other variety of things.
[00:13:08] When I travel, um, we have a travel protocol that gets activated. That would be things like, how do my emails get handled? My assistant knows to reply to certain people saying, hey, he’s on the road. He might be slow getting back to you. Can I help? Sometimes when I’m traveling over a long period of time, I will have things at my hotel when I arrive, so my assistant will know what I’m eating and will have shipped a bunch of food, for example, yogurt, fruit, etc, so that when I check in, it’s already waiting for me in a bag.
[00:13:41] If you’re interested in how to work with an assistant, or even how to find an assistant, I actually have an entire program on this called Delegate and Done. I will throw a link into the show notes. For those of you who are busy, whether you or a CEO, or even a parent, and you want to use money to buy back some of your time, this program is actually an amazing way. It includes a lot of my SOPs that I use with my assistant.
[00:14:06] Some other tools, my suitcase. So I use a Tumi suitcase. I’ve had it for probably 15 years. It’s awesome. And I have a go bag, a toiletry bag that is always packed. So when I come home, I’m refilling everything in it so that the next time I have to travel, it’s ready to go.
[00:14:27] One last thing, you know I’m always out here spending money on different things, testing out what works and what doesn’t, so that I can come back and report to you what’s worth it. Well, let me tell you something that’s not worth it. My dream is walking through the airport with my hands free. I don’t know why.
[00:14:46] That’s just my dream. It feels very luxurious to me. That is truly my rich life. So I decided, you know what, I’m going to start shipping my bags ahead of me. You can get services to come take your suitcase. They’ll ship it ahead. It arrives at the hotel before you get there. And depending on what hotel you stay at, they’ll actually unpack it for you.
[00:15:07] So when I walk into my hotel room, again, with my hands completely free, I’m just snapping my fingers. I’m running along, whistling, having a great time. And I walk in, check in, boom. All my clothes are already unpacked in the closet for me. That is the life. I said, let me do this. So I went and searched for a bunch of different places, and we decided to use a service called Luggage Free.
[00:15:34] Nice promise. Luggage free. And I said, you know what? Let’s try this on a very easy flight. So from LA to New York direct. I’m planning to get there on Saturday. I will ship it on Thursday. I’ll pay for the next day. That way, it arrives Friday, and even if it needs an extra day because it gets misplaced or something, it’ll get there by Saturday.
[00:15:58] All right. I land in New York on Saturday. I’m so excited. Where’s my bag? I’m so cool. No bag. No bag. Oh, and by the way, they have no information available. This service, by the way, is called Luggage Free, just so everybody knows. Call them. Don’t get anything. My assistant’s chasing them down.
[00:16:16] They finally put somebody on the phone. They say, we’ll find out. Monday comes around. Now, keep in mind, I need to go buy a bunch of clothes because all my clothes were in this bag. I didn’t actually plan for it to fail. Remember that concept I have called failure expectation? I totally ignored it. I just assumed it would all work out.
[00:16:33] So I’m standing in line buying new gym clothes, buying all kinds of stuff. My bag does not arrive until Thursday. It took a full week to get from LA to New York. So, uh, what did I conclude? First of all, they offer you money back, etc. It took us so long to get a 500-dollar check back. It almost wasn’t worth it.
[00:16:56] Second, never use Luggage Free. This is the worst service out there, please. I gave them the easiest task in the world. Pick up a suitcase from LA, get it to New York within 24, even 48 hours. It took them seven days. And they were horrible on the phone. I don’t mind if mistakes happen. Fine. No problem. I’m sure you’ll refund the money. But the fact that they wouldn’t return our calls, and they made it so hard to get a refund, that’s why I come on this podcast to millions of people and tell you, do not use Luggage Free.
[00:17:26] Now, I haven’t given up on the concept. I did use another service, and I had it shipped from New York to LA. It actually worked great. I want to test it a couple of more times, and then I’m going to come on here and tell you what the best service is, because I still have a dream of being able to walk through the airport with nothing in my hands. So I’m working on it, and I will get back to you. James, thanks for the question.
[00:17:52] Vanessa asks, “How do I stop myself from oversharing the costs of things?” She said, “The more I work on my money psychology, the more I realize how often I overshare the costs of things, like other people care,” she says, “and justify my spending when I know I don’t need to. How do I stop this instinctive behavior?”
[00:18:13] This is very common. Somebody will be like, oh, that’s a really nice sweater. Thanks, I got it on sale. What they’re doing is they’re minimizing how much they paid and over focusing on cost. Oh, wow. That’s a really nice, uh, Apple core you have. Oh, thanks, I was really stressed out. That’s why I bought that. Always justifying a purchase. There always has to be a reason.
[00:18:40] Or minimizing. Oh, that’s a nice, uh, thing you have on your desk. Oh yeah, it costs 15 bucks. Knowing full well that it costs 40 or $45. So what’s going on here? Many of us, deep down, feel guilty about spending money. It’s as simple as that. That is in our culture, particularly in certain areas.
[00:19:04] For example, in the Midwest, this is a very common thing. You’ll hear on my podcast many people from the Midwest always apologizing and minimizing something they bought. You also hear it in India. When I would go to India when I was a kid, I would go out shopping, and then I would come back, and I would hear, how much did that cost?
[00:19:22] It was all about cost. Now, cost is a money lens that can be valuable. A money lens. Imagine you put on a pair of glasses, and you look at the world through those glasses. Most people look at the world through the money lens of cost. Makes sense. Most people are optimizing for costs. They don’t have a ton of extra money. It makes sense.
[00:19:44] But it’s funny because there are also a lot of other money lenses that you can use. You can use delight, like taking your kid to a cool place that they love. You can use luxury. Getting something purely because you want it. Maybe it’s getting your nails done, or maybe it’s going to some event and getting nice tickets
[00:20:07] There’s safety. It could be buying safety features, or it could be going to a restaurant knowing that you’re going to be able to get a seat, knowing that there’s going to be not too loud people next to you. Safety, knowing you’re going to get what you want. There’s so many other money lenses you can put on.
[00:20:26] And, um, what I find is that it’s such an empty way of living to only go through the world wearing one lens. It’s like trying to play a symphony with one instrument. You’ve got to be able to play with different instruments or different notes at different times. Sometimes cost makes perfect sense.
[00:20:44] If you’re buying salt, and it’s a commodity, maybe you just go for the cheapest salt. Okay, fine. But if you’re buying diapers for your baby, I bet you’re not using cost. I bet you’re using something else. Experience, results. There’s so many different ways of looking at it. And so what I try to do when I talk about money psychology is to show you that cost is not the only money lens, and it’s often not the best money lens.
[00:21:11] We need to be able to play with different money lenses at different times. So what you’ll find with people who overshare is that, number one, they only have one money lens. That’s the primary and singular money lens they have grown up with, is cost, cost, cost. And so if they ever get confronted or asked about something, they always revert back to cost. It’s like a warm blanket.
[00:21:36] Um, second, you’ll find that people feel guilty about spending. Deep down, they believe that spending is bad, and saving is good. There’s some truth to that. I like saving. It’s good. Yes, you should save. Five to 10% minimum. Ideally, 15. Good. But this idea that I’m bad. I’m being bad. I know I should be good. Our language often reveals so much about what we believe. So how do you fix this?
[00:22:02] You can do it in a couple of ways. One is you can get really clear about what your rich life vision is. Uh, you can do this by listening to my podcast, get my journal, that will help you actually sketch it out and write it down. You’ll be able to see what’s important to you. While you do that in your rich life vision, you’re also going to be able to clarify what’s not important to you.
[00:22:23] So first, you’re just getting it all out on paper. Next off, you’ve actually got to practice. It will be very difficult for someone who’s grown up and done this for 25 years, always minimizing, justifying, rationalizing, to hear somebody say, wow, that’s a really nice shirt– and the way you practice is by saying, thank you. I appreciate that. Or thank you, I really love it. Not, thanks, I got it for sale at Marshalls. It was on sale. I went on Tuesday, so I got the senior citizen discount. Just, thank you. I appreciate it. That’s practicing.
[00:23:04] And then third, and this is the more advanced part of it, is to actually spend extravagantly on the things you love and cut costs mercilessly on the things you don’t. This is exemplifying what your vision is. So this would be like, you see me, I spend a lot on travel, and you’ll see me occasionally post about a hotel I stayed in, but also, I cut back on my car, even when people on social media are like, you’re a loser. Why do you have a nearly 20-year-old Honda? And you can see my responses are just like, that’s not important to me. But here’s what is.
[00:23:37] So that takes a long time to get to, but you start with baby steps. You start off by sketching out your vision, and then practicing. And over time, you will also work on your money psychology to realize, I’m worth it. I don’t have to justify purchases, and I certainly don’t have to play small and tell everybody how little I spent on it.
[00:23:59] If you’re interested in this topic, there’s a podcast I did with Mindy and Carl. I would highly recommend it to you. Mindy, uh, went on this great vacation with her kids and her husband, and I said, “How was it? Sounds like a great vacation.” And the first thing she told me was how much it cost. And I said, “Why are we talking about cost?” And it’s just part of the way she’s brought up. It’s part of her culture. It’s part of the surrounding that she has.
[00:24:24] And from an outside perspective, that was me, the listener, and you, the listener. You’ll be able to see how it actually sounds when you are a third party listening into someone just go into costs. You’re just like, what’s happening? It’s weird. And I want to show you that just because something’s in your head does not mean you have to tell everybody. These are the skills you’ll learn as you improve your money psychology. I think Mindy did a really good job, and Carl as well, as they went through the podcast. All right. Thanks, Vanessa, for the question.
[00:24:55] Talia asks, “How do I factor in a one-time emergency or surprise medical expense?” Uh, she said, “If the emergency fund rule of is six months, where do one-time emergency or surprise medical expenses fit in? Example, I recently had an unexpected dental procedure that was over a $1,000.”
[00:25:14] So here’s the answer, Talia. There’s no great answer. There’s no perfect answer. Very few people are planning for emergency medical expenses. And truthfully, that actually makes sense because there’s much more important things for people to worry about. Most people are not saving enough. They’re not investing enough. They’re overspending on their house and car.
[00:25:34] Most people don’t even know what they’re spending. Let’s put it that way. So if you’re at this point, fantastic. Here are your options. One, you can have a general savings account. Okay, just a general savings account. You throw in, I don’t know, 2%. Just throw it in there, and use it for whatever. It’s like a petty cash or slush fund.
[00:25:54] Alternatively, if you have an emergency expense, you can pull from a special savings account like vacation. You could pull from your vacation fund and use it for this. What I find is that most people honestly don’t think like this. They simply see whatever’s in front of them, meaning their monthly charges, and they just go, okay, we got to try to figure this out.
[00:26:21] And if they don’t have enough money in their checking account, they just finance it, pay it over several months. That’s the way most people do it. Talia, since you’re asking this question, I suspect you have money in different accounts. You can just pull it from one of those other accounts. What most people do who end up with high incomes or a relatively high net worth is they just keep a little extra in their checking account for situations like this.
[00:26:45] Now, how much is a little extra? It depends. If you’re making a million dollars a year, you might keep 50, $60,000 in there. Who knows? But the downside of that is that you’re not earning interest, and it just gets eaten up, etc. I keep a little extra than what I need just because I don’t want to have to go pulling out accounts and messing up my nice system. That’s how I would think about it.
[00:27:07] One last thing I want to suggest to you, Talia, is if this presented a financial challenge for you, if you didn’t actually have the cash to be able to pay for it in full, you could call this dentist and ask them what financing options they have. This is really common. When I was young, there’s no way my parents had thousands of dollars, so they would pay it over several months.
[00:27:29] Just make sure you’re mindful of how much they charge, and their interest, and all that stuff. But in my experience, a lot of these companies will certainly work with you because there are very few people that can write a check for a 1,000, 2,000, $5,000 right off the bat. All right. Thanks.
[00:27:45] M says, “What percent of your take home income should one keep for education or personal development? Does this value change with age and net worth? And in the CSP, should this go in fixed costs, or saving, or guilt-free spending?”
[00:28:00] All right, good question. There’s no specific number. I’m very careful not to give too much guidance as to how much certain things should be in your conscious spending plan. That’s up to you. Fixed cost should be 50 to 60% of take home, but if you want to spend more on a car, or less on groceries, or whatever, that’s up to you. I’ll give you the lay of the land, but it’s your money, and it’s your rich life.
[00:28:28] If you look at my guilt-free spending, for example, travel is really high, but my car is essentially zero or very low. So it’s up to you how you want to put the pieces together, but you have the puzzle pieces in front of you. Now, where does education go, or personal development? I would say this goes in guilt-free spending. Let me tell you why.
[00:28:51] If you were to get laid off or go under some financial calamity, you would probably cut back on this. That’s what goes in guilt-free spending. It’s an easy way for you to have one category of stuff that you could immediately slim down or entirely eliminate if you need to. That’s why I would put in guilt-free spending.
[00:29:11] You know these questions are coming from my Money Coaching program. We have this Slack community where we have people talking about the podcast episodes, people asking tons of questions. So if you’ve ever wanted to get your questions answered from other people who are going through the rich life journey, that’s where you can ask it, in iwt.com/moneycoaching.
[00:29:32] I want to share a comment that came through about a rich life including generosity. This is from one of our students. She said, “I sent $2,500 each to my three younger cousins, along with instructions to set up Roth IRAs on Fidelity and to invest in the S&P 500 index fund. One used it for college costs, and two are setting up the IRAs and paying it forward.”
[00:29:57] This is awesome. At the beginning level of personal finance, it’s always about what. What do I get? What kind of car can I buy? What kind of restaurant can I eat at? And that’s fine. I have no problem. You want to buy a nice thing? Go for it. At the highest level of personal finance, the rich life, it is always about the who. Who can I surprise? Who can I be generous to? Who can I bring with me? And this is a perfect example from Kathleen of paying it forward.
[00:30:24] I do believe that the more money we make, the more of an obligation we have to help other people. So you’re going to find that throughout my material, and I’m unapologetic about it. Yes, the more I make, the more I should be taxed. The more I make, the more I tip. The more I make, the more I can give away, and help, and be generous, and surprise other people. That is my vision of a rich life. Thank you, Kathleen, for sharing yours.
[00:30:52] Heather asks, “If you do not have an emergency fund, how do you prioritize that goal versus guilt-free spending? If it’s going to take me five years to build a six-month emergency fund, then it’s hard to be guilt-free when there’s not enough to keep the lights on in case of a job loss.”
[00:31:09] All right, Heather, this is actually normal. It normally takes people years to build a full emergency fund. Just know this, if you suffered a job loss tomorrow, you would immediately stop your guilt-free spending, and all of that money would get redirected to you for living expenses. What I want is for you to live a rich life today and a richer life tomorrow.
[00:31:35] Some people go extreme. They go, I’m not going to eat out ever until we build up this emergency fund. I find that to be restrictive and reductive. It’s a all or nothing perspective, and the type of person who does that almost never loosens up. They continue that all-or-nothing approach until they die.
[00:31:57] So having a balance is a habit. It’s a skill. You have to learn it. And the way you could do that is say, look, let’s say, I have a $100 that I can distribute. It’s going to take me a long time to build up my emergency fund. I’m going to put five in my savings. I’m going to put 20 in my guilt-free spending, and the rest, distribute it throughout my CSP as specified. What that means is you’re not putting everything for an emergency fund and then starting to live life.
[00:32:30] You’re living a life now. Sure, you’re keeping a little smaller than you would like to, but you’re living it. You’re still going out to eat once in a while. You can take a trip occasionally, and you’re building your emergency fund, and you’re investing. You can do all these things at the same time. You just need to slow it down.
[00:32:48] Now, of course, if you want to do it faster and you want to live a rich life, richer, bigger, then you can earn more. There’s lots of ways to do it. You can find a new job. We teach you how to do that. I’ll throw a link in the show notes. You can start a business making an extra $500 or $5,000 a month is incredibly meaningful to almost everybody. I’ll put a link for Earnable in there. So there are lots of ways you can actually increase your income, which allows you to live that rich life faster and bigger. All right. Thanks, Heather.
[00:33:20] Tim says, “When traveling with others, how do you handle splitting costs?”
[00:33:24] This is a good question. I’m actually obsessed with this question of, how do people travel with big groups? Because I have done it sometimes successfully, sometimes not. I think it’s a really hard skill. You have to understand money. You have to be highly emotionally present, good at communication. You have to do a lot. So let me give you three scenarios, Tim, as to how I might handle splitting costs.
[00:33:52] All these are real. So scenario one, everyone handles their own expenses. This would be a friend’s trip. We’re all going. We basically handle our own hotels, our own airfare. The only things we split might be when we sit down at meals, everybody puts their credit card in. But aside from that, everyone’s paying for their own tickets to a show, etc. That’s a simple way. I would say that’s how most friend groups are traveling.
[00:34:16] Scenario number two, we all split it. This is like a trip that we recently did. We all planned ahead of time. Usually, one person took the lead on planning the trip. It involves a lot of communication and planning since people have different budgets and some people want to stay for longer, shorter, nicer place, not so nice place.
[00:34:36] You have to get buy in from everyone. And the ideal way to do this for the planner is to get everyone to share their budget ahead of time. But if you ever try to do this, you’ll realize that is not how people plan a vacation. Almost nobody says, okay, we have $4,500 for this vacation. Never. They never set a number ahead of time.
[00:34:58] If you actually ask them what their number is, they’ll literally just look up at the sun, feel for the wind, and they’ll give you an incredibly unrealistic small number. It’s a number that they spent when they were 21 years old, and they still expect to spend the same amount now that they have two kids and want to stay in a nice hotel.
[00:35:18] Most people will tell themselves they’re going to spend $3,000, and they’ll end up spending $8,000, then they’ll just look at the bill, oh, I guess we spent that much. Scenario number two is really hard to plan, but it can be done. You just need one person to take the lead. Scenario number three is where I pay for everything, or you, or whoever.
[00:35:38] Sometimes I just want to do it my way, or I want to celebrate something, and so I plan it. I pay for everything. Basically, everyone is responsible pretty much for their own airfare, but aside from that, I’m taking care of everything. This is something I did for my 40th birthday. I had my friends and family come. We stayed at this awesome place, planned it all out, had a lot of help. Cass was the one who actually planned most of it because I was dragging my feet. I get uncomfortable around my birthday, but she helped me do it, and it was an amazing experience.
[00:36:12] So those are three ways that I have found of handling splitting costs. Probably the most important thing you could do is just decide, which of these are you going for? Also, I would say that money and travel, particularly with different people, raises a lot of really interesting questions, like, are you paying for your parents?
[00:36:31] Or sometimes people feel beholden or uncomfortable if somebody else is paying. There’s lots of dynamics to explore. If you are interested in this, send me a note. We’ll talk more about it potentially in a future episode or on my Money Coaching program. Yeah, I’m just obsessed with this question. I think it’s so interesting.
[00:36:50] Rachel says, “How do I know if my budget is reasonable for the destination that I’m traveling to without setting some arbitrary number?”
[00:37:01] Well, honestly, it probably is an arbitrary number the first time you’re planning something. I would say you have two options. First, you can make a list of every single thing you’re going to do, and then stick to those numbers religiously. And this is basically how a lot of people, including me, traveled in their early 20s because they had to, and it’s fine.
[00:37:20] It works perfectly fine. You sketch out how much you’re going to spend per meal and add in the price of the train tickets, etc. Cool. Or another option is you make an educated guess, you take the trip, you come back and analyze it, and then you get a little bit better the next time you plan. I would say, at this point in my life, I do the second.
[00:37:41] I always leave a healthy margin of error. For example, if a hotel costs, let’s just say, $300 a night, I actually know that it’s realistically going to cost $450 a night when I factor in taxes, and room service, and drinks, and tips, and all kinds of stuff. But I always treat it as a learning opportunity.
[00:38:00] So each time we travel, we’re analyzing it, maybe getting a little bit more accurate with time. But that requires having enough money to be able to make a little bit of mistakes. That’s something I would keep in mind, Rachel, as you go through planning your trip. It’s a skill. You will get better at it each time you do it if you come back and analyze it.
[00:38:22] Jen says, “Am I missing out on real estate? Anyone else feel like they’re missing out when it comes to real estate? My husband and I have always been very happy renting in a high-cost of living area. We also have friends who have bought. They have a 2.3% interest rate, and they have so much equity in their home. We have friends that made over 500,000 flipping a home from 2019 to 2023. There’s no way we could have made this by investing. I get the phantom costs, but it just creates this feeling in me like we are missing out on opportunities.”
[00:38:51] All right. I could answer this, but I want to share some of the answers that came in from other people in the Money Coaching community, just to show you the type of caliber of Q&A that’s happening at iwt.com/moneycoaching.
[00:39:04] Cole said, “You mentioned phantom costs, but there is also a thing as phantom gains. Many times people report gross gains without subtracting out all the costs they poured into the property before, during, and after the sale. Ramit shared an example of a grandmother who owned a home for a 100 years, and the grandchild sells for 750k profit. Fine, but the cost of maintenance, upkeep, selling, and closing trimmed that profit down to a fraction of the amount.”
[00:39:31] Another person, “Grass seems greener, sure, but there is more to real estate than it appears. Just ask my landlord. He’s heavily in the red, and underestimated property tax increases, utility increases, contractor increases, and is a very unhappy owner of this house. Don’t let FOMO be the guiding light for entering into real estate. You will regret it, and the gains are not always juicy as they appear.”
[00:39:53] All right. Let’s talk about this. So first of all, you can make a lot of money in real estate. There’s no doubt about that. There’s a lot of wealthy people who’ve made a lot of money in real estate. What I want is for you to be honest about how the numbers work. First off, if you say, my friends bought and flipped a house between 2019 and 2023, do you see what might be going on in that time period?
[00:40:19] That’s like me saying, I walked into a casino where the machine happened to be paying out a 100% of the time, I put my dollars in, and I made a ton of money. I’m an amazing investor. No, you got lucky. This is one of the key characteristics of a skilled investor, is it’s okay to be lucky. In fact, it’s fantastic to be lucky, but you’ve got to know when you are lucky, and you’ve got to know when you are skilled.
[00:40:48] If you bought in 2019 and then guess what happened in 2020, with historically low interest rates and tons of money coming from the government being funneled in with historical low supply and on and on and on. Guess what happened to prices? They went way up. Now, if you think that you’re a genius because you did that, that’s a mistake. If you simply say, damn, I got lucky, and that was awesome, and I’m going to take the money, fantastic. We’ve got to know the difference between being lucky and being skilled.
[00:41:18] Next up, you have to remember that most people lie. They lie for a couple of reasons. Most of the time, they don’t even know how much they spent on a property. They’re certainly not tracking when they go to Home Depot on a Saturday. I can tell you right now, they’re not using a separate credit card for their housing, so they can track it.
[00:41:35] They’re definitely not tracking the gas. They are a 100% not tracking the labor of how much time they should be charging if they were to factor that in. Then they forget about closing costs, and the new furniture they bought, they would only buy in a new house rather than a rental. The closing cost, transaction fees, taxes, and on and on. They’re not counting any of that. They just take the big number, compare it to the small number, and they go, I made a lot of money.
[00:42:01] Another thing, you don’t actually hear that many people who lost money posting about it on social media. We have an adverse selection problem. So you only hear the people who are out there saying these big numbers, most of the time, not even understanding their costs. And then finally, sometimes people just openly lie. I know for a fact, there are some people I see right now on Twitter, today, who are lying about how much they have made, and they happen to be selling some type of course or whatever.
[00:42:31] It’s important for you to know, first of all, have you run your numbers? Second of all, um, some people get lucky. There’s no problem with that. And third, who are you competing against? Real estate might be a fantastic move for you. It might not be. In my case, buying would be a horrible financial decision in a high cost of living area. I would pay about more than twice as much as I can rent for. So I take the difference, and I invest it. You got to run the numbers. But most of all, this is not a mathematical question. I can tell.
[00:43:02] It’s a classic Americana thing. If there’s one thing Americans hate, it’s their neighbor getting rich, especially when they think their neighbor is stupid. It’s like, stupid Steve. I knew him in high school, and now he’s rich, and I’m not. That leads people to very destructive behaviors. Steve might have gotten lucky. Steve might have family money. Steve might be lying to you. Who cares? Steve is not a part of your rich life. And what I often find from people who feel this FOMO is they actually don’t have a crisp vision themselves.
[00:43:41] So they are simply literally trying to keep up with the Joneses. Better than keeping up with the Joneses, where you don’t even know what’s going on, is to actually have your own vision. What’s my rich life? What do I want to spend extravagantly on? What do I want to cut costs mercilessly on? What’s my savings rate? What’s my fixed costs? That helps you understand what matters to you, and you will start to focus much more on that. It’s much more fun to row your own path than to just follow where everyone else is going.
[00:44:12] The summary, FOMO is not an investment strategy. You will regret it. If you decide you want to buy a house, whether as a primary residence or as an investment, great. Run the numbers. Make sure you understand. Make sure you followed my rules. I have all these guidelines for how to know if you’re ready to buy a house. I’ll throw a link in the show notes. But do not let FOMO make the decision for you for the biggest purchase of your life.
[00:44:43] Thank you for all the questions today, and thanks to the Money Coaching students. If you want to check out Money Coaching and get access to this community where you can ask them questions, get amazing answers, and get live Q&A with me every single month, go to iwt.com/moneycoaching.
[00:45:00] And if you want to catch the last time I did a Q&A episode, you can check out where I talked about how to stop feeling guilty about your spending, and check out this episode. I’ll throw a link right here in the episode. One last thing, to hear about the bigger picture of real estate investing, check out this episode with Natalie and Travis. It’s called, We Own 7 Properties. Why Can’t We Pay for Groceries?