Episode #127: “Our financial advisor almost cost us $800k. How do we fire them?”
Jeff is 50, he’s a specialized surgeon. Susan is 48, she stays at home with their two kids. Their discretionary spending has grown over the years, ballooning at an uncontrollable rate. But their biggest issue is that they’re being taken advantage of by a percentage-based financial advisor.
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[00:00:00] Susan: That it’s a waste of money. That we were fooled by it. That somebody sold it to us, and we didn’t know better then, but we know better now, and that we could make that money work for us someplace else.
[00:00:12] Ramit: Okay. So you don’t like being ripped off.
[00:00:15] Susan: Right.
[00:00:16] I think that was the saddest part, is seeing your salary and realizing we had so much debt, and it didn’t feel good, and the money didn’t fix the
[00:00:26] Ramit: Did you do this conscious spending plan together?
[00:00:28] Jeff: We did. It was not the 20 minutes version of the conscious spending plan.
[00:00:33] Ramit: How long did it take?
[00:00:34] Jeff: About two and a half to three weeks, I believe.
[00:00:36] Ramit: What? Three weeks?
[00:00:37] Susan: Days, days. Let me tell you. Doesn’t turn you on, I’ll say that.
[00:00:42] Jeff: We don’t have a simple financial situation, I will say that.
[00:00:45] Susan: Can you just come here, Ramit?
[00:00:46] Ramit: This week, I’m speaking with Susan and Jeff. Susan is 48. She’s a stay-at-home mom. Jeff is 51, and he’s a surgeon. They’ve been married for 19 years, and they have two kids ages 12 and 14. Now, if you know my book or if you’ve watched my Netflix show, you know that I talk about financial advisors occasionally. You know that I never want you to work with a financial advisor who charges you a percentage of assets or AUM.
[00:01:15] On the Netflix show, you saw me work with Natalie, and she was going to end up paying millions of dollars right into her advisor’s pocket, all in fees. So I get a lot of questions from people about this, including Jeff and Susan. And I understand that this is a complex topic. Should I hire a financial advisor? How do I find the right one? This is an important one. So I wanted to dedicate an entire episode to this issue. I wanted to show you what really goes into how financial advisors charge you money.
[00:01:45] And also, some of the surprising psychology. When it comes to hiring a financial advisor. Many of us feel good delegating our money to someone else. So for this episode, I collaborated with a partner, Facet, a service that offers affordable, accessible financial planning through a flat fee membership, not a percentage-based AUM fee.
[00:02:09] Today, you’re going to see the look on Susan and Jeff’s face when I show them how much they are paying in fees. You’ll also hear me show them how to graciously get out of their advisor relationship, including a word for word email they can send. Notice what happens, by the way, when we go through their spending.
[00:02:27] Quick message before we dive in. I was reading this article about dating red flags. For example, being a MAGA Republican or listening to Joe Rogan. These are real statistically valid answers that they took on a survey that got me thinking, what would be the top financial red flags in a partner? That’s exactly what I’m going to share in my newsletter coming out this Saturday, October 28th. Make sure you’re on the newsletter so you don’t miss it. iwt.com/podcastnewsletter. Now let’s get to Susan and Jeff.
[00:02:59] Ramit: Susan, what’s the biggest recurring disagreement that you have about money with Jeff?
[00:03:06] Susan: The whole life insurance policy.
[00:03:08] Ramit: Paint the picture for me. Where were you, and what happened?
[00:03:11] Susan: So this has been recurring for a long time, even back when the policy opened 15 years ago. I remember hearing through Suze Orman that whole life insurance policies are not investments, that you shouldn’t have them, that most of the money goes towards paying the financial advisor’s pockets, not really as an investment. And so before children, before we were even making any money, we started that policy. Yeah, I’m always bringing it up. Yeah.
[00:03:43] Ramit: Tell me where you were when you brought this up again.
[00:03:46] Susan: At home, probably, maybe even at the pool, trying to brunt it.
[00:03:51] Ramit: What does that mean?
[00:03:54] Susan: He gets agitated about the possibility of– as Jeff says, we’re so far in because we’ve been paying for it for 15 years. Why stop now? It’s only a couple of hundred a month. Yada, yada, yada. I’m like, it doesn’t matter if it’s a couple of hundred a month. It’s still a rip-off. We could take that money and put it someplace else where it would actually make a bigger difference.
[00:04:18] But I don’t know all the numbers. I can’t say, we’ve already put in this, and this is what it’s worth. You would make X amount of money if you stick it someplace else. And plus, there’s a loan against it. We took out money against that, and I have the numbers for that for how much we owe back at an 8% interest rate.
[00:04:39] So that makes my head explode also, that we owe money. And Jeff says, that doesn’t matter. I don’t care about that because that’ll get paid off if the policy gets paid out. I don’t know how true that is either.
[00:04:52] Ramit: Meaning somebody dies, is that what we’re talking about?
[00:04:55] Susan: If he dies, yeah.
[00:04:55] Jeff: I’m the somebody. Yes.
[00:04:57] Susan: He’s the somebody. Yes.
[00:04:58] Ramit: Oh, okay. Technically, that is true.
[00:05:00] Jeff: No, it is.
[00:05:00] Ramit: One day, when you die, there’ll be a payout. All right. Okay. Got it. So Susan, when you bring this up, how did Jeff respond?
[00:05:11] Susan: Offensive. Of all the things to worry about, this is the least that we have a problem with in our financial picture that’s not the big picture. Look at the big picture. This is a small percentage of what we have.
[00:05:25] Ramit: Okay. Got it. And do you agree? Is the whole life insurance a small part of the big picture?
[00:05:32] Susan: Yes. I think as far as our monthly investment, yes.
[00:05:39] Ramit: Okay. So what is it about the whole life insurance policy that seems to get you upset?
[00:05:46] Susan: That it’s a waste of money. That we were fooled by it. That somebody sold it to us, and we didn’t know better then, but we know better now, and that we could make that money work for us someplace else.
[00:05:59] Ramit: Okay. So you don’t like being ripped off.
[00:06:02] Susan: Right.
[00:06:02] Ramit: All right. Got it. Jeff, same scenario three weeks ago at the pool, do you remember this conversation?
[00:06:11] Jeff: Not specifically, no. And I guess it’s because it was a rehash of other conversations that all had the same feel. So one doesn’t feel necessarily significantly different than another. I know we’ve had this conversation, and I think my answer since at least recent years has been, if we really want to control our finances, we should focus on other things first because this isn’t really a huge part of what will make us successful or failure.
[00:06:43] Ramit: Okay. How long has this conversation been going on?
[00:06:48] Jeff: 10, 12 years, I guess.
[00:06:50] Ramit: Okay. 10 years or so of having this conversation. And is it the same pattern where Susan brings it up, and then you respond, and then nothing really changes?
[00:07:03] Jeff: More or less.
[00:07:04] Ramit: Okay. Is it really a problem? You two are fine. I think you have kids, right?
[00:07:14] Susan: Mm-hmm.
[00:07:14] Ramit: How old are your kids?
[00:07:17] Jeff: Almost 14 and 12.
[00:07:18] Susan: 12 and 14. Yeah.
[00:07:19] Ramit: Great. So you got a beautiful family. Is this a real problem?
[00:07:25] Susan: Yes, because it’s, why give them the money? Why can’t we keep more of our own money to fund what we want to do? It’s the same thing with moving the money out of the investment people that we have now that are charging us 1.24%.
[00:07:40] Ramit: Oh, your advisors.
[00:07:41] Susan: Yeah.
[00:07:42] Ramit: Is this part of the conversation as well?
[00:07:45] Jeff: Not this one, but it has happened.
[00:07:47] Susan: Yeah, we pivot to that too.
[00:07:49] Ramit: Hold on, hold on. Let’s take it step by step. All right. So let me start by asking, what do each of you do for a living?
[00:07:57] Susan: I’m a domestic goddess, so I stay home.
[00:07:59] Ramit: Great. Fantastic. And Jeff?
[00:08:01] Jeff: I’m a surgeon.
[00:08:03] Ramit: Okay, great. How long have you two been married for?
[00:08:06] Jeff: 19 years next month.
[00:08:08] Ramit: Oh, congratulations.
[00:08:09] Susan: Thank you.
[00:08:11] Ramit: Okay. What was the situation when you met? How did you meet, and what was your financial situation back then?
[00:08:18] Jeff: Profoundly different. We met working together. We were both in science, basically technicians in a lab. At this point, I was already starting to consider the possibility of medical school, working full-time, going to school part time to make that happen.
[00:08:37] Ramit: What were you making when the two of you were working in the lab?
[00:08:42] Susan: Gosh, I made maybe 28,000 a year. That was in ’98, ’99, 2000.
[00:08:50] Jeff: Yeah, maybe I made a little more, but not much.
[00:08:53] Ramit: So maybe the two of you combined made, let’s say, a 100k ballpark. A little less than that.
[00:08:59] Susan: Way less.
[00:09:02] Ramit: Way less.
[00:09:02] Susan: Yeah, in 2000.
[00:09:04] Ramit: Wow. Okay. All right. That’s good to know.
[00:09:07] Susan: Yeah. And there were times in med school where, yes, he had student loans, but I made 30,000 a year, and I carried both of us.
[00:09:15] Ramit: Okay. So that’s quite a bit different than where you are financially speaking today. Did the two of you ever talk about how your financial life would dramatically change one day?
[00:09:26] Jeff: No.
[00:09:27] Susan: I didn’t believe it. My psychiatrist, who had an MD was like, you’re going to have a lot of money. And I go, I am? Didn’t occur to me. I had no idea. It just didn’t seem real. It didn’t seem like a possibility because I didn’t have money. Being with Jeff was the first time I could even dream of going on a vacation. It didn’t occur to me that you would go around the world, and see things, and do things, and have all these experiences because I was like, how would you do that? That takes so much money. How does that happen?
[00:10:04] Ramit: Jeff, what about for you?
[00:10:06] Jeff: I don’t know, it just didn’t occur to me to have that next jump to the conversation about what’s going to happen in five or 10 years after we really start working and start getting paid what a physician will make, let alone a specialized physician.
[00:10:23] Ramit: Yeah. I’m so curious what happened the first time you got the full paycheck, Jeff. Do you remember that?
[00:10:33] Jeff: I do. Yeah.
[00:10:33] Ramit: Okay. Tell me about it.
[00:10:35] Jeff: The prorated amount for the rest of the month, plus the sign on bonus and how much taxes came out of it blew me away. I don’t know if you remember that.
[00:10:42] Susan: Do you remember what you said? I’ve never been so disappointed in $35,000.
[00:10:50] Jeff: Yeah. I was expecting, with what I knew, a gross monthly salary would be the 380 that I signed on for, plus a 50,000-dollar bonus. I was expecting probably at least 50 total. We didn’t make discreet plans, but in the process of trying to get moved and this and that, we had already accrued some debts. We borrowed money from my parents, and that didn’t feel very good, as a doctor, and a specialized doctor, and a surgeon, to have to borrow money from your parents to move, so to speak.
[00:11:23] Ramit: Yeah. What age were you at this point, Jeff?
[00:11:28] Susan: 40. Yeah, you were 40 when you were finally done. Took him until he was 40.
[00:11:33] Ramit: So 40 years old. You essentially started this chapter of your career as a surgeon, where you were being paid a considerable amount.
[00:11:43] Jeff: Yeah. Absolutely. Yes.
[00:11:46] Ramit: There’s a lot already going on here. Whole life insurance, financial advisors, the fact that Jeff’s salary is very high, but that he only really started earning it at the age of 40. I don’t yet know enough to figure out what’s going on here, but I’m collecting the clues in my head. Now, if you were me, where would you take this conversation? What would you ask next? Think about it because as you listen to this podcast, I want you to hone your own skills as an investigator.
[00:12:15] We’ll be right back.
[00:12:17] Now, back to the show.
[00:12:20] Susan: I think that was the saddest part, is seeing your salary and realizing we had so much debt, and it didn’t feel good, and the money didn’t fix the problem. We made 380,000 a year, and it was still like scrambling, still couldn’t do everything. I wasn’t rolling around in money. I didn’t feel any better. If anything, I was more scared because I was wasting it, and I wasn’t being intentional. And that was awful.
[00:12:55] Ramit: Were you always scared of money?
[00:12:58] Susan: Yes. Yeah, didn’t grow up with a lot of money because I had a single mom and my dad wouldn’t pay child support. So we always had the house, and we had food, and things like that, but we didn’t do anything extra. We never went on vacation. We never went out. I never dreamed bigger.
[00:13:20] Even marrying Jeff, knowing that he was going to be a doctor, it didn’t occur that it would ever be even my money. I was still always still scared that I was going to have to be able to take care of myself and still be able to live within my means, things like that. Yeah. Couldn’t dream big with it.
[00:13:39] Ramit: What messages about money do you remember your mom teaching you?
[00:13:45] Susan: Have to be very careful with it because there’s no pot of gold.
[00:13:54] Ramit: What does that mean?
[00:13:58] Susan: You’re not going to have a lot of money. You’re just not.
[00:14:04] Ramit: Wow.
[00:14:06] Susan: Because of our money situation growing up, that’s why I went to college, because I didn’t want to have to worry about money.
[00:14:14] Ramit: Were you the only one in your family to go to college?
[00:14:16] Susan: Mm-hmm. Out of my entire family. Huge people.
[00:14:20] Ramit: Congratulations.
[00:14:20] Susan: Yeah, thank you. Because I didn’t want to live like that. I wanted to be able to have things. I thought my happiness would be in things and being able to buy things, and realize obviously now that that’s not it, but the security of having money because my mom struggled, and she couldn’t do things for us, and that hurt.
[00:14:43] Ramit: What else did your mom teach you either explicitly or just through her own actions about money?
[00:14:49] Susan: She never really spent it on herself because there wasn’t a lot of extra. If she wanted to dye her hair or do her nails, she did everything herself.
[00:14:57] Ramit: I see.
[00:14:58] Susan: And it wasn’t even so that she could give it to us because there wasn’t a lot of extra to give, but she was last on the list. If she wanted to do Christmas, she would put it on a credit card and then have to borrow the money to pay off the credit card for my grandparents. My grandparents were very stingy with money. Never did anything fun or good with it. Just wanted to hoard it and hold on to it because what if you lose it? They were from the depression.
[00:15:25] Ramit: Where did you grow up? What area?
[00:15:27] Susan: Philadelphia.
[00:15:29] Ramit: Ah, okay. Interesting. You mentioned that your dad did not pay child support. Did your mom ever reference that as you grew up?
[00:15:38] Susan: Yes.
[00:15:39] Ramit: What did she say?
[00:15:40] Susan: What little I would ever see them talk on the phone and turn into a screaming match over him not paying anything. It was so bad. He went to jail for not paying child support several times. And then for my college tuition, apparently, when they got divorced in ’76, when I was a year old, part of the contingency was that he would pay for my college. But he didn’t pay for college. And so my freshman year of college, my mom had to take him to court to force him to pay, and he still didn’t pay.
[00:16:15] Ramit: How did you pay for college?
[00:16:16] Susan: Student loans.
[00:16:20] Ramit: Okay. A tortured relationship with money growing up is what I hear. Would that be fair to say?
[00:16:28] Susan: And then not knowing how to handle money and going through our 20s and middle 30s, just making lots of money mistakes, overspending, not being conscious, having lots of debt. We’ve learned the hard way.
[00:16:43] Ramit: Okay. We meaning you and Jeff.
[00:16:45] Susan: Yes. Me beforehand, and then I feel like I dragged him into the mess. He was very conservative when we started dating.
[00:16:53] Ramit: So Jeff, what did you learn about money growing up?
[00:16:56] Jeff: Raised solidly middle class. A, it wasn’t discussed, but it was never an obvious problem to the kids, at least. And so I think that’s just how my mentality was, is that it just gets taken care of. And even if we don’t have a lot, we find a way. Again, we were pretty solidly middle class. My mom was a stay-at-home mom. My dad worked.
[00:17:24] Ramit: What did your dad do?
[00:17:25] Jeff: He worked for the city of Philadelphia. We grew up in Philadelphia as well. As a forensic accountant, looking up crooked accountants, and lawyers, and things like that. Didn’t ever really bring his work home. I don’t know the details of his work.
[00:17:39] Ramit: Is your dad still alive?
[00:17:41] Jeff: Yeah, they’re both still alive.
[00:17:42] Ramit: Done a forensic accounting of all the fees you’re paying?
[00:17:45] Jeff: He’s not. Although, he had a similar– maybe not so similar– but he trusted some money to a person he shouldn’t have as well and–
[00:17:57] Ramit: What? Wait, what happened?
[00:18:00] Jeff: The story is a little complicated, but he ended up getting a large settlement from the accidental death of his previous wife and left it with his brother-in-law, who was a financial guy, who totally messed it up. And they lost a large portion of that.
[00:18:20] Ramit: Oh my God.
[00:18:21] Jeff: Yeah, I don’t know the details of what a large portion means, but it doesn’t sound like it was just a couple of thousand. It sounds like it was tens of thousands, if not even more, perhaps.
[00:18:31] Ramit: How old were you when that happened?
[00:18:35] Jeff: Middle teens, 15, 14, something like that.
[00:18:37] Ramit: That’s pretty old. Old enough to know–
[00:18:39] Jeff: To get an idea of what had happened. Yeah. He never really forgot about it, and his sister ended up dying suddenly as well from a sudden illness, and so almost lost contact with the brother-in-law as well for a time. And so there was some confusion around it and a little bit of chaos as well.
[00:19:04] Ramit: What was your conclusion from that as a 15-year-old hearing the stories about your dad and his money?
[00:19:13] Jeff: The easy answer would be said, that safeguard whom you trust with your money.
[00:19:18] Ramit: What do you make of Jeff’s painful family lesson? To be careful who you trust your money with. I’ll tell you what I take away from it. That it’s probably really hard for Jeff to admit he might have made a bad decision with their money. Specifically, I’m referring to the insurance and the financial advisor who’s charging them 1.24% AUM.
[00:19:44] Ramit: Is the primary disagreement about whole life insurance and your financial advisor? Is that what it is?
[00:19:53] Jeff: I think it is.
[00:19:54] Susan: I think so. Yeah, I think so. I have questions about the loan against the whole life policy. I have questions about money for the kids. I have questions about some other things that are, yeah, big like that too.
[00:20:11] Ramit: I have questions about how you got into these products. That’s what I want to know. So let’s start–
[00:20:18] Susan: These people come to the hospital, and–
[00:20:20] Ramit: Oh, they love doctors.
[00:20:21] Susan: And they look for doctors.
[00:20:23] Jeff: Young doctors.
[00:20:24] Ramit: They love them.
[00:20:24] Susan: Look for the doctors in residency that are only making 60,000 a year.
[00:20:29] Ramit: Let’s just talk about why every financial services company loves doctors. I have doctors in my family too. So first off, we should all acknowledge that doctors have a reputation as being the worst profession in the country with money. Let’s talk about the dynamics here. So you have some 30-year-old doctor who’s a resident.
[00:20:49] They’ve been in school forever. All their friends are making good money for the last 10 years. They’re sitting here making $40,000 a year, and they live in a cramped little apartment, and they work 18 hours a day. And they’re told that someday they’re going to make money, but they never even think about it.
[00:21:06] And suddenly, somebody comes knocking on their door with a free lunch, and they go, oh, this is so cool. We’d love to help you organize so that– you’re the specialist at this. We specialize in that, and you do what you do best, and we do what we do best. Jeff, any of this sound familiar?
[00:21:21] Jeff: Absolutely.
[00:21:22] Ramit: All right. So they come specifically for doctors because doctors have effectively a guaranteed high salary, and it’s not that risky of a profession. If you’re a doctor, you’re probably going to be a doctor for many decades. They talked to you about these different products. How old were you when you got into the whole life insurance thing and the advisor?
[00:21:42] Jeff: I was an intern. It’s like my second year, my formal intern.
[00:21:48] Susan: In New York. About 30.
[00:21:50] Jeff: 2007, ‘8.
[00:21:53] Ramit: Was it the same person, by the way, who got you into all these products?
[00:21:56] Jeff: Yeah, yeah, yeah. It was a representative of one particular directional company.
[00:22:01] Ramit: [Inaudible]. What company was it?
[00:22:03] Susan: All our disability life insurance, kids life insurance, term insurance is all in Northwestern.
[00:22:10] Ramit: How much insurance do you– I know, Jeff, you have like professional insurance, but you have term, whole life. What else?
[00:22:18] Jeff: I’ve got 3 million of coverage for me. 2.8 of that is term policy at 20-year, 30-year term. I forget which. And then 200,000 is the whole life portion. So like I was saying, it is a very small portion of the life insurance coverage portion. It’s the most expensive part of the life insurance, but it’s still a small part.
[00:22:41] And then I’ve got basically three different disability, own occupation disabilities, so if I can’t operate, it kicks in long-term disability. Enacted pay, 15,000 a month, basically. And then I think when the kids were born, they did sell us life insurance on the kids because of the health and pre approval, and now they can never be denied life insurance thing. We were conned into that. I agree with that.
[00:23:13] Ramit: Oh, you realize that?
[00:23:15] Jeff: Of course.
[00:23:15] Ramit: They sold you life insurance for an infant?
[00:23:18] Jeff: Toddlers basically, yes.
[00:23:20] Susan: The idea with that is that if they would ever have some–
[00:23:23] Jeff: Developed diabetes and become [Inaudible].
[00:23:26] Susan: Then they’ll always have coverage.
[00:23:28] Ramit: They showed you all these cute little pictures of a baby eating out of a spoon.
[00:23:32] Susan: Yeah. And I don’t know how true that is. I don’t know if that’s true. That’s just what they told me. I don’t read policy.
[00:23:36] Jeff: It’s not true anymore. Right. It’s not true anymore.
[00:23:37] Ramit: It’s not true anymore, for sure.
[00:23:39] Jeff: Right. I think maybe there was some component of that at some point, but that’s long been not a thing. It probably wasn’t even a thing at the time, honestly.
[00:23:49] Ramit: As a general rule, anything coming out of an insurance salesman’s mouth is a lie. That’s just a general rule, generally speaking. Okay, they see a doctor, particularly a surgeon, and they go, that’s my kid’s college fund. That’s really the way that doctors are looked at. You’re prey. And you don’t know.
[00:24:11] And I have to emphasize one thing, which is really important to understand, the psychology here, which is like if I go to a doctor, I basically go, look, my back hurts, or my ankles broken, or something. Can you fix it? I don’t know anything about the situation. Maybe I printed out a couple of docs from Google, but really I’m putting myself in the doctor’s hands.
[00:24:33] That concept is drilled into every doctor in med school. You go to the spine expert, go to the, whatever type of doctor. The problem is that that’s not the same analogy in the financial world because Jeff, if I had surgery, I might come to you. And even though you’re not really involved with the billing, you’re not going to charge me 1.24% of my total portfolio are you?
[00:25:00] Jeff: Unlikely.
[00:25:01] Ramit: Your billing office might charge me, I don’t know, 20 grand or 50 grand, who knows?
[00:25:05] Jeff: Right. I don’t know much about– I do my, thing and eventually, somebody pays them, and I get paid by them, and so on and so forth.
[00:25:14] Ramit: Exactly. It’s very compartmentalized. And that’s drilled into you since day one. Of course, if we actually dig into the nuances of how they’re charging and what they’re doing, which we will, we discover that a lot of it is either overcharged or just unnecessarily complex.
[00:25:35] Ramit: I’m going to explain something right now that’s going to blow your mind. Consider that if you go to a doctor, you expect they’re going to take care of you. They’re going to put your needs first. They even take the Hippocratic oath. I will do no harm or injustice to them. If you go to a lawyer, you expect that they’re going to represent you. But if you go to a mortgage broker, or a whole life insurance salesperson, or even most financial advisors, could you expect the same?
[00:26:05] No, most financial advisors are not legally required to put your interest first. Do you understand how insane this is? And understanding why this is allowed is going to blow your mind even more. In finance, there’s a term called the fiduciary standard. A fiduciary is someone who is required to put your interest first.
[00:26:28] Guess who opposes a fiduciary rule? Wall Street. In fact, they’ve actively tried to water it down and abolish it altogether. And along with their Republican cronies, the Trump administration killed the fiduciary standard in 2018. Do you understand what this means? It means if your mom, or your dad, or your grandparents walk into a financial advisor’s office, someone who is presumably supposed to help them, that advisor might sell them some larded up shitty insurance policy or fat fee mutual fund masquerading as a good investment.
[00:27:04] And actually, that’s exactly what happened. After the Trump administration killed the fiduciary rule, sales of fixed indexed annuities soared by 40%. These are piece of shit products. As Bloomberg wrote, “A client would have foregone, on average, an estimated $54,000 in profit per $100,000 invested.”
[00:27:27] Do you understand what I just said? The client would have lost over half their money to these horrible investments. This is why I say money is political. And this is why I get so pissed off about what happens politically, especially when people go, Ramit, why are you talking about politics? Money is political.
[00:27:48] Some of you are out here worrying about the price of pickles while you are secretly letting thousands and thousands and tens of thousands of dollars be taken out of your account for terrible investments. Oh, and yes, there are these arcane discussions in the financial literature. There’s the fiduciary standard or the suitability standard. There’s fee-only advisors versus fee-based.
[00:28:07] Can I be honest? Get real. Do you really expect the average person to understand all the nuances of these details? Of course not. Wall Street wants to make as much money as possible from you. That is why it is so important to avoid commission-based financial advisors, just as a general rule. Their incentives are not aligned with yours. And that is why you should be paying a flat fee, not a percentage. And when I, myself, have used a financial advisor, who I once hired to check my asset allocation, I also paid a flat fee, not a percentage.
[00:28:46] We’ll be right back.
[00:28:49] Now, back to Susan and Jeff.
[00:28:51] Ramit: Susan, though, you said you don’t like paying somebody else. You could do it yourself. Technically, when I pay somebody to change my oil, I could do it myself, but I don’t.
[00:29:03] Susan: I follow your philosophy. I’m not going to do it myself. I want to pay somebody a flat fee. I generally feel as though most people are good and they’re not trying to rip us off. So that’s what makes me upset even about the current financial advisors that we switched to two years ago. When I did ask them about their percentage, and they told me, oh, it’s roughly around 1%. I’ll never forget, he made this face like, oh, it’s not that much.
[00:29:30] Ramit: I know that face.
[00:29:31] Susan: And then I was thinking in my head, you’re saying 1%, but what is that really? But I remember thinking to myself, you’re saying 1% because I’m thinking 1% isn’t that much, not 28 percent of the returns of what we’re trying to grow.
[00:29:50] Ramit: I know this look that people give you. It happens in luxury purchase. It’s a little, you don’t really talk about fees in certain rooms. And when you ask, here’s the reaction. I will be the advisor who says, oh, it’s 1%, but what’s really important is blank, blank, blank. It’s sort of a, we don’t really talk about money here. That’s inconsequential to us in this room. And by the way, let’s pivot to something much more comfortable to talk about. Sound familiar?
[00:30:26] Susan: Yes. That’s exactly what happened two years ago.
[00:30:29] Ramit: Okay. When did this financial advisor come around, and what’d they say?
[00:30:34] Jeff: So when we moved here, we needed a bank, we needed a mortgage, and our situation was a little more complicated because our house back at the old location didn’t sell. And so we didn’t have the down payment that we were expecting. So there was some complication to it, of course. And our real estate agent basically turned us on to this bank that we use, which overall, we’ve been pretty satisfied with.
[00:30:56] Ramit: Okay, I’m already hearing two red flags, but go on. When you said the word realtor, that was a red flag already. All right. That anytime I’m within a city block of a realtor, my skin starts to tingle, and my arm hair goes up. And so that’s number one. And then number two, you said the word bank. I go, oh-oh.
[00:31:11] Jeff: We were referred by the banker we were using to the wealth management aspect of the bank.
[00:31:20] Ramit: Wealth management. Oh, God. So you sit down, and they got the nice suit, which appeared to be nice, but now in retrospect, you realize it’s not that nice of a suit. They gave you the nice coffee, and they said, tell me about your goals.
[00:31:31] Susan: Mm-hmm.
[00:31:32] Jeff: Yes.
[00:31:33] Ramit: So you said, I’m a physician. One day I’d like to retire, maybe 60, 65. Oh, we could take care of that for you. We want you to focus on what you do, we focus on what we do. And then they took all your money, and they said they were going to invest it.
[00:31:47] Jeff: So we rolled over my retirement stuff from the old job into basically brokerage accounts run by them. Still retirement accounts for 401 and 457 basically, or 403. I forget which it was. And so those are still functional. They’re no longer with the original company, Fidelity. Now they’re with First Citizen.
[00:32:06] Ramit: Okay, cool. So there you go. The money’s in there, and presumably, you’re contributing to it regularly. It’s growing.
[00:32:13] Jeff: Not to that because I guess that was a rollover. Basically, we haven’t touched it more or less since it rolled over.
[00:32:19] Ramit: Okay.
[00:32:20] Jeff: We have a separate account with my new employer. That’s a retirement account that I contribute about a 1,200 or so a paycheck. We’re paid biweekly now.
[00:32:31] Ramit: Who’s managing that?
[00:32:32] Jeff: It’s through the principal company, the company, the principal. No one is specifically managing. It’s just one of–
[00:32:39] Ramit: It’s just like a computer, like an index fund.
[00:32:42] Jeff: It’s an index fund, yeah.
[00:32:43] Ramit: Okay, great.
[00:32:44] Jeff: Yeah. I believe it’s a targeted date.
[00:32:46] Ramit: Target date fund. Great. Fantastic. Okay. All right. So now that I understand, you have the whole life policy, which is an area of contention. You have this money in the rollover retirement account, which is managed by an advisor, correct?
[00:33:07] Jeff: Yeah. An advisor, and maybe his team of whatever, but yes.
[00:33:12] Ramit: Charging you approximately 1.2%, but you’re not adding to that account. Is that correct?
[00:33:18] Jeff: Correct.
[00:33:18] Ramit: Okay. All right. Is there anything else that’s a contentious issue around the money?
[00:33:25] Jeff: You don’t like the annuity.
[00:33:27] Ramit: Oh God, you have an annuity too. They really got you. 1, 2, 3.
[00:33:32] Jeff: I’m glad I’ve–
[00:33:32] Susan: Get out of annuity.
[00:33:34] Ramit: Oh, tell me.
[00:33:36] Jeff: I don’t even remember what that rollover was.
[00:33:37] Susan: He says it’s only 30,000. You pulled it out of some accounts, and you said you couldn’t put it into account.
[00:33:44] Jeff: Was it the one from Vanderbilt?
[00:33:45] Susan: Probably. Yes. And then you couldn’t put it into something else because of taxes or something, so you put it into an annuity. So then my head exploded on that. And then there’s also the long-term savings account that we have the 60,000 in.
[00:33:59] Jeff: Yeah, that’s true.
[00:34:00] Susan: That goes up and down. And I’m like–
[00:34:03] Jeff: That’s a brokerage account as well.
[00:34:04] Susan: That’s not a long-term savings account if it’s losing money.
[00:34:06] Jeff: It’s a brokerage account as well. That’s through Northwest as well. We don’t have a simple financial situation, I will say that.
[00:34:14] Susan: Can you just come here, Ramit?
[00:34:16] Ramit: Basically, the dream of everyone who contacts me, I get a 1,000 of these messages a day. What they really want is for me to come to their house, log into all their accounts, fix it, rake the leaves in the front yard, vacuum and iron their clothes, and then leave. I go, hmm, I think I’ll–
[00:34:35] Jeff: If you just stopped at the first part, I’ll cook for you and you can hang out at the pool after you’re done.
[00:34:39] Susan: Yeah, we pay people to do all the other stuff.
[00:34:41] Ramit: Thank you. All right.
[00:34:43] Ramit: Now you can see how hardworking, even very smart people can be sold into these type of financial products. Okay. Let’s now take a look at their CSP for some more context. Their assets, $1.1 million. Their investments, 835,000. Their savings, 20, 000. Their debt, 914,000. Total net worth, just over $1 million.
[00:35:07] Ramit: Did you do this conscious spending plan together?
[00:35:09] Jeff: We did. It was not the 20 minutes version of the conscious spending plan.
[00:35:14] Ramit: How long did it take?
[00:35:15] Jeff: About two and a half to three weeks, I believe.
[00:35:17] Ramit: What? Three weeks?
[00:35:18] Susan: Days, days. Let me tell you. Doesn’t turn you on, I’ll say that.
[00:35:23] Ramit: What happened?
[00:35:24] Susan: We were fighting.
[00:35:25] Jeff: We haven’t lived on a budget in a while. We just lived our lives and hadn’t really accounted for.
[00:35:33] Ramit: So after 150k, people stopped tracking money. That’s pretty much what happens. All right. Wait, so how did that start a fight?
[00:35:40] Jeff: We were just arguing the numbers. There’s no way–
[00:35:42] Susan: There’s no way guilt-free spending is $13,000 a month.
[00:35:47] Jeff: Right.
[00:35:49] Susan: And I’m like, I don’t know what to tell you. We have a teenage daughter, and she won’t stop going to Sephora and Lulu lemon.
[00:35:57] Ramit: You can start to understand how, gosh, it’s actually totally realistic that we might be spending a $100,000 a year and not even realize.
[00:36:06] Jeff: Yeah. Right. That created a little friction, I guess.
[00:36:10] Susan: That’s awful.
[00:36:11] Ramit: That’s just reality. To me, when I hear that– I’ve had times where I look at my own spending, and I go, oh my God, I can’t believe that I spent that much in the last six months on this one thing. And again, assuming you have the cashflow to be able to make this a lesson, what’s the best thing you can do? You can be like, oh wow, it really got away from me. I need to put some controls in place. Maybe I need to sell a couple of these things or stop doing it, but let this be a lesson to me. Your groceries are 2,800. All right. So you like to eat well.
[00:36:45] Jeff: That surprised us as well.
[00:36:47] Ramit: Do your kids participate in the grocery shopping?
[00:36:51] Jeff: Not much. Rarely.
[00:36:53] Ramit: Okay. All right. 2,800 is a lot.
[00:36:56] Susan: Dining out was outrageous. I think it was over 3,000 a month, wasn’t it, Jay? It was crazy.
[00:37:03] Jeff: It was outrageous, and it was not on good–
[00:37:06] Ramit: So you’re spending 2,800 at the grocery store, and then 3,000 eating out. In the last two weeks, where’d you eat out?
[00:37:14] Susan: Stan.
[00:37:14] Jeff: La Bernadine and Peter Luger Steakhouse in–
[00:37:19] Susan: And Peter Luger’s.
[00:37:19] Jeff: But that was not–
[00:37:22] Ramit: That’s just one-off. That’s just one-off. How about the prior two weeks? Also Peter Luger, but that’s a one-off also.
[00:37:30] Susan: We would have date night, and if we have date night, it’s not unheard of to spend 350 because of a bottle of wine and stuff like that.
[00:37:39] Ramit: And your subscriptions are 649 a month. What are these subscriptions?
[00:37:44] Jeff: Everything.
[00:37:46] Susan: I have a list.
[00:37:47] Ramit: Tell me. The world wants to know.
[00:37:50] Susan: Apple Music, Spotify, Roblox. We have several charities, but not enough. We should be getting more, which comes up a very small amount. Hulu, ASPCA, Feeding America, Netflix, Crunchyroll, YMCA, SiriusXM, a second Spotify account, Audible, 10% yearly MasterClass subscription, iFit subscription, Peacock car wash, and then a yoga subscription and a spa monthly subscription.
[00:38:30] Ramit: All right, what do you think about that as you say it out loud?
[00:38:33] Susan: I’ve already marked a few things that, if I don’t use them, to get rid of them.
[00:38:38] Ramit: Pets? How many pets do you have? Oh God.
[00:38:41] Jeff: Yeah.
[00:38:42] Susan: Five cats and a dog.
[00:38:43] Ramit: I knew it.
[00:38:45] Susan: The dog itself is 550 a month.
[00:38:49] Ramit: What the hell kind of dog is this? It’s like a mortgage payment for some people.
[00:38:52] Susan: She is a very sweet rescue, and she had an ACL repair that–
[00:38:57] Ramit: Did Jeff do the repair?
[00:38:59] Susan: No. And she needs antibiotics which cost 450 a month.
[00:39:06] Ramit: Okay. Listen, I understand. I’m not trying to ruin my own career. Fine, you love your dog. The kids activities. Kids are expensive. Fine. Again, you can afford it. Let’s just get it all out on the table then we’ll talk about what– there’s a few problems here, but just so you know, I’m not coming in here saying you can’t ever have wine. If you want to have a very nice bottle, be my guest. It’s just that it’s bloated. You’re doing that. You’re not thinking about it. There’s no vision and strategy behind it.
[00:39:36] Jeff: Right.
[00:39:36] Ramit: I get comments from people saying, I was with you until you told me they made $250,000. Then I checked out. I’m like, what? Do you seriously lack the ability to adapt someone’s story to your own life? Guys, one of the points of this show is that people can feel guilty, or anxious, or fearful about money, whether they make 60k or $600,000. People can have bad money habits at 50k or $500,000.
[00:40:04] In fact, if you feel bad about money at 50k, you’re probably going to feel that way when you 10X your income. This is why I feature people who make 50k, people who make a million dollars a year. I want you exposed to everyone. And for some reason, on the internet, there’s this undercurrent of people who expect everything to be tailored to their exact situation. Your income, your location, your number of kids, your spending, your tax rate.
[00:40:27] That’s not going to happen. If you want that, hire an advisor. What I’m asking you to do is to turn off that voice in your head that says, they’re nothing like me. If someone makes 10 times what you make, you could probably still learn something from them. I learn from people who make more than me, and I learn from people who make less than me, and that is what I’m asking you to do.
[00:40:50] Ramit: So let’s talk about income. Susan, go ahead and read me off the gross combined income here. What do you see?
[00:40:58] Susan: $55,434
[00:41:01] Ramit: 665,000. That’s Jeff’s salary. Right, Jeff?
[00:41:04] Jeff: Yeah.
[00:41:05] Ramit: And your take home is 426,000 a year. Okay. Very, very healthy salary.
[00:41:11] Jeff: Yes, that’s a big shovel.
[00:41:13] Ramit: All right. So let’s acknowledge that at 426,000, the game is a little bit different. My wife is a personal stylist, and she often goes into people’s homes. She does a closet clean-out, and she shows me before and after pictures, and it’s quite revealing. People’s closets actually tell you a lot about who they are and how they live.
[00:41:38] What I’m seeing instead is a full closet in your fixed costs, is just a lot of stuff, subscriptions, pets, groceries, the car. Not even the car, but it’s the tolls and this. No, no, no, no. Okay. I’m seeing a lot of knots. It’s just a lifetime of having a high income and being like, we make enough. Let’s get it. But not really saying, hold on a second, we need to do a closet cleanse.
[00:42:08] Jeff: Right.
[00:42:10] Ramit: And after a while, it just gets overwhelming. You’re just like, I don’t even know what is this stuff, and how do we start over?
[00:42:17] Jeff: I like your philosophy of spending extravagantly on the things that are important to you and cut mercilessly the things that aren’t. We tend to spend extravagantly on the things– like travel. We were just in New York City, and ate at a fancy restaurant, a great steakhouse, and did a couple of great things, but we just don’t really do the cutting mercilessly parts. We just keep slowly adding on now. It’s not extravagant add on, but it’s adding on nonetheless.
[00:42:42] Ramit: You’re spending 13,500 on just stuff.
[00:42:48] Jeff: On stuff that we don’t really know, honestly.
[00:42:51] Ramit: Okay, fine. If you told me–
[00:42:55] Jeff: Single biggest expense.
[00:42:56] Ramit: What are the real issues?
[00:42:57] Susan: But see, I’d rather cut from me, and I think that’s part of the mental activity, or the mental process, is that, yeah, we make all this money, and yet, I’m not going to get my nails done for the next couple of months because I don’t want to spend the @200 a month on me. I rather spend it on something else.
[00:43:16] Ramit: Do you know where that comes from?
[00:43:19] Susan: Yeah. Childhood. I’m not worth it. I will sacrifice so that everybody else can have something. And plus picking and choosing. Jeff likes to say, you can’t do it all. And so I’m like, you know what? I had pretty nails all summer. Now it’s fall. I’m okay. I can’t rationalize doing everything because when I added up the expenses to do everything, it’s $1,800 a month just for me, to spend on me. I hold back.
[00:43:49] Ramit: All right. I think it’s savvy of you, Susan, to recognize that that nail issue is not simply a financial issue because, truly, if you wanted to find 200 bucks or however much it costs, you could find it. It comes from childhood. It comes from watching your mom, and maybe even your mom watching her mom sacrifice and even turn that into a virtue. You don’t have to do that with your household income.
[00:44:14] Susan: Great.
[00:44:16] Ramit: One of the things I want you to do when it comes to your spending is think about it in terms of percentages, not just how much a hamburger costs. Let me explain why. We can get a hamburger for a couple of bucks at a fast food place, but you can also get a hamburger for $24 in New York sometimes.
[00:44:34] Now, is it outrageous to spend $24 on a hamburger? I don’t know. Is it a special occasion? Is it your anniversary? Is it a once in a lifetime thing? Do you make $10 million a year? We need to know these things. And that is why you’ll hear people, often people who earn tons of money, saying, oh, I can’t bring myself to spend, $40,000 on a car. I go, you make $3.5 million a year. What does it matter to you?
[00:45:01] This is why you have to think about your spending in terms of the percentages that I represent on the conscious spending plan, because you might actually be spending a very high amount on candy, or bread, or cars, but if it fits in the conscious spending plan, you’re fine
[00:45:17] Susan: I think a lot of that is also just me not having boundaries with the kids on what to spend. I’m not very good at telling them, we can’t just go to Sephora and spend $125 every two weeks on makeup, and we can’t just go to Lulu lemon. We just dropped $600. I don’t want to say we can’t afford it, so I’m trying to set up a limit of like, I’m going to give you $100 to spend here. How do you want to do it?
[00:45:53] Ramit: I’m sorry, what?
[00:45:56] Susan: She just showed me something today that she wants to order again. And I was just like, no, I’m not looking at it. Because, especially looking at the CSP, it adds up. It’s every week.
[00:46:11] Jeff: Yeah.
[00:46:12] Susan: We put everything on our Amex card, which is how I believe that we overspend every month, because yes, we pay off the Amex every month, but then if we have an 18,000-dollar Amex bill and we pay it off, now we just sold ourselves short for the rest of the month. And I have a hard time saying no. I have a hard time saying, you can’t have it.
[00:46:34] Ramit: Because?
[00:46:35] Susan: Because she enjoys it, and because I’d never got those things, and I’m trying to be very conscious of living my childhood through her. I want her to be able to have opportunities, which is why she does whatever activity she wants to do, and we don’t look at the cost because just her activities are about $1,300 a month. And we don’t put any budget on that because it’s what she wants to do. So I’m trying to rein it in for myself and give her limits because that’s reality. She’s not going to have unlimited money as she gets older. She needs to learn to work with a certain amount.
[00:47:11] Ramit: Yeah, I agree. Also, there’s something poignant about you telling me your mom would go without dying her hair, etc., or doing her hair. And then your daughter seeing you go without you doing your nails while she essentially does whatever she wants. These things are passed down generation to generation in the subtlest of ways. What do you think about that?
[00:47:45] Susan: Yeah, I didn’t realize that because I just got my dip nails taken off this week, and she’s like, you’re not going to get them done again. And I’m like, no, I don’t need it for the rest of the year. I did it for the summer. I’m good. But in the back of my head, I still think, if we had so much more money per month, then I could do all these other things on top of it, which is crazy with the take home. And I recognize that in myself.
[00:48:11] Ramit: Good. It’s not a money issue.
[00:48:13] Susan: Yeah.
[00:48:13] Ramit: It’s this.
[00:48:14] Susan: It’s me. It’s making myself a priority. Okay.
[00:48:19] Jeff: Yeah. Again, these things just built up over the years, and we didn’t get rid of one while still starting another.
[00:48:25] Ramit: Yeah. It just builds on each other. 50 years old. You’ve been in your careers for decades. It gets a little sloppy after a while, but this is actually a great opportunity. It’s like, okay, let’s take a fresh take. Again, with the income, all this stuff can be fixed and fixed quickly.
[00:48:43] Ramit: The nails comment. I just have to point this out. This is a couple earning hundreds of thousands of dollars a year, and Susan is rationing doing her nails. It makes no sense. Worse, we see a common trend on this show and in the public at large of moms who give everything to their families, then they spend nothing on themselves, and they unconsciously teach that lesson to their daughters, which then gets transmitted generation to generation.
[00:49:13] It’s literally happened multiple times on this podcast. Remember Episode 31? Lindsay had shrunk her rich life down to shopping at Target. And while she really wanted a massage, she told herself she couldn’t do it. She wasn’t worth it. And when I asked her what lesson she was teaching her daughter, she began to cry.
[00:49:35] If you want to teach your children about money, the best thing you can do is to have a healthy relationship with it. That means you dial in your conscious spending plan. You talk frequently about how you spend money, what you spend money on, why you spend money, including guilt-free spending. Teach your kids that it’s okay to spend money on the things you love if you are saving and investing every single month.
[00:50:01] Ramit: All right. So here we have a basic investment fee calculator. We’re going to start with $835,000, which is what is in your retirement account that is managed by somebody charging 1.24%.
[00:50:14] Jeff: So that’s everything all said and done, I believe. I think it’s 460 that’s in those two brokerage accounts.
[00:50:21] Ramit: Oh, great. Okay. Let’s change it. 460,000. Okay, good. All right.
[00:50:27] Jeff: Why don’t we say we’ll live to 85, so another 35 years.
[00:50:30] Ramit: 35 years. Great. And let’s just see what happens to the fees. Your additional contributions to this account are zero, correct?
[00:50:39] Jeff: Yes.
[00:50:39] Ramit: All right. And let’s just assume you’re getting a 6% return because I saw it’s moderate growth, probably even less. Maybe I’ll even be conservative and go 5%. All right. So 1.24%, correct?
[00:50:58] Susan: Yes.
[00:50:59] Ramit: That’s the fee that this person’s charging you. And then we’re going to compare it to just 0% because technically, you can effectively pay close to zero through any brokerages. So let’s go ahead and calculate it. All right. So the difference is? Can you read that number out loud to me, Jeff, that I’m highlighting here?
[00:51:22] Jeff: $863,170.21.
[00:51:27] Ramit: Yeah. 863,000 in fees is the difference. What do y’all think about that?
[00:51:37] Jeff: Susan feels victorious.
[00:51:39] Susan: No, I’m glad we know now versus 10 years down the road. That’s the thing. The best time to have done it was 10 years ago. Now’s the best time again.
[00:51:52] Ramit: It really puts things in perspective, like worrying about wine or something like that, or like the order you got from the grocery store, irrelevant compared to this decision alone. That’s the way I think about it. So Susan, I know you agree. Jeff, tell me about what you’re thinking and what you’re feeling right now.
[00:52:13] Jeff: I knew there was a huge difference intellectually. I’ve never really looked at a calculator per se, but I understood the idea of it, changing the growth, and it’s not– I could wrap my head around it without knowing the numbers, I suppose. But yeah, that’s not a great feeling.
[00:52:37] Ramit: The good news is that’s– sure, you’ve paid fees up until now. But that’s behind us. That’s a sunk cost. We can’t do anything about that. This is looking at what’s going forward. And what’s to me, mind-boggling about these dynamics is the fees become increasingly expensive the more your portfolio grows. Here’s the way I think about it. You know that a bottle of wine that you went and got, the nice bottle of wine? For everyone who’s a wine person– what bottle of wine was it by the way?
[00:53:10] Jeff: Opus one.
[00:53:11] Ramit: Okay, great. That means nothing to me, but I’m sure it’s very nice. So 350 bucks. Great. Now, imagine you go to that same restaurant next year and the bottle of wine is 500 bucks. Same one. Oh shit. This is a bad example because the price of wine actually does go up. Forget the wine, forget the wine.
[00:53:27] Jeff: I wouldn’t surprise me if that were the case.
[00:53:30] Ramit: The mashed potatoes you got. You go, wow. There’s mashed potatoes this time at Peter Lugar, 25 bucks. Next time you go, it’s 75, then 300, then 800, and on and on and on. You go, what the hell? Okay, it’s Peter Luger, but 800 bucks for mashed potatoes?
[00:53:46] Jeff: Right, they’re still potatoes. Yeah.
[00:53:48] Ramit: You’re getting the same potatoes, but you’re paying three times, four times, 10 times more. That’s often what you get when you pay a percentage-based fee.
[00:54:02] Susan: Right.
[00:54:03] Ramit: Right now, it appears, from what I could make of it, you’re paying about $6,000 a year in fees.
[00:54:09] Susan: Yeah.
[00:54:11] Ramit: First of all, that’s a lot. That’s basically 500 bucks a month right there. The thing is you just don’t see it.
[00:54:16] Jeff: Right, you don’t see it.
[00:54:18] Ramit: Yeah. So 500–
[00:54:18] Jeff: We’re paying for it.
[00:54:20] Ramit: Exactly. And the craziest thing is that, again, just like that mashed potatoes, that 500 turns into 700, 900, 1,800, and on and on and on.
[00:54:30] Ramit: Let me give you another crazy way to look at those fees. They’re currently paying 500 a month in fees. Now, let’s just fast forward 35 years or 420 months. They’ll have paid about $863,000 total in fees. That means that in 35 years, they won’t have actually just paid 500 a month in fees. They’ll have paid an average of $2,054 per month in fees, from $500 a month in fees to $2,000 a month in fees.
[00:55:07] This is what happens with a 1.24% fee on a modest 460,000-dollar portfolio that’s not even being added to. And if you’re wondering how the math works out, you can calculate yourself online. Just search for investment fee calculator. That 1.24% fee seems modest in the early days, but it’s back loaded.
[00:55:28] Most advisors make their money when your portfolio grows, which is why they love older people and wealthy people who specifically do not understand commission structures. As Jeff pointed out, they don’t even see it happening, which is exactly why Wall Street loves to charge commissions. It’s like being in a canoe, and you’re worried about running into that huge tanker three miles away, but you actually have 15 little holes in your canoe and you are slowly sinking.
[00:55:54] Ramit: It’s just the fees. And if you were to say, I want somebody to look it over and check into it once a year, I would totally support that. I just wouldn’t pay a percentage-based fee. Fix it, and your net worth will go up.
[00:56:13] Susan: Perfect.
[00:56:15] Jeff: The hardest thing is the non-confrontational part. Just dumping sounds easy on Zoom.
[00:56:24] Ramit: Totally.
[00:56:24] Susan: Hey, with peace and love, we’re just telling him this isn’t in our best interest. Thank you very much, but we can hold on our money.
[00:56:30] Jeff: From the woman who can’t say to spending $500 at Sephora with a 12-year-old.
[00:56:34] Susan: Yeah. Be like, we’re coming up on retirement. We know this is the money we need.
[00:56:39] Ramit: Hold on. I think Jeff is making a really good point, which is like, hey, I think this is going to be hard. I hear you loud and clear. Susan, do you agree that that’s going to be hard?
[00:56:54] Susan: Yes, I agree. It’s going to be hard, but I think you can say it in a loving manner that’s not like we’re kicking you to the curb. And you’re a jerk. I can’t believe you pulled this over on us, and now we know better. I think it’s just a matter of being like, hey, you know what? We realize we’re paying more fees than we want to do. We’re not comfortable with it. Thank you, but we’re going to be moving the money. And that’s it.
[00:57:19] Ramit: So Jeff, I know it makes you uncomfortable, and I know there’s some personal relationship with the person involved. What would be helpful for you? I think the first thing is just to know how much you’re actually paying in fees. We did that today. Do you feel conviction that it’s in your best interest to switch?
[00:57:39] Jeff: Yeah, yes. Just the practicality of doing it, honestly,
[00:57:44] Ramit: First, the biggest step, 80% of the process is just realizing you need to switch. You did that today. So now it’s down to the details, and these are small, but hard. If you’ve been doing this for a long time. You can send an email to the person, and you can say, hey, John. I wanted to let you know that I’ve decided to move my accounts. I’d like your help in switching the accounts over. What paperwork is required? Thanks for your service. Sign your name.
[00:58:19] Now, of course, you’re going to get back a very panicked email and probably a lot of phone calls. On a practical level, my suggestion is stick to email. You can just say that. I prefer we stick to email. Nothing personal. But I’ve decided to make a change because the fees that I’m paying are not part of my financial goals. You’re telling him the truth, but it’s your goals. They’re not part of my financial goals.
[00:58:48] He’s required legally to transfer your account somewhere else. You’re going to transfer them in kind, in dash kind, so you’re not selling them and triggering a taxable event. You’re probably going to speak to a financial advisor. They can help facilitate the transfer of these, and they can help suggest what accounts would be good. But ultimately, you’re going to have to tell this person that you are moving your accounts away. You can’t just secretly do in the middle of the night.
[00:59:18] So that’s the practicality of it. And if you see this person in your neighborhood, that’s a whole other issue. Is that okay? That’s going to be a thing. In my line of business, I’m like, this is great. Let’s have a conversation. This is easy, but I deeply understand that it’s not easy for a lot of people, especially if you’ve known the person and they’re in your community, all that stuff. The fact is I have this philosophy, just my money is good money.
[00:59:45] That’s the philosophy that I really want for the two of you to have with your money. You want to go to a beautiful resort, you’re going to pay top dollar. You’re never going to negotiate, but you want great service, great room. I’m sure you embody this in parts of your life, embody it in your financial products. Your money is good money, and you should not be paying $800,000 in fees for something you could get the same result with low cost ETFs or index funds and have that $800,000 in your pocket funding your retirement.
[01:00:21] Ramit: That’s how it goes. No need to pay hundreds of thousands of dollars in fees. You can get assertive, you can be polite with your money, and you can say, you know what? I think I can do this on my own. Now, in complex situations. You may want to use a financial advisor. But if you do, you want to pay a flat fee, never a percentage. That’s one of the reasons I partnered with Facet, a service that offers affordable, accessible financial planning through a flat fee membership.
[01:00:52] Ramit: So the whole life insurance policy, you’ve paid in how much? Oh God.
[01:00:59] Jeff: I could try looking it up real quick.
[01:01:03] Ramit: It’s okay. Back of the napkin or any idea. Susan’s digging in some envelope right now.
[01:01:07] Susan: With all my Northwestern accounts. 272 a month is what we pay.
[01:01:13] Ramit: And what’s this thing about borrowing against it? Why’d you do that?
[01:01:18] Susan: Pay off a credit card way back when.
[01:01:20] Jeff: It was way back. Yeah.
[01:01:21] Ramit: What the hell?
[01:01:23] Jeff: Yeah.
[01:01:23] Susan: Back when making lots of money mistakes. And maybe it was $10,000. And now the outstanding balance 40,000 000.
[01:01:32] Ramit: Is this for real?
[01:01:33] Susan: Oh yeah.
[01:01:34] Jeff: We borrowed from our money.
[01:01:36] Ramit: Uh-huh. So where are you paying it back? Oh, you’re not. You’re going to die.
[01:01:39] Jeff: I don’t feel the need to. Right.
[01:01:40] Susan: We’re going to die. And that’s what he was saying.
[01:01:44] Jeff: If had a huge amount come in for whatever reason, I would consider it if everything else was literally paid for kind of thing,
[01:01:50] Ramit: It’s called leverage. I’m going to leverage. I’m going to leverage myself. Borrowing against anything is an extremely sophisticated strategy that 99% of people should not do. Anyway, they borrow against it, and then they don’t understand the implications because it’s very confusing, necessarily so.
[01:02:10] And then if you ask them like, hey, have you considered this? Then their answer is like, no, I’m just going to die. What the hell? What kind of strategy is this? Now you can carry it out because you actually have enough money. But this is what I’m talking about when I say you’re making up for a lot of bad financial behavior with just a lot of money.
[01:02:31] Susan: So my question is, shouldn’t we just cancel this policy now?
[01:02:36] Ramit: I have to look at the paperwork, but this is actually a good conversation to have with an insurance specialist who’s not insurance salesman. But overall, conceptually. I don’t personally see a reason, if I were in your financial situation, that I would be having a whole life insurance policy. There may be tax implications that you need to consider.
[01:02:58] Jeff: Yeah, no. It was, again, when I was an intern. It sounded like it made a lot of sense.
[01:03:08] Ramit: The whole life insurance salespeople sound good. They’re not good, but they sound good. So look, that was a mistake made in the past. It happened. Luckily, the thing that really matters in your life is that your career has gone phenomenally well. You have a high income. Honestly, to correct a couple of mistakes here and there, even ones that are 50, a 100k, okay, fix it. Move on.
[01:03:32] Jeff: Yeah. It’s possible.
[01:03:33] Ramit: Yeah. It’s not existential to me at all. The only thing that is existential is acknowledging like, hey, that probably wasn’t a good move. Let’s fix it. And then let’s redirect any money that we change into our rich life. Okay, let’s talk about the kids, because actually this is a key part of the whole thing. Putting aside you’re going to fix the insurance, you’ll fix the financial advisor. Spending wise, do you feel that the two of you are aligned today on your spending philosophy?
[01:04:05] Susan: For the kids? No. I don’t want them to have fear. I don’t want them to think that we’re never going to have their back and that we’re never going to help them. I want them to be self-sufficient but know they’re never going to be alone, even financially.
[01:04:25] Because looking at the budget that we spent $800 a month in clothing for just our daughter and $400 at Sephora a month on our daughter, and it’s not an anomaly, that if I just said you get $400 a month to spend whatever way you want and let her make that decision, which I realize a lot of people would think 400 a month for a 12-year-old to just spend whatever she wants– you know what? We’re spending way more than that now between her Starbucks run and having lunch with a friend. Then it would be her choice to see how she wants to do the money.
[01:05:02] Ramit: I like the philosophy. I want to set you up for success, so I’m just going to tweak a little bit of it. Okay. Even though 400 is a ton of money, she doesn’t have the skills because you haven’t taught it to her. So the first point is the two of you have to build the skills together. If I were the two of you, I would do that privately for about a month, perhaps two, just get aligned, focus on bringing your numbers down. You’re going to have to learn new habits. Oh, maybe both of us don’t need to go to the grocery store five times a week. You do this. I do that. Let’s meal prep, whatever. You just stop.
[01:05:40] Susan: Right.
[01:05:42] Ramit: Once the two of you get a few wins under your belt, then the next step is for you to say, okay, let’s talk about our kids. What’s the vision here?. We want to teach them this, this, this. Right now, if we’re just brutally honest, they don’t have any accountability. They’re good kids, and we’ve given them too much, but it’s going to be hard for us to– we’re not into confrontation. What are all the potential ways we can go about having these conversations? Map it out. Just put it all out on the table, just like you did the CSP.
[01:06:15] Eventually, you sit down with your kids. I would say this happens. If everything goes really well, six to eight weeks from now, the two of you have refined your spending. You haven’t changed everything. That’s going to be a long time coming. You’ve gotten some wins. You sit down with them. You say, you know what? We’ve realized that we want to take better control of our money.
[01:06:36] And tell them a story about how when you were working, you made $28,000 a year and you were a waitress and the waiter, and all this stuff. Tell them. I don’t know how much they understand about your origin. Tell them about your mom. Tell them the things they don’t know, because I’m interested in you and I just met you, your kids need to know where you came from.
[01:06:59] Then the other thing I would say is, get them involved. They have a responsibility as part of your family. So you’re doing all this grocery shopping. You got to tell them like, hey, we need help. We’ve realized, dad and I, or mom and I, are actually spending way too much on groceries. And we’ve actually created our own grocery budget, and we need your help to go shopping.
[01:07:20] So here’s how much we have. Of course, it’s going to be a very generous amount you can start off with a lot of money and let everybody get a win, and then slowly winnow that number down. But the fact is you actually do need their help because you’re spending thousands.
[01:07:34] Susan: Yeah.
[01:07:35] Ramit: So you’re legitimately like, I seriously don’t know where this money’s going. Can you help us? Give them a sense of control?
[01:07:42] Susan: Yeah. Especially with school shopping, I think we easily spend about $3,500 in a week.
[01:07:49] Ramit: Yeah, that’s a lot.
[01:07:51] Susan: For school shopping on top of whatever they got for the summer on top of this or that. He picks out a nice pair of shoes, and I just go, okay, because that’s what he wants.
[01:08:01] Ramit: That’s because there’s no tradeoffs.
[01:08:04] Susan: Yeah.
[01:08:04] Ramit: You haven’t built the skill of tradeoffs, so of course, you haven’t passed that skill to your kids. I’ll tell you, in my observation 20 years, the people who have the biggest challenges are the kids of wealthy parents, who grew up. They themselves are not necessarily wealthy, and they were so used to buying all this nice stuff. And suddenly, they’re 23 years old and have no money and no skills.
[01:08:30] Susan: Yeah.
[01:08:31] Jeff: Yeah. I’m concerned about that.
[01:08:32] Susan: I’m going to be acutely aware of that because it’s not reality. They need to have those skills. Yeah.
[01:08:40] Ramit: So this is the time. This is the time to do it. It’ll be a little bit painful at first, but then I will say– just a couple of last things here. This is not all doom and gloom. You get them involved with groceries, which is actually fun because they like to eat. Get them to splurge on a couple of things, get them involved in planning your next vacation. All these things work together, grocery, shopping, shoes, vacation. Now they are starting to intuitively understand tradeoffs, and they’re going to realize the value of money.
[01:09:08] Susan: I guess we’re going to be okay. I think once we’re looking at the numbers that would take that panic away from me, that there isn’t enough, which sounds ridiculous, but that’s still the way that I feel. That I don’t have enough to do it all.
[01:09:27] Ramit: What I always say is your feelings are highly uncorrelated with the amount in the bank, and here I am talking to a couple making $655,000 a year, and you, like many people making 50 k, a 100k, 200k, a million, say, I don’t feel there’s going to be enough. The key there is feeling. In order to be successful with money, you got to do two things.
[01:09:52] Number one, you got to know your numbers. And today you’ve taken a really big step in knowing your numbers. You have your CSP. You’ve realized there’s tons of fat. There’s literally thousands and thousands of dollars every month that could be redirected. And your quality of life actually won’t even decrease. I actually think it will go up.
[01:10:09] Jeff: Probably go up. Yeah.
[01:10:11] Ramit: The nails are going to get done. You’re not going to be managing the kids like my new expenses because they’re going to be in charge of it. Groceries are going to be dialed in. It’s going to actually go up and be simpler. Ah, of course you’re not going to be paying all these fees.
[01:10:25] Um, but the second part beyond knowing your numbers is you got to work on your money psychology. Now, you’ve done that by listening to the podcast. You may want to talk to a therapist or a coach. There are lots of folks that you can reach out to for that, just to have a regular way to talk about money and sync up. Certainly, a money meeting between the two of you would be a no brainer.
[01:10:46] If you do those two things, you’re going to be more than okay. Stay in touch. The thing I’m particularly interested in is the conversations with your kids because I think that’s the magic, that’s the crux of this whole thing. The two of you are smart. I have no doubt. The two of you are going to nail it. It’s the one with your kids and changing your relationship with money and kids that’s going to be all the sign of success.
[01:11:14] Susan: That’s a lot of emotion there.
[01:11:18] Ramit: Tell me the good, tell me the bad, just keep me up to date. I think over the next year, you’re going to see just dramatic changes in how y’all feel and talk about money.
[01:11:31] Susan: Yeah. I can’t thank you enough because I think we’re in a different predicament than what I’ve heard on the podcast, but it’s really helped us. And I’m not thinking about what I’m losing. I’m thinking about what’s intentional and what I’m still gaining.
[01:11:49] Ramit: Let me share some thoughts about my conversation with Susan and Jeff. First, thanks to Susan and Jeff for coming on here and discussing your finances so openly. Most of us have never heard the fascinating wrinkles that you shared. A surge in salary, financial advisors, and the actual amounts they charge. And of course, spending that has gotten loose as you’ve started to earn more.
[01:12:10] Now, it’s normal for households earning $150,000 plus to stop tracking spending. And actually, there’s some logic to it. At higher incomes, it doesn’t make sense to spend the same amount of effort tracking how much you spent on almonds versus when you were in your 20s. However, you can see what happens if you don’t put in some basic controls. Thousands of dollars on food. Disagreements about money. Susan’s over here, sacrificing getting her nails done when that really doesn’t add up to much money at all.
[01:12:40] When you don’t have control over your spending, you increasingly rely on feelings, which when divorced from the numbers themselves, lead to choices that are not aligned with your rich life. And that brings me to the poor decisions around investments. I told you doctors are known to be bad with money, and we talked about some of the reasons why, but that doesn’t excuse it.
[01:13:02] To be worried about money but be paying 1.24% AUM and a whole life insurance policy is a mistake. Fortunately, a very high salary solves many money problems. So with a few tweaks, I’m very confident that Susan and Jeff are going to live their rich life. Now, let’s hear from them.
[01:13:23] Susan: I think what I’ve learned is that I cannot worry so much about the money and having enough of it. I can relax that we’re going to have what we need for retirement. And I think what surprised me most is certainly by really going through the CSP. We were shocked at how much we spent in groceries and dining out.
[01:13:49] Also, we weren’t saving enough, and we’re not giving enough, and that is not in line with what our values are to do with our money, and so we are definitely working that into the CSP. And the specific changes we’re going to make is that we already have an appointment with a fee-based financial advisor. I’m going to call about the long- term savings accounts and move that into a different fund.
[01:14:22] And we’re going to get out of the whole life insurance policy and see what that’s going to take, which is a little bit more detailed-oriented since we have the loan against that. I think we’re also going to start doing family meetings with the kids, which seems to be my biggest emotional crutch, is saying no to the children and finding out a reasonable way to still let them enjoy money also and learn how to manage money, and not let my anxiety control that situation.
[01:14:56] Ramit: And now, Jeff.
[01:14:58] Jeff: Number one, what did we learn? I reinforced, or at least it was reinforced to me that we’re still in a pretty good place. We have a really big shovel to dig ourselves out of any holes we dug ourselves into. And so that is always helpful. We could certainly be better situated both in terms of our spending choices today as well as our spending choices for the future, and we need to titrate both of those portions of the formula. But overall, I think we learned we’re doing well.
[01:15:33] Next portion is what surprised me. I think the biggest thing was that Susan’s ability to express her understanding in a way that I didn’t see when she and I have conversed ourselves. She’s always come across as lost, and I think you describe it as the doe’s eyes in your early podcasts, when we’ve discussed privately. During our conversation with you, it was much more apparent that she understood more than she was willing to admit when the two of us were just discussing.
[01:16:04] So I hope that continues and that she’s comfortable in that knowledge and ability to express her understanding of that knowledge. Not really surprised me about the conversation, but the subsequent times, the difficulty of trying to get a family meeting like we discussed. And I loved the idea. And we intended to do that this weekend, but between activities, and friends over, and just finding some time to relax, it didn’t happen. So it’s on the schedule for next weekend.
[01:16:33] What are we going to change? I think probably Susan expressed this best is my guess, is we’ve changed some of our plans. We were looking at some renovations to the outside of the house and the outside living area, which we’re putting on hold for the immediate and foreseeable future. And instead of finding a way to pay for that, we’ll move some money into more aggressive investing. So that was number one.
[01:16:59] Number two, we’re scheduling a meeting with a financial advisor we trust to at least have the conversation and start moving in the direction of finding a fiduciary who’s fee-based rather than a percentage AUM-based. And so those are the two biggest steps that we’re taking right now and more remains to be seen.
[01:17:22] Ramit: A couple of reflections. First of all, love the overall follow ups. I’m a little surprised at Jeff’s comment that Susan seems to not have been as open about her financial knowledge than when she finally came on the podcast. I’m not sure what to make of that, but I’m hoping that this is a new chapter where they both have a mutual respect for each other when it comes to their money.
[01:17:41] The renovations, we didn’t even touch on that. The missed money meeting is a red flag for me, one missed meeting turns into two, which turns into five. Of course this can be fixed. Just make sure you put it on the calendar and keep it sacred. Jeff, Susan, don’t lose your momentum to make real change. I feel confident if you get aligned and you make these changes consistently, you’re going to be much, much more comfortable with the considerable income and net worth that you have built.
[01:18:11] Thank you again, Jeff and Susan. If you are looking for a fee-based financial advisor, check out Facet. Facet just created a new exclusive offer just for, I Will Teach You to Be Rich listeners. They’ll waive the 250 enrollment fee for new annual members. And for listeners of this podcast, they’ll give you $500 in your brokerage account when you invest $5,000 within your first 90 days. Learn more at facet.com/ramit. Sponsored by Facet. Facet Wealth Inc, or Facet, is an SEC registered investment advisor headquartered in Baltimore, Maryland. This is not an offer to sell securities or investment financial, legal, or tax advice. Past performance is not a guarantee of future performance. Terms and conditions apply.