Episode 230. “We spend 168% of what we make. What are we missing?”

Amy (32) and John (40) are raising two young kids in Canada, earning a solid $155,000 a year. But with $768,181 in debt and fixed costs at 168% of their income, every month feels like a losing battle. Two years ago, John hid hundreds of thousands in business tax debt from Amy—what she calls “financial infidelity.” Since then, trust has been fragile, money is tight, and they often feel like they’re fighting on “two separate life rafts.” Amy’s trying to rebuild their future, but when more than HALF of their monthly income goes immediately towards debt, they’re struggling to find a path forward. Can Ramit help them bridge the gap between good intentions and hard numbers—and finally get on the same team?

In this episode we uncover:

• How their fixed costs rose to 168% of their income
• Why John hid his business tax debt, which shattered Amy’s trust
• How years of financial strain forced Amy to shoulder household finances alone
• How Amy’s volatile income and John’s shrinking business payouts created a $4,000 deficit
• John’s Dreamer attitude collides with the harsh math of his monthly debt payments
• The emotional impact of having no safety net
• Amy’s plan to launch a new business vs. John’s struggle to keep his afloat
• Why managing risk isn’t about optimism
• Amy’s frustration with carrying the mental and emotional load of finances while John “focuses on income”
• Ramit’s direct call for decisive leadership and clear planning to get out of financial free fall

Chapters:

(00:00:00) “He spent two years hiding his debt from me”

(00:18:03) Ramit breaks down their numbers

(00:26:27) “I was humiliated driving that Tesla”

(00:39:52) “We’re flying blind”

(00:54:47) “I feel like I’m carrying this weight alone”

(01:02:13) “Hope is not a strategy” 

(01:24:56) “This is what happens when we finally get specific”

(01:42:25) Where are they now? Amy and John’s follow-ups

Links Mentioned In This Episode:

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Transcript 

Download the full transcript PDF 

[00:00:04] Amy: I handle all of our finances, and I can see that there's no savings. I can see if John gets hurt tomorrow on a job, we're [Bleep].

[00:00:14] Ramit: You have 168% on fixed costs. You're broke.

[00:00:18] John: I feel we're so strapped for money that I am just trying to bring in as much as I can.

[00:00:24] Ramit: You are spending more than you make every month. That's for sure. It's not sustainable.

[00:00:28] John: This is an unbearable amount of stress, and I feel it every day, all hours of the day.

[00:00:37] Amy: I am carrying this weight over here on my own when it comes to how our household is being run and what our monthly finances look like. That's on me. We've got nothing. There is no cushion if we fall. We lose everything overnight.

[00:00:53] John: It feels more and more like I'm just getting attacked here. So I'm starting to feel defensive to be quite honest.

[Narration]

[00:00:59] Ramit: This is directly from Amy's application. "We are in a combined $400,000 Canadian of debt, not including our mortgage or car loan. I don't know how to create a CSP when there is no money left at the end of the month even after cutting out every single extra cost we could."

[00:01:20] Today, I am speaking with Amy, who's 32, and John, who's 40, and they are struggling to come together as a team to manage this mountain of debt. I'm looking at their CSP or conscious spending plan. You can download the same thing for free on my website if you're in the same boat as this couple and you're struggling to figure out where to even start, I go through that in detail in my money coaching program, which you can get at iwt.com/moneycoaching.

[00:01:48] Let's take a look at their key numbers. Assets, $900,000. Investments, 0. That's a big red flag. Savings, $2,160. Very low, especially for a family with kids. Debt, $768,181. Total net worth, $133,979. They earn a combined income of 155k, which is very healthy. Their fixed costs are at 168%, which explains everything.

[00:02:19] They are spending 68% more than what they earn every single month, just to keep the lights on. That's the whole ball game right there. Investments are at 1%. No surprise. Savings at 1%. Guilt-free spending is at negative 70%, which of course is impossible. I have a lot of questions, so I say we get right to it and meet Amy and John.

[Interview]

[00:02:42] Ramit: Amy, in your application, you wrote something to me that really caught my attention. You wrote, "He spent two years hiding his debt from me, while I thought we were financially good and we were spending as normal, even going so far as to buy a new car." What was your reaction when you finally heard the truth?

[00:03:07] Amy: So much rage. We luckily didn't have our kids at home that night. They were over at my in-laws, and he sat down on the couch and just very nonchalantly mentioned that he had gotten a call from the CRA, Canada Revenue Agency here, and that they had talked to him and given him some numbers, and there was debt. Without giving me specifics, all this debt has accumulated from his business.

[00:03:38] Ramit: Did you know at that point how much the debt was?

[00:03:42] Amy: No. And it took a few weeks of me to really pull the answer out of him, and it took a few more weeks for even him to know the final numbers because it still hadn't been completely tallied up on the CRA end either.

[00:03:59] Ramit: Did you have a sense of $5,000, $50,000? Do you have any sense at all?

[00:04:05] Amy: None.

[00:04:07] Ramit: If you had to guess at that moment, what would you have guessed?

[00:04:09] Amy: Probably $50,000, maybe 100 tops. But I'm not in the business. He had started it before we were together, and I've never had a role in it, and I have always just trusted that it was managed. And so I wouldn't have had a good idea or even a guess of what numbers that debt was.

[00:04:31] Ramit: When John told you in that conversation that CRA had contacted him and there was debt, how did you feel hearing it?

[00:04:45] Amy: I was fed up. I was so defeated because it felt like this business had continued to take so much from us. And he was working so hard, and he had never not been working hard, and we were never once financially doing okay. Just to hear this, it was like that kind of one last blow. I was just so done, and I wanted it to just be gone completely.

[00:05:20] Ramit: John, how does it feel hearing Amy's recollection?

[00:05:25] John: I remembered a little bit differently. I thought that in that night we talked about the numbers. But I could be wrong. I felt ashamed and defeated that it was such a huge number. I had been trying to chip away at this for a long time, and I was finally at the point where my last, option fell out from under me. I had some big jobs I was looking at getting that was going to be a big payment towards this debt, and I thought I had plans to tackle the debt.

[00:06:03] Ramit: How much was the total amount?

[00:06:07] John: It was 240, 280, something like that?

[00:06:12] Ramit: Wait, which one? Those are different numbers.

[00:06:15] John: Yeah.

[00:06:16] Ramit: What?

[00:06:17] Amy: Well, it continued to grow as the months were going on, and it was finalizing interest and penalties and everything. So it took a bit.

[00:06:26] Ramit: All right, so 240 to 280.

[00:06:28] Amy: Uh-huh.

[00:06:29] Ramit: Okay. Can we walk through the debt? So this is business debt. What type of business, John, and how did you accumulate this debt?

[00:06:38] John: It is a cabinet business. There's personal income tax, and then the business is source deductions, which is like, here in Canada we have to pay unemployment insurance. As an employer, I have to match my employee's contribution as well as Canadian Pension Plan CPP. So I have to match those for the employees I have at the time, and I fell behind on those payments.

[00:07:09] I'd pay myself everything we needed to pay for the mortgage here, on our personal side of things. Doing that didn't leave anything on the business expenses side. So all those accounts suffered because I had to basically pay ourselves 12,000 a month to pay our bills.

[00:07:32] Amy: That was true up until a certain point because then money was so tight on the business that he wasn't able to bring money home either. So money was getting redirected at a certain point into the business only and not coming home, in which case that's when I started to work and it was my income was keeping us afloat. His income was keeping the business afloat.

[00:07:56] Ramit: How many years did it take to accumulate this amount of debt?

[00:08:00] John: It was three years now.

[00:08:04] Ramit: Okay. At what point did you start to say, "Uh-oh, this is a problem?"

[00:08:10] John: About a year and a half ago, I guess. That's when the CRA reached out and we started talks, and I had to start paying them, which is where my income on the personal account started to drop off, because I had to start committing to payments to the CRA. So it was 3,000 a month at first, then it grew to 5,000. Then they're asking for 7,000.

[00:08:34] Ramit: When you stopped taking home income, I assume the two of you had a series of conversations about that. Did that happen?

[00:08:43] Amy: Not a lot of detail to my recollection.

[00:08:47] Ramit: Wait. If one partner stops bringing home income, that seems like you'd talk about it. Where am I missing it?

[00:08:54] Amy: I would ask, "Is payday coming this week?" And sometimes the answer was yes. Sometimes it was late. Sometimes it was half of the payday. And then I started working, and I wasn't really planning on it. I was at home with the kids, and I was expecting that money to be able to go into savings, paying off whatever other debts we had.

[00:09:14] And then rapidly it started to shift into, John wasn't able to have a payday. So I would bring my money in instead and use that to cover bills and the mortgage. And then that started happening more and more where his payday wasn't coming in at all. And mine was taking over everything.

[00:09:35] Ramit: Could you make it on one income, on your income alone, Amy?

[00:09:37] Amy: Yes. Yeah, we could. We were doing okay. There was definitely some times where I remember having to help cover the rent for his shop one month, help cover extra wages of one of his employees one month that was coming out of our personal income.

[00:09:55] Ramit: There's a bit of the boiling frog metaphor. Just like the temperature went up just one degree at a time. How accurate would you say that is?

[00:10:04] Amy: Absolutely. Yeah.

[00:10:05] Ramit: All right. What about the ramifications of this secret debt? What have they been?

[00:10:14] Amy: Our relationship has probably gone through its roughest year because of it. It's called financial infidelity, I believe, and it was 18 months to two years of not knowing that he was accumulating this debt. And he had a plan. He thought he could handle it until he couldn't. And then that was when I found out.

[00:10:37] Ramit: John, what have the ramifications been for you?

[00:10:42] John: After the conversation last year, the idea was that I was going to close down and work for someone else. So losing the business was pretty depressing. But also, I know that I did a lot of damage in our marriage and the trust. So I lost a lot of that. And so it took a lot to build that back and just show her that I'm here for us and our family and I'm not choosing the business over our family.

[00:11:20] Ramit: Yeah. Since this came to light, the secret debt, how did you stay together, stay connected? What did it take?

[00:11:33] John: Credit to Amy for being the one to always spark the conversation, the hard-to-have conversations. They're uncomfortable, but as we got into them, we got through them. And we went to bed together still at the end of each of those nights. And being willing to put in the work for our marriage and our family, all of those things was what was driving me to get through it.

[00:12:03] Ramit: Amy, what about you, from your perspective?

[00:12:06] Amy: We've been together for 10 years, and I really love him, but also really trying to hammer home to John that we're a team. That even though that's his business, it still impacts me. It impacts our family. And the choices he makes over there have the potential to risk everything for us.

[00:12:27] And to do that by himself, that's a huge weight for him to be carrying on his own, not fair for him. I'm his partner. I'm his teammate. That that's supposed to be something that we carry and we figure out together. And because he had made a choice to continue carrying that weight by himself for so long, it took such an extra toll on him that it didn't need to, and it prevented this huge timeframe where we could have been figuring something out together. So that was really frustrating and something that I really tried to get through to him as well.

[00:13:06] Ramit: Got it. Amy, in your application you wrote, "I don't know how to create a conscious spending plan when there is no money left at the end of the month, even after cutting out every single extra cost we could." Both of you are nodding. What was the feeling like? Confusion, helplessness, what?

[00:13:31] Amy: All the above. Yeah.

[00:13:33] John: If you don't mind, I'll jump in. There's some curve balls. So we were in the process of me switching gears. I had something lined up and realized that that income that I was going to bring in was going to be significantly less than what I could do with the business. And nearly the same time, Amy's pay got cut quite a bit as well.

[00:13:58] Ramit: What'd you guys do? What I want to know is, what'd you do when you discovered this massive gap?

[00:14:05] John: So I turned down the job, and I stuck with the business, and I laid off some employees. And now bringing him a consistent paycheck. And that's where we're at right now. And Amy's got some schooling that she is in the works with to boost her income.

[00:14:24] Ramit: Okay. Sorry, let me just pause you right there. So I'm trying to understand if-- when couples see numbers that are staggering and stark and not the direction they need to go, sometimes, in fact, most times they do nothing. They simply bury the piece of paper under the couch cushions and then they go, "Ah, whatever. It'll work itself out. This sucks."

[00:14:49] It's like learning to live with a toothache. In a rare, rare number of circumstances, maybe 3% to 5%, they go, "What the [Bleep]? And it's a red alert. It's like they do a spring cleaning. Which one was it?

[00:15:04] Amy: We did the spring cleaning. We did. And I'm the one who manages all of our household finances.

[00:15:09] Ramit: What? You did the spring cleaning?

[00:15:11] Amy: We did the spring cleaning.

[00:15:12] Ramit: Okay. All right.

[00:15:13] Amy: We cut out everything. We spent hours sitting down and adding up every single number. And I know you don't like the semantics of the spending, but it was like, "Okay, how much are we spending a month on groceries? If we're eating out, how much are we spending on that?" So getting the lump sums and where the money was going and then being like, "Okay, we need to cut that down by this much."

[00:15:32] Ramit: Did you do it?

[00:15:33] Amy: We did. So there's no eating out at all.

[00:15:38] Ramit: What matters is you actually were quite responsive. You did cut your spending, which is great. That tells me when circumstances required it, you two both said, "We got to make a change." Great.

[Narration]

[00:15:49] Ramit: Amy used the phrase financial infidelity. She thought that their finances were fine. They were going out to dinner, buying a new car. But it turns out that John was hiding hundreds of thousands of dollars in debt for years. And we can fix a little overspending. It's a lot harder to fix broken trust, especially around a topic like money, which is one of the most intimate taboo topics there is.

[00:16:16] What do you think happens when one of you is not honest about your finances with your partner? Right after this break, I'm going to walk you through their numbers, and you're going to see just how deep this hole really goes.

[Interview]

[00:16:28] Ramit: Let's look at the numbers. Amy, can you read off the word in bold and then the number in full next to it, please?

[00:16:38] Amy: Assets, $900,000. Investments, 0. Savings, 2,160. Debt, 768,181. Total net worth is $133,979.

[00:16:58] Ramit: All right. What do you think of that?

[00:16:59] Amy: We were happy that we weren't in the negative when it came to the total. That was the astounding part.

[00:17:05] Ramit: All right. That's good. John, what do you think of the numbers?

[00:17:07] John: Yeah, same. I was expecting that to be a negative, but to be slightly in the positive was a nice surprise.

[00:17:14] Amy: Yeah.

[00:17:15] Ramit: Wow. All right. So far so good. Net worth is a moment in time. It is a snapshot. We want to get a little bit more information so that we understand monthly what's going on. So this time I'm going to ask you, John, to read off your gross combined monthly income, please.

[00:17:36] John: That is 12,940.

[00:17:39] Ramit: Okay, great. And that means that combine, the two of you make $155,000 per year. Did you know that number?

[00:17:46] Amy: Mm-hmm.

[00:17:47] Ramit: Amy says yes. John just took a deep breath.

[00:17:50] John: Oh, I did not.

[00:17:52] Ramit: John did not. All right. Wow. Hold on.

[00:17:54] Amy: I don't want to be your statistic. No.

[00:17:56] Ramit: Everyone take a deep breath and recognize statistics matter. 50% of people I talk to do not know their household income. And here, right on the money, 50% on this call do not know. John, how do you feel to be a statistic?

[00:18:15] John: Do I have time to defend myself?

[00:18:17] Ramit: It's not defensing. It's a fact. You don't know your number. Now you know your number. You make $155,208 a year household income. Great. Let's get to the number that's giving me, I don't know what this feeling is in my body, but it's giving me some kind of feeling. Hey, Amy, can you read off the fixed cost number please?

[00:18:36] Amy: Our fixed costs are 168%.

[00:18:39] Ramit: 168% fixed costs. What does that mean?

[00:18:46] Amy: It means that we're basically screwed at the end of every month and rely on some credit card debt in order for us to get by.

[00:18:55] Ramit: You are spending more than you make every month. That's for sure. It's not sustainable. I agree. John, what does it mean to you?

[00:19:03] John: Okay, so Amy's income was basically halved. I set my income at 7,000, and we were projecting her income to be 4,000. It's less than 2000

[00:19:16] Amy: Well, it's 2,500.

[00:19:18] Ramit: We'll fix the income. Is it going to matter? 168%, 134%? Does it really matter?

[00:19:26] Amy: No.

[00:19:28] John: If her income hadn't dropped, those numbers would be in a much better shape. This is a snapshot of where it is, and it's a horrible number, and it's not sustainable, yes.

[00:19:41] Ramit: Hold on, hold on, hold on. Let's fix it. Let's fix her number. So in a hypothetical world where her income did not drop, what is her take home pay? Tell me.

[00:19:49] Amy: It would've been the same as John's.

[00:19:51] Ramit: 7,000. Okay. Watch. What happens to your fixed costs?

[00:19:57] Amy: Still higher than it should be, but it would still be manageable.

[00:20:00] Ramit: It's 72%, which is way better. That's totally manageable. Okay, so now the question is, how come you are not making $7,000 a month take home, Amy?

[00:20:12] Amy: Because in the world of doing the kind of content creation stuff that I part-time do, it's just volatile and wasn't all in my control.

[00:20:22] Ramit: Fine. All right. So that's a good exploration. I agree, 7,000 net would change things considerably. But you don't make that. It would've been great. It doesn't exist. You have 168% on fixed costs.

[00:20:35] Amy: Mm-hmm.

[00:20:36] Ramit: You're broke.

[00:20:37] John: Yeah.

[00:20:38] Ramit: We all agree?

[00:20:39] John: Yes.

[00:20:40] Amy: Yeah.

[00:20:40] Ramit: All right. Why don't we go through the rest just to get a good gauge at the high level. So investments are at 1%.

[00:20:47] Amy: Mm-hmm.

[00:20:48] Ramit: $40 a month to a registered RRSP. All right. Fine. 1% going to savings, which is $50 for gifts. Always funny to me, $50 to gifts and $20 to a registered education. Please tell me this is not for your kids.

[00:21:04] Amy: It is. You get tax exempt. It's a positive thing to do if you're making a lot of money. It's a good thing to--

[00:21:11] Ramit: That's so nice. I wonder what your kids will say when they have $1,800 in their college plan while their parents are homeless. What do you think they'll say?

[00:21:20] Amy: We'll be living with them. Isn't that supposed to be the joke instead? I know.

[00:21:25] John: That's a good point though.

[00:21:26] Ramit: Maybe aside from the jokes, we can look at where the money's going. And then finally we have guilt-free spending, which is negative 70%. So obviously that doesn't work. In fact, there's some numbers on here that just point blank do not work mathematically. One of them is that you are missing $4,190 a month.

[00:21:46] That means you're overspending, obviously. And if we go back up to your income, it indicates, Amy-- I believe this is you. Your net income is negative $1,000. How can that be?

[00:21:58] John: So she gets the $2,400 a month and then makes a payment to the CRA for 3,600, let's say. So that's where the--

[00:22:07] Ramit: Once a year?

[00:22:09] John: Once a month.

[00:22:09] Amy: Every month.

[00:22:09] John: Every month.

[00:22:11] Amy: If you look at the negative, that we're in the negative over 4,000 every month, it's because I have to send the CRA 3,736.

[00:22:20] Ramit: That's not because of your income, right, Amy?

[00:22:22] Amy: Yes, it is. That's my income tax debt.

[00:22:25] John: That was a previous year. So it's last year's total income tax debt that we weren't able to pay. And that's the same thing on my end that's accumulated. So she's also got a number that we're paying off as well.

[00:22:38] Ramit: I see. Okay. Got it. Let me tell you how I would recognize that differently here. I think this is a good key, important point. So what you did was you basically skipped a skip. You're probably making $1,000 a month here on your net ballpark. What you just saw is your fixed cost drop down to 126%.

[00:22:59] Okay, that's good. But your debt payments are actually higher. They're probably $2,000 higher. So instead of this, I'll add it. 5,888. And now your debt payments are up to 151%, roughly in the same genre but it is more properly represented here. Do you see what I did?

[00:23:22] John: Mm-hmm. Yeah.

[00:23:23] Amy: Yeah.

[00:23:24] Ramit: It doesn't substantively change anything, but it's important to understand nobody really is taking home less than $0 if they're working it. We got to understand the basic stuff correctly. So fixed costs are at 151% approximately. Debt payments are more than 50% of take-home pay, way over. They're $5,888 versus $8,000 of take-home pay. I would describe that as unsustainable.

[Narration]

[00:24:01] Ramit: Let me just be direct. When over 50% of your take-home pay goes to debt, it is a massive red alert. I ran the actual percentage of what their debt payments are compared to their take home pay, and it's an astonishing 73.6%. That's it. Game over. You cannot build any kind of financial future, much less a Rich Life when nearly three quarters of your income is gone the moment it hits your account.

[00:24:29] And within the debt, we still have layers and layers of debt. We have business debt, personal tax debt. They mentioned a car loan. I suspect there's even more. This is a major clue that tells me they've built a financial system that guarantees they're going to stay broke. It doesn't matter how hard they work. They have structurally set themselves up to fail, and no amount of hustling will ever change that.

[00:24:53] It's like building a freaking house out of Popsicle sticks and then putting your house right next to a fire factory where all things do is just light on fire every single night. What do you think's going to happen? It doesn't matter how many sticks you use for your house, it's going to burn down every single night. Now they've already mentioned a few of the debts they're carrying. I think it's time to get specific. Listen now as I ask them to break it all down.

[Interview]

[00:25:17] Ramit: Amy, can you explain the $768,181 in debt? What is underneath those numbers?

[00:25:24] Amy: Our mortgage at $514,000. Our credit card debt at 7,000. John's income tax debt at 53,500. My income tax debt at 43,680, and our car loan debt at roughly 50,000.

[00:25:53] Ramit: All right. Fine. $7,000 of credit card debt. What's that for?

[00:25:56] Amy: That's what's been filling in the gaps.

[00:25:58] Ramit: All right. And a car loan of $50,000. What's that? Wow. Amy looks very scared right now. Go ahead, Amy. You should be.

[00:26:09] Amy: I know how you feel about this truck.

[00:26:10] Ramit: What did you get?

[00:26:13] Amy: Okay, this does require a bit of a backstory.

[00:26:16] Ramit: Not really. What kind of car?

[00:26:17] Amy: Tesla Model Y 2023.

[00:26:19] Ramit: [Bleep]. That's even worse than I thought.

[00:26:21] Amy: I'm the one who applied for the approval of even being able to get a car loan. And I was under the assumption we were in good financial standing. This is a part of that financial infidelity. At no point during any of this conversation that we were looking at getting a new vehicle for the first time in our lives did the information come up that we had this debt sitting there.

[00:26:45] I thought we were good. There is also a government initiative program where you get money for buying an electric vehicle. So we actually didn't pay anything out of pocket to get it. And yes, in hindsight, once I found out about everything, I was humiliated. I was humiliated that we're driving around a [Bleep] Tesla with this much debt sitting in our back pocket. It was definitely a huge part of my anger because I would not ever have made that call.

[00:27:15] Ramit: Yeah. All jokes aside, I understand what you're saying. And I have to ask John, as Amy was going through this diligence process of finding the car and-- that's an expensive car. Why didn't you say anything?

[00:27:28] John: Because at the time, I was paying the CRA, and they were happy. I was making regular payments. And I thought that's just how it was going to continue.

[00:27:39] Ramit: All right. So you thought it would be okay, John. You had the plan, then you were paying, and then things got worse?

[00:27:49] John: So the collections officers, they changed so frequently. So the next one I got was starting to lay the hammer down and he said, "No, you need to come up with all the money right away." Which was not going to happen. So I had to meet halfway and up the payments. And so that's where my personal income started to dwindle and the payments increased over there. So that's when [Bleep] hit the fan.

[00:28:10] Ramit: Okay, so you said, "Okay, I'm getting a lot of pressure from the government to pay more. I'm going to cut my own income to the household." It's okay because Amy, she's covering it. That worked for a while and then it got even harder. She had to step in and help with the business rent and a business employee, and that's when things started to, it sounds like, spiral. Am I reading that correctly?

[00:28:35] John: Yeah. I was in the process of getting larger jobs and more of them. So the outlook looked promising. It was like a carrot being dangled in front of me. It was like, okay, it is going to get better. It's going to get better. It's going to get better, is what I was seeing on the business side of it.

[00:28:55] Ramit: John, how good are you at managing risk?

[00:28:59] John: I'd like to think I'm pretty good at it, but I can't control timelines on projects.

[00:29:11] Ramit: Yeah. Amy, what do you think?

[00:29:16] Amy: I think that he is an internal optimist, and that is a side of that that I really admire and love about him, but that is also why we are where we are.

[00:29:27] Ramit: Okay. If you shut the business down today, what happens to the tax? Is it still owed?

[00:29:33] John: Yeah.

[00:29:34] Ramit: And what's the bankruptcy laws in Canada?

[00:29:38] John: We have to pay off the source deductions before we can file bankruptcy or a consumer proposal.

[00:29:46] Ramit: How much is that?

[00:29:48] John: The source deductions is 180,000 right now.

[00:29:53] Ramit: Let's say you paid that off somehow. Would you be able to declare bankruptcy?

[00:29:58] Amy: It does look like once the source deductions are paid off, that banks and the consumer proposal, other options would become available, like consolidation-- debt options. So we would be able to at least look into those before we had to assess for bankruptcy.

[00:30:16] Ramit: So it sounds like maybe, but not for sure.

[00:30:19] Amy: Yeah.

[00:30:20] John: Yeah.

[00:30:21] Ramit: All right. What do you guys think the solution is here?

[00:30:29] John: We thought the solution was to sell the house and use the leftover to pay off as much of the debt as we could. I think we calculated there's still going to be some left, depending on where we ended up in a house situation.

[00:30:46] We looked at buying somewhere across the province. So we actually explored that quite a bit to sell the house. We thought about refinancing the house, so I got to work and put in a rental suite downstairs to increase the value of the house so that we could get it appraised for a higher amount.

[00:31:05] Somewhere around 850 is what we were shooting for, and that difference of about 300,000 would be significant. I think we could only refinance 80% of the difference. So it's not an actual 300,000, but 80% of 300,000.

[00:31:27] Amy: But we couldn't go that route.

[00:31:31] John: Right. No, wait, why couldn't we go that route again?

[00:31:37] Amy: Because our lender with the mortgage had policies in place.

[00:31:41] John: At the time, yes.

[00:31:42] Amy: At time of that. You are not allowed to use the equity in your home to pay off CRA debt.

[00:31:48] John: That's right. Specifically CRA. They would not lend us money. Same with banks, have the same thing. We'll not lend you money if it's to go towards a government debt.

[00:31:58] Ramit: What if you just sold the house?

[00:32:00] Amy: We looked to see what we could sell the house for, where else we could move. And ultimately we decided to try to hold onto the house to see if we could Airbnb or rent out the basement suite, have any supplemental income, as well as just an ounce of happiness.

[00:32:19] We really love the community that we're in. It's a small community. I'm involved with the school here. There was that piece of it as well. And all of our family is where we live, and the only option for us if we sold, was to move away. We wouldn't be able to afford to stay here at all. It wasn't going to be an option. And we would lose every single piece of our village. So that was a factor that we had to consider as well.

[00:32:44] Ramit: So you thought about the first option about building something first floor. Didn't work. You thought about selling. Based on your decision, that didn't work.

[00:32:53] Amy: Mm-hmm.

[00:32:54] Ramit: Where are you today? What's the solution?

[00:32:57] Amy: The solution thus far is that I am taking courses to become a nail technician and open a nail studio with the space downstairs. Looked at the projections around income in our area. It's not an oversaturated market out here, and I would be able to make between 4,000 or $5,000 a month, which would be significantly more than a rental suite. Airbnb is becoming non-option in our area. They're really trying to [Inaudible] that completely.

[00:33:27] Ramit: You're going to start a nail technician business. Okay. And John?

[00:33:33] John: I am trying to come up with ways to boost my income as well. I don't want to do the same thing I did with the business and pull every dollar out of it and then [Bleep] the business over again. So I am trying to tread carefully with the projects I have right now and use that money wisely in the business and pay what we need on our household. But I'm looking at possibly boosting my take home soon.

[00:34:03] Ramit: Do you currently make a gross monthly income of $10,440 a month? Net would be 7,000.

[00:34:13] John: After tax is 7,000 a month.

[00:34:19] Ramit: Okay, okay. How much does the business make in total?

[00:34:22] John: Like revenues?

[00:34:26] Ramit: Yeah.

[00:34:27] John: It fluctuates so much. What the problem was is I was pulling every dollar. So in the past it's been 130. Some years it was 70.

[00:34:38] Amy: I believe 2023 or 2024 was literally $30,000 that you had made for the entire year, so it's very, very inconsistent.

[00:34:49] Ramit: So the business is not making enough to pull out $7,000 a month net. That's what I'm hearing.

[00:34:58] John: So far, since I've made changes and I have laid off staff, there's more money left over at the end of the month. So I'm now able to pay myself that wage now, as of January. So this next calendar year, the profits are going to be much better for the business, and I'll be able to sustain 7,000 a month every month.

[00:35:21] Ramit: Okay.

[00:35:23] John: So long as I hit my sales number. That's the caveat there, and that's the tricky part with being in the industry of trades. It's feast and famine. We've probably heard about the trade war going on. We may or may not see some price increases and people not want to build anymore, in which case I am now vulnerable again.

[Narration]

[00:35:46] Ramit: You know, most people don't wake up in the morning like me and say, today is a risk management day. But you do manage risk every single day. You manage risk when you wear your seatbelt, when you lock your front door, when you take a vaccine. Unless you're an anti-vaxxer, in which case, get off my podcast. You manage risk when you set up automatic savings for a rainy day. Even though there may not be an emergency now, you know that one could come.

[00:36:13] Managing risk means planning for things that haven't happened yet. But John didn't do that. He kept on pouring money into a business that was already failing. He took on CRA debt. He cut his income without telling Amy. And when I asked him if he was good at managing risk, did you catch what he said? He said, yes.

[00:36:31] This is very common with dreamers. They will tell themselves, if I just try hard enough, it'll work out. They will often point at all the work they're doing, all the hustling, all the deals that are just about to close. I want to know where these patterns of money came from, so stay tuned as I dig deeper.

[Interview]

[00:36:49] Ramit: I want to understand more about how the two of you think about money. So Amy, when you were growing up, what do you remember your family saying about money?

[00:37:02] Amy: My situation is a little bit more complicated. I have multiple households I grew up in. My parents divorced when I was a baby, and more often than not, my mom was a single parent. She hated money. She didn't like talking about it. She didn't like that it existed. she said that. My dad said that about her.

[00:37:22] She was a single parent, working her [Bleep] off. But in hindsight, I was able to gather that she wasn't very good at handling her finances. And there was some months that our power got shut off. And I, as a kid, she very much kept that from me. It wasn't my burden to carry, but we lived in an old house.

[00:37:43] I just assumed that maybe the power cut out in the neighborhood. And I never knew. But we had to go to the laundromat. And there was some weeks where I would have to pick through and decide which of my dirty clothes I wanted to wash because we couldn't afford to wash all of them.

[00:38:01] Ramit: Mm-hmm.

[00:38:02] Amy: So that was that side with my mom. The other side at my dad's house was him and my stepmom, and he worked a very average government job, consistent paycheck, pension, all of those details. And he lived off credit cards. And generationally, his dad had never said no to him ever and ended up dying without a penny to his name.

[00:38:31] And my dad continued that mentality with himself, that if he ever wanted anything, he bought it, including cars to work on, motorcycles, whatever toy he wanted. Everything new and shiny and pretty. And yeah, last I'd heard it was over $90,000 in credit card debt with multiple different credit cards.

[00:38:51] Ramit: 90,000, 9-0.

[00:38:53] Amy: 9-0. Yeah.

[00:38:55] Ramit: What lessons do you think you brought from your childhood money messages to this relationship with John?

[00:39:02] Amy: I feel like it is a very chaotic mess. I moved out at 18, and I didn't save a penny ever. If I had 20 bucks in my account, I was stoked because I could still go get Starbucks. I worked hard, and I should have had money, and I never did. I spent it. All my bills were covered. My rent was always covered, but I just spent whatever I had.

[00:39:26] Ramit: What about today?

[00:39:28] Amy: Today, I am the worrier. I am always stressed and fearful and wondering how to make more money and how to make what we have go further, how to make our groceries last longer.

[00:39:45] Ramit: Is your financial life chaotic?

[00:39:49] Amy: Yeah. I feel like we're flying by the seat of our pants every single day. No matter how frequently we sit down and budget and spreadsheet, I feel like no matter what, at the end of the day, we're just flying blind.

[00:40:00] Ramit: Hmm. Okay. John, what do you remember your family saying about money when you were young?

[00:40:08] John: My parents asked us never to talk about our finances with other people because it was private.

[00:40:14] Ramit: You grew up in Canada?

[00:40:16] John: Yeah.

[00:40:16] Ramit: Did you grow up in like the equivalent of the Midwest of Canada?

[00:40:21] John: No, no, I wouldn't say that. No.

[00:40:23] Ramit: What the [Bleep]? All right. That's a very Midwestern thing.

[00:40:25] John: Is it?

[00:40:26] Ramit: Yeah. Like money is for adults and that's not for the children type of thing. Okay, go on.

[00:40:32] John: So what I mean is they would mention, we don't have money for that. We don't have money to do that. We're saving our money. This month we're a little-- cinch the belt was a term they used when they needed to save for a trip or--

[00:40:48] Ramit: Were you poot?

[00:40:48] John: That's what they made it seem like when we were growing up, that we were not well off. But I think that now that I am in a position that they were in, I think they did quite well. We went to Disneyland, went on ski trips. They drove [Bleep] cars, but that's because they didn't prioritize buying fancy cars.

[00:41:09] They bought a four-acre hobby farm, which nowadays is worth a lot of money because of the location. So they said those things growing up, and they said, keep it between us. So that's what I mean.

[00:41:23] Ramit: What happened as you got older?

[00:41:26] John: When I had a job, I was always living paycheck-to-paycheck, especially in my younger years because I was just out partying too much. But I had an apartment. I was paying rent. Wasn't prioritizing buying groceries. I was just blowing my money at a young age.

[00:41:43] Ramit: What did you tell yourself at this time, let's say-- what are we talking, early 20s?

[00:41:47] John: Yeah.

[00:41:48] Ramit: What did you tell yourself about money back then?

[00:41:52] John: I wanted to earn more of it. I wanted to be financially stable one day.

[00:41:59] Ramit: I don't believe that. I don't believe you told yourself in your 20s, I want to be financially stable. I simply don't believe that. No 20-year-old guy says that to himself, ever.

[00:42:09] John: I was looking at buying investment properties on the East Coast.

[00:42:12] Ramit: But that wasn't to be financially stable. What was it to be?

[00:42:17] John: Yeah, for passive income.

[00:42:19] Ramit: Exactly. What else did you tell yourself in your 20s when you were out partying, spending money? I'm not judging. I don't care. I spent a lot of money in my 20s too. But what did you tell yourself?

[00:42:32] John: I wasn't worried about the money I was spending because I was making pretty good money.

[00:42:37] Ramit: Mm-hmm. So if you log into your checking account and it was like, I don't know, 50 bucks or 100 bucks or something, what did you tell yourself?

[00:42:44] John: Save that until next payday.

[00:42:49] Ramit: Okay.

[00:42:51] John: In my mid-20s, I started saving money and actually taking my paychecks and dividing them into subaccounts to not be blowing my money all the time.

[00:43:03] Ramit: Where's the savings? It's 15 years later.

[00:43:07] John: Well, we bought this house.

[00:43:10] Ramit: Okay. This is very fascinating to me. A lot of people, they save very thoughtfully. They save for decades. And then they buy a house, and then they feel house poor. And I go, like I just said, "Where's your money? Where's the savings? It's been 15 years of savings. Show me where it is." And your answer was a little mopey. Well, I did buy this house.

[00:43:34] John: Yeah, I didn't finish actually. It wasn't 15 years of savings. I didn't say that.

[00:43:40] Ramit: Mid 20s. You're 40.

[00:43:42] John: Yeah. But I wasn't saving this whole time.

[00:43:45] Ramit: Okay, carry on.

[00:43:46] John: I spent it on items, like I bought myself a Jeep. Paid it off early,

[00:43:51] Ramit: Mm-hmm.

[00:43:53] John: Bought myself a bunch of equipment for my business.

[00:43:55] Ramit: Mm-hmm.

[00:43:59] John: That ate up a lot of money. I was having fun with it. I was doing what I wanted with it. Right now, I can't do what I want with money because it's not there.

[00:44:07] Ramit: It's there, but you just owe a lot of debt.

[00:44:11] John: Yeah.

[00:44:14] Ramit: It's like when your 5-year-old falls down. It's not that big of a deal. When a 40-year-old man falls down, it's a much bigger deal.

[00:44:22] Amy: I handle all of our finances, and I can see that there's no savings. I can see that there's no retirement plan. I can see if John gets hurt tomorrow on a job, we're [Bleep]. We don't have life insurance. We've got nothing. There is no cushion if we fall. We lose everything overnight.

[00:44:42] We lose his business, we lose the house, the car. We lose literally everything because there's nothing. I have tried to have these conversations, and not that I get a blank look from John, but I don't get this sense of believing that that could happen or believing that there's an urgency in these things.

[00:45:04] Ramit: John, do you agree with Amy that you're one injury away from major, major problems, including no life insurance?

[00:45:11] John: I honestly don't feel like there's any money for that. I feel we're so strapped for money that I am just trying to bring in as much as I can. So I'm focused on trying to earn as much as I can.

[00:45:24] Amy: But it's been years. It's not like it's only been in the last six months where things have been excessively tight. And I've had moments where it's been terrifying.

[00:45:35] Ramit: It's scary to hear when two partners don't see money the same way. And we're not talking about having five or $10,000 of debt. We're talking about having hundreds of thousands of dollars of debt with two kids, with no life insurance, with less than a month's worth of expenses in your savings account.

[00:46:00] Amy: Yeah.

[00:46:01] Ramit: This is a major problem. What's the future?

[00:46:08] John: At this trajectory, it's not looking good.

[00:46:10] Ramit: Be specific.

[00:46:12] John: We cannot hold onto this house. We can't have two cars. We could sell and hopefully pay off a large amount of money and rent. I don't know if we could afford to buy in a different city. But yeah, at this trajectory, we're sinking extremely fast.

[00:46:36] Ramit: That's not the worst case to me. That actually sounds perfectly fine to me. Oh, we sell a house and make hundreds of thousands of dollars and then go rent somewhere. Oh, boohoo. What do you mean? That sounds fine. I don't really consider that actually-- that's good case. John, what's bad case?

[00:46:58] John: I don't think jail time is in the cards, but what's worse? I guess bankruptcy would be worse. Credit takes a huge hit.

[00:47:10] Ramit: I think you just answered my question because that's not the worst case. Like I said, that's actually ideal. Worst case is your business gets knocked down tomorrow because of tariffs or whatever, or you get injured, or something happens to Amy's thing, and you all have one week's worth of money. And that's it.

[00:47:30] And now your house is going to get taken. Your kids can't go to school where they go to school. Who knows what's going to happen to a relationship under this kind of financial stress? That's bad. You guys don't talk about this a lot?

[00:47:48] Amy: I've tried. I have tried the tactics of scaring into action, I guess.

[00:47:58] Ramit: Does it work?

[00:47:59] Amy: No. We're here, so no.

[00:48:04] Ramit: It feels like you two are stuck.

[00:48:08] John: I actually felt like we talk about our situation or money quite often. Especially recently, we were talking about, like, we can't afford to do that. We shouldn't be spending money on that. We got to stop doing that. The long-term savings, yeah. Maybe we have a different vision of where we're at and what the plan is with that. I feel like we don't even have a dollar to put towards savings right now, or retirement.

[00:48:38] Ramit: Hold on. You use the word feelings a lot about money. I don't feel we have enough. Do you know?

[00:48:46] John: Yeah. So what I mean by that is we don't have the money for that. I don't see it. I don't see it.

[00:48:54] Ramit: Okay, okay. Fair. Fine. Amy looks skeptical, but this is beside the point. John, you're surprised that you and Amy don't see eye to eye on the acute severity of the problem. And you're saying like, "Hey, we have a plan, actually. I think we're on top of it day to day." Okay, fine. Maybe you are, maybe not.

[00:49:11] I take your word for it. But the day-to-day is not really what concerns me. My question is, what's the plan? When is the debt going to be paid off? How are you going to increase your savings so that if something happens to one of you, your children are protected?

[00:49:25] What would be your answers to those questions?

[00:49:28] Amy: Mine is--

[00:49:29] Ramit: Talking to John, please.

[00:49:31] John: No. See, that's where I feel like we're stuck. I don't see how we can come up with more money until we earn more money.

[Narration]

[00:49:40] Ramit: Let me say something I think a lot of people feel, but rarely say out loud. John is trying. He is showing up. He's having conversations. He's working hard. And in most areas of life, that counts for something. But when it comes to money, effort doesn't always matter. The world doesn't care how many hours you've worked if you're not driving actual results.

[00:50:03] Your credit card company's not going to give you a round of applause for updating a spreadsheet. The CRA doesn't care if you tried your best. They just want their money.

[00:50:14] It reminds me of the Spelling Bee when I was a kid. I didn't do it just to have fun, sitting there, reading two hours a day with my mom, this freaking Scripps Howard yellow book of words. I did it to win. It was not just about effort. It was about results. And I think John is confusing effort with results.

[00:50:32] The tough part is when you're putting the effort in and still not seeing results, it can be very demoralizing. And I want to tell you the difference between, in my experience, people who stay stuck and people who get unstuck and win. Most common reaction from people who get stuck is they try all this stuff. It's not working, and then they go, "What's the point?" They start making up excuses. They blame the world. Or they just keep doing what they're doing and hope that somehow, magically, things will work out.

[00:50:53] The people I know who are successful do not do that. They are very honest with themselves. They take a hard look in the mirror. They go, "Okay, this isn't working. What am I doing wrong? Where can I improve? Let me switch it up." And that's where I think John is. He's confused, overwhelmed, frustrated, and certainly not adapting, even though this clearly is not working.

[00:51:13] And in addition, there's another problem here. They're not working as a team. Amy's worried about risk. John's focused on income. They stopped trusting each other with money. Remember Amy's phrase, financial infidelity, is a huge deal. So before we start fixing numbers on their CSP, I want to talk about trust and what it would take to rebuild it. Listen as I ask Amy what that phrase really means to her.

[Interview]

[00:51:40] Ramit: So I want to understand more a little bit about the teamwork going on here. Amy, you mentioned the term financial infidelity. What does that mean to you?

[00:51:55] Amy: It's making the conscious choice day in and day out to hide something significant and the little lies that go into the decision to buy a car. That would've been a good time to bring it up. And instead, the little lies that we should do this. That's a great idea. Or going on weekend trips that cost money we didn't have.

[00:52:27] Ramit: Are you satisfied with John's answer that he thought things were fine?

[00:52:34] John: There was a conversation we had at dinner once and I said, "Okay, we need to get you back into work." And I see now that that was not even close to enough information.

[00:52:46] Ramit: We really need to get you back to work? I agree. That is not direct at all. Amy, when he said that, what'd you think?

[00:52:53] Amy: That meant nothing to me. I don't know what that was supposed to mean, but that definitely wasn't clear that that meant I'm carrying a whole bunch of debt over here and that's how we're going to fix it, is by you going back to work.

[00:53:09] Ramit: John, what stopped you, out of curiosity, from being that direct?

[00:53:14] John: I guess I was scared. That was a lot of money.

[00:53:19] Ramit: Hmm.

[00:53:20] John: Yeah. I was trying desperately to get rid of it, to pay that debt, and just move on from it. But I couldn't get a handle on it.

[00:53:32] Amy: I feel like we're treading water. I feel like the want is there, but that's where it seems to stop.

[00:53:43] John: But are we working together, or?

[00:53:46] Ramit: Let me ask a different way. Are you working together effectively?

[00:53:49] Amy: No. Because we're still in the negative by thousands every month. And I don't think that it's effective.

[00:53:59] Ramit: John?

[00:54:01] John: Can, actually, we follow up? I'd like to know why.

[00:54:04] Amy: Even a week or two ago, I had to pay the CRA payment. I had to pay our property taxes, and we had $500 left in the bank account. I was stressed. And so my solution was, I am going to sell some things on marketplace. Have a hundred dollars to go grocery shopping.

[00:54:24] Haven't had to do that since I was in my early 20s, to make sure that no money was being touched out of that account. And I remember messaging you and just saying, "Hey, please don't make any extra stops this week. No beer pickups, no extra snacks." And your response was simply, "Okay," with a heart.

[00:54:42] And in my mind, that would've been a bit of a red flag to come home and be like, "Hey, what's going on with our finances? What's going on this month?" And so it's just one of those moments that highlighted like, okay, I am carrying this weight over here on my own when it comes to how our household is being run and what our monthly finances look like. That's on me.

[00:55:06] Ramit: John?

[00:55:09] John: It feels more and more like I'm just getting attacked here, so I'm starting to feel defensive, to be quite honest. I am absolutely stressed out about our finances and the business finances. It's not like, oh, that's your problem. You deal with it. No, this is our problem that I got us into. This has weighed on me for years. It's changed me as a person. This is an unbearable amount of stress, and I feel it every day, all hours of the day. How can I improve that? How can I make more money? That's my focus right now.

[00:55:51] Ramit: I find that to be an extremely interesting reaction that you just had, John. First of all, I welcome it. I love when somebody can describe how they are feeling in the moment. I never want to attack anyone arbitrarily. That's not my job. My job is to figure out how to get you where you want to go.

[00:56:12] The reason I called that response interesting was it almost felt like it was one of the first times that you have literally and figuratively leaned forward. Like, this is how I'm feeling. I'm [Bleep]. I'm stressed. I'm feeling attacked. Now we're in this. That is the level of anger that I want you to have, because hundreds of thousands of dollars of debt is actually not acceptable. It's not.

[00:56:42] And this concept of like, well, we talk about it a lot and it's fine, but your partner says it's not fine. And so if one partner says it's not fine, it's not fine. And then, what's the plan? What's the debt payoff date? Don't know. How are we going to build savings? Don't know. We got to make more money. How? Don't know. That's not acceptable.

[00:57:01] And I like the anger because it's going to take decisiveness to get out of this situation. So I welcome your response, and I appreciate that you are able to articulate how you're feeling. That's hard for me. I'm like, "Wow, that was masterful." How do you feel about continuing our conversation?

[00:57:21] John: First of all, I agree with what's being said but I feel like I'm being painted as a bit of an idiot and a bit of the enemy here.

[00:57:32] Ramit: Because? Why?

[00:57:34] John: I'm not totally sure I agree with some of the answers.

[00:57:40] Ramit: Whose answers.

[00:57:41] John: There's just a lot of information that hasn't been accurately-- there's so many details to all of this that--

[00:57:53] Ramit: Okay, tell me.

[00:57:54] John: I've clearly made a big mistake not having a grasp on the business financials. But I feel that since then, involved with the household budget, I feel like we've been doing a pretty good job. And I thought we were communicating that together as a team.

[Narration]

[00:58:13] Ramit: All right. I need to cut in here because emotions are starting to get high, and honestly, I love it. John is frustrated, which makes me so happy. It tells me that he cares. This is the kind of energy I want to see-- present, engaged. Even if it means frustrated. The worst reaction would be somebody just going, "All right. [Bleep] this guy." That's checked out. I can't help that because once you're gone, you're gone.

[00:58:38] But to be in it, to disagree with me, I welcome it. To be able to articulate how you're feeling in a moment like he just did, that is incredibly impressive. When we get flooded or overwhelmed, or we feel misunderstood, when we're fighting with somebody, our body literally changes. We shut down. We can't hear the same way that we normally do. And so we react in these peculiar ways. We project. We deflect. We deny.

[00:59:02] So for John to pause and say, "I feel attacked," I am actually in awe. That is a master level reaction. It is something that I have tried to learn in therapy, and it is really hard. I also love when someone pushes back on me. It's a good sign. The last thing I want is for somebody to come on this show and nod through the whole thing. All right. And then leaves saying, "[Bleep] that guy."

[00:59:25] If you disagree, say it. That's how we actually get somewhere. So I appreciate what just happened, but now I have to push. Because despite everything we've heard, John still thinks they're doing pretty good. They're not. You cannot be doing pretty good when you're hundreds of thousands of dollars in debt and one emergency away from disaster. So listen as I push John to really understand the severity of their situation and hopefully start playing offense instead of defense.

[Interview]

[00:59:56] Ramit: You have $2,000 in your savings account with two kids. You have no money left. So you could talk together, but it doesn't change the fact that you are not making effective decisions. And because, John, you are the one who put this level of financial risk on the family, in my opinion, it would be your responsibility to take the lead on getting your family out of it.

[01:00:26] John: So can I ask you something?

[01:00:27] Ramit: Yes.

[01:00:28] John: The $320,000 debt is getting a $10,000 payment each month going forward. That is on the side. I then transfer $7,000 a month to our personal side, and we're still struggling on the personal side. I don't feel comfortable increasing the $7,000 because that'll just put us back into this problem.

[01:01:00] I can't pay for this source deductions, the business operating expenses. So how do we take the 7,000 plus what Amy can bring in, and how can we best use that money to keep the house and hopefully keep the car? That's what we're struggling with.

[01:01:23] Ramit: I love that you're asking these questions, and I am down to play ball. Let's simulate some stuff.

[01:01:29] John: I think we should be a bit realistic with the income. Honey, what do you think? We were saying 4,000 a month?

[01:01:36] Amy: I think it was closer to 5. I was to move towards doing the nails.

[01:01:42] John: But is that before tax? So we have to take 30% off.

[01:01:45] Amy: Yeah, that was before tax.

[01:01:47] John: 30% off of that.

[01:01:50] Ramit: 1,500 off. So 3,500. So should I change this to 3,500 take home?

[01:01:56] John: Yeah.

[01:01:57] Ramit: Okay. Take a look at the fixed cost number. That's the number that matters. What is the number now?

[01:02:02] John: It's 115,000. So that's the trajectory we're trying to get to. And this is maybe our new norm.

[01:02:15] Ramit: 115% is not acceptable.

[01:02:18] John: Right.

[01:02:19] Ramit: That number needs to ideally be below 60%. We could fiddle around with it a little bit above 60, but 115% we're not even in the same universe.

[01:02:28] John: Right. So we're still really [Bleep]. So what do we do?

[01:02:34] Ramit: Good question. Okay. Before we jump into the numbers and start messing around with the numbers, I'd like the two of you to just ask yourselves. Have a conversation. The last several times we've talked about money, how have we showed up, and now in this conversation, how do we want to show up differently? Go ahead.

[01:02:58] John: I think I always show up optimistic. I think that's pretty clear with all of the conversations so far. I am still optimistic. But I need a dose of reality, and I need to know if we have to go to the extremes of selling our house.

[01:03:18] Amy: The two pieces I am thinking of is that my CRA repayment plan is short-lived. So I know that that puts us in the negative. That just screws us every month right now, but I haven't defaulted on a single payment, and there is a timeframe. And if we can buckle down, make more money in the meantime, and get those payments done instead of defaulting or screwing up and letting it snowball into a higher number, that feels like a light at the end of the tunnel when it comes to that one there.

[01:03:59] At the same time, there's the schooling that I'm doing to be able to make that income right downstairs. And so yes, obviously if we have to sell, we have to sell, but I lose that option of having the rent-free space downstairs to run a potentially successful business.

[01:04:24] Like I said, that is not an oversaturated market in our area. I do believe that that will financially be lucrative and will help. So that's where my brain goes, are those two pieces. It's just, how do we navigate the current financial situation until these pieces are dealt with, really?

[01:04:46] Ramit: Can I cut in real quick? First of all, I like this back and forth, is great. The question was, how have we shown up in past conversations, and how do we want to show up differently?

[01:05:00] Amy: I just feel like no matter how good or productive conversations are, no matter how many calculations we make, at the end of every time, it's going to like, okay. We just keep going back to hoping for the best. And that's it.

[01:05:15] Ramit: So how do you want to show up?

[01:05:20] Amy: With a plan. I'd like to stop feeling like we're just grappling around in the dark.

[01:05:25] Ramit: That's generic.

[01:05:28] Amy: I know.

[01:05:29] Ramit: That's like me saying I want to go to the gym and just magically get a six pack. That's an outcome. How do you want to show up in this conversation?

[01:05:43] Amy: I would like to show up as being more optimistic, I guess. That would be nice where I get to show up feeling like there's hope and--

[01:05:54] Ramit: Look at John's face. There's a smile. John's nodding. He was caught off guard. Right, John?

[01:06:00] John: Yeah. I like that response from her. I want that for her too.

[01:06:03] Ramit: Okay. If it were me, from knowing you, the way I would show up is, I would say, "I think in the past we have danced around the truth. And the way I want to show up is I am ready to make hard decisions now." And I would almost reframe it to bad news in the short term is good news in the long term. But bad news in the long term is death.

[01:06:38] Amy: Yeah.

[01:06:39] Ramit: And that's what you've been doing. Hope is not a strategy. Fiddling around with numbers is not a strategy. We need to make some tough decisions. Are you all ready?

[01:06:51] Amy: Mm-hmm.

[01:06:52] Ramit: Okay, great. Let's take a look. The goal is to get your debt paid off, your fixed costs down to roughly 60%. I understand that might be difficult. Maybe we stretch it a little bit, but in the ballpark.

[01:07:10] Amy: Mm-hmm.

[01:07:12] Ramit: Now I'd like to just give folks a quick little understanding of where the money's going in fixed costs. Your housing costs at $2,975 a month, plus your utilities, are 26%. Not bad for what I assume is high cost of living area.

[01:07:28] Amy: Yeah.

[01:07:29] Ramit: Okay. Insurance, 455. Car payments at $1,077. Debt payments, $5,888 per month. It's killing you. It's over half your take home pay. Groceries at 900. Clothes at 50. Phone at 245, and subscriptions at 55. Nothing else is particularly egregious. It's the debt. That's your primary thing here. All right. So your fixed costs, and this is if we assume Amy is making more money, which I'm not comfortable putting that assumption in here yet, I'm putting it back to 1,000.

[01:08:08] John: That's fair.

[01:08:09] Ramit: Your fixed costs are at 151%. What do you want to do?

[01:08:13] Amy: You want to talk about making hard decisions? It would be that we have to sell the house, and the money would have to go towards the debt. It would have to knock off my debt right off the bat. I know that it's not as significant as John's debt, but knocking it out 100% would alleviate that monthly repayment plan.

[01:08:35] Ramit: How much would you take home if you sold the house?

[01:08:40] Amy: We owe the bank 514. So if we got 800 for it, then that goes back, whatever fees and extras and stuff. It would be, what, roughly 200,000?

[01:08:53] Ramit: That sounds pretty reasonable to me.

[01:08:55] Amy: Yeah.

[01:08:56] Ramit: 200,000. And just overall, y'all owe 53 plus 46. That's 100 plus 150. You owe about 157,000 ballpark. Do you want to see what happens to your monthly money if you're able to make that change?

[01:09:21] John: Yes.

[01:09:21] Ramit: All right. So in this case, you've sold your house. I need to know how much you are now paying for debt on a monthly basis.

[01:09:38] Amy: Mine would be down to zero. We'd have to still put 30% aside of every paycheck. But debt, if we sell the house, mine would be wiped.

[01:09:49] Ramit: Okay, so that's right here. $5,888 a month?

[01:09:55] Amy: Yeah.

[01:09:55] Ramit: Okay. Just out of curiosity, when is this going to be paid off anyway? How many months?

[01:09:59] Amy: In 2023, it was supposed to be 12 months, and I've been paying it. So it would be January that it would be done.

[01:10:06] Ramit: This coming January?

[01:10:08] Amy: Yeah.

[01:10:09] Ramit: Oh. All right. That opens up another possibility. Let's take a look. So first off, if we just zero this out, watch what happens to your fixed costs. Whoa. 77%. Is anyone seeing what I'm seeing here? What do you all take away from what just happened?

[01:10:31] John: So that's the scenario of selling the house. Right?

[01:10:34] Ramit: Let me reframe it. That is the scenario of Amy's debt payments of $5,888 a month being zeroed out, being completed.

[01:10:44] John: Right.

[01:10:45] Ramit: How you get there, I'm now seeing multiple possibilities. You could sell the house. That's one. And y'all would have a 77% fixed cost. Not great, but doable, better. What do you think about that?

[01:11:10] John: It's definitely a contender for options, I would say.

[01:11:14] Ramit: Yeah, I agree. I think that's pretty good. It would give us a lot of breathing room, a lot of options.

[01:11:21] John: Now, I guess it wouldn't be wise to try to take a bank loan to pay that, would it?

[01:11:27] Ramit: You all need to stop dealing with debt is what you need to do.

[01:11:29] John: Yeah.

[01:11:30] Ramit: People in debt love to use more debt, and you are the last people who should be using debt. None of it. Home equity, refinancing, business loans, personal loans, none of it. It's kryptonite. Stay away. That's what got you into this problem.

[01:11:47] Amy: Yeah.

[01:11:48] Ramit: I'm seeing nods from both of you. I think you guys get it. If you sold the house, how much would your rent be?

[01:11:55] Amy: We've looked at the rental market and how much we would spend. Cost-wise, we'd probably look at having to do a two-bedroom, have the kids share.

[01:12:05] Ramit: I agree. Okay. Smaller, fine. And would that still cost $2,975 a month plus 500 bucks in expense? So 3,500 bucks?

[01:12:14] Amy: So that would be the high end of what we would find out here, but not totally unreasonable.

[01:12:19] Ramit: John, you agree?

[01:12:21] John: Yeah, I think the about $3,000 mark.

[01:12:24] Ramit: Here's what I'm going to say. The fact that you have a four bedroom, and if you decide to sell and rent, it is likely that you will go to a smaller location.

[01:12:34] Amy: Yeah. Significantly, yes.

[01:12:36] Ramit: I, third party, outside observer, don't mind it. Easy for me to say. I don't have two kids, and I'm not going to be the one living there. But sometimes I think it's really helpful to have somebody from the outside just giving their perspective.

[01:12:49] So if you were able to rent a smaller place, even for $500 less, $500 a month is really meaningful to you right now, extraordinarily meaningful. That means every month you're adding 25% to your emergency fund. Guys, it's really important. This is the way you start thinking long term. Not just what's happening for four months, but 12 months, 24 months, 48 months.

[01:13:19] These systemic changes like in your housing costs can really add up. You take that 500 bucks, put it in your savings account, by the end of the year, just that savings alone is 6,000 more dollars. Do you see how I'm thinking about little differently? That's how I want you to think about it. All right. Back to the CSP, which is interesting, we did not factor in any income changes. I think it's time to talk about the income.

[01:13:50] Amy: Yeah.

[01:13:51] Ramit: What do you want to do?

[01:13:53] Amy: I am trying so hard. I pick up cleaning jobs when I can. That's something I've done since I was a teenager.

[01:14:03] Ramit: What's our theme for this conversation right now?

[01:14:05] Amy: Hard change.

[01:14:07] Ramit: Yeah. I'm not interested in replaying the old stories.

[01:14:11] Amy: Okay.

[01:14:11] Ramit: If they would've worked, they would've worked.

[01:14:13] Amy: Yeah.

[01:14:14] Ramit: Here's what I have to say. You mentioned this nail tech business that you are potentially launching and you said there's not a lot of saturation. What evidence do you have that you will make $3,000 per month net?

[01:14:31] Amy: Conversations with other friends who do this as their current job and looking at the standard cost of services and even lowering it a bit, as someone who would be new to it. You tend to do it a little bit cheaper. If I had five clients a day, three days a week, which it would likely be more five days a week, three clients a day type of a situation--

[01:14:54] Ramit: How are you going to pay for equipment? You got to certainly set up something. That's got to come from somewhere. It's going to cost money. There's a lot of stuff involved here.

[01:15:02] Amy: I've already been doing that due to the content creation work, I do get products for free. And after the certain amount of time, I've actually been selling those items, those furniture items, and then using that money to thrift and buy the furniture I would need from marketplace downstairs. So the setup is pretty well done. It's just going. And so that was less than $150 to furnish.

[01:15:29] Ramit: Great. When can you start?

[01:15:31] Amy: The program is 10 to 12 weeks. I've been doing it for a month, so it's completely self-paced. It's at home, so kids are in school in two weeks. I can do much more then and not at midnight.

[01:15:42] Ramit: Okay. How long will both of you give Amy, John and Amy alike, to prove that this works before making a change?

[01:15:55] John: I think it would take a few months to build up a clientele.

[01:16:02] Amy: My comfortable timeline would be six months. If I'm not seeing progress and significant clientele coming in and that income coming in, then changes need to be made.

[01:16:14] Ramit: Okay, great. I like that. And what I would say is this: it could be six months. It could be four months. In that realm sounds reasonable to me. But I'll also say this: it doesn't happen that you wait until five months and 30 days and then you make a decision. You actually set milestones. This is exactly what we teach in our Earnable program, to help start and grow businesses. It's like you set a goal.

[01:16:38] Let's say you plan to have $3,000 a month in net income. Let's say $5,000 a month gross. That means that by month 1, you probably should be making 1,000 and then 2, and then 3. And look, if your milestone 3 is to hit 3,000 and you hit 2,600, that's pretty close. Stay on track. But if your milestone was at 2,600 and you hit 300, that's a major problem.

[01:17:04] In other words, you should not wait to find out the answer until month 6. You already pretty much know by month 3, in which case you're already making plans. This is the level of speed that we are operating at. Seeing nods from both of you. Are we good on this?

[01:17:19] John: That makes sense.

[01:17:20] Amy: Absolutely.

[01:17:21] Ramit: All right. Now, John, talk to us about the business. What do we want to do here?

[01:17:27] John: To increase what I take home?

[01:17:30] Ramit: Yeah.

[01:17:32] John: I have someone who's interested in renting out some space at the shop for a short term for 700 a month. I am in the process of figuring out if I can give up that space because I might need it for this big job we just got.

[01:17:48] Ramit: Mm-hmm.

[01:17:49] John: So that's a possibility. Looking and tracking the numbers closely to see if I can afford to give myself a raise is an option. I can always take on more work and start working extra hours. We've gone through that, and if it can be a mutual agreement and a short term so that Amy isn't stuck with all the burden of the household, which was hard on her last time.

[01:18:17] Amy: Yes, but also, this is a dire situation. This is different than it has been. You worked crazy long hours sometimes in the past because you were growing the business, or that was what you wanted to do. This feels different and, yeah, I think that that definitely requires a plan and a conversation. If more work is an option, even if it's short term, then we'll figure that out.

[01:18:43] Ramit: Could we have this conversation right now?

[01:18:47] Amy: Yeah.

[01:18:48] John: Yeah. I could probably sit another job and before Christmas, and it could be an $80,000 job.

[01:18:55] Amy: Yeah. If they're asking you to bid on it or it's an option, then go for it. Yeah, we will figure it out. We'll plan.

[01:19:05] Ramit: Let's plan it right now.

[01:19:07] John: I can go back to 12-hour days and not do my flex day. I'll just work flex days and be home for the weekend.

[01:19:16] Amy: It takes a really hard toll on you though. Not even just me and the kids. That takes a lot on your body and your everything.

[01:19:28] John: Yeah, but if it's for a few months, that's fine. But when it's a couple of-- that's 18 months or whatever that was.

[01:19:36] Amy: Yeah.

[01:19:36] John: I don't want to do that level of over time, but--

[01:19:40] Amy: Yeah. The kids still need to know that their dad lives at home.

[01:19:44] Ramit: Can I intercede for just a second? I love this conversation. It's like the energy is totally unlocked. That quicksand that you were in before, that is nowhere to be seen. In fact, what I'm noticing is both of you actually building on each other, which is amazing. It's like an upward spiral. Have you guys noticed it?

[01:20:04] It's cool. I can feel it, and I can see it on your faces, both of you. I love it. One question that I might ask, because I can hear, Amy, you're alluding to it, "Hey, that took a toll on your body." And then what happening is, John is going, "It's fine as long as it's for this short time." I could feel a bit of tension and what I might flip that to is, okay, John. I really appreciate that you are willing to work longer hours to pick up this extra job.

[01:20:33] It concerns me that you might be putting your body under a lot of stress. But I also understand that this is what we need to do for the short term to get us out of the situation. What would you need in order for this to feel good and for us to be successful together? Try to ask that question, Amy.

[01:20:57] Amy: We've done this before, and I feel like the difference here is that this is a joint decision versus this just being something you want to do.

[01:21:05] Ramit: No need to explain. Just him how you can support him.

[01:21:07] Amy: How can I support you in making this work better than it has in the past?

[01:21:14] John: I thought it worked well in the past. You were extremely supportive. You made my lunches. I think he even started presetting the coffee machine. I think the most hopeful is eliminating the guilt that I feel when I'm not there to help. Yeah, I think we've done that in the past.

[01:21:44] I think we worked well. That was extreme hours, and that was an extreme amount of months. But if we had to do 12 hours, a day for four months to unlock that extra cash to put towards your income tax to unlock your income at another level--

[01:22:14] Ramit: John, what do you need to feel supported by Amy? That's the question.

[01:22:18] John: Yeah. Sorry, I didn't quite finish. I was starting to choke up. The feeling that she doesn't need me there for dinner. Like, she's okay to put the kids to bed. And I can just focus on finishing the shift and get home when I get home. The lunches and the coffee were an awesome touch.

[01:22:45] Ramit: You want that? Will that help you feel supported right now?

[01:22:49] John: Yes.

[01:22:50] Amy: Mm-hmm.

[01:22:51] Ramit: Amy?

[01:22:52] Amy: Yeah, that makes sense. Because we have done this before, then it's the shifts of it where there's times where you've worked the late nights, but it's not communicated to me that this is what's happening. So the frustration on my end rose that I am left here doing all of this.

[01:23:09] I'll see you when I see you. And so if this is the plan, we can do that. And we've had this inkling of this conversation of, if we have to work what longer, we'll figure it out. We'll do it. But we haven't actually planned. So that feels like a really feasible option.

[01:23:30] John: So if I were to take on more hours, what would you need from me as far as helping with you, with the kids, and being a husband and being available?

[01:23:43] Amy: I think the weekends would be huge. If it was a Monday to Friday grind and that's what we have to do, I can absolutely get on board with that. But having the weekends, especially for the kids. Because I just can't ever forget the fact that preschool teachers thought that you were in the military because the way that our daughter spoke about you is as if you were never there. And that was heartbreaking.

[01:24:05] So having you there on the weekends where we actually-- spend that time together with the family. If I have that to look forward to, know that that's what's coming at the end of every week, no matter how hard it is, then I'm good with it. I know it's not forever. There's a reason behind all of this. Hard decisions. I can get on board with it. Yeah, that would be huge.

[01:24:24] John: I feel like losing the house would be a harder scenario.

[01:24:29] Amy: Yeah.

[01:24:29] John: Would you say?

[01:24:31] Amy: Yeah. If that's where this goes, that's where this goes. And we just need to be able to get on board with that as a whatever plan, C, D down the road. But if we have these other plans in place and we work our [Bleep] off to execute these plans to their finality and go, "Well, that [Bleep] still isn't working," and we're still not where we need to be, then we move on to the next. And if losing the house, selling it, is in the cards, then at least we know that we've done these other plans first, so that we're not kicking ourselves later.

[01:25:10] John: Yeah.

[01:25:11] Ramit: Nice work. First of all. Round of applause. That was a phenomenal example of working together. Really, that was fantastic.

[01:25:18] John: Thank you.

[01:25:19] Ramit: The thing I liked most was that people are capable of pushing themselves way more than they think possible, especially if there's a powerful reason and you know that it's going to last for a limited time.

[01:25:38] Amy: Mm-hmm.

[01:25:39] Ramit: Now looking at the CSP, what can I change the income to for John so that we can start to get a sense of what happens to the fixed costs?

[01:25:53] John: If I were to be able to afford to give myself a raise?

[01:25:57] Ramit: Yeah. Is it 1,000 a month extra? Is it 3,000, 5,000?

[01:26:02] John: I don't know if I would go as much as five. Maybe three.

[01:26:07] Ramit: An extra 3.

[01:26:09] John: Yeah. I think if I were to work towards that, yeah.

[01:26:12] Ramit: Understanding this is just until Christmas, so you would adjust it later, but just to get a sense for what would happen, let's take a look. Instead of 7,000 take home, I'm going to make it 10,000. Right there, that number drops at 56%, which is staggering. Oh, and by the way, we should probably increase Amy's take home pay. Let's assume that things go well. And what did we say the number's going to be? 3,500? Watch this. Well, your fixed costs are at 46%.

[01:26:41] Amy: Wow.

[01:26:42] Ramit: Candidly, that's amazing. I don't think that's going to happen. But that's if every single thing goes right. That's not how life works. But you know what? I build a life where everything does not have to go perfectly right, and I can still live a Rich Life?

[01:26:58] Amy: Mm-hmm.

[01:27:00] Ramit: So maybe Amy is making 3,200. Maybe John gets a contract, but it's not 80k. It's 50k, and it lasts X number of months. But you can still take that money and you can utilize it effectively. Right?

[01:27:16] John: Mm-hmm.

[01:27:17] Amy: Absolutely.

[01:27:17] John: I've given that some thought. I think the obvious one would be Amy's income tax debt. And for me on the business, I'm focusing on that source deductions. So that opens up more options for if, hopefully not, but if we had to do the consumer proposal, or even worse, if we had to do bankruptcy.

[01:27:37] But it also opens up bank loan. I know we don't want to talk about loans and more debt, but it could be a difference of interest rates. Maybe we save a bit. I don't actually know what the CRA's charging interest. I should. I should. That's a number I'm embarrassed not to know.

[01:27:58] Ramit: In your conversations with the government agencies that you're in touch with, what amount of negotiations have you done with over your monthly payments?

[01:28:09] John: I tried. Like at the beginning I said, "Will you be okay with 3,000?" Or I think it was 2,000. And they said, "No, that's not enough." So I said, "I can do 3,000." I can't just give you this magical $20,000 a month. So I tried to just give them the full picture and just say, "Listen, I'll give you what I can."

[01:28:32] And it grew because the jobs were becoming bigger contracts. So I opted as I could, and they're okay with that. And the first lady I had was great. She totally understood. And then, I got another officer who was harder on me. He was saying I have to go borrow money from my friends and family, Money Mart and all this.

[01:28:53] Ramit: What the [Bleep]? Who knew the government is a goddamn loan shark? What is this?

[01:28:59] John: It was brutal.

[01:29:01] Ramit: Okay, John, let me ask you a question. You mentioned something about paying $10,000 a month towards this debt. Is that correct?

[01:29:09] John: Yeah.

[01:29:10] Ramit: Are you doing that now?

[01:29:12] John: As of my last payment, yes. And so I'll be doing that for the next five months, but four months for sure.

[01:29:20] Ramit: Okay. And out of curiosity, are you just doing that because you have extra money so you're just putting it towards the debt?

[01:29:25] John: Yeah, pretty much.

[01:29:27] Ramit: What's the interest rate on the debt?

[01:29:30] John: I don't know the interest rate, unfortunately.

[01:29:33] Ramit: Okay, this is what I suspected. We need to be much more disciplined. For example, if I'm in your situation and I have extra money coming in because of a job that I got, I'm not going to immediately just start paying off extra debt because I'm going to end up in the same position I'm in five months from now. What I'm going to do is sit back, carefully consider what's the interest rate?

[01:29:57] Hey, I'm not going to have this job after five months. What am I going to do? This is where dreamers never look at the negative. They just go, "Oh, the next deal will come and save me. We got to stop that thinking." We got to say, "Okay, if they agreed that I can send them $3,000, that is the amount I'm sending them. Next, let me factor in the interest rate. Is it to my advantage to pay a little bit extra?" Could be.

[01:30:18] But then finally, you want to start building up this cash reserve in your business. In short, maybe it's a good idea to pay extra. Maybe not. You need to factor in a lot more than just, I have the money. Would you be able to do that?

[01:30:33] John: Yeah, absolutely. You're totally right.

[01:30:34] Ramit: Okay, great. Amy, what do you need from John in order to trust him financially speaking?

[01:30:48] Amy: Full transparency and communication. I don't want to have to ask how money is going, how the jobs are going. Is payday coming? I want it to be upfront that when he comes home, I got this job. This is what's happening. This is how much the job is. This is how much I got the initial invoice for. And he has done, I'd say, at least half of that, half of the time.

[01:31:18] And I want to be excited for him when he says I got a job. I want to be able to celebrate that with him for a minute. And I think that he tends to get wrapped up in the business so much that those moments just pass him by too. And so to be able to, "Hey, you got that job. That's amazing. That's really exciting."

[01:31:38] And financially, yes, that's great. But also it's a really great confidence booster of what he is capable of. So I think that communication and that transparency among those pieces would just continue to help gain the trust back.

[01:31:57] John: That makes absolute sense. I am totally willing to continue to be as transparent and keep you informed. Like we talked about, you don't need to know when I'm buying material and I just bought some plywood today.

[01:32:10] Ramit: When will you update her?

[01:32:12] John: We had talked about every other month or something. We haven't really a [Bleep].

[01:32:21] Ramit: Wait, what?

[01:32:22] Amy: No, it was supposed to be every week. We were going to sit down once every week, and we haven't. It's happened more just conversationally while we're making dinner or whatnot.

[01:32:34] Ramit: You're talking around each other, and you're going right back into the stories. And if I were not here, that would've just happened. The second thing I notice is that there's a lot of murkiness, a lot of gray area.

[01:32:45] John: I was nodding along because I was expecting that I knew what she was going to say.

[01:32:49] Ramit: But you didn't. You thought it was every other month. She said every week. That's not in the same planet.

[01:32:59] Amy: We had talks only, I guess would've been May, June, about the transparency specifically around, I didn't want any big transactions be taking place. No big equipment, no nothing to be purchased, no big car repairs on his work vehicle without discussion with us first.

[01:33:18] We had sat down and, okay, if he's making this much money a month on the work log, where's the money going? And he'd show me the percentages. And I remember saying, the business savings percentage, that needs to be way higher.

[01:33:31] Ramit: Great. Now I want you to get specific. What does a transparency report look like specifically? Can you tell me? And I think it should be John who leads this one? John?

[01:33:47] John: To explain when I get a check, a big check comes in, and I tell her how much it is and I tell her how that money is going to be divided. And I can say if I need to buy something other than your odd 100-dollar tool here and there, which doesn't really come up anymore. But an expensive purchase is a conversation between the two of us. We've agreed to that as well.

[01:34:22] Ramit: What if you don't get a big check for six months?

[01:34:26] John: Then I would be transparent about that, let her know.

[01:34:29] Ramit: When? Because if I were you, I'd wait until month 5.999. And Amy, how do you think that makes her feel?

[01:34:37] Amy: I think if that were to happen again, that we we're not going to make it. We can't be here again. We can't be in a position where he is just crossing his fingers, hoping that a job is coming up. But nothing has actually been shown anyways till the very last possible second to tell me. That's why we're here. We're not.

[01:34:58] Ramit: I'm going to show you a different way that I might communicate. I might say, "On a weekly basis, on Saturday at 11:30 to 12:00 AM, I, Amy, am going to look over the document, and I'm going to talk to you about it." John says, "I, John, am going to have that document completed by Friday night at 9:00 PM."

[01:35:29] So that Amy has an hour in the morning on Saturday, whatever, to look it over, write her questions down. Then you all talk about it together for a half an hour. In this document, it's going to be a template. It's filled out, and you just plug it in like Mad Libs. Here's the amount.

[01:35:45] Here's how much is in the bank. Here's the current deals in discussion. Here's the deals we lost. All the relevant information. Here are the things planned to be purchased in the next whatever. Guys, transparency is not like pulling freaking teeth out, or I will tell you if something happens. Transparency is proactive.

[01:36:06] Amy: Right.

[01:36:07] Ramit: When I get my reports on Monday from my team leaders, you think I'm going to them like, "Hey, what about this?" No. If I have to ask, they have failed. So I'm getting a full report, numbers I can drill down into what's going on, how many deals, what's our BPN, all this stuff. They have done the work to manage.

[01:36:25] And John, you got to do that to manage the communication to Amy. Amy, your responsibility is to look at it, make sure that it makes sense for the household, and then for the two of you to talk about it together.

[01:36:36] Amy: Mm-hmm.

[01:36:37] Ramit: How does that strike you, John?

[01:36:39] John: Yeah, I like that.

[01:36:40] Ramit: Cool. Little different. Way more effective, I think, in communication. And I think Amy, for you, you mentioned something that resonates with me. You go, "I don't want to have to ask."

[01:36:49] Amy: Yeah.

[01:36:50] Ramit: Same thing I tell my team. If I have to ask you, we have a serious problem. So I need you to be proactively-- and the best way to do that, just give them a template. Both of you developed the template together. I think John should take the first crack. Here's a template I'm planning to report on by Friday night, every night, at whatever time. What do you think? Is this going to give you what you want? And then if after a couple of weeks, you want to change a couple of things? Go for it.

[01:37:14] Amy: Mm-hmm.

[01:37:15] John: I like that.

[01:37:16] Ramit: Love that. So Amy then said, for trust, I want transparency. Was there anything else?

[01:37:22] Amy: Communication. Just goes along with it.

[01:37:25] Ramit: There's one thing I don't think we addressed, which is the people around you that you need to enlist on this sprint you are about to go on.

[01:37:34] Amy: Mm-hmm.

[01:37:34] Ramit: Wow. Nods from both. Tell me. This is about to become very difficult for several months. What people around you do you need to enlist?

[01:37:44] Amy: My go-to is going to be his parents. They're fully retired. They're incredible help. And I did it in January when we were looking at our numbers, and I went, "We got to make all these cuts. We can't do anything in the summer with these kids." And I remember messaging my mother-in-law saying, "Hey, I know it's a long way. Can you help with the kids? Can we make a plan for that now?"

[01:38:04] And had a concrete, these are the exact overnights that they're going to have the kids for the entire summer so that I could structure the work and the time that I needed. And so I will do that exact same thing and get the help that we need from them, the best that we can.

[01:38:19] Ramit: Amazing. Also amazing what happens when you're super specific about what you need.

[01:38:24] Amy: Yeah.

[01:38:25] Ramit: Wonder what would happen if you did that here.

[01:38:28] Amy: Yeah.

[01:38:30] Ramit: I think especially when a family is about to make a major sprint like the two of you are-- and we don't know how long the sprint will last. If everything works out great, it could be December. But it could be that you end up moving to a different place or moving in with in-laws if you really need to save money, which is an option we haven't even entertained.

[01:38:51] But there's so many different things that you might do. And at a certain point, you need to bring kids in to let them know, "Hey, we are going to be closer together as a family. Dad's going to be working more. Mom's going to be working. We want to show you what it takes to pay off debt. We have not been paying close attention, and now we are making a change." Trust me, that lesson will stick with them.

[01:39:14] Amy: Yeah. And we've learned more about our parenting with them around the money than we expected to with this debt for sure. That we are saving our money, and we are working harder to make different choices with our money, and this is-- yeah. So we're doing more beach days and more activities that we are doing together that are free.

[01:39:36] Ramit: Yes. Beautiful, beautiful. I also love that you're painting the picture. You told them why a little bit. But you are avoiding-- what so many parents do is just to bottle it up and say, "We can't afford that."

[01:39:48] Amy: Yeah, yeah. I work really hard not to do that.

[01:39:50] Ramit: Yeah. Great work. Great work. Okay. What surprised you most from today's conversation?

[01:39:57] Amy: I think my biggest worry at the beginning, honestly, was like, what if it's hopeless? What if you leave the call, Ramit, and you're like, "Oh, they're so screwed. I can't do anything here." I think that was my biggest worry. So the fact that there's this feeling of forward momentum and there's some relief in that, that there's visual plans in place, and that feels really good.

[01:40:24] Ramit: John?

[01:40:27] John: I felt surprised that we weren't as on the same page with our financial planning as I thought we were. I thought we were doing a good job and a thorough job. I still feel that way. But I need to maybe check in more to understand her stresses. Because she's got the stress of the household debt on her shoulders because she's worrying about where the money is, where it's coming from, and she's looking at that a lot more than I am. So I need to start being there beside her, seeing those numbers at the same time.

[01:41:06] Ramit: Great. Okay, I have a couple things I want to mention to you. First off, there are several things we did not get to, but I know that you will get to them in time. When something is burning, we need to put the fire out. And that's why we talked about that.

[01:41:22] Some things that I would like for you to think about and to discuss in future conversations with each other would be understanding interest rates for your debt, understanding where your next dollar should go. Should it go to Amy's debt first? Maybe. But y'all really need an emergency fund, so you may need to pay that debt off a little slower and put money in an emergency fund.

[01:41:50] Very important to think about. Guilt-free spending, we didn't even tackle. I suspect there's probably some guilt-free spending, although I think you two seem pretty dialed in on your spending. So I don't really think that's a major pro-- dialed in, meaning I don't think anyone's like eating out 25 times a month or something like that.

[01:42:08] I do think that an emergency fund is critical. You don't know how important it is until it happens. Don't let yourself get in that position. I think your communication with each other is something I would-- I think it's a foundational level that I would really think about. And I would strongly encourage you to get whatever outside help you want just so you can communicate.

[01:42:36] I say that because I saw tremendous changes just from the beginning of our conversation to now. Tremendous. And I think sometimes, including my wife and me, all of us, we have blind spots that unless you have somebody there, it's very hard to discover them on your own, very hard. So something for you to consider.

[01:42:58] A couple of other things that come to mind. Negotiating with the Canadian government. It sounds like you've done it to some extent. You may want to think about what are the other options. I'm sure you've googled around and talked to other folks. Maybe there's lawyers to consult. I'm not as familiar with it, but it's a crushing amount of debt.

[01:43:16] Even the business debt is a crushing amount. In the US, often you can negotiate settlements with things like medical debt, etc. I don't know what the equivalent is in your situation, but I would like for you to consider it. It's certainly worth trying because the debt is so huge. If you could even get a 25% reduction, that is massive.

[01:43:37] John: Yeah.

[01:43:37] Amy: Yeah.

[01:43:37] Ramit: Bankruptcy, still not off the table. Again, I don't know the local implications in Canada, but those are all things to think about long term, calmly, methodically. But first step thing is get that income up, pay that debt off quickly, and most importantly, talk about it effectively every single week. But make the plan, get specific.

[01:44:04] That plan should ultimately be as simple as being able to hang it up on the fridge and it tells you everything you need. One page. That's when you know you are fighting for simplicity. You are running a very clean, non-chaotic financial household. All right?

[01:44:20] Amy: Mm-hmm.

[01:44:21] John: Love it.

[01:44:21] Amy: I love that. Yeah, love that.

[01:44:23] Ramit: John and Amy, thank you so much. I appreciate you both.

[01:44:25] Amy: Thank you.

[01:44:26] John: Thank you so much.

[Narration]

[01:44:30] Ramit: Before we get to their follow up, I just want to share a few thoughts because this conversation really stuck with me long after we finished. A lot of people would hear that their partner hid over $100,000 in debt and think that's it. There's no coming back from this. And honestly, for a lot of people, there would be no coming back.

[01:44:48] But I noticed with Amy and John that they had this commitment. John, what he did was a massive breach of trust, but they are still here, still showing up, still trying to figure it out together. And you can notice the love in little things, like Amy making his lunch and John promising weekends with the family. There was a real tenderness in these quiet little gestures.

[01:45:11] When this conversation started, it was like they were in opposite corners. They were polite, but there was a lot of tension. You could feel it. Something shifted. They started actually hearing each other. And I don't think this will be easy. It won't. It will probably be one of the hardest things they ever have to do. They have a huge hole to climb out of.

[01:45:29] But if they make a full on sprint and they do it together, I think they have a shot at it. Because when you've been stuck for so long, really stuck, and you finally get a glimpse of what's possible, that might be enough to get something to change. And I think maybe today they saw a path forward. Let's take a look at what happened next.

[01:45:53] Amy: I was surprised at a few points in the conversation and really found value having an unbiased third opinion, being able to have a different perspective that we clearly really needed and haven't had before.

[01:46:14] We have been setting up all the steps needed to head into this sprint. Hopefully it'll only be for a couple of months, just planning longer hours and what days of the week that works best so that we are both feeling supported in this and not feeling like one of us is carrying all the stress and the weight.

[01:46:38] And I have a goal of having my courses done and planning a soft opening with the nail studio between December 15th and January 15th. So that gives me a really good timeframe and a good push to get all my course work done and really just stay motivated and stay focused on getting this going, getting this opened, and being able to really ramp up my income.

[01:47:10] I want to say a huge thank you to Ramit and the team for allowing us the opportunity to work with them, and it was a really life changing experience.

[01:47:23] Hey, Ramit and team. It's been about a month since we had our conversation with Ramit, and I just wanted to give you a follow up on how it's been going. John has been working extremely long, extra hours, and I am taking over the home front and just chipping away at life over here, working on the course and just doing the best that we can to dig ourselves out of this debt and to stop living outside of our means every month. So it's been hard.

[01:47:58] During our conversation with Ramit, we committed to making some hard choices. And I think the piece that gets forgotten often is it's not just in that moment, that decision, that plan, but it's having to make sure that we follow it up every single day with actionable steps.

[01:48:19] So that has been what we're doing, and it's a hard season of life. We understand that. We were prepared for it. Doesn't make it easier, but we are pushing through. So that's where we are at, and thank you so, so much for talking with us and giving us the opportunity to share our story.

[01:48:45] Ramit: I'm a little disappointed not to hear from John. Amy's made a lot of changes. I appreciate that. John, I know working hard. I'm sure John's busy. But this is a team effort. And part of why I want follow-ups, of course, is for me to know what's going on, but it's also for you to hold yourselves accountable and to see that you are both doing this as a team. So Amy and John, I wish you both the best, and I want to remind you the only way out of this is together as a team.

[01:49:17] And now I want you to listen to this episode next.