Episode 81. “We’re broke—but $55,000 private school tuition is a non-negotiable” (Part 2)

In part two of our revealing conversation with Sarah and Kevin, we offer solutions for their serious debt accumulation problem and grapple with the hard truth about their biggest non-negotiable expense: $55k a year for their three daughters’ private school tuition. 

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Ramit Sethi: [00:00:03] On the income that the two of you make, you make too much money to be behaving this way. 

Sarah: [00:00:12] There are sacrifices that have to be made.

Ramit Sethi: [00:00:15] So, goodbye Tesla. Goodbye to a lot of the expensive things you would have ordinarily done because you are taking all of that money and redirecting it to $55,000 a year for private school. Are you both mentally centered and emotionally ready for that?

Sarah: [00:00:39] That is a struggle. That will definitely be a struggle.

Kevin: [00:00:44] So the question simply asked is, are we setting ourselves for failure?

Ramit Sethi: [00:00:48] Well, what’s the worst case for you two? Financially speaking?

Sarah: [00:00:54] Continuing down the path we are.

Kevin: [00:00:56] Yeah, for sure. The path that we’re on is the worst case.


Ramit Sethi: [00:01:01] Wow. Wait until you hear this episode. Sarah and Kevin make over $250,000 a year, but they’re broke. They recently sold their house and paid off a bunch of debt. But six months later, they’re back in $50,000 of credit card debt again. 

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

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


Are there any other things that are really important for the two of you to start doing?

Sarah: [00:02:26] Saving for the girls’ school next year.

Ramit Sethi: [00:02:29] What?

Kevin: [00:02:30] Yap.

Ramit Sethi: [00:02:30] What? Where did that come from? We haven’t talked about that at all.

Sarah: [00:02:34] No. So they’re in private school, and so we have to switch their school.

Ramit Sethi: [00:02:37] How much?

Sarah: [00:02:38] For all three without financial aid, it’s about $55,000 a year.

Ramit Sethi: [00:02:43] What the fuck? How are these secret expenses coming up right now? $55,000. What else?

Sarah: [00:02:54] This next year, I think that’s it. 

Ramit Sethi: [00:02:57] Don’t you have to make a donation to these private schools too? No. She’s, like, shrugging. All right. Okay, so $55,000. Where’s that money come from, by the way?

Sarah: [00:03:09] So this was our first year, and we used some of the money when we sold the house, we used it to pay it for the first year.

Ramit Sethi: [00:03:17] Mm-hmm. And where’s it going to come from next year and the year after and after that?

Sarah: [00:03:22] Good question. We’re asking ourselves that same question.

Ramit Sethi: [00:03:29] All right. How do you think we should fix this problem? Let me lay out the elements just so you hear me because I know you’re embroiled in all the weeds. Here’s what I see. The two of you make a high income. You make like $210,000 a year in base salary. You have $180,000 of debt. Of that debt, $50,000 is credit card debt.

Sarah: [00:04:05] Mm-hmm.

Ramit Sethi: [00:04:07] You have $93,000 in savings. You have some things you want to do. You want to buy land, etc. You have three kids. So you guys basically just want to be upper-middle class in terms of income, but essentially have no net worth for the rest of your lives.

Sarah: [00:04:27] No.

Ramit Sethi: [00:04:29] That’s what people who end up– they live in a nice neighborhood. They live in a nice house. Their kids go to private schools and they have nothing. That’s exactly what they say. What if you lived in an area with a better school district for your school-age children?

Sarah: [00:04:48] That require moving out of state.

Ramit Sethi: [00:04:50] And would you be open to that or no?

Sarah: [00:04:53] Well, not with his job. No.

Ramit Sethi: [00:04:55] No. Okay. And would there be any other places within the state that you’d potentially be able to move to?

Sarah: [00:05:01] No. We are in the best high school district in the state.

Ramit Sethi: [00:05:05] Okay. Got it. And have you both agreed that it’s either private school at 55K or homeschooling? That’s the discussion you’ve agreed on?

Sarah: [00:05:18] Mm-hmm.

Ramit Sethi: [00:05:19] Kevin.

Sarah: [00:05:20] Well, really, it’s been just private school.

Kevin: [00:05:24] More of private school. I have entertaining my head the possibility of dwindling one child. It’s so hard. It’s very difficult. 

Ramit Sethi: [00:05:44] Okay. It sounds like this private school is one of the things that is critical to you.

Sarah: [00:05:49] Yeah.

Kevin: [00:05:50] Yes.

Ramit Sethi: [00:05:50] Why don’t we see if we can make it work? And that will tell us in very stark numbers. And then we can decide what our options are. How about that? All right. So pay off credit card debt was number one. School payments, number two. Is there anything else that are the big rocks for you?

Sarah: [00:06:16] I want to say the house, but–

Ramit Sethi: [00:06:25] You’re shaking your head. What are you thinking?

Sarah: [00:06:29] But that’s not happening anytime soon.

Ramit Sethi: [00:06:35] This was a house you wanted to build. You told me it was a dream of yours since you were young. And you say it’s not happening any time soon. Why?

Sarah: [00:06:49] Well, because it’s a sacrifice that I have to be willing to make for my children to be and have the education that we want them to have.

Ramit Sethi: [00:07:22] Okay. I can respect that. Sometimes these trade-offs are really hard. There’s a vision we have of our life as we expected it, and then other things come up that you never could have predicted. And suddenly that dream you had, that crystal clear vision of what you want in your life is just not within reach or it’s a trade-off. Have you ever thought about that before?

Sarah: [00:07:51] In small things, yeah. But in big dreams, I’m always been the one that’s like, I’ll make it happen however I need to.

Ramit Sethi: [00:08:04] I’ll make it happen. How do you make it happen usually?

Sarah: [00:08:09] Pushing harder. Sacrificing. Expanding myself. Running myself ragged, typically.

Ramit Sethi: [00:08:22] What would your kids think about you when it comes to money? Do you think that they see you running yourself ragged sometimes?

Sarah: [00:08:29] Mm-hmm.

Kevin: [00:08:30] Yeah.


Ramit Sethi: [00:08:30] Let me explain what’s going on here. Sarah and Kevin have decided that they absolutely, positively must live in a specific neighborhood that has the best school for their girls. Not only that, they’ve decided to spend $55,000 a year on private school. When I ask if they’d be willing to move anywhere else, they say no. 

Okay, fine. I can respect that. If you asked me if I was willing to wear crocs, I would say no too. I’ve learned that it’s not helpful to tell people they simply cannot do what they want to do, especially when they can technically afford it. So I’m going to do a little exercise with them. I’m going to show them exactly what this private school will cost. I want them to be able to internalize and visualize what their life will be like for the next 10-plus years if they choose to go down this route.

And this is something that most of us never do. We stay at the surface level. We say things like, I want that car or I want to take this vacation. I want to buy that house. But we never interrogate that belief and say, okay, how is that going to affect our lives? That’s because we very, very rarely understand the relationship between what we buy and how it affects our finances. Many of us don’t even understand the relationship between our finances and our day-to-day lifestyle. That’s what I want to change. 

So let’s start with how Sarah and Kevin talk about money with their kids. Sarah told me that she’s had a dream for a long time of building a house for their family. I’m going to ask her what her children would think about their parent’s financial choices.


Do you think they care about this land? This house that’s in your head?

Sarah: [00:10:32] Yes and no. I think partly they see how much I want it and so I think they want it for me. And I talk about it and I talk about dreaming with them and I’ve gotten there and what do they want? What do they want their rooms to look like when we do this and to try and get them to be a part of the process? So I think they’re invested in that way.

Ramit Sethi: [00:11:01] Let me ask you a question. Do you talk to them similarly about your investments and your savings?

Sarah: [00:11:11] Mm-hmm.

Ramit Sethi: [00:11:11] What lesson do you think you’re communicating to them?

Sarah: [00:11:15] To dream, but not be realistic.

Ramit Sethi: [00:11:18] Maybe. And that maybe success is buying a house or buying something. And maybe it is for them. Who knows? That’s their future. It’s not us to decide. But gosh, I really would like for them to see mom and dad, your own words, being good stewards of money. Okay, everybody sit down. We’ve got 50 bucks and we’re going to go out to one place to eat. How do we want to choose?

Well, we can’t do it all. We only have 50. Oh, my gosh. If we choose that one appetizer, we’re not going to be able to buy anything else. Then a little bigger, the 13-year-old quite savvy. You can do a lot with a 13-year-old. Wouldn’t it be nice for them to learn about trade-offs like you are learning about trade-offs right now?

Sarah: [00:12:13] Yeah.

Ramit Sethi: [00:12:15] So the excitement that you have communicated to them about this house, I love that you are able to do that. I love that. I think we might need to redirect it into something else for the next while. Trust me, if they see you getting excited, they’re going to get excited.

Sarah: [00:12:40] Yeah. Yeah.

Ramit Sethi: [00:12:41] All right. So, paid off credit card debt, school, and the house. It will certainly take you time to come to terms with that. But do you feel deep down that you could come to terms with not moving forward on this house for the next, let’s say, 10 years?

Sarah: [00:13:05] Eventually.

Ramit Sethi: [00:13:06] Okay. That’s a fair answer. Can I tell you something? There are things that I would not be able to come to terms with. It would be really hard for me too. And some of them are materialistic. Like, I’ve gotten used to certain things that I like. If you told me I could not do it anymore it would be devastating for me.

Sarah: [00:13:28] I remember when I was like seven years old, well, so my parents bought land when I was really young to be able to build on. And I think I was like six or seven around that time period and then it never happened. They ended up having to sell it. And I remember hearing about that and getting to design a house. I was seven, and on the old computers, I would go and try and draw my own house plans, like playing Barbies. I just wanted to set up the house. I don’t care about actually playing. I just wanted to build and create. 

So this has literally been my entire– my grandfather was a builder. It is in my blood and I love that kind of stuff. And so it’s very much a passion. It’s a passion project.

Ramit Sethi: [00:14:31] Well, there is a possibility in the future at some point. But if right now with the current income, even if the two of you make $100,000 a year more, that house is not in your future for at least the next decade. 


In my opinion, it is respectful to tell people the truth. Looking at their income and expenses and their financial habits, Sarah and Kevin have no chance of being able to build a house in the next decade. Now, I never would have told them this at the beginning of our conversation. I needed to understand their finances. I needed to understand their attitudes. But now I get it. And I’ve built some trust. 

I think that a lot of us spend our lives dreaming about something big that we want to do. I find that less than 5% of us actually try to plan it out. Oh, Ramit, we want to live in Rome for a month someday. Awesome. I go, “That sounds amazing. How much would it cost? Can you get time off work? What about your kids?” 

For most of us, we simply defer these logistical questions until some day in the future. And I think the reason for that goes quite deep. Some of us don’t want to look into it because the reality might be too scary, that the dream we’ve been telling ourselves we want to do for our entire lives actually might not be possible. It’s too scary to think about, so we never open a single calculator. 

But if someone comes to me and they ask for help, I believe it’s respectful to tell them the truth. Now that Sarah knows she cannot build a house for at least the next decade, she can start to go through a process, probably starting with grieving and eventually accepting it, which will allow her to focus on a more realistic tomorrow. This is what I mean when I say in order to live a rich life, you’ve got to be honest with yourself and with the people around you. 


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

Sarah: [00:17:05] Yes.

Ramit Sethi: [00:17:06] What?

Sarah: [00:17:11] Putting money into investments.

Ramit Sethi: [00:17:15] Yeah. I’d like to because right now it feels like you’re swimming against the current, doesn’t it? Everything you’re doing it’s just like, why is this so hard? And then we get a cash infusion, we sell the house, and then we’re back in debt, and then we get an inheritance. But we already know if we spend that, we’re going back into debt. You’re just swimming against a current. Nothing is changing. And don’t you think if you make an extra $150,000 a year, you’re going to find some other way to spend that money?

Sarah: [00:17:43] Yes.

Ramit Sethi: [00:17:45] So you’ve got to start getting ahead even while you are dealing with some of these things.

Sarah: [00:17:51] Okay.

Ramit Sethi: [00:17:52] All right. If you want to do all these things, let’s just say that’s $1,000 a month for paying off your credit card debt. I’m just picking a number out of the thin air. If you did $1,000 to pay off this credit card debt, by the way, it would take you five years to pay it off and on a $50,000 balance, you would pay $42,000 in interest. So that sucks. But all right, let’s just say $1,000. You could change the numbers dramatically if you do $2,000, but I’m just giving you an example. School is going to be how much a month?

Sarah: [00:18:35] It’s $5,500.

Ramit Sethi: [00:18:38] Let’s just say $6,000.

Sarah: [00:18:40] Okay.

Ramit Sethi: [00:18:41] $6,000 a month. And your investments should be what? What’s the number we can pick as a ballpark?

Sarah: [00:18:51] Well, 10%.

Ramit Sethi: [00:18:55] Yeah. Let’s say 10%. And should it be gross income? Let’s start there. 10% of gross income. What’s your gross income?

Sarah: [00:19:06] 23.

Ramit Sethi: [00:19:09] Gross annual income.

Sarah: [00:19:10] Sorry, annual.

Ramit Sethi: [00:19:11] No more monthly. Say that aloud for me, please.

Sarah: [00:19:14] No more monthly.

Kevin: [00:19:14] No more monthly. 

Ramit Sethi: [00:19:15] I’m going to rip this tendency out of your mouth if I have to come over there myself, say it. What’s the number?

Kevin: [00:19:22] 230 annual income.

Ramit Sethi: [00:19:24] 230. All right. No more monthly. I want that haunting you. Listen, if anyone wants to buy a recording of me saying, “No more monthly.” Send me a note. 


You cannot live a rich life if you are only focused on what’s happening this month and next month. It’s like trying to drive while only looking five feet in front of you. You have to use a financial system to automate your expenses and your saving and your investing so you can finally look ahead. 

Now, if you already have that system and you still find yourself constantly playing small and only talking about month by month by month, focus on changing your language and your money psychology to an annual perspective. Just start by saying, “What is our rich life this year” and map it out accordingly. If you don’t have that system, you can use my book to get it set up. And if you need a little implementation help, you can join my money coaching program at iwt.com/moneycoaching. 


So six, seven, eight, 9,000 a month just to achieve these basic– well, they’re not basic but these important things to you. What do you all think about that?

Kevin: [00:20:40] It’s a large amount.

Ramit Sethi: [00:20:46] It’s a lot.

Sarah: [00:20:47] Yeah.

Ramit Sethi: [00:20:48] Any questions so far?

Sarah: [00:20:50] No.

Ramit Sethi: [00:20:50] All right. I notice it looks a little tough for you. Tell me what’s going through your head right now.

Sarah: [00:20:59] Just– yeah.

Ramit Sethi: [00:21:04] Is it tough to start to get into the numbers like this?

Sarah: [00:21:09] Mm-hmm.

Ramit Sethi: [00:21:09] I think that at this moment, it can feel like you’re watching your dreams get calculated away. And I want you to stick with me. This moment is really difficult because you have to confront reality. And it’s going to be hard. I wish I could make it all easy, but it’s not. But I can tell you that if you’re able to confront reality and make some tough choices, that you have a very, very bright future ahead.

Sarah: [00:21:37] Okay.

Ramit Sethi: [00:21:38] So let’s take it step by step and if you feel overwhelmed or you’re not sure about something, tell me.

Sarah: [00:21:45] Okay.

Ramit Sethi: [00:21:45] All right. So what we see now is that your fixed costs are 151% of your take-home pay. What does that tell you?

Sarah: [00:22:01] Our fixed costs are too high.


Ramit Sethi: [00:22:03] Let me repeat that number for you. I usually recommend that fixed costs be 50 to 60% of take-home pay or after-tax pay. Their fixed costs are 151% of take-home pay. They are spending more than they make every month on their fixed costs alone. I want you to hear the details in this next exchange. It is so revealing. 

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

Here’s the trick. In order to live a rich life, a truly rich life, you have to deeply understand your numbers. So I’m going to try to help Sarah and Kevin get from 151% to 50% to 60%. But you can imagine how difficult this is going to be. For Sarah and Kevin, it will feel like cutting off parts of their lives. But this is part of the process for them to understand what it will truly cost if they want to live in this specific area and send their kids to this expensive private school.


Yeah, you’re going broke every month, so that’s not going to work. And also we haven’t even actually factored in paying off your debt. So let’s go ahead and do that. Let’s just start with $1,000 a month towards your debt. Shit. Now you’re at 160%. But guess what? That’s reality. We’re going to put everything out on the table and then we’re going to figure out what to do. So your rent is 16%. Is your rent really low? What is it? Low cost of living over there?

Kevin: [00:24:16] It is fairly low comparatively.

Sarah: [00:24:17] Yeah. We downsized quite a bit.

Ramit Sethi: [00:24:20] All right. That’s pretty good. 16%. Don’t move, okay? I know you want to, but please don’t because if you move, it’s going to be somewhere more expensive, right?

Sarah: [00:24:32] Yeah.

Ramit Sethi: [00:24:33] Don’t do that. I’m just telling you. I rarely in that directive, but I’m like, “You’ve got a good thing going here. Don’t mess with it.” Insurance, whatever. Car payment. Yeah, your car payment, you can’t afford it. You can’t afford these two cars. Like, not even close. So that will have to be made a change. 

So I want you to start changing some of these numbers. Take that car payment and cut it in half. Let’s watch what happens to that overall number. All right. So $1,000 takes it from 160% to 149%. What do you think?

Sarah: [00:25:18] It was a slight drop.

Ramit Sethi: [00:25:20] Yeah, a slight drop. To me, the way I look at it is okay, I should probably do that but holy shit. Like, how am I actually going to get to 55%? It actually does not feel possible.

Sarah: [00:25:35] Correct.

Ramit Sethi: [00:25:36] Okay. Can you spend less than $1,500 on your groceries every month if you are really thoughtful about it?

Sarah: [00:25:45] Yes. Yeah. Yeah, we can.

Ramit Sethi: [00:25:46] How much can you take that number down? Reasonably.

Sarah: [00:25:54] I would say maybe $1,000. Maybe $1,200.

Ramit Sethi: [00:26:03] Pick a number that you are confident in.

Sarah: [00:26:04] $1,200.

Ramit Sethi: [00:26:05] All right, make the change. Okay. You’re at 146%. All right. We’re moving in the right direction. I like what I’m seeing so far. All right, kids’ activities, $899.

Sarah: [00:26:28] Yeah.

Ramit Sethi: [00:26:31] What do you want to do here? Can I just tell you a quick story? My sister took horseback riding lessons when she was a kid. She did it like, two times. She loved it. Do you know what my mom did? She pulled her out of that shit. She’s like, “We can’t afford this. You had two rides on a pony. You’ll remember that forever. You’re done.” I wish you could do it all.

Sarah: [00:26:58] Yeah.

Ramit Sethi: [00:27:00] What decisions do you want to make here?

Sarah: [00:27:03] So I have a question.

Ramit Sethi: [00:27:06] Mm-hmm.

Sarah: [00:27:07] Knowing we’re doing this off of base salary, is this something that we could decide, I guess, year to year, because we do know we have things coming in, and like soccer for our oldest, is $2,400 a year. And so if we know that I’m going to make an extra, I don’t know, $5,000 one month.

Ramit Sethi: [00:27:45] What was that word you just said?

Sarah: [00:27:47] An extra?

Ramit Sethi: [00:27:49] No. It started with an M. Sorry, I’m not aware of what that word is.

Sarah: [00:27:52] Make?

Ramit Sethi: [00:27:52] No, it was after that. Every–

Kevin: [00:27:53] Every month.

Sarah: [00:27:54] Month.

Ramit Sethi: [00:27:55] Sorry. I don’t know what that word means.

Sarah: [00:27:56] An extra $20,000–

Ramit Sethi: [00:28:00] Per?

Sarah: [00:28:00] This year.

Ramit Sethi: [00:28:00] Per year. Thank you very much. Okay.

Sarah: [00:28:03] And actually, $20,000 this year. And we’re like, okay, we want to make sure the girls have activities this year.

Ramit Sethi: [00:28:12] Okay. Here’s how you do that. Absolutely, you can set up a rule for the two of you that says any additional amount we make above our salaries gets allocated in this way. But here’s the trick. You can only do that by taking last year’s bonus that’s now in your account and use it for the future year.

Sarah: [00:28:34] Yeah.

Ramit Sethi: [00:28:35] Do you see how you haven’t been doing that?

Sarah: [00:28:37] Yep.

Ramit Sethi: [00:28:37] And that’s screwed you.

Sarah: [00:28:39] Yeah.

Ramit Sethi: [00:28:39] Because you’re basically counting on all this money now, and if it doesn’t happen, you’re in real trouble.

Sarah: [00:28:45] All right. So I say we put it at zero.

Ramit Sethi: [00:28:51] Okay, go ahead. Make the change.

Sarah: [00:28:55] Would that be one of those rules?

Ramit Sethi: [00:28:57] Okay. You know what’s really cool about what you just did? It’s very courageous, I think. It’s very courageous for you, clearly, you care about your kids and their activities. I know both of you do. For you to say, “We’re going to take them out of these things.” You may not want to. I’m sure you don’t. But sometimes parents cannot afford it. Very courageous. Girls’ school. You have $58,001 here. Okay, and you told me that’s one of the important things you want to do. Subscriptions. Fix this, please.

Sarah: [00:29:39] Yeah. This is a lot of the business stuff that’s in this.

Ramit Sethi: [00:29:45] Take it out. Just give me what’s in here for personal.

Sarah: [00:29:51] $700, maybe. I’m going to say $700.

Ramit Sethi: [00:30:02] Let’s talk about this. $700, gym, phalaris, food delivery, food service, all that stuff. Is all that continuing?

Sarah: [00:30:16] No.

Ramit Sethi: [00:30:17] Okay. Take it out. Says zero. You don’t have any like Hulu or Netflix or something?

Sarah: [00:30:30] Oh, yeah. So $100.

Ramit Sethi: [00:30:35] Okay, 100 bucks. Fine. I can get with that. You have a miscellaneous amount here that automatically adds 15%, which I think is good. So you’re currently at 125%. First of all, I’ve never clapped at someone spending 125% of their income on fixed costs. But I’m going to take a win on this because we went down from 150 to 125. That’s not bad. That’s not bad. However, you don’t have enough money to pay for this lifestyle. 


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

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


Can I make a suggestion?

Sarah: [00:31:58] Mm-hmm.

Ramit Sethi: [00:31:58] Just to view this correctly, can we take the girls’ school in row 17 and move it to guilt-free spending?

Sarah: [00:32:10] Yeah.

Ramit Sethi: [00:32:11] Let’s just see what that does. Okay. All right, so look what you just–  whoa! Holy shit. What happened to the numbers?

Sarah: [00:32:24] Dropped dramatically.

Ramit Sethi: [00:32:25] Tell me what just changed. What changed in your fixed cost percentage?

Sarah: [00:32:29] It went from 124 to 76.

Ramit Sethi: [00:32:32] Okay. 76 is within striking distance of 60. That’s a big change. And then what happened to the guilt-free spending number? What does that number at right now?

Sarah: [00:32:50] 48.

Ramit Sethi: [00:32:50] Yeah, 48. And it should be 20 to 35.

Sarah: [00:32:54] Yeah.

Ramit Sethi: [00:32:55] Okay. Whoa! So I’m seeing some things happen here. Can I tell you what I see?

Sarah: [00:33:01] Yeah.

Ramit Sethi: [00:33:02] I see that your fixed costs are still over what they need to be, but 76 is within striking distance of 60. It’s achievable. You could do it. You can never get from 150 to 60. You can’t. You can’t cut your way down that much. But 76, we could make some things happen here. 

Now, let’s look at your guilt-free spending number. It should be 20 to 35. It’s 48. You’re spending way too much on guilt-free spending. However, at least you’re in the universe. What I want to point out is that you have no vacation, no eating out, no nothing. And there’s one more thing I notice here, which is you have no savings and no investments. So we have problems, but at least we’re starting to chip away at things and see if it is possible.

Sarah: [00:34:01] Yeah.

Ramit Sethi: [00:34:02] What do you take away from this example, what we’re doing right now?

Sarah: [00:34:11] That there are sacrifices that have to be made.


Ramit Sethi: [00:34:18] Okay. I need to admit something. Technically, their kids’ private school should be a fixed cost. That’s because they’ve indicated there’s no way they’re going to eliminate it and it is a long-term expense. You know why I didn’t count it there? Because this is my show. And once in a while, I get to break the rules. 

I’m doing this for a reason. I do not want to break our momentum right now by getting into this semantic debate of, oh, if we move over here, technically it’s going to do that because ultimately, that’s not what I’m trying to accomplish here. I don’t care about the semantics as much as I care about helping them make a psychological breakthrough and change their financial reality. 
All right. I want to give them a totally new way to look at their money. And if I have to break one of my own rules, I am cool with it. It’s like someone coming in and rearranging your living room. Suddenly you can see it from an entirely new perspective. 


All right. So we got to put in some money for investments. Throw that in there.

Kevin: [00:35:15] It’s $1,200.

Ramit Sethi: [00:35:16] There you go. Beautiful. 1,200 bucks. Fantastic. All right. Now, we’ve got to get some savings in there because I know you have savings, but the reason that I insist on savings is that I’m trying to get you away from this episodic problem you have, which is you wait until you have this inflow of cash and then you just randomly disperse it. I don’t want that anymore. I want a system so every month you are moving towards your goals.

Give me a savings goal here. Give me 5%. Nice. 600 bucks. Right on the money. All right. Okay. We’re still a little high, but we’re getting there. How much are we going to make on the bonus and distribution? I need to factor those in now.

Sarah: [00:36:14] Well, for me, I think the minimum will be about $20,000 this year.

Ramit Sethi: [00:36:20] Okay. $20,000. Cool. And what about for you, Kevin?

Kevin: [00:36:26] Butterflies this year. Let’s just spend a plan on 50.

Ramit Sethi: [00:36:34] Five zero?

Kevin: [00:36:34] Five zero.

Ramit Sethi: [00:36:35] All right. That makes things a little better. $70,000. Can I just make a point, Sarah? If you think about your expenses, are there areas in your business that you can cut down on?

Sarah: [00:36:45] Yes.

Ramit Sethi: [00:36:46] Like how much?

Sarah: [00:36:49] I would say probably 90%.

Ramit Sethi: [00:36:52] What the fuck? What?

Sarah: [00:36:54] Yeah.

Ramit Sethi: [00:36:55] Wait. This is cool. What’s the dollar amount that you could eliminate if you needed to tomorrow? Because you do need to.

Sarah: [00:37:07] Yearly?

Ramit Sethi: [00:37:08] Okay. Yeah. Give me yearly.

Sarah: [00:37:10] No, monthly. I was just trying and stay away from our monthly word.

Ramit Sethi: [00:37:16] Good Job.

Sarah: [00:37:16] I would say monthly, probably $3,000. 3 to $4,000.

Ramit Sethi: [00:37:25] Wait. Which one? Let’s say $3,000.

Sarah: [00:37:27] $3,000.

Ramit Sethi: [00:37:28] That’s $36,000 a year. You feel you can comfortably cut that right now?

Sarah: [00:37:37] Yeah. Yes.

Ramit Sethi: [00:37:39] That’s pretty awesome. What do you think’s going through my head right now?

Sarah: [00:37:47] I should do that.

Ramit Sethi: [00:37:48] Yeah. And what else? What are you going to do with that money if you cut it all? Tell me exactly what you do. Tomorrow you go and eliminate all that stuff, what happens then?

Sarah: [00:37:59] It’s freed up for other things.

Ramit Sethi: [00:38:01] Like what?

Sarah: [00:38:02] To come over and do debt and all the other stuff.

Ramit Sethi: [00:38:07] Yes. That’s fucking awesome. We’re finding $36,000 under the couch cushions. But the key is we got to actually pick up the money from the couch and then we got to put it in the right place we want it to go. Okay, that’s pretty awesome. So that’s not even your distribution. We’re talking about expenses right now you could stop spending, and you can add $3,000 a month to your income.

Sarah: [00:38:35] Yeah. Yes.

Ramit Sethi: [00:38:38] So you tell me, how would you decide? Right now you have an extra $3,000 per month to do something with. It’s like you’re playing Oregon Trail and you get to choose where you want to go in your wagon. What do you want to do?

Sarah: [00:38:56] Well, so if we just add it in income, it’ll adjust those numbers.

Ramit Sethi: [00:39:01] Go ahead. I love to watch the flow. Oh, shit. What does that number say on fixed costs?

Sarah: [00:39:08] It’s below 60%.

Ramit Sethi: [00:39:10] 57%, my friends, and we haven’t even touched the bonuses. We are. We’re getting there. I feel a little hope. What do you feel?

Sarah: [00:39:25] Feeling good. Feeling better. Yeah.

Ramit Sethi: [00:39:27] We’re getting there. Step by step. This is good. I just want to point out what just happened. Sarah, you got this business?

Sarah: [00:39:36] Yeah.

Ramit Sethi: [00:39:37] You had it all conflated in with your personal. We fixed all that shit. It’s separate now. Now that you have clarity, you can finally start to take a magnifying glass to that business. Every dollar you spend is a dollar that could be in your family’s accounts. So if there’s things that you need to spend on, absolutely spend on it. But if there’s things that you’re just like, these are nice to have, I don’t really need it. Goodbye. All right. And what that did was it made a dramatic change in your family’s personal finances. 

I think now that you have this much more efficient way of looking at your business, I actually think your expenses will be lower, potentially, your income will be higher, and I think your profit margin is going to go way up.


In my Earnable program to help you launch and grow your business, we talk about this. Some people come in, they have no business idea. Fine. We help them find one. Others already have a business running and we help them grow it. You can find a link to join Earnable in the show notes. But we’re not done with Kevin and Sarah yet. 


You could take some of that $93,000 in savings and you could apply it towards the debt. You don’t have to do it all. You could put some of it towards it, like paying an extra $25,000 towards credit card debt or even health $50,000. That changes things dramatically, especially from an interest perspective. What do you think about that?

Sarah: [00:41:09] I was wondering if we should do that. That should be our next move.

Ramit Sethi: [00:41:15] What’s the interest rate again on that credit card payment?

Kevin: [00:41:20] It’s high, it’s in double digits.

Ramit Sethi: [00:41:22] It’s like 26% or something.

Kevin: [00:41:25] That’s the highest.

Sarah: [00:41:25] I think it’s 20. I think mine is 20.

Ramit Sethi: [00:41:28] So it’s a lot. All right. I can’t tell you exactly what to do on that. It’s up to you. But if it were me, here’s how I would think about it. I would be, okay $93,000. My expenses for fixed costs are $9,400. So I have 10 months of expenses banked roughly. I go, I don’t want to pay this fucking interest. It’s really high interest. I want to take some of that money and I want to apply it and pay it off immediately. 

I personally would take the 50K from the $93,000, I would pay the credit card debt off right away. But more importantly, because I don’t want to get back in this situation again for a third time, I would create very clear rules on what our spending changes are going to be. And never get back into credit card debt again. That’s the commitment. What do you both say about that?

Kevin: [00:42:33] Yes.

Ramit Sethi: [00:42:35] I never saw such a big smile. All right. Yeah. All right. You both agree. Sarah, do you agree?

Sarah: [00:42:40] Yes.

Kevin: [00:42:41] The next one is the car, but honestly, in the state we live in and the conditions that we’re in–

Sarah: [00:42:49] Yeah. We don’t have public transport.

Kevin: [00:42:50] I’m not sure what options we have.

Ramit Sethi: [00:42:54] Well, you guys have $2,000 a month in car payments. With the lifestyle you want to live, you cannot be driving a $75,000 or so car. You can’t, not if you want to have the private school and all this stuff. Basically, the way you want to live, you’re telling me you want to pay off our credit card debt, which means you want to put at least $1,000 a month towards it, maybe more. We want to invest at least 10%. We haven’t even talked about savings and we want to send our three daughters to private school. What that means is the rest of your life is going to essentially look like you don’t earn very much money at all.

Kevin: [00:43:36] Yeah.

Ramit Sethi: [00:43:37] So, goodbye, Tesla. And goodbye to a lot of the expensive things you would have ordinarily done because you’re taking all of that money and redirecting it to a considerable amount of expenses, like $55,000 a year for private school. Are you both mentally centered and emotionally ready for that?

Kevin: [00:44:16] Mentally ready? No, I honestly will say. Yeah. Mentally not ready.

Ramit Sethi: [00:44:36] Okay. Sarah.

Sarah: [00:44:41] That is a struggle. That will definitely be a struggle. I think the one thing we have said and Kevin mentioned there earlier is that, it is a non-negotiable for us.

Ramit Sethi: [00:45:05] The school?

Sarah: [00:45:05] The school. Yeah, the school. And so if that’s true, then we have to be willing to do it.

Ramit Sethi: [00:45:17] So I’m not trying to scare you. What I am saying is you guys want to live an elite lifestyle. It is elite. I’m financially speaking, of $55,000 a year is quite expensive. I get it. I know many families who pay for private school. You have your reasons. I totally respect that.

The implications on your income, especially considering you have this debt load of $150,000 plus means that realistically, a lot of other things are going to have to be cut to the bone. So I don’t want to sugarcoat it for you, because the worst thing I can do is, we play around with some numbers here and we leave and you go and basically spend the same way you’ve been spending on day-to-day. And in a year, you actually have more debt and you’re like, what the fuck? We tried and it’s not working. This is a radical conceptualization of the way that you treat money. 

Okay. I can see from the nods on your faces, you’re both getting it. Eyes wide open. Love it. Kevin, I’m happy that you’re discussing things like, “What are we going to do with the cars?” And I think the two of you probably need to go a little further on that, but I like that you’re both open to it. You came on this call saying, communication is an issue. I feel like we’re actually having a very constructive conversation with some very difficult numbers here. How do you both feel about it?

Kevin: [00:46:44] Great.

Sarah: [00:46:46] Yeah.

Ramit Sethi: [00:46:46] Cool. We’ve made some tough calls already. The house, not going to happen for at least 10 years. Okay. Kids’ activities, not going to happen this year. Okay. Tough. No doubt. It’ll take time to internalize that. But gosh, I feel like we’re just moving along and at least seeing that there’s a possibility. But I have to say one thing to you. I want to talk about the kids’ school right now because you’re going to have this distribution stuff coming in, you also have this inheritance that’s floating around. And hopefully every year you both have a nice, healthy distribution.

I want to give you some different ways of thinking about your children’s school. You’ve told me that it’s a non-negotiable. Totally fine with me. My job is to help you figure out how to do it. And the problem is, once you put your kids in this school, you can’t just pull them out. It’s very disruptive. So how do you think about that? What would you do to be absolutely certain that you can afford this school for the next 12 years?

Sarah: [00:47:51] Apply for financial aid.

Ramit Sethi: [00:47:53] Okay. That’s good. You definitely should.

Sarah: [00:47:55] Yeah. I don’t know.

Ramit Sethi: [00:48:04] What if you wait one year?

Sarah: [00:48:08] What do you mean?

Ramit Sethi: [00:48:09] What if you waited one year, and instead of incurring the fees, let’s say this year, you waited one year, took all the money you normally would have spent this year, banked it, and then by the time you put your kids in this school, you have a war chest. So if something goes wrong, you do not have the pressure of, oh, my God, where are we going to find 6,000 bucks a month right away?

Sarah: [00:48:37] They’re already there at the school.

Ramit Sethi: [00:48:39] What?

Sarah: [00:48:42] They’re in the middle of their first year.

Ramit Sethi: [00:48:44] Oh, well, okay, that option is out the door. All right. What the fuck? You signed them up for this school without even knowing where the money was coming from?

Sarah: [00:48:52] Yeah, well, we pulled from the house, and then we–

Ramit Sethi: [00:48:56] The house is not like The Giving Tree. That thing doesn’t last forever. All right. I get it. They’re already there, so we can’t do that. Do you see, though, the behavioral issue here?

Sarah: [00:49:07] Yes.

Ramit Sethi: [00:49:08] What is it? Just articulated back to me.

Sarah: [00:49:11] You’re speaking in terms of, we’re putting the cart before the horse, I guess, the saying.

Ramit Sethi: [00:49:17] Yeah, yeah. Like on the income that the two of you make, you make too much money to be behaving this way. If you want to get to a level where you are financially comfortable, potentially one day financially very successful, then you can’t keep thinking this way. 


This is truly insane. They literally signed their kids up for a $ 55,000-a-year commitment for 12 years with no idea how they’re going to pay for the second year or anything beyond. What is the end game here? Do people who make these decisions ever stop to think, “Hmm, what if something goes wrong? What if one of us gets laid off? What if we can’t keep up our lifestyle that we have now committed ourselves to for over a decade?”

Why am I even asking this question? I already know the pressing answer. The answer is, people, do not make a plan. They do not think beyond the month and they simply hope things go all right. And when they don’t, and it ends disastrously, the people have no idea what actually just happened. And that’s when they start going on Twitter and saying, “Life sucks. This is horrible.” Life sucks. Yes. Life sucks for me right now having to imagine how bad things can go. 

I’m truly at a loss here. I think, in my conversation with Sarah and Kevin, I wish I had taken a break to get my composure back. So what I tried to do was I tried to summarize where we were in part, just so I could remind myself what in the hell is happening right now. 


Can we sum up with where we ended here? So you have your fixed costs at 53%. This is fucking awesome. Is anyone else excited by that?

Sarah: [00:51:06] Yeah.

Ramit Sethi: [00:51:08] All right. I think that’s amazing. Shit. I just realized I made a mistake. We took the kids’ school, where did we put that? Is that in fixed cost right now?

Sarah: [00:51:22] Guilt-free.

Kevin: [00:51:23] Guilt-free.

Ramit Sethi: [00:51:23] Yeah. Fuck. All right. Well, it’s a technicality. I’m just going to tell you, we’re playing little tricks, and it’s not good, but I’m going to tell you. So if we move that $5,800 back into fixed costs, you’d be way over. And the fact of the matter is that your girls’ school is a fixed cost because you have zero intention of ever stopping paying that money for the next 12 years. So technically, it is a fixed cost. And what that really says is you’re still over on fixed costs by a lot. 

So look, we’re playing some games with the CSP. I don’t really like it, but there is no other way to do it. The implication here is that basically you need to keep getting your bonuses and distributions and you need to be setting them aggressively aside in savings. All right. That’s that. 

And it also implies that you don’t have much else to spend for guilt-free spending on anything. And that’s something that troubles me because most couples, they want to go on vacation, they want to do fun things. They want to do that. And I don’t like setting up a system where you can’t do it because you’re not going to actually listen. You’re just going to be like, “Fuck all this.”

So you really have to be thinking about what is the marathon that we are running. So you have a marathon of at least 12 years of high expenses. That’s the way you chose it. Okay. That’s how it’s got to be. All right. What questions can I answer for you? 


This is me putting the onus on them now. I have helped them as much as I can. Now it’s on them. Watch what happens.


Kevin: [00:53:16] Well, I got a big one.

Ramit Sethi: [00:53:17] All right.

Kevin: [00:53:18] I heard you all throughout and keep hanging diplomatically about the school as if it’s going to set us up for failure as we run for a marathon and trying to maintain this cadence, this velocity. So the question simply asked is, are we setting ourselves for failure?

Ramit Sethi: [00:54:02] I can’t say yes or no. You are setting yourselves up for a very difficult rest of your lives. The reason for that is, first, you have some difficult habits that you’ve already exhibited. So it’s not like we’re starting from a blank page.

Kevin: [00:54:27] Sure.

Ramit Sethi: [00:54:28] That’s number one. Two, $55,000 a year of a fixed expense for at least 12 more years is extremely high. At your income level, it is very challenging. At your income level with your spending habits, everything has to go right in order for you to do it. 

Could you do it? Yeah, I think so. If you were to radically change the way you manage money, it could happen. But you two would have to be a completely unified team and you would also have to be lucky. The good news is that you have a high household income with the possibility of making more. That part is really promising, but I don’t like to only count on making more money in the future. I can’t build a life around some hope.

Kevin: [00:55:27] Well. Reality check, a 38 and 42-year-old couple have 50K [inaudible] proportionally to our revenue is ridiculously low. All of our 14 years of marriage led us to this. Right or wrong, here we are. This is it. Now we’re looking at the biggest chunk, the principle that we set ourselves, that our kids will get great education and in the current plan that we’ve put together, it is obvious that it is what drives our lifestyle overall down. So those are all the thoughts. It is–

Sarah: [00:56:29] Are you asking if it’s worth it?

Kevin: [00:56:31] It is worth it. We know that it is worth it for our children’s education because we’ve told ourselves that for the longest time. But I’m just wondering whether we could make it work differently.

Ramit Sethi: [00:56:50] Should we just play for a second and see what happens if we entertain the idea of not spending $55,000 a year on private school?

Sarah: [00:57:01] Yeah. Why not?

Ramit Sethi: [00:57:03] Does it make you nervous to explore this?

Sarah: [00:57:07] I think so, because then my next question is, okay, then where do they go to school? What do we do and what do we do with the $5,800?

Ramit Sethi: [00:57:17] Let’s open it up. I’m going to copy this sheet. No. Go ahead. Why don’t you two have a conversation about what you would do with 5,800 bucks a month?

Sarah: [00:57:28] Just based off of this, I think increasing our investment is going to be a big deal.

Kevin: [00:57:39] It’s always going into savings so that we can stay in a five to 10% mark and then 10% mark for investment. I think you’re right, in terms of investment, we probably need to target maybe, let’s say, 15%. Then the savings. So comparatively, you added those 600, so you added $1,000. So you added $2,000 which is slightly less. It leaves us with $3,800 that we can put back into fixed costs.

Sarah: [00:58:15] Or guilt-free. I think– 

Kevin: [00:58:18] Okay, to guilt-free. There’s something, I forgot about that one.

Sarah: [00:58:24] I think that in terms of guilt-free spending, it should be the dining out, and those kinds of things. And that puts us at just over $5,000. So we still would have about $800 left.

Kevin: [00:58:40] Correct. And that’s the $800 for the kids’ activity.

Sarah: [00:58:46] Activities. Okay.

Kevin: [00:58:47] Or the car, which we took out.

Sarah: [00:58:51] We took up, but–

Kevin: [00:58:57] There’s something.

Sarah: [00:58:58] Yeah.

Kevin: [00:59:03] The investment is important.

Sarah: [00:59:05] Yeah.

Ramit Sethi: [00:59:08] What are you all noticing? And what are you both feeling?

Sarah: [00:59:14] Conflicted.

Kevin: [00:59:18] It’s bitter-sweet. I feel air in my lungs, but I feel like it’s constricted us at the same time. My lungs are constricted at the same time.

Ramit Sethi: [00:59:32] What does that mean?

Kevin: [00:59:33] Meaning that I feel like there’s a sense of relief like, “Oh, look at that. We don’t have to shrink our life. And we can actually look up to the future.” But at the same time, the constriction that I feel is that the best investment that you can make for your children is their education. And we equate that to financially because we know we might be educationally challenged as parents. So we try to say, “Here private schools, do a better job than we can do.”

Sarah: [01:00:18] Yeah.

Ramit Sethi: [01:00:19] Is that true?

Kevin: [01:00:20] Jokingly, it’s–

Sarah: [01:00:21] On the academic side, yes.

Ramit Sethi: [01:00:25] Hold on, hold on, hold on. It’s funny, but you mentioned that you were potentially going to homeschool them.

Sarah: [01:00:34] Yeah. And that’s with help and that would be the worst-case thing. I get, not worst-case. That’s not true. That would be–

Ramit Sethi: [01:00:45] Well, what’s the worst case for you two financially speaking?

Sarah: [01:00:51] Continuing down the path we’re on.

Kevin: [01:00:53] That’s true. Yeah, for sure. The path that we’re on is the worst case.

Ramit Sethi: [01:00:56] You wrote me–

Kevin: [01:00:57] Separate path.

Ramit Sethi: [01:01:00] I’d love for Kevin and I to be able to talk about money without being scared. The next conversation will be the end of our marriage.

Sarah: [01:01:06] Yeah.

Ramit Sethi: [01:01:08] It’s not like we’re just talking about the weather. This is 10 out of 10. That’s what you wrote? 10, 10, 10.

Sarah: [01:01:17] Yeah.

Ramit Sethi: [01:01:19] The school, it was presented as a non-negotiable. I get it. We talked about it at length. Is it an option? Because if it’s an option, that opens up an entirely different lifestyle for you.

Sarah: [01:01:47] Well, I think that at this point, anything’s an option.

Ramit Sethi: [01:01:52] Now, that’s a good answer. I can work with that. Can I tell you something? I’m sure you have your reasons for wanting to send your daughters to private school. And if that’s what you choose to continue doing, okay, it’s your money, it’s your choice. I guess I want you to be able to zoom up. I understand if one of your daughters needs extra help and the private school is the best place to do it, I totally get that.

But I want to look at this in the totality of your girls growing up with parents who are not worried about money every single day of their lives, of passing on some of the things you picked up with money,  Sarah, and changing that. Generational messages are real, and I wonder which of these decisions would provide a real change for your daughters.

Kevin: [01:02:57] The school.

Sarah: [01:02:59] Changing the school.

Ramit Sethi: [01:03:01] To what?

Sarah: [01:03:04] To cheaper/free options.

Ramit Sethi: [01:03:08] Could be. I think for children to be able to see their parents feeling good about money, teaching them valuable lessons about money, that changes the dynamic a lot. And forget about money, just seeing parents actually being able to breathe.

Sarah: [01:03:26] Yeah.

Kevin: [01:03:28] Like I was telling you, I feel like almost physically, I could actually breathe just by walking out through this exercise. If this is a reason why our marriage would continue to be stressed, then it has to be considered.


Ramit Sethi: [01:03:47] Let me share the follow-ups because this is a situation we have never had before. After each conversation, I ask my guests to follow up and send me the answers to a few questions that I have for them. Sarah and Kevin did write back. Let me read what they wrote. 

Sarah said, “I think the thing that surprised me the most were the numbers. We’ve never calculated our finances in such a way that gave us a completely clear picture of where we’re at. It was hard, crushing at points, but motivating and encouraging as well. Our conversation really drove home how I have to start taking more responsibility with our finances. Money doesn’t have to be scary. We definitely have some hard decisions to make, but now I believe that we can get to a place that will allow us to build a healthy relationship and pay off and keep off all the debt.”

Here’s what Kevin said, “It is evident that Sarah and I do not have healthy financial habits. Ramit uncovered behaviors that led us to where we are today. My biggest learning point was to know where to start. I embarrassingly admitted early on in our conversation that I struggled to adapt the CSP to our lives. Once we understood the importance of working with the revenue we are certain of, the rest made sense. This was probably the biggest takeaway.” 

Okay, well, I appreciate Sarah and Kevin coming on and being so candid in this conversation. I wasn’t satisfied with those answers. I wanted to know specifically what changes they were going to make. Also, they were supposed to send me their updated CSP with the decisions they made, but we never heard from them. My team followed up several times. No response. I’m here to help. We reached out. We wanted to hear back from Sarah and Kevin, but after the first follow-up, we never did. 

I really hope that Sarah and Kevin find these last two episodes eye-opening, and I genuinely hope that they are able to recommit to making a change. The stakes are very high. Their family’s future and their happiness and relationship depend on them. Thank you for listening. I’m Ramit Sethi.