Episode 54. “We grew up poor—but we could be millionaires” (Part 2)

Annie and Austin

Date: August 2, 2022

Last week, in part one of my conversation with Austin and Annie, we got deeply personal about their upbringings and the invisible scripts they picked up as kids. I learned that they were passing bad money habits to their young daughter—continuing a cycle of generational poverty. 

Today, my goal is to move them out of that cycle by getting tactical with how they can turn things around. They’re young and make plenty of money to be comfortable—even multimillionaires—in their future. But we need to get the calculator out to make them believe it. Tune in as Austin and Annie see how it’s possible to go from generational poverty to generational wealth. 

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Episode Transcript

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Ramit Sethi:  [00:00:03] The two of you easily can become multimillionaires. Do you believe that?

Austin:  [00:00:08] No, it’s just not in the cards for me. I don’t have the skill set to do that.

Annie:  [00:00:12] That’s overly ambitious to the point where it is unrealistic.

Austin:  [00:00:17] If it is truly as easy as the numbers make it seem, then why haven’t we done something prior? Why has none of our influencers or our role models had anything like that to say? Why is it us out of everybody else? Why are we doing it?

Ramit Sethi:  [00:00:49] Because you picked up the phone. Because the two of you asked for help.

Austin:  [00:00:53] I’m afraid of failing. We could put ourselves in a worse position, but if we keep it up, we stay the way we are. Kids are spoiled, flat out. I’m willing to hear anything and try anything.

 [Narration]

Ramit Sethi:  [00:01:13] Welcome to part two of my conversation with Austin and Annie. To recap, they make about $130,000 a year living in Kansas. Last episode, we spent all of our conversation focused on their daughter, and how if they continue on the path that they’re on, they will be passing on another painful cycle of generational money issues down to their kids. Now they told me that their goal is to break the generational chain of poverty. And that’s one of the reasons I wanted to talk to them.

I also want to show them that they can dream bigger than just breaking the chains. Austin and Annie can likely be multimillionaires if they manage their money right. But when I tell them that in today’s episode, they flat out don’t believe me. To many people raised without money, that’s like telling them they can fly. It just doesn’t compute. Listen in as we talk about what it will take to change the financial trajectory of their family forever. I’m Ramit Sethi, and this is I Will Teach You To Be Rich.

[Interview]

Ramit Sethi:  [00:02:22] What are you two both here to accomplish? What do you both want?

Annie:  [00:02:29] I want change but I need to make that change myself. So I think I’m looking for guidance to pinpoint what my actual problems are because what I thought my problems were, you have shown me those are not necessarily it. It’s really these things instead.

Austin:  [00:02:42] Financial freedom. I worry that the position that we are in now, we are happy, we are comfortable. We have said it a few times, already our kids are spoiled. And we can dial back on that. However, if something big were to happen, we wouldn’t be able to afford to live. Yeah, we paid ahead on our apartment. Our rent’s paid ahead a couple of months, so we’re doing good there. We have a place to live for a couple of months still. But that puts everything on Annie if it’s me or everything on me if it’s Annie, and the way we are set up within our finances, we aren’t prepared for anything to happen. And that does scare me because shit does happen.

 [Narration]

Ramit Sethi:  [00:03:39] Did you catch that? Austin’s comment that, “Yeah, we’re good. We paid ahead on our apartment a couple of months,” that is quite revealing. To him, that is success, to be able to pay ahead on an apartment for a couple of months. And I think that that’s great when you’re starting out, but he and his wife make $130,000. They live in a low-cost of living area.

At $130,000 they can be playing much bigger. And that’s what we get to talk about today. If they don’t make any changes, they’ll go through life playing small thinking that success is paying ahead a couple of months on an apartment, never realizing that there’s a much bigger game out there being played around them that they could be playing too.

[Interview]

Ramit Sethi:  [00:04:31] Well, if you keep the cycle up, what happens because truthfully, you have a nice apartment, you have two kids, you have cars and tools and law school? So what?

Austin:  [00:04:44] If we keep it up, we stay the way we are. Our kids are spoiled flat out. But me and Annie we spoil ourselves and we spoil each other. But it would be we could still have a happy content life, but I know that the lifestyle I want for our kids, we don’t want them just to succeed. We want them to succeed, have fun, be good kids, we want so much better for them. And we do want to take vacations. We do want to go out and see more of the country, see parts of the world, and do things with each other. But if we continue the way we are, we’re not going to be able to reach that more free lifestyle that we want.

 [Narration]

Ramit Sethi:  [00:05:26] Like a lot of people, Austin and Annie have simple dreams for their lives. They want their kids to succeed, have fun, be good. It’s like saying, we want puppies and apple pie. Fine. Sure, pretty much everybody does. But in order to get there, it actually requires changing their entire set of money lenses, or the way they look at money, talk about money, behave with money, even how they think about money.

And if they do, I know that they can actually live a richer life than they even realize is possible. If they don’t, they’re going to pass on their money messages to their kids. And Austin tells me he already has. He doesn’t talk to his daughter about money because he believes he’s protecting her. That’s because he sees money as something bad, something to shield children from. I see money differently. I see it as something joyful, something fun, something to talk about and bond over. When I suggested that he could talk to his daughter about money, he was speechless.

[Interview]

Ramit Sethi:  [00:06:33] When I asked you how might you talk to your daughter about money, you and Austin were both completely stumped, stumped. And here I am a non-parent role playing. And what it really told me was that you have never seen a model of how to treat money as a couple or certainly as a parent. Does that strike either view is correct? Am I out on a limb here?

Annie:  [00:07:10] No, you’re correct.

Austin:  [00:07:14] You’re correct. And it’s difficult to hear put into words. It’s relieving to hear that there’s words for it, but it’s difficult to hear you put it in that perspective because it’s never how I looked at it before.

Ramit Sethi:  [00:07:31] Why is it difficult to hear?

Austin:  [00:07:34] It’s not how I looked at it. It’s difficult because you’re right. There is not been a role model for money in our lives. Even to this day, there’s still not really role models that we talk to or that are in our lives that would be something to work towards or somebody to learn from.

Ramit Sethi:  [00:08:03] Well, here I am. So if the two of you are super depressed about money, and like, “Ooh, eeh,” that’s like eyo voice, eyo, “It sucks. I don’t know.” How do you think your daughter is going to pick up on that?

Annie:  [00:08:20] She’ll keep the same attitude.

Austin:  [00:08:21] She’s going to feed off of our negative energy.

Ramit Sethi:  [00:08:23] Exactly. Teaching kids about money doesn’t only have to be lecturing them, but it’s a teachable moment. And we have to get them excited. Sometimes it’s just getting them involved and making them understand they have a role in the family. And I’m going to add on as a third temporary co-parent in this example, I need her help in plain English because I don’t want her to grow up spoiled. That’s my fucking nightmare, to raise a spoiled kid.

I don’t even have kids. So I can’t be the one coming up with the examples. What I can do with both of you is to help you connect what you are doing with your daughter being spoiled. It is about you not seeing your daughter as part of your family unit because you two don’t even have a financial unit together yourselves.

 [Narration]

Ramit Sethi:  [00:09:25] I’m going to ask Austin what he thinks the real issue is here. Remember, they make $130,000. And they live in a low-cost-of-living city, yet they have basically no savings and $68,000 of debt. And they’ve admitted that they’re raising a spoiled daughter.

 [Interview]

Ramit Sethi:  [00:09:42] If you had to guess right now with what we’ve talked about so far, Austin, what do you think is going on here?

Austin:  [00:09:50] I think that we spend the money we have in convenience aspects instead of– it’s easier and more convenient for us to spend 50, 60 bucks real quick on dinner because I got home late from work, Annie’s with the kids. I think in general, the convenience aspects of things instead of– I’m a mechanic by trade. I can fix our vehicles. Instead of spending time trying to fix our stuff, and just send it into the shop real quick because it’s faster for them to do it and we need our vehicle. I could be doing that better. If we are getting groceries, and we pay to have our groceries delivered because I’m an hour away at work, and she’s working. We can’t go pick up our groceries.

Ramit Sethi:  [00:10:47] Let me pause you right there. So you’re making $130,000 a year, and it’s very possible that convenience is what’s going on here, but I just want to read back what you just said to me. And you tell me if this sounds realistic. Question is what’s going on here? The money you make seems like it’s just getting spent, and you told me it’s convenience, specifically, eating out, getting your cars repaired in the shop, and delivery fees for groceries. Does that sound realistic?

Austin:  [00:11:24] No. Not at all.

Ramit Sethi:  [00:11:27] Okay, that’s good. I agree with you. Sure, you probably spend some money on grocery delivery fees, but you make $130,000 living in Kansas. How much can those fees cost you?

Austin:  [00:11:39] It’s not that much, but–

Ramit Sethi:  [00:11:41] Not that much. Good. I agree. So is there a missing element from this?

Austin:  [00:11:46] Absolutely.

Ramit Sethi:  [00:11:47] What is it?

Austin:  [00:11:50] I think it’s irresponsible spending, little things adding up, all the little things here and there.

Ramit Sethi:  [00:11:57] So what do you want to do about that?

Austin:  [00:12:01] Accountability. We need to at least write down what it is that we’re spending. We’ll not build a budget, but maybe write down just what it is we’re spending on, like okay, I went to the gas station, I spent 450 on two drinks, and writing it down because it’s going somewhere and we’re not understanding where it’s going. So we need to pay better attention to figure that out.

Ramit Sethi:  [00:12:24] Okay. I think you’ve done that in the past. Did it work?

Austin:  [00:12:31] I don’t know if we did it right. But when we did in the past, it didn’t seem to work.

Ramit Sethi:  [00:12:37] So do you think there might be another way of doing it? Do you think that I write down how much I spent at a gas station?

Austin:  [00:12:44] No.

Ramit Sethi:  [00:12:45] Why?

Austin:  [00:12:47] I don’t have an answer for that. It’s the only thing I know. I don’t know how to do much else.

 [Narration]

Ramit Sethi:  [00:12:57] I love this process. It’s where I get to ask Austin a bunch of questions and let him give me his first answer and then I get to gently press on him. And you can tell that he’s engaged because he instantly realizes that what he said just seconds ago actually doesn’t make sense.

 [Interview]

Ramit Sethi:  [00:13:16] You’re not in debt on $130,000 of income because of some convenience purchases. And if it was as easy as pay more attention, you probably would have already done that. There’s got to be something else. You two have $68,000 of debt. What is that debt from?

Annie:  [00:13:37] I know his problem area is or was tools. Some very good example, his biggest thing that he always says is, “If I die, I’m afraid you’ll sell my tools for what I told you I paid for them.”

Ramit Sethi:  [00:13:50] Austin, how come you’ve been quiet the whole time and we only discover this weird morbid fear of your tools being sold off after your death? What in the hell? I have never heard of this.

Austin:  [00:14:00] Obviously, I turned wrenches for a living. So before I had children, before I had met Annie, I had started buying all of my tools and I had racked up very large amount of debt in strictly tools to do my job. And that was trying to get them paid off. That’s been my biggest handicap in our finances is my tool payments. I know that. If you take what I was paying eight months ago, 10 months ago, almost a year ago, what I was paying per month just for my tools it was more than our mortgage was when we lived in Iowa.

Ramit Sethi:  [00:14:42] What!

Annie:  [00:14:43] It was about $1,800 No, no, it was about 2,000, $2,500 a month.

Ramit Sethi:  [00:14:48] A month?

Austin:  [00:14:49] It was about 1,500 is what I was paying per month, yes.

Ramit Sethi:  [00:14:52] Hold on. So when you say you were paying that much, how much have you spent on tools?

Austin:  [00:15:02] Honestly, if I gave you a number, I’d be lying to you. I can’t.

Ramit Sethi:  [00:15:05] Is it 1,000, 10,000, 50,000? What are we talking about?

Austin:  [00:15:09] A year ago, I was 36,000 in debt with strictly tools. And to give you an idea, the most amount I’ve ever bought a car for was $3,000. So my toolbox itself cost more than any vehicle I’ve ever purchased look like.

Annie:  [00:15:26] The toolbox was almost 20 grand by itself, and that’s the big one that he’s talking about.

Austin:  [00:15:31] It’s a professional toolbox. Yes, that is my career.

Ramit Sethi:  [00:15:33] And you use this for work?

Austin:  [00:15:34] Yes, every day.

Ramit Sethi:  [00:15:35] Okay, got it. So you spent a lot. Annie, you were pointing your finger up towards the heavens as I asked Austin, how much he spent on tools. Do you think that there’s a different number I need to know about in terms of tool purchases?

Annie:  [00:15:49] When he proposed to me and he got serious about “Okay, we’re having children, whatever,” I really then started to understand how much he had purchased. And so he disclosed over time, when just the box was 20 grand and I thought his tool that was 20 grand, it was just the box. He’s got more tools that fit in that box, and the additional three to four other boxes he has, almost all of them are namebrand tools, which he needs to do his job. It’s like me buying an Aramis or a sheep on Shea versus a Target brand purse if I continue to multiply that.

So he was upwards of 50,000, to what I understand, 60,000 total somewhere in there. But even I don’t know the full number because he doesn’t look at the numbers, he won’t do his statements, none of that. He just makes a payment of like $700 a month just to the one account, and then the other one was like $500 a month and he would just know the amounts to make the payments. And that was it.

 [Narration]

Ramit Sethi:  [00:16:57] Okay, you might be wondering what I think of someone who’s in debt for tens of thousands of dollars because of tools. First, let me remind you of my philosophy on a rich life, which is that your rich life is yours, not your parents’, not your friends’, not even mine. You choose what your rich life is. But there’s a second part of my philosophy that a lot of people don’t talk about, which is you have to be able to afford your rich life. You’re not allowed to just put in a private jet and twirl around three times and chant, rich life, rich life, rich life, and then go buy a $50 million plane. You and I both know how absurd that is.

And yet, how is it that so many of us spend tens of thousands of dollars we can’t afford on houses and trucks and boats and tools? We don’t even run the numbers on these purchases. Listen to the stories we tell ourselves. Austin says, “I need these tools for work.” Okay, I’m sure you need some tools, but a $20,000 toolbox, no. Part of a rich life is being honest. If you’re making $130,000 together, you cannot afford $100,000 worth of tools. This is one of the actual issues holding Austin and Annie back, not how much they spend on grocery delivery.

 [Interview]

Ramit Sethi:  [00:18:17] How much do you owe, Austin, for the tools?

Austin:  [00:18:21] Everything is paid off except for I owe just under $9,000.

Ramit Sethi:  [00:18:27]

$9,000 for tools and the rest is school loans, is that right, Annie?

Annie:  [00:18:35] No, school is probably about 35, and then the rest would be installment loans. So at that point, my car was not paid off. So there’s like car loan, then we’ve got his credit cards. He has–

Austin:  [00:18:47] Medical debt from my surgeon.

Annie:  [00:18:49] Yeah, other types of bills, other types of debt on there. I don’t have as big of a credit mix.

Ramit Sethi:  [00:18:54] And how do you both think about this debt in terms of your finances?

Annie:  [00:18:58] It’s crippling.

Austin:  [00:19:02] Frightening. How is it still there? Why is it not gone? Or why can’t we seem to chunk it away faster? It does move but it just seems to move so slow that it’s frightening that okay, now we’re starting to build medical debt onto it. Are we ever going to get out from under it?

Ramit Sethi:  [00:19:28] Seems to me maybe I could help with giving you a few different new ways of looking at your money. Maybe that would help. What do you think?

Austin:  [00:19:39] I’m willing to hear anything and try anything.

 [Narration]

Ramit Sethi:  [00:19:42] I’m going to show Austin and Annie how to take a bird’s eye view of their money. I suspect this is the first time they will have ever looked at their money like this. We’re going to use the conscious spending plan. You can get a copy of that and follow along at iwt.com/episode54. Plug your numbers in and let’s do it together.

 [Interview]

Ramit Sethi:  [00:20:02] What I’m going to ask you to both do is to open up that conscious spending plan that you sent me.

Annie:  [00:20:07] Let me see if it’s up.

Ramit Sethi:  [00:20:10] The two of you make about $130,000 a year. You have $68,000 of debt, you have zero in savings and about $2,000 in investments. Is that accurate?

Annie:  [00:20:25] Perfectly, yes.

Ramit Sethi:  [00:20:27] Great. So let me tell you why I do this. Because what you told me of how you make all this money, and you cannot figure out where it’s going, that’s really common. That’s actually what most Americans experience. They make money and then they have no idea where it goes. So what do you think happens over time as they make money, they spend it, and they have no idea where it goes? What do you think happens?

Austin:  [00:20:55] They don’t learn from it and it continues to go where it shouldn’t be.

Ramit Sethi:  [00:21:04] And then what?

Austin:  [00:21:07] They don’t learn from their mistakes.

Ramit Sethi:  [00:21:10] You guys are in your 20s. Pretend you’re 50 years old and you have the same money behaviors. What happens?

Austin:  [00:21:19] We’ll never build our own retirement.

Annie:  [00:21:23] We’ll have nothing to show for it.

Ramit Sethi:  [00:21:24] Yeah, you worked your whole life, you have very little in savings. You’ve shrunk your dreams down from being able to go to New Zealand to, “Maybe we can go for a weekend somewhere on a trip in the next state.” And then a lot of people would go on Twitter and complain about taxes and stuff like that. And then they go to Florida and they die. That’s what happens. That’s very common. I don’t know, it doesn’t sound like the kind of life that the two of you want.

Austin:  [00:21:55] No.

Annie:  [00:21:58] I think we need to know how to manage it appropriately.

Ramit Sethi:  [00:22:01] I’m very confident that you can do it because a lot of this you can automate it. The other key skill you’re going to have to learn is changing the way you think about money. The fact is, you’re making $130,000 living in Kansas, and probably more in the future, a lot more. So let’s start there. This is the nuts and bolts, I’m going to walk you through it. And if you have more questions, we can talk about them now.

I’ll recommend my book for you. It goes into this in more structured way. But let’s just go through the basics. I’m looking at your numbers. And right now, it seems like you’re basically spending money on your fixed costs, which are things like your rent, your car, gas, groceries, things like that and you’re not really investing money, correct?

Annie:  [00:22:57] Correct.

Austin:  [00:22:58] Correct.

Ramit Sethi:  [00:22:59] So at $130,000, you have an amazing opportunity to be saving and investing money, especially at your age, and especially in a low-cost-of-living area. Now, it might seem impossible and you’re like, “This crazy Indian guy’s over you’re telling us we should be investing, we can’t even figure out where all this money’s going.” Well, we’re about to do a little detective work and I’ll help you figure it out. But I just want to start by saying that if you two have bigger dreams than you have right now, the way to achieve those is to start saving and investing.

 [Narration]

Ramit Sethi:  [00:23:34] Just from hearing their income, age, and the state they lived in, I knew they could be multimillionaires if they wanted to. But when I tell people this, especially people who grew up without money, they simply do not believe me. It doesn’t matter that I show them the math. It’s like telling someone you can grow eight arms. It is not a factor of their reality. But with Austin and Annie, I’m intentionally starting here because I want to show them how much of their money beliefs they have to unlearn. Listen to what happens.

[Interview]

Ramit Sethi:  [00:24:06] The two of you easily, easily can become multimillionaires. Do you believe that?

Austin:  [00:24:16] No.

Ramit Sethi:  [00:24:18] Tell me why.

Austin:  [00:24:22] It’s just not in the cards for me.

Ramit Sethi:  [00:24:24] Why?

Austin:  [00:24:26] I don’t have the skill set to do that. I don’t have anything substantial enough to bring to the table to allow myself to get to that level.

Ramit Sethi:  [00:24:45] So what level can you get to in your life?

Austin:  [00:24:52] Owning a home, able to take a vacation like a normal vacation once or twice a year.

Ramit Sethi:  [00:25:02] How do you feel about that?

Austin:  [00:25:08] I want more, but I’m at a loss for any sort of way to achieve more. And when I look at it if I want more, I need to find a different career. I need to start making these drastic changes like that. I don’t see in the position that I’m in how I can do better.

Ramit Sethi:  [00:25:37] And, Austin, what kind of people are multimillionaires?

Austin:  [00:25:46] Not people who work with their hands. They’re not blue-collar. They don’t do what I do.

 [Narration]

Ramit Sethi:  [00:25:59] Notice how Austin feels about money. It’s not based on numbers, compound interest, benchmarks. It’s based on identity, his identity as a blue-collar worker.

[Interview]

Ramit Sethi:  [00:26:11] When you think about that school that you went to and all the other families and kids who were around, how would you describe those people?

Austin:  [00:26:21] Those are the people that you could see being a multimillion-dollar financial profile. That’s who I would see then.

Ramit Sethi:  [00:26:31] And what did they do for a living? The parents when you went to school and you saw those big houses, what did the people living in there do?

Austin:  [00:26:39] 90% of them were doctors and lawyers and very high-end people like John Deere and Alcoa and numerous large companies like that. They were very prominent people. Their name was associated in the community, everywhere. You saw them whether they were in a position of power or a influence or something to do, they had some sort of– they had made a name for themselves.

Ramit Sethi:  [00:27:11] But guess what, Austin, you and Annie are making a name for yourself right now. You two make $129,000 in your 20s. That number is going up. You may not think you belong like those people just because of the type of house they lived in or what type of job they have, but you belong in whatever class you want to be in just as much as anyone else.

Doesn’t matter to me that you use your hands. I think that’s cool. I have no idea how to do what you do. And so I would never denigrate someone to say, “Oh my god, he’s blue-collar. He doesn’t deserve to eat at that restaurant or have that much money.” Bullshit. You deserve it just as much as anyone else. I’m going to show you how.

But we can’t get there until you internally say to yourself, “Hey, I belong here. I’ve built the skills. I make $75,000 a year. I’m married. My wife makes $54,000 a year. Together, we’ve raised two beautiful kids. Sure, we need to learn some skills when it comes to money. But we can do this. We could live a bigger, richer life than we even possibly imagined.” That’s how I think about it. What does that sound like to you?

Austin:  [00:28:55] Sounds like there’s a lot of change. It sounds like there’s a bunch that is being done wrong and a bunch of change that needs to happen and it’s going to be even more of a struggle than what we’ve already been in.

Ramit Sethi:  [00:29:20] Is there an end to that sentence? Is it so it’s worth it or so I don’t know if I want to go through this?

Austin:  [00:29:29] I want to. I can tell you I want to, but it is nerve-racking. It is frightening how much am I actually doing wrong, how much are we actually doing wrong together, how much needs to change, what is this change is going to look like, how do we do it, and how do we know if we’re even doing it right.

Ramit Sethi:  [00:30:00] I’m going to show you how to do it. But the reason I’m spending time talking about this is that I find people who were raised without a lot of money and without good role models, they simply refuse to believe that they could ever have $50,000, $500,000 $5 million, whatever the numbers, they refuse to believe it. I’m going to show you the math. What does it feel like to you when I say you can be a multimillionaire along with Austin?

Annie:  [00:30:41] Unrealistic, ambitious.

Ramit Sethi:  [00:30:46] Well, which one is it? Unrealistic or ambitious?

Annie:  [00:30:49] Overly ambitious to the point where it is unrealistic.

Ramit Sethi:  [00:30:53] Why does that seem unrealistic to you?

Annie:  [00:30:57] I know with my current habits I’m not equipped to– that’s just not something that’s doable for me because I’m sabotaging myself right now. But I don’t think it has anything to do with the type of person I am or I view myself. My issue is different from his.

Ramit Sethi:  [00:31:16] So yours is habits and you think Austin’s is what?

Annie:  [00:31:23] How he views himself. He limits himself.

Ramit Sethi:  [00:31:29] Austin, would you agree with that?

Austin:  [00:31:33] I have habits as well. I have definitely bad habits in spending. I have been able to kick one of them. I was a smoker for a very long time and I finally was able to put that down beginning of the year. So it’s been nice. There’s definitely a lot of money wasted with it. However it’s seeing now, okay, I’m, I’m very happy that I put it down, but everybody talks about how you save so much more money, you’ll have this much leftover, you save this much. I don’t see it.

Ramit Sethi:  [00:32:16] And you go, “Where’s the money going?”

Austin:  [00:32:18] Right. I don’t see it.

Ramit Sethi:  [00:32:19] Okay, well, I’m going to help you with that. So one of the key characteristics of people who do not manage their money well is that they do not have a bird’s eye view on their money. They are constantly living in the weeds, and they are constantly making hundreds of money decisions. Should I go to Target? Should I get this picture frame? Should I drive extra because of the gas? Should I write these candy bars down, and on and on and on and on. And it’s exhausting. And it actually does not get you anywhere. Any of that sound familiar?

Austin:  [00:32:57] Yes, all of it.

Ramit Sethi:  [00:33:00] Because you’re living at this level. For everybody listening, my hands are towards the bottom of the screen. You’re operating at what I call the $3 question level. We’re asking $3 questions, should I buy this coffee? Can we get the extra cheesecake, etc, etc, etc? Where I want you to eventually end up is at the $30,000 question level or even $300,000 question level. That’ll take us a while to get there. Because right now you’re at three, why don’t we just get it up to 50? How about that? That will be good.

But as an example, when I think about my money, I’m not focusing on gas station purchases. It’s not a question. I don’t ask $3 questions. I’m focusing on things like how much am I saving every single month, how much am I investing automatically? I’m not trying it manually. I just set a number once a year and it happens. Are my investments properly set up or allocated? Those are big questions. Now, just to show you what I mean, when was the last time the two of you talked about any of those questions?

Austin:  [00:34:13] I don’t know how to invest.

Annie:  [00:34:18] I can’t think of anything.

Ramit Sethi:  [00:34:21] Exactly. So we will get there. I want to show you how it is possible that you two could have $100,000 saved up or 500,000, or a million or even more than that. And I just want to show you this so you start to understand a little bit of the numbers behind it and then we’re going to go right back to your spending, where’s the money going? But I’m going to show you this because I want you to see what it looks like to operate at that $50,000 level or 500,000-foot level.

 [Narration]

Ramit Sethi:  [00:34:58] I’m slowly trying to get Austin and Annie to realize they’ve been focused on tiny questions. And the real way to create a rich life is to focus on the bigger questions and to nail those. I’m going to focus on investing with them. To do this, I opened up an investment calculator and I showed them that if they just invested the $2,000 sitting in their savings account, it would turn into $15,000.

 [Interview]

Ramit Sethi:  [00:35:23] You know, the concept of a snowball, it rolls down the hill, it gets bigger and bigger and bigger like in the cartoons, that is true in investing to a level that you almost won’t believe. I’m going to show you what I mean right now. So first of all, what do you take away from this example? 2,000 bucks, the money you have in your account right now, if you do nothing is going to roughly turn into $15,000. What do you take away from that?

Austin:  [00:35:49] Me to be adding annual additions.

Ramit Sethi:  [00:35:53] What else?

Annie:  [00:35:54] Start starting anywhere makes a difference rather than not starting at all.

Ramit Sethi:  [00:35:59] Correct, a huge difference. What else can you take away? Is this good? Everybody sounds so depressed right now. You just found out you have 15,000 bucks. It just takes a little time to cook. Anybody happy about this?

Annie:  [00:36:13] Yes.

Ramit Sethi:  [00:36:14] I think it’s fucking awesome. I love compound interest. I could talk about it all day. But I need you to start picking up on what’s really going on in this conversation. It’s about the attitude.

Annie:  [00:36:26] It’s intimidating.

Ramit Sethi:  [00:36:28] Exactly.

Austin:  [00:36:29] It is.

Ramit Sethi:  [00:36:30] We’re breaking it down step by step. We started with doing nothing, literally taking the money you have and we discovered, oh my god, $15,000. Remember, I told you that metaphor of the snowball. The snowball is now so huge that it is picking up more and more and more snow. And it just keeps going faster and faster.

 [Narration]

Ramit Sethi:  [00:36:51] You’re about to hear a bunch of percentages and numbers. So let me tell you what we’re talking about here. I’m working with them on their conscious spending plan. We’ve zoomed in to the investment section and we’re doing some investment calculations. I’m asking them, what percentage of their income they believe they can invest every year and how much that will add up to overtime.

 [Interview]

Ramit Sethi:  [00:37:13] First off, what do you think would change in this current scenario that we’re contributing $12,000 or roughly 10% of gross? What would change?

Annie:  [00:37:25] The contribution amount?

Ramit Sethi:  [00:37:28] How much is it?

Annie:  [00:37:28] 20.

Ramit Sethi:  [00:37:28] Why do you say 20?

Annie:  [00:37:33] Because realistically speaking, if we make the proper changes and we follow your methods, we should be able to do that because we’ve survived on way less. So we wouldn’t notice that money gone if we were doing what we’re supposed to be, to begin with.

Ramit Sethi:  [00:37:46] Okay. What do you think, Austin?

Austin:  [00:37:51] Probably about 20%. So 12.9, 24, probably 16,000.

Ramit Sethi:  [00:38:00] Well, 20% would be– did I get this right? 129, that’d be 26,000 a year.

Austin:  [00:38:08] Right. The 16,000 is roughly 15%.

Ramit Sethi:  [00:38:11] Yep. But here’s the kicker that the two of you have not factored in. You’re in your 20s, right?

Annie:  [00:38:20] Mm-hmm.

Austin:  [00:38:20] Mm-hm.

Ramit Sethi:  [00:38:20]  You think your income is going to stay at 129,000 for the rest of your life?

Annie:  [00:38:24] No.

Ramit Sethi:  [00:38:24] Hell no. You better not. Otherwise, you two really messed up somewhere. Aren’t you going to be a lawyer, Annie?

Annie:  [00:38:33] Hopefully.

Ramit Sethi:  [00:38:35] You are. And you’re young, Austin. Annie, you’re young. So this is something that people always forget to do. They forget to factor in that incomes go up, especially when you’re in your 20s. So what is the average income that the two of you are going to make between now and when you retire in your 60s?

Austin:  [00:39:00] I think 200, 250 at the high end.

Ramit Sethi:  [00:39:03] Can we say 200? I always like to be conservative.

Annie:  [00:39:05] Okay, 2.

Ramit Sethi:  [00:39:07] 200 it is. So at 200, how much do we want to be contributing?

Annie:  [00:39:12] I would say 35.

Ramit Sethi:  [00:39:15] You know what, let’s be a little conservative because you two have some things to untangle. You have debt. You have some skills to learn. Certainly, there’s going to be some times where maybe you make a mistake. Let’s factor that all in. Let’s make it 25,000 a year instead of 30K a year. Now we’re being really conservative. I’m not trying to blow anybody up and make you see unrealistic numbers. Anybody care to guess what we’re about to see right now? Here’s the number, $2.5 million.

 [Narration]

Ramit Sethi:  [00:39:52] I got zero response from them. I should have paused here and checked in with them. Unfortunately, I was on a roll. I got too excited talking about compound interest, which was a mistake.

 [Interview]

Ramit Sethi:  [00:40:03] Sorry, Austin and Annie, I really should have slowed down and checked in with you, but I got carried away. By the way, if we just change this to 35, I just want to show you something. If we changed it to 30 years to 35 years, that turns into $3.7 million. And at 40 years, $5.3 million. That’s throwing off hundreds of thousands of dollars a year in interest alone. We’re talking serious wealth. What do you both think?

Austin:  [00:40:35] It’s almost like a slap to the face. We could have been doing this. Well, I mean, we should have been, but it’s still overwhelming, those numbers. Obviously, there’s a lot of characters in those numbers. But it looks great on paper. Looks wonderful there. Like you said, we play defense with our money. I round up on my totals for a reason. It makes me nervous looking at those numbers.

Ramit Sethi:  [00:41:18] Well, it makes you nervous because 10 minutes ago, you didn’t even believe you could have a million dollars in your life.

Austin:  [00:41:25] Yeah.

Ramit Sethi:  [00:41:26] Do you see how far you’ve come in 10 minutes? It’s quite remarkable. So I will show you how to make this a reality. I will give you the tools to do it. The whole reason I did that was so that you believe it is possible. You two are on track to be at the very least a millionaire. And honestly, these numbers are so conservative, that you could have much, much more than that.

Now, will you ever achieve that? I don’t know. That’s up to you. It’s not that hard. The math is straightforward. What is hard is changing the way that the two of you manage your money and the way that you think about your money. Now having gone through that, do you believe that the two of you can acquire some amount of wealth, $1 million or higher?

Annie:  [00:42:24]  I do.

Ramit Sethi:  [00:42:26] Austin?

Austin:  [00:42:28] Yes.

Ramit Sethi:  [00:42:29] Okay. Feels pretty amazing to hear you both say that. Has it sunk in?

Austin:  [00:42:46] I want it to work. Again, going back to not believing in yourself or not trusting, I come back to that side of it again. If it is truly as easy as the numbers make it seem, then why haven’t we done something prior? Why has none of our influencers or our role models had anything like that to say? Why is it us out of everybody else? Why are we doing it? How are we just now learning about it if it is like it looks?

Ramit Sethi:  [00:43:44] Austin, can I tell you?

Austin:  [00:43:45] Yeah

Ramit Sethi:  [00:43:46] Because you picked up the phone. Because the two of you asked for help.

Austin:  [00:43:55] I’m afraid of failing.

Ramit Sethi:  [00:43:58] First of all, if you completely fail, and you revert back, then you’re just where you are right now.

Austin:  [00:44:07] But we could put ourselves in a worse position. We’re comfortable right now, per se. Obviously, it’s not the most ideal. We are not in the position we want to be in, but we are in a lot better position than a lot of people are in. So we’ve got to be grateful for that. I am afraid to step out of that comfort zone, just start making all of these changes, and then we fail. And then if we fail, how bad did we fail now we just reverted back and now we’re even worse than we are now. What issues do we just push on to the kids? What did they just learn from us that, oh, okay, well, we tried, but then we just got knocked back down 15 spots.

Annie:  [00:44:57] You’re assuming?

Austin:  [00:44:58] Yes.

Annie:  [00:45:02] We didn’t come here to be comfortable. We came here to be smart, and we don’t have the ability to do it. So we need help. So we’re asking for help. So let him teach us how to be smart. You can have time to be afraid later. We’ve been fucking being afraid for, I don’t know, what, five years now. We might as well try something new. What we’re doing is not working.

 [Narration]

Ramit Sethi:  [00:45:16] Austin and Annie are grappling with the idea of whether they even believe this is possible. Notice that they’re not even at the point of asking me how to invest or what they should be doing differently with their money. They are still wondering if this is even real. I suspect that we are interpreting this call very differently. The way I see it, is I’m here telling them, “Yeah, you have a lot of work to do to change your attitudes and behaviors about money, but it is extremely possible for you to solve your money problems, become millionaires, and change the way your daughter sees money.” That’s what I’m saying.

I bet you they are hearing what I’m saying totally differently. I bet you they’re interpreting this call as someone essentially floating down to their house and telling them, “You know what, forget about all your money problems. You can be a millionaire.” It almost seems too good to be true. And I suspect that is why you hear the reluctance in their voice. This concept of somebody coming in and saying, “I know you’ve been worrying about money your entire life, but you could actually change that, and have millions of dollars in the bank.”

 [Interview]

Ramit Sethi:  [00:46:31] When I look at it from an outside perspective, you have $68,000 of debt and a spoiled six-year-old. This is scary. And I get that after playing defense with money for virtually your entire life, it’s difficult to fully change and buy into a whole new way of thinking about money after one conversation.  Like someone coming to me and saying, Ramit, you can actually fly. Just flap your wings in this way and jump off this cliff. You could do it.

Austin:  [00:47:02] Yeah.

Ramit Sethi:  [00:47:05] Feels a little like that, right?

Austin:  [00:47:07] Yes.

Ramit Sethi:  [00:47:08] Do you believe it’s theoretically possible when it comes to your mind, when it becomes personal, not hypothetical? It’s like, well, wait a second, what about this? What about this? What about this? I get all this.

Austin:  [00:47:18] Yes.

Ramit Sethi:  [00:47:21] Here’s what I can tell you. Millions of other people have done it. If they can do it, you can do it. So is it going to be easy? No. But am I expecting you to jump off a cliff and fly? Also no. What I’m expecting you to do or what I’m asking you to do is to try following a system that millions of others have done. There’s no gimmicks here. It’s things like, let’s decide where we want the money to go. Let’s make some tough choices about where we are spending our money. Let’s start investing. And before you invest a single cent, I’m going to give you a lot of material to read so you fully understand it and you feel comfortable.

 [Narration]

Ramit Sethi:  [00:48:14] I don’t know what will happen to Austin and Annie. One of the reasons I wanted to talk to them was to help them navigate changing their generational understanding of money. Now, I really hope that they decide to take the steps to change their financial future because I know for a fact they can pay off their debt, they can invest aggressively, they can change their relationship with money and their daughter’s relationship with it.

In my experience, some people can make the change. Some don’t. Sometimes they don’t believe it’s possible. Sometimes they don’t have the skills to do it. A lot of times they just don’t have a real reason to make a change. But I’m pulling for them. Austin and Annie, thank you very much for coming on the podcast, sharing your stories, and I hope that this was helpful for you.

Thanks for listening to I Will Teach You To Be Rich. I’m Ramit Sethi. Please follow the show on Apple, Spotify, or wherever you listen to podcasts. If you haven’t read, I Will Teach You To Be Rich, my book, pick up a copy. You can get it at any bookstore or library and it will show you the specific tactics for how to build the I Will Teach You To Be Rich system into your personal finances.