Episode #128: “We have $285k in debt. Can we achieve financial freedom in 5 years?” (Part 1)

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[00:00:00] Lucas: How do you build wealth in America? That is where all of this stuff started happening. A lot of people that had wealth in America had rental property, or a business, or some combination of both. So I said, okay, why don’t I just start a real estate company? When it all went down, I had to sell everything. So I took a loss. I sold everything, fire sale.

[00:00:19] Trin: A lot of poor decisions and transparency, if I’m being completely honest.

[00:00:25] Lucas: I’m a bully. I heard that. I’m a dictator. So I start to get defensive.

[00:00:31] Trin: And for me, it is an emotional thing. Lucas feels that I am not good with money, and so he doesn’t feel like my input is important.

[00:00:39] Ramit: Look at your wife. What’s happening right now?

[00:00:47] Lucas: She’s feeling emotional.

[00:00:49] Ramit: She’s crying, and you’re telling me about your income projections.

[00:00:54] Trin: We’ve been in the deficit for months. We are on fire. 

[00:00:59] Narration: [Narration]

[00:01:01] Ramit: Now, this is a fascinating conversation. Trin and Lucas are both 35 years old. They have two kids. One of them is still in the home, a three-year-old, and they know that they are bleeding money, but they don’t know why, and they don’t know how to fix it. Trin feels their finances are out of control. She doesn’t trust Lucas’s system.

[00:01:23] Lucas is a hardcore entrepreneur who wants money and financial freedom fast. The way that they talk about money is totally disconnected, and I think you’re going to be very surprised as you hear their discussion about money today. By the way, last week you heard me speak to Susan and Jeff. They were about to pay $800,000 in fees to a financial advisor. They didn’t even realize it. 

[00:01:49] And this is very shocking to people because the math is not intuitive. That 1% fee can mean you’re paying 28% of your returns to your financial advisor. So I’m going to break that math down for you. This Saturday, I’m going to share the surprising math between paying 1% to a financial advisor.

[00:02:07] If you pay a financial advisor, if your parents pay a financial advisor, or your friends, you need to sign up for this newsletter. It’s free, plus I’m going to give you word for word scripts on how to get yourself out of a 1% relationship. You can sign up at iwt.com/podcast newsletter. It goes out this Saturday, November 4th, and the only place to get it iwt.com/podcast newsletter

[00:02:34] Interview: [Interview]

[00:02:34] Trin: Fun fact for me. We actually attempted to do this before even watching your podcast. We attempted to do this earlier this year, February, I think, because our counselor, we are marriage counseling, and so our counselor had suggested that we do the simple– I’m like, this is awesome. This is simple. Let’s try it. Let’s do it. We tried it. We had a big blow up the first time.

[00:03:01] Ramit: Tell me. What happened? We’re talking about you two tried to do the conscious spending plan together?

[00:03:06] Trin: Correct. Before we knew we were on.

[00:03:08] Ramit: Okay. All right. What happened the first time?

[00:03:10] Lucas: Oh my God.

[00:03:13] Ramit: Damn. Hold on. I’m adding a new acronym to this CSP. It’s called CSPD, conscious spending plan drama. Let’s hear it. All right. Tell me what happened.

[00:03:24] Trin: I was like, hey, let’s sit down. Let’s read through the instructions to make sure that we have a clear understanding that we both have the same understanding. Because culturally, he and I are different we both identify as black, African American, but I am black African American from the South of the United States, and Lucas is Nigerian, raised in the North. So raised in New York city.

[00:03:47] And just culturally, we view the world differently, and interpret it differently. And so because we do, we can read the exact same thing, but the comprehension is just different. So for me, I’m like, okay. This is my partner. Let’s sit down. Let’s read through it. He would prefer to just skim through all of that and get to the exciting part, which is the numbers. But for me, it’s more of let’s warm up to it because it is so emotional for me.

[00:04:18] We’ve had so many just toxic meetings in the past regarding finances that it is hard to sit down with him to discuss finances. It was pretty bad. Lucas, you can unmute and comment as well. Anytime we attempt to meet, it’s just a challenge. And I know you in your previous sessions, you spoke to just the emotions of being on or talking about finance and the emotions around it. And for me, it is an emotional thing. Lucas feels that I am not good with money, and so he doesn’t feel like my input is important. 

[00:04:56] Lucas: Okay. So when we sat down to do it, I’m ready to jump in because I skimmed the material already, and I’m like, okay, I’ve done budgets before. It’s a nice little budget.

[00:05:05] Ramit: It’s not a budget. Go on.

[00:05:06] Lucas: Sorry. I’ve done plan before, and I’m like, all right, let’s look at this. First thing, did we read it yet? So we argued about that, argued about reading it, reading the actual instructions. Once we got past that, we get to the part where we’re starting to input numbers in, and I’m like, okay, what are we going to do with this line item here? Are we going to go back three months and look things up? Sure, let’s do that right now. I’m like, wait, what do you mean let’s do that right now? 

[00:05:40] Whereas me, again, I’m trying to eyeball or spitball the numbers. I like to put something realistic in there that I know that we can possibly hit. So that’s where we started arguing. And she just said I’m a bully. I heard that. I’m a dictator. I think I know everything. I’m hearing all these things. So I start to get defensive, and it just went out of nowhere.

[00:06:09] Ramit: Okay. 

[00:06:10] Lucas: It’s challenging. 

[00:06:12] Ramit: Yeah. 

[00:06:13] Lucas: And it’s challenging for me because sometimes when I start to talk about money, and finances, and investments, and things like that, I lose Trinity. 

[00:06:23] Ramit: She’s not paying attention anymore, right?

[00:06:24] Lucas: Yeah, I lose Trin, and I lose her from a couple of different perspectives. One perspective is we’re building trust in our relationship. There’s no infidelity or anything like that, but we’re building trust in, hey, can I trust Lucas? Can I depend on Lucas? Because just taking responsibility, there’s some agreements that I set up that I did break. So it’s like, from one perspective, can I trust what he says? 

[00:06:52] Ramit: Your family is in the red, right? Has been for several months. What’s that due to?

[00:07:00] Trin: A lot of poor decisions and transparency, if I’m being completely honest. So I did not work all of 2021. Because I took a step away from my job, I was not invested in our finances. I allowed Lucas to take care of that. 2022, I decided to go back to work. I went back to work, still trusting him to run our finances as he had. 

[00:07:23] We began to acquire a lot of cash. We had savings. Great. He’s doing a fantastic job Towards the end of 2022, he came to me. A lot of things had transitioned, and it had happened. And I’m sure we’ll get to that part, but at the end of 2022, he came to me and was like, hey, we don’t have anything. And I was like, okay. He was like, I need help. And I’m like, okay.

[00:07:46] Ramit: Hold on. Was that a surprise to you?

[00:07:49] Trin: It was.

[00:07:50] Ramit: Okay, so you had no idea that your family was running low on cash.

[00:07:54] Trin: I did not because I was told– we had moved month prior. We moved states. And so in moving, I had asked him before we moved, hey, do we have enough to move? He said, yeah, we got it. I didn’t ask any questions. 

[00:08:09] Ramit: So you asked for help. You raised your hand and said, hey, I need help. 

[00:08:12] Lucas: Yeah. 

[00:08:13] Ramit: She took that as, okay, let’s cut back. What was your approach?

[00:08:18] Lucas: Not only let’s cut back. It’s more so like, hey, let’s destroy all the systems that you already created because that stuff obviously doesn’t work. That’s what we started arguing about. She’s like, hey, I understand you did a great job, Lucas. We got us to this point, blah, blah, blah. But obviously, what you’re doing doesn’t work. So we have to change what you’re doing and do something else. 

[00:08:41] Ramit: Like what? 

[00:08:42] Lucas: Exactly. I’m like, what do you propose we do? I’m like, okay, what do you mean? I need something there. I don’t even know what it was, but to me, I felt stressed again because it’s like, let’s throw away everything that you did.

[00:08:59] Narration: [Narration]

[00:08:59] Ramit: Let me summarize. When Lucas asked for help, Trin was caught off guard that their family finances had deteriorated so much that they were running low on cash. She wanted to make a change, and Lucas took that as her not trusting his systems. I’m curious what happened. Now, keep listening because there’s a lot beneath the surface.

[00:09:22] We’ll be right back. 

[00:09:23] AD BREAK

[00:09:24] Now back to the show. 

[00:09:25] Interview: [Interview]

[00:09:25] Trin: And also, in the summer of 2022, that is when our family introduced credit cards. So since we have been together, we had one credit card. Credit limit did not exceed $5,000. Balance remained low or no balance at all. And so last summer, we acquired at least, I think, a minimum of four credit cards. So credit card usage is new for our family. And so in me trying to wrap my mind around what all is happening because he came to me and was like, Hey, I need help, I’m trying to understand what’s happening, what’s going on. 

[00:10:06] And it honestly was just so overwhelming that I couldn’t grasp it. And so we would have our financial meetings. We would try to have our financial meetings, and it was just literally argument after argument after argument, because for me, I am a simple black and white person. Whereas Lucas is more gray area. And I’m like, okay, this does not make sense to me. And so because it doesn’t make sense to me. Can we change it? He is very much like, it makes sense to me. And this works for me. And I am over the finances. I am over the family. So, no, we’re not changing this. 

[00:10:45] Lucas: We’ve argued and went back and forth about this a couple of times. And right now, we were in a cashflow negative position for the last three to four months, so we had to use the credit cards. I know you’re saying, hey, why are we using $3,000 to pay the credit card? We would have used cash to pay it. I just used the credit cards to gain some points. So that’s why I’m like, I don’t understand.

[00:11:07] Trin: I don’t agree with that, Lucas, because, one, we know that in previous weeks, we are in a cash deficit. You’ve communicated that as an entrepreneur, your income fluctuates, understandably so. That’s fine. However, we did not make as much as we had anticipated for last month. 

[00:11:28] Lucas: So understand what you’re saying, Trinity. However, what I’m paying off is what we spent money on. Let’s say we spent about $4,500 in credit cards to pay bills. If I did not use the credit cards, I would have used cash. The only reason I used the credit cards was, one, to gain points, and also because we didn’t have the cash at the time.

[00:11:50] I’m looking at the expenses. Again, I’m trying to handle all the stuff. And the conversation got resolved. She said, it didn’t really get resolved. We just went our separate ways and said, all right, you handle the accounts that you manage the way you want to, and I’ll do it my way, the way I want to. 

[00:12:11] Ramit: Meaning that you, Trin, manage certain expenses, and you have certain bank accounts or credit cards you handle in your marriage, and Lucas, you do the same for different accounts, different expenses. Are they separate?

[00:12:28] Lucas: They’re separate, but we have access to everything.

[00:12:31] Ramit: Okay. But one of you is in charge of these four things, and the other’s in charge of these four things.

[00:12:37] Lucas: Yeah. Now it’s like that.

[00:12:39] Ramit: Is it like that because you just couldn’t agree on a way to do it together?

[00:12:43] Lucas: I’ll let Trin talk about that part.

[00:12:45] Ramit: Okay, tell me.

[00:12:47] Lucas: When her and I met, my world was almost coming crashing down. I had been going from a place where I was making 10, $20,000 per month. This is the business now, gross revenue, to having a bunch of credit card debts. The credit cards got canceled because I was doing some things with it. So when I had met her–

[00:13:13] Ramit: Wait, hold on. You were doing some things with it. What the hell is that? You know I have to ask.

[00:13:18] Lucas: Okay.I hate paying interest, absolutely hate paying interest. So all my credit cards, I leverage them to make money so I would buy houses with them, rental properties with credit cards. 

[00:13:36] Ramit: Huh? Okay, sorry. Go on.

[00:13:38] Lucas: Okay. So I would buy houses with them. I would do marketing sales.

[00:13:41] I would also take trips as well on them, but I’d always, almost always get them off. There was a point in time where I used to make money off of my credit cards by having people on the credit cards as an authorized user, and I was literally getting $50 a month from each person that I added on my credit card.

[00:13:59] The limit was 60,000 on one card, 20,000 on another. And my balance was always low. It was less than a 1,000. So I would literally make money off of my credit cards. They were giving me cashflow. Something happened where one of the people that I put on was a fake person. They had fake social security and IDs and all that. So the card cancelled me. 

[00:14:21] And I was like, I’m not paying the card if you just cancelled me. Why am I going to pay the balance if you cancel me and tell me I can’t use the card anymore? Okay, let it go to collection. So I let all of that go to collection, all of it go to charge off, and I said, I’m just going to start over. And around that time is when Trin and I met and we started getting into our relationship and get it better, I had to sell all of my rental properties because I had mismanaged them.

[00:14:50] Ramit: How many rental properties?

[00:14:53] Lucas: So I had about 26 units at that time. 

[00:14:58] Ramit: Was this your full-time thing?

[00:15:00] Lucas: Rental properties was not my full-time thing, but real estate was. Twenty six rental units across, I think, seven, eight buildings. I’m very creative when it comes to getting into the deal. Again, Trini will tell you I’m a strategist. I live up in the sky. So I know how to get into creative structures. I’ve never used a bank to get into any one of those properties.

[00:15:21] Ramit: Wait, hold on. So when you two met, was it going up or was it going down?

[00:15:29] Lucas: When we first met, it was up. And at that time, all 26 units, I basically hired a property manager to handle most of them, I didn’t know that I had to give the property manager a strategy. I thought he just knew what to do.

[00:15:43] Ramit: No, no, no, no, no, no, you don’t have to do that. On the internet, everybody tells you it’s free. It’s passive income. You literally just put a quarter in, and then free money comes out of the real estate machine. That’s right. 

[00:15:55] Lucas: No, it’s not right. Nothing’s passive. I do believe in passive income in terms of what the IRS calls it or classifies it, but it’s more leverage. But I didn’t know that I had to give a system to my property manager and basically manage the asset. I know that now.

[00:16:11] Narration: [Narration]

[00:16:12] Ramit:  How many times do I have to tell you guys that anyone in the real estate industry, you should literally treat them like they’re going to reach in your pocket and steal all of your money. What do I need to do? Do I need to feature more stories about realtors, timeshare salespeople, property managers?

[00:16:28] How many stories do I have to bring on here before you realize that the entire real estate industry is built to generate commissions from you. They are not fiduciaries. They do not care about what happens after you transact. They don’t care about your kids. Most of them are very nice people, I’m sure, and some of them may actually give you good advice. But at the end of the day, they exist for a commission. 

[00:16:54] Property managers are slightly different than realtors, although they are related. I’m going to do you all a favor and let you in on a little secret of the financial world. Anyone who’s dealt with property managers hates their property managers. If you walk into a relationship with them expecting them to magically handle all your problems, you’re doomed. Better to treat them like a high school kid who’s mowing your lawn. He’s nice. Sure, but he’s incompetent 

[00:17:19]  You need to walk him through your exact expectations. You need to write him down, and then you need to check his work for the next 20 years. Let this be Ramit’s money lesson number 4,960. Start treating everyone in the real estate industry like they’re here for one sole reason, the commission, becaus they are.

[00:17:40] Interview: [Interview]

[00:17:41] Lucas: So I hired a property manager, and one of my buildings– I’ll just give one story– the entire roof was leaking. I was playing rugby with one of my friends. I hired his uncle to fix the roof. Paid him all up front. I’m not supposed to do that. So three months go by, my property manager’s like, hey, I’m not able to collect from five of your units because water’s leaking and they don’t want to pay. I’m like, why is water leaking? I paid this guy three months ago.

[00:18:09] He’s like, oh yeah, about that. He never came. When it all went down, I had to sell everything. So I had some investors. I did not want them to lose any money, so I took a loss. I sold everything, fire sale. And then I said, how do you build wealth in America? That is where all of this stuff started happening. I said, how do you build wealth in America? A lot of people that had wealth in America had rental property, or a business, or some combination of both. So I said, okay, why don’t I just start a real estate company?

[00:18:38] Ramit: What are the lessons you took away looking back?

[00:18:41] Lucas: Management is key. So it’s good that you can get into a deal. Your exit strategy is great as well, but the management of the deal, the management of the asset is– 

[00:18:51] Ramit: What about the credit card thing?

[00:18:53] Lucas: The credit card, don’t do things like that, add an authorized users and people you don’t know that’s not family members.

[00:19:02] Ramit: I agree. Why? Why should you not do that?

[00:19:06] Lucas: Because, one, it’s illegal.

[00:19:07] Ramit: Not worth it. First of all, 50 bucks a month is not that much. And second of all, the risk is disproportionate. Really high risk for 50 bucks. I’m not even saying I would do it for 5,000 bucks, but at least I’ll be like, okay, I get why you did it, but for 50 bucks, I’m just like, what? 

[00:19:23] Lucas: It totaled up to about 3,000 to 4,000 a month with all–

[00:19:27] Ramit: Okay. But the key lesson, which I didn’t hear you say, by the way, is–

[00:19:31] Lucas: The risk. 

[00:19:32] Ramit: Trin, did you know all this stuff?

[00:19:33] Trin: I did.

[00:19:35] Ramit: Okay. What does it make you feel when you hear this and when you heard it?

[00:19:40] Trin: Very nervous. All of this happened simultaneously as he was moving in with me.

[00:19:48] Ramit: Hmm. Damn. How do you deal with that?

[00:19:53] Lucas: Man. 

[00:19:55] Trin: It was extremely challenging. I felt like I was making a mistake.

[00:20:03] Narration: [Narration]

[00:20:03] Ramit: Lucas is what I call a believer. He believes that the big deal is right around the corner. He’s always looking for the angle, always trying to beat the system, believing that if this one deal works out, success is right there. Now, sometimes believers win, but most of the time, they waste their efforts on small time stuff that often ends in disaster.

[00:20:27] And if we took all the time and money Lucas spent on these properties and he’d simply invested in an index fund, he would probably be far ahead. Now, I also have to tell you that it is very difficult to be financial partners with a believer because they often live in the clouds, hoping that that big win is coming. So what I did now is I turned to Trin to learn about her background.

[00:20:49] Interview: [Interview]

[00:20:50] Trin: I come from a very structured home. My dad is a veteran, and my mom was very structured, and so I have lived a very structured life. 

[00:21:02] Ramit: You don’t say. You know how I knew that? There’s one big clue.

[00:21:08] Trin: How–

[00:21:09] Ramit: It’s when you started the CSP. 

[00:21:11] Trin: Hmm.

[00:21:11] Ramit: You insisted on reading the instructions. 

[00:21:14] Trin: Yeah.

[00:21:15] Ramit: A couple of guesses. You like to get things right.

[00:21:17] Trin: Yeah. 

[00:21:18] Ramit: You hate to get it wrong.

[00:21:21] Trin: Uh-oh.

[00:21:22] Ramit: Whoa, look at Lucas’s face. He’s like, mm.

[00:21:25] Trin: Uh-oh.

[00:21:25] Ramit: How’d this guy know it? Okay, carry on.

[00:21:27] And so I have lived my life in a very structured way. I’ve set out goals. The same goals that I set out when I was 18. I am still on track to achieve those same goals or have already achieved them.

[00:21:45] Hold on. That’s amazing. That’s cool. I’m giving you a round of applause for that. I never hear that. 18 to now? That’s very impressive. Okay. Well done. So would you say that being goal-oriented is helpful in your life?

[00:22:03] I would have said that, for sure, 100%, a year ago. Over the last year, I’ve done some inner work and realized that I am a perfectionist. That’s awesome. Most people spend a lifetime not realizing that. So I think that’s very commendable. How would you describe yourself? Did your family grow up middle class?

[00:22:31] Trin: So I didn’t grow up with a lot. Probably lower middle class.

[00:22:38] Ramit: Do you remember a moment when you realized you didn’t have as much money as the people around you?

[00:22:45] Trin: Oh, you’re going to make me cry.

[00:22:48] Ramit: It’s okay to cry. It’s okay to take a break too if we need to. We have all the time in the world.

[00:22:59] Trin: When I was in fifth grade, military, you move around a lot. I just went to a new school, and sometimes it’s hard to make friends. I remember being on the playground, and in being on the playground, some kids were like, look at Trin. Her shoes are talking. 

[00:23:40] And I didn’t know what they were talking about until I looked down at my shoes and saw that they were falling apart. And I know nowadays it’s a really big deal for kids before they go to school to get the new clothes, and the new shoes, and things like that, but that didn’t always happen for us. We had to wait until Christmas to get new shoes. 

[00:24:11] And it was at that moment that I realized, wow, I’m taken care of, but I don’t even have decent shoes to walk around in right now. And it was at that moment that I felt like, are we poor? Do we not have enough money? My mom used to joke about we would ask to go to McDonald’s because it was a big thing back then in the 90s, and she would always tell us, no. We’re going to go– her name is Mary. And so she’d be like, no, we’re going to McMary’s.

[00:25:05] And I’m like, no, I want to go to McDonald’s. But looking back, we just didn’t have enough money for that. We had to be very frugal. It was me and my other two siblings, and they did the best that they could.

[00:25:25] Ramit: What do you remember her saying about money when you were young?

[00:25:30] Trin: Similar to what my dad would say. You definitely want to ensure that you pay your bills. But she was big on saving money not in the sense of in a bank account but just more so putting money away hidden in a purse or under the mattress for emergencies, things like that. Money that you put away that you don’t have to think about. And then when there is an emergency, you know you have those funds somewhere.

[00:26:00] Ramit: Looking back, how would you characterize the lessons that you learned about money from childhood?

[00:26:11] Trin: The best way I could characterize it was I wish– it makes me like a little emotional because I wish I knew more. I wish my parents had that type of financial capital, if you will, that financial learning, so that they could teach me. In our culture, if you do better than your parents, then you’ve done well. And so I think my parents have done better than their parents. And so that’s a great position for them to be in. And for me to do better than my parents, that’s a great place for me to be in. 

[00:26:55] But that also doesn’t mean that I came into the world as an 18-year-old adult, knowing the knowledge that some of my counterparts may have, and having different experiences. I had to take out student loans to obtain an education. There was no other option. And I think that that helps shape you your outlook on what that looks like. 

[00:27:24] I was taught one key principle, was that credit cards are bad. And so my parents instilled that into me at a young age. Hey, credit cards are bad. Don’t use them. Which is why now that I’m thinking about it, maybe that’s why I am so emotional about those credit cards that are introduced to my family, because I was taught, oh, you should be afraid of them. You should be scared of them. They’ll mess up your credit. Whereas I’m learning through Lucas that there is a way to manage it, but that doesn’t mean that it’s still not scary for me.

[00:28:00] Narration: [Narration]

[00:28:01] Ramit: What a moment. Without even getting into the rest of Trin’s story, can you see how she looks at money completely differently than Lucas? Can you see how a lifetime of experiences, being raised by a strict dad, being encouraged to get things right, realizing she didn’t have as much as the people around her, and I’m sure many more moments, caused her to treat money completely differently than Lucas?

[00:28:29] This is why I love being able to speak to my guests. You and I can look at numbers all day long, but it’s the story behind these numbers that I find fascinating. And what a gift that Trin and Lucas are sharing their story with all of us. Trin and Lucas, I appreciate your story, and I know that all of us do as well.

[00:28:49] Interview: [Interview]

[00:28:49] Ramit: So they told you don’t use credit cards. Did they use credit cards, your parents?

[00:28:53] Trin: They may have had one.

[00:28:57] Ramit: Okay. And when you were 18 to 30, did you use a credit card?

[00:29:03] Trin: I had one credit card in college, $500.

[00:29:08] Ramit: So you had one credit card. And did you manage it, or did you get into debt?

[00:29:12] Trin: I actually went into debt. I was working at a summer camp at the time, and I was working with less fortunate kids, and we were having an event.I probably had a 200 balance on the card at that point, and I spent the rest of the 300 doing for them that summer. And I know Lucas will speak to that because that’s another dynamic in our finances, is that I show love– one of my love languages that I like to show is gift giving. And so I went into 300 of debt to assist those kids. 

[00:29:49] Ramit: Let’s fast forward to now, many years later, a decade later. Do you ever say no when it comes to money?

[00:30:03] Trin: I’m learning to, I’ll say that.

[00:30:09] Ramit: That’s not an answer. Have you achieved nuclear fission, Ramit Sethi? I’m learning to.

[00:30:21] Trin: No, I don’t.

[00:30:25] Ramit: Do you ever realize that before now?

[00:30:31] Trin: No, because I’ve always felt that if I have it, then I can give it. I don’t go and just make outrageous purchases. I don’t spend foolishly for me. I don’t think so. Lucas may argue, but I don’t go and make large purchases. I don’t put my family in the deficit for clothes or– I don’t have anything that I’m really fixated on. 

[00:30:59] Ramit: If you had to describe the way you feel about money in your relationship today, what word or words would you use? 

[00:31:06] Trin: The only word I have right now is stress. That really is what it is. It’s stressful. . 

[00:31:13] Lucas: If something was to happen to me right now, we won’t have money to survive. So that’s how I’m looking at that.

[00:31:21] Ramit: You have insurance. 

[00:31:24] Lucas: What kind of insurance?

[00:31:25] Ramit: Term life insurance.

[00:31:27] Lucas: No, that’s something that we’re talking about.

[00:31:29] Trin: We don’t have insurance. One, I didn’t understand it. He went through a whole process last year of trying to get, I think– were you trying to get whole life or term? Both? Okay.

[00:31:44] Ramit: What does in process mean?

[00:31:46] Trin: I’ve already filled out the application. I’m supposed to have a medical examination upcoming. So I am in process. My application is out there.

[00:31:55] Ramit: That’s good. I’m glad to hear that. And is this term or whole life?

[00:31:59] Trin: This is term. We’re still pending on whole life

[00:32:03] Ramit: I’ll put an end to that pending right now. Don’t do whole life.

[00:32:06] Trin: Okay.

[00:32:07] Lucas: I knew you were going to say that, but there’s a specific reason why I– 

[00:32:10] Ramit: Tell me. Let me just tell you before you tell me, trust me, I’m open ears, open eyes. I want to hear it. Whole life insurance, these quacks out there selling it on TikTok, telling you you can leverage against it. There’s cash value. You can borrow against it at blah, blah, blah. And then when anyone even remotely smart ask them a few questions, they all crumble, and they will eventually admit that, really, it’s only good for rich people. I still can’t figure out how to make it work for me or my rich friends. So please tell me what you discover. Why is it a good idea for you?

[00:32:46] Lucas: I want to over fund it so that I can pull money out to put it into rental properties to invest, essentially becoming my own bank instead of putting my money into a bank and getting, I don’t even know what the interest rate is. Who cares? I’m not looking at the whole life insurance policy as an investment. I’m looking at it as a place to store my capital. And in the event that I do die or something happens to me, they give you what, a 10X return on the actual cash value that you have. If you don’t die, you can take out 90% of it and put it into an asset or something like that. 

[00:33:23] It is not for everybody. I’ll put that out there. And it’s even not for me right now because I don’t make enough to actually execute the plan. So I’ve read about whole life insurance. I’ve studied it. I heard what a lot of people say about it. I’m a person that looks at risk. I’m a person that looks at, okay, what is the pros and cons of these things? 

[00:33:43] Ramit: What do you mean you look at risk? What are you talking about? You lost 26 properties and all this credit card stuff. What do you mean you look at risk? No, you don’t.

[00:33:49] Lucas: Yeah. I don’t know if you believe, but people do grow, I learned from that situation. Again, I’m not the same person that I am, or was before, where I’m just, oh, let’s just jump into this property. Oh, let’s partner with this person. Because now I have a family. Also, that experience taught me. I can’t just go out there and start businesses or just do some deal because I have people that depend on me. 

[00:34:20] My father passed away when I was 10. My mother was pregnant at the time. I was 10. My sister was 5. So then when my brother was born, he had a condition with sickle cell anemia. So growing up was very, very tough. I did not have a male role model. I pretty much had to raise myself and my brother and sister. So I acted as if I was their father, and I’m 11 or 12, having to take care of them when my mom went to work. So to say my childhood was difficult. It is what it is, and I’m working through those things now.

[00:35:02] But when I got into grad school, I was in a position where I’m like, I don’t even know what money is. I’ve heard of this thing. The school is paying me to go. I have two fellowships to go to school, but I don’t know what money is. And then I found Dave Ramsey. That was the first time I seen him. And I also found another guy, Robert Kiyosaki. They have two very different viewpoints on business and money. I went Robert Kiyosaki route.

[00:35:29] Ramit: No kidding. I could tell. His fingerprints are all over you. 

[00:35:35] Lucas: So I didn’t want my family to grow up poor, how I did. I wanted to be able to provide for my family.

[00:35:41] Ramit: Reflecting on the way that the two of you describe your journey with money is just two totally different universes. Trin raised in a very simple way, simple. Don’t use credit cards. They’re bad. Pay your bills. What’s left is yours. Simple. And to a large extent, it worked for your parents, but why it worked was never really made clear to you, which is probably– do you know why? Why were they able to make a living? It wasn’t because they did not use credit cards. What was it? What’d your dad do for a job?

[00:36:23] Trin: He was in the military, and then got out, and honestly, he just worked at a factory.

[00:36:29] Ramit: Yeah.And he has a pension?

[00:36:31] Trin: Yes. So is my mom.

[00:36:33] Ramit: So there you go. That is probably the key driver of why it all worked. Okay. I’m guessing neither of you have a pension. And you certainly didn’t grow up in the ’70s or the ’80s where housing costs were way, way lower than they are. So sometimes we take away the wrong lessons from life because nobody really makes it clear to us.

[00:36:56] Like, here’s what’s actually going on. Instead, they just tell you these little tidbits, some Aesop’s Fables. Don’t use credit cards. Okay, true, even though it’s not really true. But even while possibly true, that’s not really what’s going on here at all. And then Lucas, I hear you. Coming from a pretty tough background, you had to take on an adult role really young.

[00:37:22] And seeing your family struggle, that leaves marks. And then, obviously, you have a lot of intellectual horsepower. You get into these very challenging programs. It’s like, damn, that’s impressive. No doubt. Also, I noticed you’re very street smart. I noticed that. And that can be good. My family’s also very street smart. We had to be. My parents immigrated here. Four kids, we got to be street smart to figure out how to do stuff. But being street smart can go a little too far, and you can simply become the guy who’s constantly chasing another hustle.

[00:38:02] Narration: [Narration]

[00:38:03] Ramit: I am very troubled by what I hear from Lucas. A few minutes ago, I described him as a believer, and now I am sure that that is right. Lucas seems to be deep in the get rich quick world. The idea of overfunding an insurance policy for a death benefit makes no sense. It’s overcomplicated. 

[00:38:27] Why not take all that time and effort and money, buy a term life insurance policy, and then invest in index funds? And why are we talking about leverage anyway? Lucas and Trin are losing money every single month. When I was a kid, I remember that movie, Teenage Mutant Ninja Turtles. 

[00:38:46]  And you remember the Foot Clan? It was this group of disaffected teenagers who got recruited into a gang where they basically committed violence as part of this brotherhood. Back then, parents worried about their kids getting into a gang and doing drugs.

[00:39:01] You know what I worry about today? Someone clicking on a fucking Robert Kiyosaki video, which then leads them to Robin Hood. Or worse, listening to Joe Rogan, which the algorithm then uses to serve Jordan Peterson videos, then Ben Shapiro. And two weeks later, you’re a white nationalist anti-vaxxer.

[00:39:18] It is incredibly difficult for simple, basic truths to complete with the radicalized nonsense that you hear online. How is someone like me saying, hey, actually 7% returns on a low-cost index fund are pretty good, and you can build serious wealth given enough time. How is that message going to compete with some guy screaming in front of his 150,000-dollar car saying, overfund your whole life insurance policy so you can operate your money like the banks, and cut out the middleman, and leverage your money for rapid wealth creation.

[00:39:53] These are just more examples of the get rich quick BS that permeates our culture. But now they’re on overdrive because people literally see thousands of others desperately commenting, and they feel they’re being left behind. Lucas wants to do the right thing. He wants to provide for his family. He wants financial freedom. But in my opinion, he has taken a very wrong turn.

[00:40:19] Interview: [Interview]

[00:40:19] Lucas: I want to get back into buying rental properties. In order for me to buy rental properties, you could either buy it all cash, or you can use debt. Take 20% down, and then you get 100% of the asset. So I’m looking at my credit. I fixed my credit to the point where there’s no negative items on my credit, but my credit isn’t going up.

[00:40:41] So I started looking at how do I make my credit score go up. I need accounts on my credit. So that’s when I did that strategy of adding positive trade lines to your account. So I went and got a secured credit card, three of them, and then they eventually turned into an unsecured credit card, and so on.

[00:41:02] And I did some other things as well, like RentReporters, Boom Pay. So I did that. And I told Trinity what I was doing and the reason why I was doing it. She said, okay. Then next thing you know, my credit score jumps, and I’m like, great. I’m in a great financial position to now go out and get rental properties. If we need to get a car, I can do that blah, blah, blah. So that is my focus. Not that I’m going to do it right now. Is that I’m setting it up to do it a year or two from now because I still have to save up for the money. 

[00:41:33] In my opinion, no job could ever pay me what a business could pay me. And I graduated, I have two degrees, chemistry, chemical engineering. Trin will probably tell you about that as well. I went to grad school, stayed there for three years. I was in a PhD program in material science and engineering. 

[00:41:50] So one of the conversations and arguments that Trin would have with me is, why are you going down this path? Why don’t you just go back to school, get your PhD, or you can just go get a job, like in engineering and use your degree? But me, again, I’m a long-term thinker. I’m like, if I go get a job, yeah, I’ll be making anywhere from 50,000 to 70,000.

[00:42:12] Ramit: What? 50? What are you talking about? Are you aware of what’s going on in the job market? 50k? 

[00:42:18] Lucas: This was back then. This was back in 2019. 2019, 2002.

[00:42:22] Ramit: Oh, okay. Chemical engineering. That’s a pretty good degree. All right. Whatever. You’d make 50k. I say you make triple that, but go on.

[00:42:30] Lucas: Again, I grew up very poor, and the only reason I went into chemical engineering is because they make a lot of money. And I–

[00:42:37] Ramit: Wait, wait, wait. Hold on. Hold on. Hold on. That’s very interesting. Hold on. So first of all, did you enjoy chemical engineering?

[00:42:46] Lucas: Yeah, I did. I enjoyed the theoretical part of it,

[00:42:50] Ramit: Where did this idea of I got to choose a high paying major come from? Was it from your peers? Was it from your family? Or was it just something you absorbed?

[00:43:02] Lucas: Now, my mom always wanted me to be a doctor. A doctor, pharmacist.

[00:43:07] Ramit: Me too. Wait, we got two failures on this call. Two sons whose moms expected them to be doctors. It’s like, sorry, mom. 

[00:43:14] Lucas: Yeah. So I’m looking at this, and I’m like, okay, I’m going to spend all my time doing this, 40 to 60 hours a week. How am I going to get enough money to invest so that we can be financially free.

[00:43:28] Ramit: What does that mean? You want to be financially free. How old are you two? You’re both 35.

[00:43:35] Lucas: 35. 

[00:43:35] Ramit: All right. You have a sense of when you want to be financially free by?

[00:43:43] 

[00:43:43] Lucas: Yes, I do. I wanted to be financially free when I was 35. I’m 35 now. I’ve moved that goal to 40.

[00:43:51] Ramit: 40. Okay. Five years from now. And financially free means your bills are being automatically paid. 

[00:44:02] Lucas: So I want 187,000 coming into our family on a yearly basis after taxes.

[00:44:09] Ramit: Post tax. 

[00:44:11] Lucas: Post tax.

[00:44:11] Ramit: And what does that do for you?

[00:44:13] Lucas: So that would allow us to have the lifestyle that we want.

[00:44:16] Narration: [Narration]

[00:44:17] Ramit: Lucas is saying that he wants to go from where he is today, in $285,000 of debt to having about $3 million in the bank post tax within five years. This is not feasible. When people set outlandish goals like this, they are basically covering their ears with their hands and saying, la, la, la, la, la, la, la, la. And the next thing they do is they take outlandish risks. to hit the goal that they never should have set in the first place. 

[00:44:48] Now, it’s one thing to set ambitious goals. I love that. I don’t mind it at all. It’s another to be totally unrealistic. Let me walk you through their numbers. Trin and Lucas are 35 years old with two children. They have $40,000 in assets, $27,000 in investments, $20,000 in savings, and $285,000 of debt.

[00:45:12] We’ll be right back. 

[00:45:14] AD BREAK

[00:45:14] Now back to Trin and Lucas.

[00:45:16] Interview: [Interview]

[00:45:16] Trin: Total net worth, negative $198,100.

[00:45:21] Ramit: All right. What do you think about that?

[00:45:25] Trin: It’s pretty scary. The negative net worth puts things into perspective. Especially for me because I don’t see numbers the way that Lucas does. And so I don’t stare at this all the time. I’m not in it every week or even on a monthly basis looking at that. I think when we do things like this together, I know he is very emotional about finances, and so I try to be the more stable one, but I was bothered by it. And I’m sure that’s news for him, but I was a little shaken up. Alarms are going off. It’s more emotional because I know the majority of it is mine.

[00:46:15] Ramit: What is that student loans? 

[00:46:17] Trin: Yeah.

[00:46:18] Ramit: How much?

[00:46:20] Trin: I know it’s close to 200,000.

[00:46:30] Lucas: Credit card should be about 12,500.

[00:46:34] Ramit: Okay.

[00:46:35] Lucas: I think I owe one of my friends 5,000.

[00:46:38] Trin: 5,000.

[00:46:39] Ramit: All right. The numbers aren’t quite adding up, but we’ll leave it at that. It’s close enough. I think I understand that situation. Let’s carry on to the next part. Lucas, income, can you tell us what is your combined gross monthly income?

[00:47:03] Lucas: This one was tough. It says the combined gross monthly income here is 11,692.

[00:47:12] Ramit: Yeah. Okay. Is that right?

[00:47:16] Lucas: Sometimes.

[00:47:17] Ramit: Okay. 140k a year. That’s how much you make. Does that sound right?

[00:47:22] Lucas: I think so. Yeah, I think so. It’s difficult because of the fluctuation of the business.

[00:47:28] Ramit: Yeah, I get that. I will say that you’re the only couple I’ve ever seen who has a higher net income than your gross income. Can you explain that to me? Because I’d like to have that myself, and I can’t figure out how.

[00:47:38] Lucas: Yeah. So if you look at the 8,000, in the CSP, it said just average what you made over the last three months. So every month, money comes in, and I put away money for taxes, about 20%. Because we’re in a net negative situation, I transferred more money from our business to our family than I made. The money that was set in there was just supposed to be paid for taxes, but we need the money, so I had to take more.

[00:48:09] Ramit: Oh, so this is like a real emergency.

[00:48:12] Lucas: Yeah, yeah, yeah.

[00:48:16] Ramit: Okay. All right.

[00:48:19] Lucas: Outside of the last month, but I think May, June, July, I had made about $6,000 of gross income from the business, but my family, as you can see, we need about 12,000, for me. So I had to pull money from there.

[00:48:39] Ramit: All right. How long can you go making what you’re making?

[00:48:44] Lucas: Not that long. Not counting credit cards?

[00:48:50] Ramit: I don’t know. Can we not overcomplicate it? Do you all see the problem you’re causing yourself? I’m asking simple questions, and you’re going, what about this? What about that? Do you count this? We need simple answers. You’re running out of money. So tell me the simplest, honest answer.

[00:49:09] Lucas: Two months.

[00:49:10] Ramit: Damn.

[00:49:10] Lucas: I don’t know, to be honest. I don’t know.

[00:49:15] Ramit: Okay. That is surprising to me, though, because you are the one, Lucas, who’s like very in the details with money. You’re very concerned about providing for your family, but–

[00:49:25] Lucas: Because you told me to give you a simple answer, but in my head, it’s not simple. It’s complicated.

[00:49:29] Ramit: Okay. Because what? You can put more on credit cards?

[00:49:32] Lucas: Yes, because I could put more on credit card. I could pull from the amount that I put away for savings, for taxes, and run off of that.

[00:49:40] Ramit: But ultimately, you have to pay that back.

[00:49:44] Lucas: Yeah. That’s more debt we’ll be going into. But these are the things that scare me. These are the things that I do not know how to talk about because whenever– I don’t care where money is. We can have money in our emergency fund. We can have money in our trip account. We can have money that goes to pay for taxes. But when my family needs money, I don’t care where it comes from. I’m pulling the money, and I’m figuring out. I’m going to pay for that stuff. So yeah, that’s why it’s complicated for me.

[00:50:12] Ramit: Do you see that that’s a recurring theme of if there’s a problem that comes up, I’m going to get the money, and I’ll deal with it later.

[00:50:24] Lucas: Yeah. What am I supposed to do?

[00:50:27] Narration: [Narration]

[00:50:28] Ramit: You’ll notice that Lucas has wrapped himself in a veil of righteousness. He could say, wow, I’ve really overcomplicated things. I didn’t realize I shouldn’t be charging these things on the credit card. I have two months of money left, and I really need to make a change together with Trin. But instead he said, when my family needs money, I don’t care where it comes from.

[00:50:53] I’m pulling the money and figuring it out. What’s really happening is that he’s not admitting his system doesn’t work. He’s not acknowledging that his risk tolerance is way off, and that his investment decisions have repeatedly led him astray. Instead, he’s saying, if my family needs money, I’m going to find a way.

[00:51:15] Nobody can really attack a father for wanting to protect his family. Nobody’s going to say, you shouldn’t do that. So what he’s done is he’s concocted this very clever defense shield against changing. Because after all, he’s just providing for what his family needs. The problem is if this doesn’t change, it will keep going on for years and years until finally Trin gets fed up with it. Meanwhile, I noticed that we’ve spent a lot of time talking to Lucas instead of Trin, and I learned that the majority of their debt comes from Trin’s student loans.

[00:51:53] Interview: [Interview]

[00:51:53] Ramit: All right, let’s keep going and look at the costs here. All right. Let’s leave the net monthly income higher, even though that can’t be right. It really can’t be right. It almost makes me uncomfortable leaving that here. I don’t want to do these one-off things because it messes everything up. If you were to normally make $11,700 a month, how much would your net income be? Be like what? 8,000 bucks or something?

[00:52:23] Lucas: Yeah, just about. If you want to do the average for this year, I would think that the monthly income is probably closer to 13 on my end,

[00:52:33] Ramit: No, don’t–

[00:52:34] Lucas: Or maybe 12 on my end.

[00:52:36] Ramit: How can it be 12? You put eight here.

[00:52:39] Lucas: Because you told me to do the last three months.

[00:52:40] Ramit: Yeah, which I want. Remember how you said you’re conservative with your numbers? I want us to be conservative. So if the last three months were 13k, I would have put 13k. But the last three months were AK. We should assume the AK is what it’s going to be.

[00:52:57] Lucas: Okay. I see how you’re looking at it. 

[00:52:59] 

[00:52:59] Ramit: We don’t want to fool ourselves, Lucas. We want to look for worst-case scenario and build a plan around that. Let me tell you something. I like surprises maybe for my birthday, and that’s about it. The last place I want to surprise is in my finances. And if I’m going to get a surprise, I want a fat stack of cash that got surprisingly given to me.

[00:53:19] Like, oh, I got some crazy bonus. That’s so cool. I never want to be surprised in the negative way, like, ooh, I owe an extra 10 grand. Uh-uh That’s my personal philosophy. I’m conservative. Some people are a little bit more aggressive with money, but in general, you don’t want to be like, get your back against the wall.

[00:53:42] That is why we take the lower amount, even though maybe I hope you earn much more. That’s how we plan. Let’s look at your 

[00:53:50] fixed costs. I’m going 

[00:53:52] to change it because if you’re 

[00:53:54] making 11,700, I’m just 

[00:53:56] going to say conservatively, you’re 

[00:53:57] taking home $8,000 a month. 

[00:54:00] Is that okay to say that? What do you 

[00:54:02] want to says 

[00:54:05] Lucas: Maybe 10 because Trinity already paid taxes.

[00:54:11] Ramit: You can’t 

[00:54:11] take home 10,000 when you’re making $11,600. You pay 

[00:54:15] more in taxes than that.

[00:54:17] Lucas: Okay.

[00:54:18] Ramit: You pay 30% taxes. I’m just going to say 8k. Okay. Trust me on this. Can you watch this number, this fixed cost number? Watch what happens. All right. What just happened? It jumped from 60%, that’s your fixed cost to 93%. What is this number supposed to be?

[00:54:43] Lucas: I would it to be at 50.

[00:54:45] Ramit: 50to 60%.

[00:54:46] Trin: 50 to 60 . 

[00:54:48] Ramit: Yeah. So right now, already, this is a huge red flag. Can I point out a couple of more things on this? we’re going to just work our way, line by line, down this. All right. Your debt payment. This, honestly, is way, way, way, way, way low. This is probably more like $1,500 a month if you were honestly paying it off, I’m going to leave it here just to show you something. Your groceries are $1,800 a month. How can that be?

[00:55:13] Lucas: Probably more. There’s groceries and household items included. So the kids’ things as well . 

[00:55:20] Ramit: Clothes are 200. Fine. Phone, 230 bucks. Okay. Again, we’re now counting a few dollars here and there. 

[00:55:28] All right, so can we just notice your, giving um did not make its way over to the right side? So I’m going to add this here. Okay. Watch this. They have $1,242 a month that they give away, but it did not properly add up in the conscious spending plan. So I’m going to fix it. What just happened to your fixed cost number?

[00:55:48] Trin: 108%.

[00:55:50] Ramit: 108%. And we’re not even done yet. Medical, $500 a month. That didn’t get there. Your fixed cost is now at 114%. And your other fixed expenses like child care, lawn care, house cleaning, counseling, grooming did not make it there either. I’m going to go ahead and fix that. What is the number you have at the top for fixed costs?

[00:56:12] Lucas: We’re at 54%.

[00:56:13] Ramit: You’re broke. You spend more than you make and we haven’t even gotten to eating out or any other guilt-free expenses, including travel. Did you know it?

[00:56:35] Trin: I did. Yes.

[00:56:39] Yes 

[00:56:39] Lucas: I knew Again, according to these 

[00:56:42] numbers, the income 

[00:56:47] is more so of a projection. The expenses is what I–

[00:56:50] Ramit: Lucas, Lucas, look at your wife. What’s happening right now?

[00:56:59] Lucas: She’s feeling emotional.

[00:57:01] Ramit: She’s crying, and you’re telling me about your income projections. 

[00:57:08] Lucas: Trin, how you feeling?

[00:57:18] Trin: I feel really stupid because I did not know. I feel like I should have known. And I know you’ve been trying and you’re doing the best that you can, but like I told you a few weeks ago, the way that we are doing things does not work. It does not work. And it’s just like I know that wasn’t surprising for you, but it is very shocking and very surprising for me to see those numbers change like that and to see what is actually happening in our lives, even as far as– I know as an entrepreneur that like the income fluctuates, but the reality is that we’ve been in the deficit for months. We are on fire. 

[00:58:29] The house is burning down with us in it. 

[00:58:33] 

[00:58:33] Narration: [Narration]

[00:58:33] Ramit: There’s no magic deal around the corner that’s going to fix this. Trin says that she wants more control, but ironically, she has delegated financial control almost completely to Lucas. Next week, on part 2 of this conversation, you’re going to hear what happens, including the follow ups from Lucas and Trin. .

[00:58:53] And of course, if you want to learn more about money psychology, get on my podcast newsletter at iwt.com/podcastnewsletter. It is the only place you can get this material, including this week’s message about how to get out of paying 1% financial advisor fees. Perfect if you are in that situation, your family, your parents, or your friends. I’ll give you the exact script. iwt.com/podcastnewsletter. Thanks for listening.