Episode #84: “We spend 98% of what we make—but we refuse to change our lifestyle”

Kristine is 32 and Thomas is 35. They’re raising three children in the Midwest. They love their jobs, are happy with their incomes, and just upgraded to a third, much larger, home. Everything is good–except that they’re going broke. With astronomical fixed costs, something’s got to give.

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Show Transcript

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 [00:00:00] Thomas: We both enjoy, and like our jobs. Our three kids aren’t going anywhere. We want them to have nice childhood, live the way we’re still living without the burden of knowing every single dollar that we make is allocated to some line.

[00:00:18] Kristine: We don’t want to move. I don’t care about cars. We could drive less expensive cars and that’s fine with me. I mean, we don’t– yeah.

[00:00:30] Thomas: We don’t ever want to move again. Our jobs are our jobs and our income is what our income is. 

[00:00:36] Ramit: But I think you two are living above your means.

[00:00:40] Thomas: Yeah.

[00:00:41] Kristine: Yeah.

[00:00:43] Ramit: Have you ever acknowledged that to each other?

[00:00:47] Thomas: No.

[00:00:49] Kristine: I don’t think so. I knew all these things were coming up and just got really scared.

 Scared of what?

[00:00:58] Kristine: Going into debt and not having a way out.


[00:01:03] Ramit: Meet Kristine and Thomas. Kristine is 32. Thomas is 35, and they have three young children. They are based in the Midwest and they have been in their latest house, which is their third for about two years now. Kristine and Thomas are drowning with their money, but they don’t know it. . All they know is that they’re stressed out and they describe it as treading water.

 [00:01:26] Ramit: But when I look at their numbers, I am alarmed. They genuinely believe that they just need to make a few small changes to fix things, but that won’t cut it. I’d like to invite you to watch this episode on YouTube where you can see the full thing. Just go to YouTube and search for my name, Ramit Sethi, and you’ll be able to follow along. This is I Will Teach You To Be Rich. Let’s begin. 


[00:01:52] Kristine: My relationship with money is, um, stressful. It’s a cause of stress for me, um, pretty consistently.

[00:02:05] Ramit: How consistently?

[00:02:07] Kristine: Uh, daily. It feels stressful daily.

[00:02:11] Ramit: When do you think about it first?

[00:02:13] Kristine: In the morning. When I wake up in the morning.

We use the YNAB app, and so in the morning I see like, oh, you have this many transactions to input. Um, or I look at our checking account and just like, I have this, um, mental idea of, beginning of the month is when most of our bills come out. So I’m just like, okay.

[00:02:36] Kristine: I just want to, for a little bit of peace of mind, check that we have– I know approximately how much we need to have in our checking account throughout the month and based on when our bills come out. So I just want to make sure that something isn’t a surprise to me and it’s going to impact our checking account, um, unexpectedly.

Getting my kids ready.

[00:03:00] Ramit: Mm-hmm. As you’re getting your kids ready, you’re checking into YNAB and the accounts?

[00:03:05] Kristine: Yeah. So we have a three-month old daughter, so when I’m feeding her in the morning, I would be scrolling through my phone, and it’s just on the rotation. I check my social media, I check our checking account. The rotation of the apps that I check.

[00:03:21] Thomas: We use Google Sheets, so we have everything shared on our budget. And so Kristine, like she said, is monitoring this stuff multiple times a day. And so then she’ll message me or text me and be like, we have this coming up, or gymnastics payments coming up. And so I’d say a lot of it is during the day instant messaging as well. 

[00:03:44] Ramit:  And what does it feel like when you see the numbers in YNAB in your accounts?

[00:03:49] Kristine: Um, in YNAB it feels like, um, I’m like, ugh. I have to go through and like check what all of these are and then like how they impact the amount that we have budgeted for the month. Um, and then when I look at my checking account, it’s a little bit less stressful because I don’t see the details and how they relate to what we have budgeted for the month. It’s like I’m just looking at a number there. I’m like, oh, okay. Nothing happened overnight that is a fire.

[00:04:22] Ramit: Oh, that’s interesting. So are you looking for fires when you log in?

[00:04:26] Kristine: Yeah. 

[00:04:27] Ramit: And if you find them, what do you do?

[00:04:30] Kristine: Um, I try to just store that away for a while until I have a chance to go back in and handle it. Speaking of details, for example, this morning I logged into our checking account and I saw, oh, a check was cashed that we had written and we were both like, shoot. I didn’t know what the check was for because I couldn’t see the image of the check. Um, and I asked Thomas and he didn’t remember what the check was for either. 

And so, um, that was stressful for me this morning because it was a couple hundred dollars and I was like, I don’t remember this. Where’d this come from? Um, so that was something that was on my mind for a couple hours until I could find out what it was.

[00:05:14] Ramit: It sounds stressful.

[00:05:16] Kristine: Yeah. 

[00:05:17] Ramit: Before 10 o’clock in the morning, you’re just inundated with all these numbers, and worst of all missing data. There’s nothing worse than missing data. It drives me insane. And then you’re looking for fires. It sounds like you’re the firefighter, the financial firefighter in the relationship. Is that true?

[00:05:42] Kristine: Yes.

[00:05:43] Ramit: Okay. Is that what you want to be?

[00:05:46] Kristine: No.

[00:05:47] Ramit: All right. So our mornings are very different. But putting the kids aside, even if that’s even possible for just a second, the last thing I want to do in the morning is wake up and look at a bunch of rows of numbers, and I don’t. So do you think that there’s a possibility, a world that exists where you don’t have to check your accounts every morning?

[00:06:14] Kristine: Yeah, I think that’s possible.

 How come you haven’t done it?

[00:06:21] Kristine: I don’t know. Habit

[00:06:24] Ramit: Mm-hmm. What else? 

[00:06:25] Kristine: Stress.

[00:06:25] Ramit: Well, you’re telling me it’s stressful in a bad way, so why haven’t you changed that?

[00:06:36] Kristine: Um, because I don’t feel like we’re comfortable enough or we have enough of like a cushion in our finances or a savings in our finances that can account for those ebbs and flows.

[00:06:51] Ramit: Yeah. Feels like you’re living on the edge a little bit.

[00:06:53] Kristine: All the time.

[00:06:54] Ramit: Mm-hmm. Okay. All right. Uh, Thomas, tell me about your financial firefighting every morning.

[00:07:01] Thomas: My financial firefighting every morning is listening to Kristine. Um, and I am not a morning person, and having three kids under five, um, it’s a lot to do. I’m out the door by 7:00 AM bringing the kids to daycare. Um, and so I’m not super chatty in the morning and I am not very talkative in the morning.

[00:07:26] Ramit: When do you talk about money?

[00:07:29] Thomas: Um, all the time, basically whenever Kristine brings it up.

[00:07:33] Ramit: Oh, okay.


[00:07:35] Ramit: This is a super common reaction when one partner is anxious about money and the other is avoidant. The avoidant person almost always believes that their partner constantly talks about money, and to some extent that may be true. If you are anxious about money, you will probably tend to bring up money a lot, especially at inopportune times, in the morning, when you’re in bed, when the person comes home from work, all the time. 

As you can hear, Kristine cannot imagine a world where she isn’t constantly checking her accounts. But it’s also true that the avoidant partner exaggerates how often money is brought up because they’re sensitive to it. If money was brought up even once a month, they would probably still say, she brings it up all the time.


[00:08:26] Thomas: But yeah, I mean, just the example she shared this morning with that couple hundred dollars charge, we were still in bed when she saw that. I probably had just woken up a few minutes ago. And so I didn’t know where it is from. Still in a daze a little bit. 

[00:08:41] Ramit: What does that feel like to talk about money in that context?

[00:08:48] Thomas: Um, I’m getting to the point now where I’m more used to it and expect it, but, um, it’s not what I want to talk about first thing when I wake up.

[00:08:57] Ramit: Okay. I can understand that. When would you want to talk about it? If you could choose? What’s this smile that everyone’s secretly having?

[00:09:09] Thomas: Well, because we used to have Sunday budget meetings, um, and that was maybe before kids or with one kid, and just over time they have gone away. Um, but we would sit down every Sunday night, um, and we used a different budget platform before then and look at everything, and plan for the week. And we don’t do that anymore.

[00:09:29] Ramit: Were you in a better place when you were doing that, financially speaking?

[00:09:35] Thomas: Probably. Yeah. 

We have a lot more expenses now than we did.

I’m sure that’s true. Three kids is a lot. But, uh, is there any other potential correlations here? Let me try to lay out the facts as I’ve heard it. You used to talk about money every week, you were in a better financial position. Now you don’t talk about money every week, you’re in a worse financial position. Is there any correlation?

[00:09:59] Thomas: Yeah.

[00:09:59] Ramit: Maybe. All right.

[00:10:01] Thomas: Yeah. The magic wand would be no weekly meeting. Um, and I think that’s a little bit why it stopped, was because I could tell Kristine was getting frustrated. Um, Sunday night I want to watch football or something, and we had to turn the TV off and sit down together for an hour and look at finances.

Wait, what do you mean? That sounds fucking awesome. I get to turn off football and turn on finances. That’s the dream. The American dream.

[00:10:30] Thomas: That’s the Sunday scaries right there.

[00:10:32] Ramit: Oh, right. I guess we have different dreams. Okay. So that’s why it stops. So what is your dream? What would it be if you could do anything?

[00:10:40] Thomas: Um, have someone take care of it all for me.

[00:10:43] Ramit: Okay. You don’t want to talk about it.

[00:10:45] Thomas: No, not really. 

[00:10:47] Ramit: Okay. That’s honest. 

[00:10:48] Thomas: I know for the most part where we’re at, what we have, what our expenses are.

[00:10:54] Ramit: Mm-hmm.

[00:10:55] Thomas: Um, so yeah, I don’t love talking about it.

[00:11:00] Ramit: Okay. That helps me understand where we’re dealing with here. So Kristine, you reached out to me. Why now? 

[00:11:13] Kristine: Um, so in the fall when I had reached out, I knew that there were some things coming up, um, in the next couple of months that were going to greatly impact us. Our mortgage went up. Um, we had another daughter, she started daycare this month. Um, so that’s an extra kid in full-time daycare, um, and a hospital bill on top of that. I knew that was coming up. And then we, um, about a year and a half or so ago, had found ourselves in some credit card debt. 

And so we had transferred that debt to, uh, um, zero interest card for a period of time. And I knew that time period is expiring soon so we have to– we’ve been paying on it every month and somewhat on track to pay it off, um, in the next couple of months. So I knew all these things were coming up and just got really scared.

 Scared of what?

[00:12:15] Kristine: Going into debt and not having a way out. I shouldn’t say not having a way out. I know there’s a way out. I know there’s always a way out, but we’ve been working to get rid of this one credit card debt and then we’re coming up on that at the same time getting flooded with all these other increased expenses. So just not sure that that’s how we’re going to make it all work. I feel like we’re always treading water and just bobbing at the surface. 

It’s like, this month we are maybe a little bit ahead, so great. And then the next month we’re a little bit under and it’s just always up and down and I feel lonely like that. Because I know that Thomas doesn’t want to talk about it and I don’t want to be the person that’s nagging about it all the time either. Um, so I’ve taken on the responsibility of that, um, or taken on the responsibility of managing things and it’s just made me feel a lot of weight. It’s just very stressful and I feel alone in the stress.

[00:13:36] Thomas: Um, yeah. It definitely makes me feel sad that she thinks she’s alone, because I don’t want her to feel that. But then I also know that she knows that it’s not my favorite subject to talk about as well.


[00:13:47]: Some couples leave very, very obvious clues, and today’s clues are enormous. They used to have money meetings when they were in a better position. Now they don’t, and they’re in a worse position. Thomas mentioned he’s listened to the podcast before, but he also admits that his dream is to not think about money or talk about money or manage his money at all.

Oh, and by the way, she checks their accounts in bed every morning to put out fires. I want to talk about Thomas’s dream of never having to think about money or talk about money. It’s a really common one, but unfortunately it’s delusional. 

Think about it. You would never say that about food, you would never say that about parenting, but we say it about money. And the reason why is that we see money as a negative, as boring, as hard, as a source of pain, and shame, and debt, and negativity. And until we can change that view, there will be avoidance.


[00:14:49] Thomas: I think one thing that’s maybe jaded me in the past was this is our third home. Um, and I did the whole home buying processes before, working with realtor and lenders and all those things. And it took a toll on me too, just the amount of communication and things like that. And once we finally got in this house that we hope to be in for a long time, I was like, I’m done with this.

[00:15:16] Ramit: “This” means what? Money?

[00:15:21] Thomas: Yeah, I guess big expenses, dealing with lenders, paperwork, credit card stuff. I was just over it. 

[00:15:30] Ramit: Oh. Okay, I get it. That’s a lot of paperwork to go through, but that’s like me going into the forest, finding the most gnarly, rotten mushroom I can ever find, it’s got maggots crawling on it, and then I eat it. I eat it three times and then I go, you know what, I’m fucking done with food. Food is disgusting. I’m done with that. You picked the worst of the worst of the worst thing to engage in three times and now it’s really colored your view of money.

[00:16:01] Thomas: Yeah, exactly.


[00:16:02] Ramit: Notice the blending of buying a house with money. Thomas had a bad experience buying three houses, so now he goes, “All money is bad.” And this is a classic clue for all or nothing thinking. They have kids. Let’s say one of their kids throws up on their shirt, are they going to say, “I hate all kids?” Of course not. But why?

What’s the difference between what Thomas does with money and what he likely does with his children? The difference is if you are a parent, you understand that a kid throwing up is one tiny part of parenting. Yeah, it sucks, but it goes with the territory. In other words, you can see the big picture, including the joys of parenting, and you can put that disgusting, puke in perspective.

With money, most people do not have that perspective. They do not understand the big picture. Thomas literally sees buying a house as equivalent to money. He sees Kristine’s anxiety about money every morning as money. So it makes sense that he doesn’t like money, that he avoids money, because from his perspective, money sucks.


[00:17:16] Ramit: So you’ve had expenses going up. Before these expenses recently increased, how were you doing with your finances?

[00:17:28] Thomas: So I think we’ve always felt like we’re not poor. Um, but I think with the baby, just with the medical bills, we’ve had so much more larger expenses happen where in the past it was so much smaller expenses that would pop up that we could manage and handle better. Now I still think we’re okay, but, um, we need to be more careful and more smart about what we are spending our money on.

[00:18:06] Kristine: I would say that before these larger expenses came up, we were not in a wildly different place. Our expenses were a little bit smaller, so we had a little bit more of a cushion, month to month. Um, but we’ve just never had a good or, in my perspective, a comfortable amount in our savings that makes me feel like whatever comes our way we could field it.

[00:18:39] Ramit: What’s that amount?

[00:18:44] Kristine: Probably 20,000 would be a comfortable starting place for me.

[00:18:50] Thomas: But we both wish we could make more money. Um, and so that’s an ongoing battle, I think. My previous job right before this, I was making more money. Took this job for more happiness. Um, and so not only did we have a large medical bill, another baby, two dogs, uh, a larger house, um, we had no car payments before. Now we have one, um, all these huge expenses that we have to pay monthly. And my job is making less money. We don’t put anything into our Roth nd things right now where we used to, um–

[00:19:34] Ramit: What was the time period where all those changes happened?

[00:19:37] Thomas: Within six months.

[00:19:38] Ramit: What?

[00:19:40] Thomas: Pretty close.

[00:19:41] Ramit: Well, looking back, what do you think about that?

[00:19:47] Thomas: I mean, we bought our house because the interest rates were so incredibly low that we could afford it. Um, and I still think we can afford it. 

[00:19:56] Ramit: Can we look through the numbers? Because I think that’s going to provide something to ground us around. Kristine, walk me through these numbers.

[00:20:05] Kristine: Yes. So our assets are, um, 597,500.

[00:20:12] Ramit: All right. Fine. Investments? 

[00:20:15] Kristine: 106,800.

[00:20:18] Ramit: Okay. Savings?

[00:20:20] Kristine: Um, savings is a little over 5,000.

[00:20:23] Ramit: And debt?

[00:20:25] Kristine: Um, our debt, so this includes our mortgage, credit card, and vehicles, and that’s 394,000. 

[00:20:33] Ramit: Okay. What’s the total net worth?

[00:20:36] Kristine: 315,000.

[00:20:38] Ramit: All right. How do you feel about that number?

[00:20:41] Kristine: I was pleasantly surprised when we came up with that because I was like, we’re positive. 

[00:20:46] Ramit: Mm-hmm.

[00:20:47] Kristine: So that feels good to me.

[00:20:48] Ramit: Okay. And how much credit card debt?

[00:20:51] Kristine: Um, our credit card debt is, uh, 2,200.

[00:20:57] Ramit: Okay. All right. Let’s take a look at the income. Uh, Thomas.

[00:21:03] Thomas: Yeah.

[00:21:03] Ramit: Just tell me your gross household income.

[00:21:08] Thomas: Our gross household income is 11,122.

[00:21:13] Ramit: Yeah, that seems pretty good to me. And you said that you used to make more, now you’re making 11,000 a month household income. So just to summarize so far, the two of you make $133,000 a year.

Um, you’ve got $106,000 in investments, $5,000 in savings, 394,000 in debt, of which 360 is your house, 2,200 is your credit card, and 28,000 is your cars. And in terms of ages, Kristine, you’re 32, Thomas 35. All right. So far, okay. 

Let’s take a look at the fixed costs, shall we? Um, what’s that number, uh, next to the fixed costs, the combined? How much are you both spending on your fixed costs as a percentage of your gross, excuse me, your net income?

[00:22:05] Kristine: 98%.

[00:22:08] Ramit: Is that high or low? Or what does that number mean to you?

[00:22:12] Kristine: It’s outrageously high to me.

[00:22:14] Ramit: Yeah. Thomas?

[00:22:16] Thomas: Yeah. Same.

[00:22:17] Ramit: Okay. What should it be?

[00:22:18] Thomas: That’s no wiggle room at all.

[00:22:21] Ramit: Yeah. None. What should it be?

[00:22:25] Thomas: 75%.

[00:22:27] Ramit: Where’d you get that?

[00:22:29] Thomas: I think Kristine told it to me one time in the past, or maybe it was 60%.

[00:22:34] Ramit: Yeah.

[00:22:35] Thomas: Can’t remember exactly.

[00:22:35] Ramit: It’s less than 98, I’ll tell you that.

[00:22:37] Thomas: Yeah


[00:22:38]: Gee, I wonder why Kristine wakes up every morning feeling worried about money, and why when she tries to bring it up with Thomas, he avoids it. When you lock yourself into high expenses like they’ve done, you cause all kinds of downstream effects. It would be like building a house with an absolutely tiny kitchen.

You go, “Hey, let’s save some space.” But suddenly you only have one burner, which means cooking takes longer. You don’t have a big enough fridge to store stuff, so you have to run to the store three times a week. Your kids can’t come home from college because you can’t cook enough food, and on and on. These unintended consequences happen all the time with people’s money. But we almost never trace it back to our fixed costs being too high. That is what’s happening here. 

[00:23:25] [Interview]

[00:23:26] Ramit: Generally, I prefer to see 50 to 60%. There are rare exceptions but they are extremely rare, and you two are not in that rare of a situation. So with 98, what is the implication? If you have 98% of your take home income is being spent on fixed costs, how do you think that that affects your life?

[00:23:49] Kristine: We can’t save an emergency fund and we also can’t save to do things that we want to do.

[00:23:58] Ramit: Yeah. What else?

[00:24:00] Thomas: Can’t go on vacation. 

[00:24:02] Ramit: Mm-hmm. 

[00:24:03] Thomas: Can’t lose our jobs.

[00:24:04] Ramit: Right. That’s a good one. What else?

[00:24:08] Thomas: Can’t get sick or have any other major expenses. 

[00:24:11] Ramit: Yeah. It suddenly makes a lot of sense why, Kristine, you’re waking, looking at your phone, you’re asking about– sending urgent messages about a $200 check, which I don’t do that, I don’t. And I don’t want you to have to be fixated on $200 when the two of you make $133,000. The way you have set your expenses up, it forces you to play small.

And so you have taken this beautiful set of eyes that you both have, you can look at the entire world, you can see for miles, and you have turned it into a little pinhole where all you can see is cell D32. What is that expense? And we need to light a fire in our relationship to identify this $13 expense that we don’t know of. Any of that sound familiar?

[00:25:05] Kristine: A 100%. 

[00:25:06] Thomas: Spot on.

[00:25:07] Kristine: Mm-hmm. 

[00:25:07] Ramit: It sounds awful. So it doesn’t mean you’re awful people. That’s not what I’m saying at all. It just means the situation that you are in, it’s not good. So let’s see if we can find a way to make some changes. Okay. Daycare/school is $2,000 a month. So who’s that for? Two kids. Three kids?

[00:25:29] Kristine: Three kids in daycare and one is in a private preschool right now.

[00:25:35] Ramit: Okay. Gosh, I hate how expensive childcare is in this country.

[00:25:39] Kristine: Yeah.

[00:25:39] Thomas: And we actually have– our daycare is an in-home daycare and it’s probably about the cheapest you could ever ask for.

[00:25:49] Kristine: In our area.

[00:25:50] Ramit: Mm-hmm. Do you have any maintenance on that Jeep Grand Cherokee? Aren’t those horrible vehicles?

[00:25:55] Thomas: Yes. And the gas is outrageous too. I drive 30 minutes to work one way, so I drive an hour a day.

[00:26:02] Ramit: Why do you have a Jeep? Is it like your childhood thing?

[00:26:05] Thomas: Exactly. 

[00:26:05] Ramit: Fuck. All right.

[00:26:06] Thomas: Yeah. I used to have, uh, just a car. I had a Chevy Malibu with no car payment.

[00:26:13] Ramit: Oh, I like that.

[00:26:14] Thomas: Um, and then we added over $400 a month. 

[00:26:18] Ramit: How did you decide if you could afford it? Don’t tell me you talked to the car dealer and he talked about monthly payment. Please don’t say that.

[00:26:28] Kristine: I will tell you that I very specifically remember being at the dealership and we looked at the– we drove in and whatever, and we sat down. And I was like– the car salesman gave us the price or the monthly payment, and I said, no, and we walked away. We walked out.

[00:26:47] Ramit: Nice. 

[00:26:48] Kristine: And I was so proud of myself, like, no. And Thomas was like, I thought that was good. Why did we walk away? 

[00:26:57] Thomas: We had gone in there knowing that we didn’t want to pay over 400 a month.

[00:27:00] Ramit: Thomas, I’m going to kill you right now. What have I said on this podcast 10,000 times? When the car dealer says to you, uh, “How much do you want to pay?” You look him straight in the eye, you say, “TCO, motherfucker. I don’t talk car payments.” Nobody ever talks payments. You talk about total cost of ownership. I want to know the full price. Okay, hold on. I need to take a breath.

[00:27:26] Thomas: I think we said we didn’t want to go over 400 a month.

[00:27:30] Ramit: All right. He’s like, I could make it work. And he gave you a fat loan for what, 60, 72 months? What was it?

[00:27:36] Kristine: I think he’s 60.

[00:27:40] Thomas: I don’t think we ever have felt good about it. And we even refinanced like a year ago and lowered our payment.

[00:27:46] Ramit: That’s good.

[00:27:47] Kristine: Mm-hmm. 

[00:27:48] Thomas: But we still don’t feel good about it.

[00:27:51] Ramit: Thomas, do you get why I don’t want you to make decisions based on monthly payments?

[00:27:58] Thomas: Um, no.


[00:28:02]: This is why you never buy a car based on monthly payments. You need to understand that car dealers are there to make the maximum amount of money from you. Let me show you how it works. Assume you’re buying a $75,000 truck at 5.5% interest. If you put zero down with a five year loan, you’ll pay about $1,432 a month, and the total amount you pay for that truck will be about $91,000. 

Let me say that again. You thought you bought a $75,000 truck, but it’s actually costing you $91,000 plus the incremental gas, plus all the other assorted maintenance, which means your truck actually costs way over a $100,000. Do you see why I am so, so focused on fixed costs, specifically a house and a car?

Because these are the places that you trap yourselves. Let me give you another example. Let’s say you want a lower monthly payment. Sure. Chad, your friend at the car dealer can help. He’ll just stretch that loan out to seven years. Now instead of your monthly payment being $1,432 a month, it’ll be 1,225. So you’ll save about $200 a month.

Now, most unsavvy people will go, “Two hundred bucks a month, that’s a good amount of savings. That sounds really good.” Do not do that because the total cost of ownership will now be $94,000. That’s more than the previous one. So you will save a little bit every month, but you will actually pay way more. This is how it works with all big purchases.

Your house has massive phantom costs. Your car has very large phantom costs. Investments have phantom costs. If you don’t understand what they are, read my book. Never buy something expensive based on monthly payments alone. Always calculate TCO or total cost of ownership, and then decide if you can afford it. That is how savvy people make big purchases. 


[00:30:02] Ramit: So your debt payment is $300 a month. What is that for?

[00:30:06] Kristine: credit card.

[00:30:07] Ramit: Okay. When’s it going to be paid off?

[00:30:09] Kristine: Um, well, it has to be paid off by, I think, April.

[00:30:14] Ramit: Are you on track?

[00:30:16] Kristine: Uh, no, we’re a little off track.

[00:30:20] Ramit: What happens if you miss the full payment?

[00:30:23] Kristine: Um, then we’ll have an interest payment on or be charged interest moving forward.

[00:30:31] Ramit: Is it for the remaining amount or is it for all the amount that you had during that last 12 months?

[00:30:37] Kristine: Great question.

[00:30:39] Ramit: Don’t fuck with these 0% offers. Can I just tell you right now– let me just put it this way, you’re not smarter than the credit card companies. So I often find couples, they have some credit card debt, and you know what they do? They spend more time finding some cool 0% offer than they do actually fixing their spending. And so they go, “Okay, we got the 0%. It’s 12 months. Why wouldn’t I take it? I’m going to do it.” 

What they don’t realize is if they look in the fine print, sometimes if you do not hit the exact term specified, not only will you pay interest going forward, you’ll pay interest on everything retroactively. Also, your credit score, if you miss a payment, it can affect like all kinds of crazy stuff. You can’t beat these credit card companies at their game. You can beat them at your game, which is to pay the debt off as quickly as possible and then never get into it again.

All right? Uh, I would strongly encourage you, I haven’t looked at the terms of your 0% thing, figure out a way to pay that off. Okay? I added up your mortgage and your utilities, and it’s 25% of your gross income. What does that tell you? Is that good or bad?

[00:31:56] Thomas: Well, you want us to be at 50 to 60%, that’s half right there. 

[00:32:01] Kristine: Yeah. It seems like a lot. And it seems like it’s expensive to keep our house.

[00:32:13] Thomas: I also think that our house is our most important asset, and it’s the most important part, not the most important part, but one of the biggest parts of our livelihood and family. All of our girls have their own rooms. We have a finished basement now and three-car garage. Um, so it’s an important expense.

[00:32:38] Ramit: It’s important because what? 

[00:32:43] Thomas: Because– 

[00:32:44] Kristine: It’s of high value to us. Um, I think what Thomas is maybe trying to say is that’s something that we don’t want to change. We don’t want to move.

[00:32:59] Ramit: Okay, well I get it. Most people don’t want to move, especially out of financial necessity. That’s the greatest shame there is in America. All right, I understand that. You are where you are. You have your house. You’ve told me it’s important to you, but I think realistically, you should really, uh, write yourself a news story, which is, we spend a lot of money on our house. We value it, but it’s not like it’s a cheap house. Did you grow up in the Midwest?

[00:33:26] Thomas: I did.

[00:33:27] Ramit: Uh-huh. Uh, what do you remember them in terms of their lessons that they taught you about money?

[00:33:33] Thomas: My parents were extremely frugal. My mom was a Catholic school teacher, never made over $40,000 in 38 years.

[00:33:40] Ramit: Mm-hmm.

[00:33:41] Thomas: My dad was an architect, but in small town Iowa. Um, and so, I don’t know, maybe towards the end of their careers they made a $100,000 together, but, um, it would’ve only been a few years. So we probably went on maybe three vacations my entire 18 years living at– growing up, same house. And my parents never had a car payment. They always paid cash for their cars.

[00:34:09] Ramit: Oh, wow.

[00:34:09] Thomas: They, um, still, even to this day, but growing up, they would walk. They walk all the time and they’d bring a grocery stack and pick up cans, um, and turn in cans. And everyone around town– everyone knows everyone in small towns, knew them, knew that we’re not homeless people or poor people, but they would pick up cans to get those couple bucks every week.

[00:34:34] Ramit: What was the dynamic between your parents when it came to money? 

[00:34:38] Thomas: Um, from what I know, I think they had a really good relationship with money. They have a financial planner that would come to our house maybe every six months, where me and my sister would have to stay in the basement while they met with Rick upstairs.

[00:34:53] Ramit: That? 

[00:34:54] Thomas: There was one time when me and my sister were both out of college where my parents finally, we had like a family meeting and they looked at, this is how much we have in retirement. If we die, this is where these things are. This is how much we have. And we’re like, “Whoa. Wow. You guys have a lot of money.”

And they’re like, “That’s because we didn’t do anything.”

[00:35:14] Ramit: Okay. And what do you think about that? That they didn’t do anything.

[00:35:19] Thomas: Um, at the time I wish we could have got on more vacations and stuff like my friends were doing, but now looking back, I’m like, “Wow. They’re going to retire and they’re going to have a lot of money when it seemed like they didn’t have jobs that made a lot of money.”

[00:35:32] Ramit: Yeah. Are they retired now?

[00:35:34] Thomas: They’re both are retired. Yeah.

[00:35:35] Ramit: Okay. Did you grow up in the Midwest also.

[00:35:37] Kristine: Yes.

[00:35:38] Ramit: What are some of the money lessons you took away from your upbringing?

[00:35:45] Kristine: Um, I mean, there’s a lot of lesson I feel like in, I don’t know if frugality is the right word, but I do remember we would use coupons when we’d get pizza. And I remember going to, um– my mom likes to go to thrift stores and things like that. I remember that and I carry some of that with me today too.

[00:36:10] Ramit: Do you carry any of those lessons into your relationship with your children?

[00:36:21] Kristine: I think a little bit in terms of, I want them to be able to do gymnastics and I want them to be able to do swimming lessons because they love it. Those kinds of things, I want to provide for them. So if there’s other areas that we can save so that we can spend money in those areas, or put our five year old in private preschool, um, those things are important to me.

[00:36:51] Ramit: How many siblings did you have?

[00:36:53] Kristine: I had two. 

[00:36:54] Ramit: Two. Okay. So there was three of you, just like you have three daughters. 

[00:36:57] Kristine: Yes. 

[00:36:58] Ramit: If you can recall, what was the square footage of the house you grew up in? Ballpark.

[00:37:03] Kristine: Boy, 1,500. 

[00:37:07] Ramit: Okay. What is the house–

[00:37:08] Kristine: 1,800. No. 

[00:37:09] Ramit: Oh. It’s always the partner who knows. The partner always– Thomas, how much?

[00:37:13] Thomas: Uh, I’d say the house that she grew up in, because it’s still the house we go back to for holidays and stuff, um, 2,500 at least. 

[00:37:21] Ramit: 2,500. Okay.

[00:37:22] Thomas: A nice house. Yeah.

[00:37:23] Ramit: And what is the square footage of your current house?

[00:37:26] Thomas: 3,200.

[00:37:28] Ramit: Okay. Any takeaways from that, Kristine?

[00:37:36] Kristine: Um, not really. I mean, I felt like I lived in a nice house growing up. Um, but of course, I had friends with nicer houses too. I didn’t have the nicest house. 

[00:37:49] Ramit: Yeah. I have nice sweaters, but there are people who have even nicer sweaters. So does that mean that I don’t have nice sweaters?

[00:37:59] Kristine: No.

[00:38:00] Ramit: All right. Uh, Thomas, what was the square footage of your house growing up?

[00:38:04] Thomas: Uh, 1,200, maybe, 1,100.

[00:38:07] Ramit: How many siblings?

[00:38:08] Thomas: Me and this older sister.

[00:38:10] Ramit: Okay. Can I just point out the elephant in the room? Your parents both had smaller houses than you two do, and you two have this house in your early 30s. Now, if you can afford it, fine. But Kristine, one of the things you mentioned was that you took away from your parents that they would cut back on certain things so they could spend more on experiences, and you also like experiences for your kids.

[00:38:45] Kristine: Mm-hmm.

[00:38:46] Ramit: But right now you have a lot of money in your house. You have a 3,200 square foot house. That’s pretty big. I mean, not pretty, that is big, huge. Now, if that is what both of you value, awesome. We can find a way, hopefully, to make it work in the conscious spending plan. But if you value that and childcare, and car, and saving, you can’t do it all in your income.

[00:39:23] Thomas: Yeah. I would say for me the house is the number one.

[00:39:28] Ramit: Kristine?

[00:39:30] Kristine: That we’d like to keep, to not change.

[00:39:33] Thomas: Yeah. Value the house more than the other major expenses.

[00:39:39] Kristine: Yeah. Mm-hmm. Because we do feel like this is our forever home. I mean, we don’t– yeah. 

[00:39:47] Thomas: We don’t ever want to move again.

[00:39:49] Ramit: All right. So your fixed costs are $8,200 a month. Again, reminder, you take home $8,300. So, um, what do y’all want to do about this fixed cost category?

[00:40:08] Thomas: Make more money.

[00:40:11] Ramit: Yeah, everybody says that. 

[00:40:13] Kristine: Mm-hmm. 

[00:40:14] Ramit: But if that were true, wouldn’t you have already done it?

[00:40:18] Thomas: Yes.

[00:40:19] Ramit: Okay. Okay. So I noticed something interesting on your, uh, interview with my colleague. You both said, “We want to see if there’s some changes we can make because we don’t want to have to radically change things in our life.” Do you remember saying that?

[00:40:36] Thomas: We both enjoy, and like our jobs, our three kids aren’t going anywhere. We want them to have a nice childhood. And, um, we want to live the way we’re still living without the burden of knowing every single dollar that we make is allocated to some line. 

[00:41:01] Ramit: Okay. Uh, Kristine, what about you?

[00:41:05] Kristine: Um, my perspective from that statement was, we don’t want to move. I don’t care about cars. We could drive less expensive cars and that’s fine with me. Um, daycare, we have to pay for daycare. So the biggest thing for me was just, oh, we don’t want to move.

[00:41:29] Ramit: Okay, so what do you want to do? 

[00:41:39] Thomas: Kristine.

[00:41:40] Ramit: Your guilt free spending is negative 10%. So you’re losing hundreds of dollars every month as indicated by the sheet. Kristine, you just took a big sigh.

[00:41:56] Thomas: I think that’s where Kristine mentions how we’re bobbing because one month we just did, um– we got money from Christmas so like, oh, but we don’t want to count that. And it’s like, oh, we had hail damage so we got an insurance claim. So we have this unexpected money. And these things keep popping up, but like we talk about it. We’re like, we can’t count on these things and we don’t want to count on these things. But that’s the only way we’ve been like able to not feel like we are totally losing money every month.

[00:42:35] Ramit: But you are.

[00:42:36] Thomas: And we still are. Yeah.

[00:42:38] Ramit: Okay. So what do y’all think is the solution here? Please don’t say earning more money.

[00:42:47] Thomas: Well, we’ve talked about it multiple times. I think the car, the vehicle is a huge piece.

[00:42:52] Kristine: Something that we’ve explored recently was, um, uh, selling Thomas’s vehicle and purchasing something that we, um, that a friend was selling that would be a lot less expensive. Um, but, through that week or so of thinking about that and running the numbers of like, what could we get for Thomas’s vehicle and what would we buy this? All of this–

[00:43:20] Ramit: So what did you decide, Thomas?

[00:43:22] Thomas: So we still have the Jeep.

[00:43:24] Ramit: Okay.

[00:43:26] Kristine: We did– 

[00:43:28] Thomas: I don’t know. The more I’m thinking about it, I’m like, it’s just a car. I don’t know.

[00:43:36] Ramit: Can you expand on that? It’s just a car.

[00:43:39] Thomas: I guess I’ve never had the car, growing up, that I wanted. My parents’ hand me downs all the way through high school, college, and then this is the first car that I actually bought that I liked and wanted.

[00:43:55] Ramit: Yeah.

[00:43:56] Thomas: And so now just to give it up, or not just to– but to give it up, um, because it’s too expensive, sucks.

[00:44:05] Ramit: Sucks means what?

[00:44:07] Thomas: Um, knowing that I’m going to drive something that I don’t like.

[00:44:11] Ramit: Yeah. Feels like what?

[00:44:13] Thomas: It’s a bigger picture. I guess in the scheme of things is the car gets me from A to B and if it means we have more money to live the life we want to live, then that’s a sacrifice that I should make. That really shouldn’t be considered a sacrifice, I guess.

[00:44:34] Ramit: It’s interesting hearing you talk about it like that, contextualizing this car from it first being a dream of yours and something that you achieved, it seems like you’re proud to be able to achieve it, to now saying, well, in light of looking at some of these numbers, maybe it’s just a car. It’s an interesting journey to hear you say that. Have you ever talked about anything else like that?

[00:45:03] Thomas: I don’t think so. Not really.

[00:45:07] Ramit: So if we were to truly mathematically calculate this, you would go search for a car and you would find out that this car– you’re going to get a used car and, uh– you could do Chapter 9 on my book. It has how to do this. 

Your Jeep payment is currently 407. Just for easy math let’s make it 400. Let’s say you cut that payment in half, that’s pretty extreme. Would you agree?

[00:45:34] Thomas: Yes.

[00:45:35] Ramit: All right, plug that number in. So again, your Jeep payment is going to go down by half. Plug it in and let’s see how it affects your overall money.

[00:45:51] Thomas: Um, so it would be– how much do we have for gas, Kristine? Because with the van is 300, the half would be 200, so that’s 500 with–

[00:46:09] Kristine: I think we usually have about 300 for gas.

[00:46:13] Ramit: Can can I suggest something, guys?

[00:46:16] Kristine: Yeah.

[00:46:18] Ramit: $15 here or there makes no difference. Keep it simple. I’m just trying to show you how the overall thrust of this works.

[00:46:25] Thomas: We’ll just have it at 500.

[00:46:27] Ramit: Uh, whoa, whoa, whoa. Hold on. Not that simple. Go back. So what he just did for everyone who’s not watching, uh, it was $953 a month, and Thomas was like, fuck it, let’s make it 500. I was like, whoa, whoa. Hold on, hold on. You took my advice too literally. Take it back to 953. I want to show you. Let me go step by step here. Okay. So 953, you got a Jeep payment of $400. I just want to cut that in half just to keep things simple. So if I cut that in half, how much would your payment be?

[00:47:04] Thomas: 200

[00:47:08] Ramit: 200. So why don’t you take $200 off your current car payment, so instead of 953 it’d be what?

[00:47:13] Thomas: 753.

[00:47:14] Ramit: Exactly. All right, cool. And yeah, you’d probably save a little bit more with gas and all that stuff, but whatever, we’re in the ballpark. Okay. Can you tell me what just happened to the fixed cost number? What did it used to be and what is it now?

[00:47:26] Thomas: It was at 98%, went to 96%.

[00:47:29] Ramit: What does it tell you?

[00:47:31] Thomas: Doesn’t really make a huge difference.

[00:47:32] Ramit: This is irrelevant. You sell your Jeep, it’s irrelevant. Should you? Yeah. Sell that thing. But this is not going to move the needle for you at all. And think about it, you were about to spend the next two months analyzing it. I don’t know how to calculate all this shit, and it’s pointless.

[00:47:50] Thomas: Yeah.

[00:47:51] Ramit: What does this tell you, both of you?

[00:47:56] Kristine: That we’re micromanaging.

[00:48:00] Ramit: Yeah.

[00:48:02] Thomas: I think it also says that, uh, well, I don’t know, I mean, I think that was a pretty big drastic change and our fixed costs barely moved.

[00:48:13] Ramit: Which tells you what?

[00:48:16] Thomas: That more and more little things like this aren’t going to move the needle.

[00:48:20] Ramit: Yeah. I could tell that was a challenge for you to put yourself in a different set of shoes, but I appreciate you did that. I think the way I would articulate it would be, “Gosh, that really opened my eyes. I thought that selling this car would be like a huge thing, and now I realize what I thought was huge is actually not even close. I need to make a lot bigger changes than I thought.”

[00:48:47] Thomas: Yeah.

[00:48:48] Ramit: The thing that felt enormous to you, like having to move heaven and earth to emotionally reconceptualize this car, it actually essentially makes no difference. And I don’t know where to start, but I’m ready.

[00:49:06] Thomas: Yeah. That’s how I feel. Yeah.

[00:49:08] Ramit: Why do you think you’ve ended up here, spending 98% of your income on fixed costs? What decisions have brought you here?

[00:49:28] Thomas: I think the biggest decision would be to get a new house. And then I had got a new job two months later. Um, having two dogs that have not been cheap, um, which is an understatement. At one point one of our dogs was taking eight pills a day. Um, and so we were spending hundreds of dollars a month on these dogs. And then also the decision to have three children.

I think, and we’ve articulated this with each other in the past, that we have thought it’s going to be a lot now, but we’re always going to make more money as we get older. And so knowing that we can– we think we can afford it now, but we should just keep making more money as we get older.

[00:50:19] Ramit: But you took a job that pays you less.

[00:50:22] Thomas: Yes. 

[00:50:25] Ramit: I would be scared.

[00:50:27] Kristine: Mm-hmm.

[00:50:28] Ramit: And I deeply understand why you wake up, and why you look at these things, and why you send these instant messages. From a IWT philosophy perspective, you shouldn’t be doing any of that, but realistically, day-to-day, I understand it. I would be feeling very scared living on the edge.

[00:50:50] Kristine: Mm-hmm.

[00:50:51] Ramit: Kristine, what do you think was behind the decision that led you here? 

[00:50:57] Kristine: Like our dreams and what we always imagined for our life and our family. Um, just like I always imagined that I would have three kids and I always imagined that we’d live in a nice house in a nice neighborhood. Um, and so it was, yeah, just wanting everything that I wanted and wanting it right now.

[00:51:28] Ramit: That’s honest. Thomas, do you agree with that?

[00:51:31] Thomas: Yeah, I would agree with that. And I think at the time when we were in our old house, we weren’t even looking to move. Um, but then looking at what the rates were when we were like, man. And talking to our financial advisor, we were like, “I just want to throw it out there that we are thinking about maybe moving.” And he’s like, “If you’re going to move in the next five years, now is the time to move because the rates will never be what they were.”

[00:52:00] Ramit: Okay, hold on. We have to do this. I didn’t want to have to do this.

[00:52:03] Kristine: I know.

[00:52:03] Ramit: Kristine, do you to have this conversation with–

[00:52:05] Thomas: That’s a true story.

[00:52:07] Ramit: Uh, no, Thomas, you don’t know what’s about to happen, but Kristine does. Kristine, do you want to go ahead and just take control of the next two minutes of this conversation? Go ahead.

[00:52:14] Kristine: About that whole situation and the financial advisor. Yeah. 

[00:52:18] Ramit: Just answer all the questions that you know I’m going to ask you, go ahead.

[00:52:22] Kristine: So we, um, hired this financial advisor several years ago when we were starting our family, and at the time didn’t know any– I wouldn’t say– we didn’t know much about personal finances. We were just–

[00:52:37] Thomas: We had a checking and savings account and that was it.

[00:52:40] Kristine: Yeah. It was a vulnerable feeling, we’re having kids and we feel like this is the right thing to do to get somebody to help manage our money.

[00:52:49] Ramit: Did you hire a, uh, parenting advisor when you had kids? 

[00:52:54] Kristine: No.

[00:52:55] Ramit: That’s weird. Just jumped right in, huh?

[00:52:59] Kristine: Yeah.

 Do you know the other questions I’m about to ask you?

[00:53:03] Kristine: How much we’re paying him.

[00:53:05] Ramit: Yes.

[00:53:07] Kristine: Um, I want to say it’s like, I don’t know exactly. I want to say it’s like half a percent. Um, what? 

[00:53:15] Ramit: It’s not half a percent

[00:53:17] Kristine: I was going to say I think it’s half a percent like quarterly. Is that a thing?

[00:53:22] Ramit: That’s more realistic. These motherfuckers, they change it every, oh, let me, uh, set the term. One eighth, uh, of a year, three eighths. It’s like, how’s any human being supposed to calculate this shit? Quarterly? Can you pull out the piece of paper that has the fees on it? I know you have it somewhere.

[00:53:38] Kristine: I actually don’t. I would have to dig for it.

[00:53:43] Ramit: Of all the numbers you have at your fingertips, this is the one number you don’t have?

[00:53:48] Kristine: Honestly, I’ve been like putting my blinders on to it.

[00:53:51] Ramit: Because?

[00:53:52] Kristine: Um, so it’s like been my goal or something. I’m like, I need to break up with him.

[00:53:59] Ramit: Oh, we can it right now. I’m an expert at breaking up with financial advisors.

[00:54:05] Kristine: It’s just the awkwardness, I guess.

[00:54:10] Ramit: Do you feel awkward if somebody came in and robbed your house and you’re like, dear, sir, could you please stop robbing us of all of our life’s assets? That would be awkward, right? How about this guy charging you two fucking percent per year?


[00:54:24] Ramit: 2% per year means over 50% of their returns will go into his greasy little pocket. If you want to learn the math, read my book. I’m not even going to get into it right now because I’m just going to get too mad. But I do want to highlight how they got to this place. Did you hear it?

A lot of following the American dream. They wanted a big house, so they bought it. That’s about the level of rigor that most people put towards the biggest purchase of their life. I’m not judging Kristine and Thomas. This is actually extremely common. What I am saying is it’s no surprise that so many people feel trapped with money.

So many people feel like they can’t afford to do the things that they claim they want to do, like go out for a nice dinner without worrying or take a weekend vacation. Why? Because they’ve made a series of episodic one-time decisions like buying a car, then a house, and trapped themselves in what has become the American nightmare.

[00:55:21] [Interview]: [Interview] You’re over here literally counting the dollars, using coupons, things like that. And you have this financial advisor, you don’t even know how much you’re paying him. And it doesn’t add up. You’re not actually concerned about costs. 

[00:55:45] Ramit: I think what you are more both concerned about is playing the game the way you have seen it being played. And the way you both saw the game being played is, you buy a house, you stay in it for a long time, you’re frugal on a bunch of little stuff, whether it’s the cans or the coupons or taking a road trip for vacation, and then life works out. Would that be fair?

[00:56:09] Kristine: Mm-hmm.

[00:56:10] Thomas: Yeah. Very fair.

[00:56:12] Ramit: It’s not even about the financial advisor. We could fix that. You’re young. You haven’t paid that much in fees right now. The fees really hit you later on in life, so it’s a totally recoverable decision. No problem. What do you think is the real issue here?

[00:56:30] Thomas: What we’re focusing on.

[00:56:32] Ramit: Yeah. And what is that?

[00:56:36] Thomas: Small everyday expenses and not things that will long term set us up for where we want to.

[00:56:43] Ramit: Yeah. Yeah. Kristine, would you agree?

[00:56:45] Kristine: Yeah. I agree with that.

[00:56:47] Ramit: Can I tell you that I really hate this idea that managing money is making sure that bills are paid on time. It’s playing small. Do you know, Kristine, that a computer can make sure bills are paid on time better than you ever can? So why are you spending your valuable time “managing money,” tracking down a $15 check? It makes no sense. 

I would rather have the two of you, together, manage your money by focusing on five really important, big things. Start there. Look, our fixed costs are way too high. We need to talk about how to get that down below 60%.

That is managing money. Our investments, we need to be investing at least X percent every single month. And if we’re not, we got a bigger problem. We got to talk about that. That is managing money. The real wealth is created in a couple of areas. One, designing your rich life. I would love that to be part of managing money for the two of you. 

And two, the nuts and bolts mechanics of personal finance involve these four critical numbers, your fixed costs, your savings rate, your investment rate, and your guilt-free spending. Get those right, and you shouldn’t have to worry about the $15 check here and there. What do you think, Kristine?

[00:58:14] Kristine: I love that. Yeah. 

[00:58:17] Ramit: Yeah 

[00:58:17] Thomas: Where do we start though? I want somebody like you to come to our house and just tell us what to do, because I don’t know where to even start.

[00:58:27] Ramit: You’re not going to get that.

[00:58:28] Thomas: I know.

[00:58:29] Ramit: But can I tell you the real truth, Thomas, is you’re going to have to engage with money. This is one of the most important things in your life. In fact, let’s break it down. What are the three important things in your life?

[00:58:43] Thomas: Family.

[00:58:44] Ramit: Yeah.

[00:58:47] Thomas: Um, health.

[00:58:51] Ramit: Okay.

[00:58:52] Thomas: And livelihood.

[00:58:56] Ramit: Okay. Livelihood would be work, money, all those things.

[00:58:58] Thomas: Right. 

[00:58:59] Ramit: Okay. Great answer. Uh, Kristine, what about you?

[00:59:02] Kristine: Um, I would say, uh, our kids, and each other, and experiences.

[00:59:12] Ramit: Hmm. You know what’s interesting? I love your answers, first of all. They’re aligned. They’re a little different too, which is cool. I like hearing all the similarities and differences, but some of the things you mentioned are your top three things are not actually represented in your spending at all. So do y’all see that the way that you’ve gotten here is you’ve gone bottom up. Whatever was put in front of you, you were like, we want that. 

Let’s get that house. Let’s get that car. Let’s just do this. But you forgot about also going top down, which is, let’s start with our vision of a rich life. What is important to us? And let’s actually give ourselves permission to spend more there if we can afford it. But then we’re going to have to cut on stuff that’s not important to us.

[00:59:59] Thomas: Yeah.

[01:00:01] Ramit: So can we do that exercise right now?

[01:00:04] Kristine: Sure.

[01:00:05] Thomas: Sure.

[01:00:05] Ramit: All right. Uh, what is your rich life? If you were to describe it, let’s go. Kristine first.

[01:00:13] Kristine: I would say my rich life is that we, um– I was thinking about this and thinking of like, I want to be able to spend 50 to $80 no questions asked. I can spend that much money.

[01:00:29] Ramit: All right. 


[01:00:30] Ramit: I have to cut in here. Listening to this after I spoke to them, I find that answer to be so sad and I wish I had said something at the time. Kristine’s rich life is being able to spend $80 no questions asked. Think about that. After all the work, all the worrying, all the decisions they’ve made, that is her promised land?

Surely there’s got to be more to life than not worrying about $80. That’s like me saying my rich life is walking outside and not stepping on a nail. That’s it? That’s all we’re working for? What you see here with Kristine is a series of decisions that have forced her into thinking small, but she’s been doing it for so long that she doesn’t even realize it. Let’s continue. 


[01:01:25] Kristine: Some things around our house that I would like, we– when we bought this house, it was a new build. So we don’t have landscaping, we don’t have a fence, we’d have a swing set, things like that for, um, for our house would be something that I’d like to have. And then I’d like, if we could go on, one or two vacations a year. If we could go on a family vacation and then a vacation with just Thomas and I, at least once a year would be something that would be my rich life.

[01:02:00] Ramit: Fantastic. All right, Thomas.

[01:02:03] Thomas: I would like to be a season ticket holder at, uh, my favorite with the Iowa Hot Guys

[01:02:09] Ramit: All right. That’s cool. Um, all those sound good. I like that they are– I can see your eyes light up when we talk about it. Um, is there anything about– do you care about kids’ college? Do you care about retirement? Does that fit in anywhere here?

[01:02:31] Thomas: Yes. I guess, yeah, that’s true. Yeah. I mean, I think kids’ college and having three girls knowing that weddings are a thing in the future as well, um, especially knowing our wedding, how much Kristine’s parents helped us out with that. Um, yeah, college, weddings and then, um, not having to work till we’re 68 years old as well. I mean, we both want to retire. 

[01:03:00] Ramit: Can I just tell you, just so you know, I’m the opposite. If there’s a 100 bucks missing, I’m like, whatever, who really gives a shit? But I know every last decimal place on my investments. What’s the difference?

[01:03:15] Thomas: The investments are much larger and long term.

[01:03:19] Ramit: That’s where we spend the time and attention. That is way more important than $15, $20 here or there. Do you see why I’m emphasizing focusing on certain things versus other things?

[01:03:33] Thomas: Yes.

[01:03:33] Ramit: Okay. Makes all the difference.

[01:03:35] Thomas: Yeah.

[01:03:35] Ramit: So let me show you something. Here’s your investments right now. You have $106,000. Agree? 

[01:03:54] Kristine: Yeah.

[01:03:55] Ramit: And how much do you invest every single year?

[01:04:00] Kristine: We haven’t been for the past year outside of our 401Ks.

[01:04:04] Ramit: 401Ks are investments.

[01:04:05] Kristine: Yeah. Um, so whatever–

[01:04:11] Thomas: We do 600 a month.

[01:04:12] Kristine: Yeah.

[01:04:13] Ramit: 600 a month?

[01:04:14] Thomas: Yeah.

[01:04:15] Ramit: So let’s just say 7,000 bucks. Fair?


[01:04:18] Ramit: Just want to clarify something. 401Ks are retirement accounts where you invest money. One odd peculiarity that I’ve learned with people is they literally do not consider 401Ks to be part of their investments. We have this mental bucket where a lot of people, they go, “No, we don’t invest, but oh yeah, we also have this 401K thing that we contribute to.”

I’m like, “That’s an investment.” There is this widespread lack of basic knowledge about money, and it’s no surprise that we feel worried when it comes to money because most of us do not understand the basics.


[01:04:57] Kristine: Mm-hmm.

[01:04:57] Ramit: Let’s just make it 8,000 because I don’t want to get a bunch of math people complaining to me. Years to grow. Um, how many years until you want to retire, Kristine?

[01:05:06] Kristine: Um, 22.

[01:05:09] Ramit: 22. Great. And what should we assume for your return rate on your investments? If you’ve read Chapter 6 and 7 of my book, you know this.

[01:05:20] Kristine: I haven’t gotten that far, but I think it’s 10%.

[01:05:23] Ramit: Okay. Yeah. 10% is a good nominal number minus inflation. We can assume roughly 7 to 8%. I like to say seven, just to be conservative. All right. How much is it going to be worth your portfolio by the time you are 55? Yes.

[01:05:42] Thomas: $1,000,000.

[01:05:46] Ramit: Kristine?

[01:05:46] Kristine: I was going to say 1.5 million.

[01:05:49] Ramit: $892,000.

[01:05:51] Kristine: What? Oh.

[01:05:52] Thomas: Ouch. 

[01:05:54] Ramit: Are you both disappointed?

[01:05:55] Kristine: Yeah.

[01:05:56] Thomas: Very.

[01:05:57] Ramit: All right. What does that number mean to you?

[01:06:00] Thomas: We can’t retire at that age.

[01:06:02] Ramit: Why? How do you know?

[01:06:05] Thomas: I guess, oh, I’m going to sound so stupid, but everyone, I mean, it just seems like you have to have over a $1,000,000 to be able to retire comfortably.

[01:06:15] Ramit: Okay. This is a really important number and it’s one of those things that I want you to get savvier about because you can’t just go the rest of your life mindlessly saving, without knowing how much you need, what type of lifestyle. This is worth understanding deeply. You spent more time looking up your Jeep than you did thinking about the number that is actually going to determine the second half of your life.

[01:06:41] Thomas: Mm-hmm.

[01:06:42] Ramit: So it’s really important to engage on this. That means you’re going to have $35,000 a year to live on. What do y’all think about that?

[01:06:54] Thomas: I mean, you would think we wouldn’t– our house hopefully is paid off and other things like that, but also paying for college and all those other things that are going to take those spots. So there’d be no way we could live off that.

[01:07:12] Kristine: Yeah, there’s no way that we could both live off of that. We really need to focus on our future and investing for our future.

[01:07:31] Thomas: The thing that matters the most is what are we investing in and what can we do to make sure we have the most amount of money when we need it.

[01:07:43] Ramit: My concern is that it’s very easy in America to just get on the conveyor belt and go.

[01:07:50] Thomas: Mm-hmm.

[01:07:52] Ramit: You wake up, you go, oh, that’s what success looks like. I want that. And you wake up one day and you blink your eyes and you say, how did we get here?

[01:08:05] Thomas: Yeah, and I think that’s what led us to where we’re at with this conversation today.

[01:08:10] Ramit: All this is fixable, but you have some stories you tell yourself. We wanted this. We’re not willing to give up this. Okay. I’m not here to tell you what you believe is right or wrong. I’m here to probe and interrogate your beliefs and say, “Is that true?” Do you really need three bedrooms, four bedrooms, whatever? Maybe.

[01:08:33] Thomas: Five.

[01:08:34] Ramit: Five bedrooms on $130,000 income? I know you live in a low cost of living area, but that doesn’t add up. You have 98% of your income is going to fixed costs.

[01:08:54] Thomas: Mm-hmm.

[01:08:55] Ramit: What are you hearing so far in this conversation that is different than what you have previously talked about when it comes to money?

[01:09:07] Kristine: For me, I think what I’m hearing is that we need to, um, prioritize our investments, um, and start there.

[01:09:21] Thomas: I agree. I think our focus of where it has been needs to change. We’ve gone through Dave Ramsey, we did every dollar where we tracked everything we spent on, we do YNAB now. And I think we can keep those things, but our focus has to be, I think, number one is a big mind change set for me to be involved. Let’s figure out what we need to do together, where we can prioritize and shift our focus to not the little expenses, but what can we do together, where we can break up with our financial advisor, do it ourselves, intelligently, and make sure that we’re putting our money in the right spots for us for the future without having to drastically change our lifestyle, which we’ve gone through and we can’t really do. That would–

[01:10:27] Ramit: Wait a minute. Wait a–

[01:10:28] Thomas: That would make a huge amount of difference.

[01:10:29] Ramit: Hold on. I’m concerned that you’re taking away the wrong message.

[01:10:33] Thomas: Okay.

[01:10:34] Ramit: Yes, you need to prioritize investments. Yes. But it’s very interesting to me that you’ve suddenly both gotten super motivated about investments seeing that $892,000 number. That is a problem but that’s not your near term problem. That’s like you’re driving and you see a wreck five miles down the road. But guess what? There’s a truck swinging around the freeway right in front of you. What is that truck?

[01:11:00] Thomas: Our fixed costs.

You still have this belief that we don’t want to have to dramatically change our lifestyle. You guys spend 98% of your take home income on fixed costs.

[01:11:13] Thomas: Yeah.

 I have to be very candid with you. There is no extra money to invest because every month you’re currently losing money.

[01:11:24] Thomas: Right.

[01:11:25] Ramit: It’s up to you how you want to proceed. I’d love to walk through your fixed costs and actually talk about some options.

[01:11:31] Kristine: Yeah.

[01:11:32] Ramit: Sometimes it just helps to have a fresh set of eyes on this stuff.

[01:11:36] Thomas: Sure.

[01:11:37] Ramit: Okay. This is probably going to be a little difficult to talk about. And I don’t come into conversations ever planning to be like, no, no, no, no, no. That’s not my style and I don’t want to do that. What I do want is your participation in helping to create the kind of life that you want. It’s got to be your rich life together. Okay? All right. 

Let’s look at the numbers. So we’re in the conscious spending plan. A good guideline is to get this number below 60%. And I will say one thing, you have young children, sometimes, especially at these early few years, it’s okay to break the rules a little bit. Your savings rate might not be what it needs to be later. That’s okay. We can give yourselves a little bit of grace. And once the kids are in school, you can increase that number. But 65%, okay. 98%, it just can’t happen. So how do you– I’d like to see the two of you have a discussion about this and I will observe.

[01:13:02] Kristine: I don’t know where to start.

[01:13:04] Thomas: I mean, we just really don’t want to move. I mean, that story about downsizing like, I just don’t think for either of us, that’s something we want to do.

[01:13:17] Ramit: Don’t talk to me, talk to each other.

[01:13:18] Thomas: Right? Kristine, right?

[01:13:20] Kristine: Yeah. No. Yeah, I don’t want.

[01:13:22] Thomas: We love our house and we want to be here forever.

[01:13:25] Kristine: Mm-hmm.

[01:13:26] Thomas: Right?

[01:13:26] Kristine: Yeah.

[01:13:27] Thomas: So taking the house out of it, I think that’s where we need to start.


[01:13:37] Ramit: Since the house is off the table for some reason, let me painfully illustrate what they are about to do. Over the course of 30 minutes, they attempt to adjust their truck payment, pay off the van, a loan repayment with Christmas gift money, dog expenses to stay at a 100, lowering their insurance costs, which is managed by an advisor. 

By this point by the way, we’re at 84% on fixed costs. They then continue on to cut a $100 eating out, cheaper phones, drop Amazon Prime, cut swimming lessons, cut gymnastics, and now we are at 83%.


[01:14:13] Ramit: All right. So what did we start the fixed cost number at when we started this analysis?

[01:14:17] Thomas: 98.

[01:14:18] Ramit: Okay. What is it now?

[01:14:19] Thomas: 83%.

[01:14:21] Ramit: All right. How do you feel about that? Part of this exercise is as we keep making smaller changes like this, we started two hours ago at 98, that’s a pretty big jump. I mean, there’s a lot of work to get to that that we have to do. But isn’t that the right track?

Uh, it’s good. What do you say when your oldest brings home a C minus or something? Do they even grade kids that young? I don’t know.

[01:14:49] Thomas: No.

[01:14:50] Ramit: What if you were my parents and I brought home a C plus? Just look at the 

[01:14:53] Thomas: Unacceptable. Unacceptable. 

[01:14:55] Ramit: Unacceptable. We came to this country with $10 in our pocket and you can’t even get a fucking A plus. Okay. So I’m not going to say that to you, but I am going to say, look, I think you could do better.

[01:15:07] Thomas: Okay. Um, utilities is also higher, one of our higher ones and–

[01:15:16] Ramit: Time to get a blanket.

[01:15:18] Thomas: And we also have DirecTV, which is over a $100 a month.

[01:15:26] Kristine: See, I don’t feel that bad about DirecTV. I know it’s an expense, but I’m pretty proud of the way that I’ve every year called them and said, I’m going to cancel. And I don’t think a $100 is that bad when you think about if we’re going to supplement that with all these different subscriptions that are going to equal a $100.

[01:15:46] Ramit: I think if you were making $500,000 a year, I wouldn’t even be having this conversation.

[01:15:51] Kristine: Yeah.

[01:15:51] Ramit: But you two are living above your means.

[01:15:54] Thomas: Yeah.

[01:15:55] Kristine: Yeah.

[01:15:57] Ramit: Have you ever acknowledged that to each other?

[01:16:01] Thomas: No. 

[01:16:03] Kristine: I don’t think so. Not in terms at least of these assets.

[01:16:11] Ramit: Well, every month you’re losing money.

[01:16:13] Kristine: Mm-hmm.

[01:16:16] Thomas: Yeah.

[01:16:19] Ramit: You tell me when you want me to give feedback because I’m not here to just puncture holes in what you’re doing. That’s not my role. 

[01:16:25] Thomas: The DirecTV, we’ve talked about that before too. I mean, that’s just going back down, getting into the little things again, like we just talked about. So I don’t know where we should go, because I think all the rest of the conversations when we go down the list are all these smaller things.

[01:16:53] Ramit: Somebody please ask me for my opinion. I’m fucking dying.

[01:16:55] Thomas: We want your opinion.

[01:16:57] Kristine: Yeah.

[01:16:59] Ramit: Thank God. I feel I’m going to explode. Okay. Listen, yes, you need to be focusing on the big things, but when you encounter something that is small, this is how you do it. You need to be a lot more decisive. I feel like we’re so slow. Everything’s moseying along. I’m like, “Fuck, we have a lot of urgency here.” You have three young kids. You’re in your 30s. You either correct this or you spend the rest of your life treading water. That sucks. 

So a $100 for DirecTV. I go, question number one, “Is this part of my rich life?” No? Gone. Done. What’s next? That’s the tenor. I want to get this cadence. We’ve got to pick up the pace here. All right. That’s just my opinion. Now you decide what you want to do with it.

[01:17:44] Thomas: Will you just do that for every line for us?

[01:17:47] Ramit: I did something better. I just taught you how to do it. How are we going to get it down to 60 though?

[01:17:55] Thomas: That’s a great question.

[01:17:57] Kristine: Yeah.

[01:17:57] Ramit: Can we play with something for a second? The beauty of having this on the conscious spending plan is we can just delete something and see what happens, and then put it right back. Okay. So what is a very, very expensive thing on your fixed costs?

[01:18:13] Kristine: Our mortgage.

[01:18:15] Ramit: Okay, let’s just zero that thing out. Pretend that you have no payment. I don’t know. Who cares? It’s just a model. Zero it out and see what happens. Okay? What just happened?

[01:18:27] Kristine: Our fixed costs went down to 55%.

[01:18:31] Ramit: From what to what?

[01:18:33] Thomas: 83.

[01:18:35] Ramit: From 83 to 55% is what just happened. In other words, all those changes you just spent the last half an hour agonizing over were exceeded by one decision. What does that tell you?

[01:18:52] Kristine: Focus on the big things.

[01:18:54] Ramit: And the fact is, you’re losing money every single month. Somebody like me, a third party observer with a clipboard needs to see something dramatic changing in your life. Otherwise, you will be stuck here for the rest of your lives. So you could put the number back on your mortgage. It’s up to you. But what would you like to do to make a bigger change?

[01:19:25] Thomas: I don’t know the answer to that.

[01:19:29] Ramit: These ones make everybody uncomfortable, don’t they, to talk about this.

[01:19:34] Thomas: Yes.

[01:19:35] Kristine: Mm-hmm.

[01:19:36] Ramit: And yet it is really the only thing that actually matters. The point of this discussion is not to just arbitrarily get to 60%. Trust me, a day from now, neither of you’re going to be motivated by some arbitrary number called 60%. The point of this is for you to define your rich life, which you told me was family, was experiences, was health, etc, and to match up your spending into that vision. Even though you have made progress, you are still approaching it with a tiny 0.3 millimeter pencil.

And you need to have a gigantic, gigantic pen, broad stroke, to make big changes. One of the first things you said to me when you spoke to my colleague was, uh, we don’t want to change our lifestyle too much and we’re still there. You don’t have to. It’s your lifestyle. You will keep paying your mortgage, you will send your kids to school, all that stuff. It’s fine. 

But invisibly you will be slowly getting pulled underwater and you’ll increasingly fight, you will increasingly be stressed out with little issues that come up, and you will continue to make arbitrary, episodic decisions about buying a chair, or a bed frame, or taking a trip, and what will become bigger and bigger in your relationship will be money. 


[01:21:41] Ramit: Let me jump right into the follow ups because they are fascinating. Kristine said, “I have been reflecting a lot on my mindset towards money and our budget since our call. One thing that is really sticking out to me is that for years I have been focusing on small details, which put me in a vicious cycle of frequently checking account balances and strictly tracking our spending, which has caused worry, stress, and lost sleep. I learned that the real impact for our money happens at the 10,000 foot level. 

Thomas and I now have a plan to improve our greater areas of spend. Our call also helped Thomas and I to start handling our finances as a team. We have a short term and longer term action plan that we both agreed to. I feel much less alone and I’m motivated to succeed as a team with Thomas.” 

And Thomas said, “We understand that we are focusing too much on the small details and not the larger picture. We also took to heart each other’s feelings and thoughts toward how we approach money, we’ve set goals. I am going to give up the Jeep, sad face, but we both understand we are living above our means and willing to make sacrifices.” 

They also updated their plan together, and here are some of the decisions they made to reduce their fixed costs. In the next 30 days, separate from current financial advisor and shop out insurance, cancel DirecTV, cancel gymnastics, look for cheap car options, begin process to sell Jeep, cut a 100 bucks from monthly groceries, and they continue on, get a raise, get a side job, and not look at accounts each day, their goal is within a year 60 to 65% on fixed costs. 

Now here’s an even more recent update. I actually heard from Kristine and Thomas a few weeks later, and this is what they said. “Since our last update, we have sold the Jeep and purchased a less expensive vehicle for Thomas, which reduced our car payment by $200 per month. We canceled our daughter gymnastics class, have reduced our grocery spending, and got the PMI removed from our mortgage. Ryan got his annual 4% raise and I adjusted my tax deductions, which increased my take home pay.

“These changes have reduced our fixed costs from 97% to 80% of our income. We still have a ways to go and we are very proud of the progress we have made so far. We have weekly budget meetings, and I have gotten out of the habit of checking our accounts first thing in the morning or even daily. 

“I feel like we are partners and more equally share the responsibility of managing and being aware of our finances. We’ve both been listening to recent IWT Podcast, episodes too, and it has been fun to have those as a topic of discussion. You have made a big impact on us and we really appreciate it.”

Well, I’m thankful to both of them for coming on this episode, for having this conversation with me and for you for listening. I’d like to encourage you with a couple of things that you can do now. If you listen to this episode and you heard something that struck you, that you feel the same way, you’re thinking too small, you can take control of your money. 

First, you can do it on your own. Get my book, get it from the library or any bookstore, I Will Teach You to Be Rich. Pair it with the journal and you solo, or you and your partner can sit down and design your rich life and use your money to live it. 

Second, if you want help to actually do this faster and adapt to your life, get in my money coaching program, iwt.com/moneycoaching. I’d love to see you. We have hundreds of other people who are sharing their wins and can help guide you. And then I’m there as well every single month doing live Q&A. Thank you for listening, and I’ll see you next week.