250. "We spend 97% of what we make—and can’t stop"

Does this sound like you? You want to retire in the next five years, but you're wondering if you have enough. Do you have enough saved? What if something unexpected happens?

Can you actually travel the way you

want in your retirement? If this is you, I want to help. You can apply to get coached for free on this podcast. Apply today@iwt.com apply. That's iwt.com apply. How do you reconcile having $55,000 of credit card debt and still buying thousands of dollars of Amazon purchases every week?

You avoid it. I just don't open the mail.

You ever say no to myself?

No.

You're spending 97% of take home pay on fixed costs alone.

You are broke.

Yeah, we are. We barely paid the mortgage.

That was the story of my childhood. Avoiding financial responsibility.

Our expenses are more than his income and that's why it's crushing. The credit card interest is killing us.

You have less than one week's worth of savings with three kids. What does that tell you?

We're not doing this right.

Severe danger, red flag.

We can maybe worry about that in a few years.

We don't have a few years. I don't even know if we have a few weeks.

Today I'm speaking with John and Victoria. They're in their 30s, they're married with three kids and they own a home that they love in the suburbs of New York.

So they have a beautiful house, a

growing family and a life that seems stable. But listen to this line from Victoria's application quote between Amazon Coffee and Home Depot. We are living paycheck to paycheck. We haven't been able to pay our mortgage this month because of that. We need help affording groceries. You can hear the desperation and the reality is they cannot afford their house. You'll see exactly what I mean when we look at their numbers. In fact, I'm going to open up their conscious spending plan right now which breaks down their net worth, income and where they spend their money. If you want help with your own conscious spending plan, you can join my money coaching program at iwt.com/moneycoaching assets $1,049,278 investments 36,500 savings $1,155. That's a major red flag. Debt $483,823. Net worth a total of $603,110. But here is where it gets real. Their fixed costs are at 97%. Typically, I like to see those numbers between 50 to 60%. And what that means is they are spending more than they make every single month. Victoria was not exaggerating. They literally could not cover their mortgage this month without help, and they're struggling to buy groceries. So how does a couple with $600,000 of net worth end up unable to feed their family? That is what we're about to find out.

Victoria, can you tell me about where you were when you decided to fill out this application? Where were you and what was going on?

I was outside our bank.

Oh, okay. What was going on?

I had just deposited a check from my mother in law. She typically goes out and buys clothes for our two children, and so she's just been a little busy. And instead of doing the clothes shopping herself, she gifted us the check instead for us to go out and do it. And instead of getting clothes, we barely paid the mortgage with it.

What? How'd that happen?

Part of it has to do with the fact that we took a vacation in the beginning of July. I have a 14 year old as well from a previous relationship, and he does dance. And he had a competition in New Jersey, so we took a family trip and we actually all went to this one competition. And while there, we ended up having to switch hotels.

Well, yeah, and then there was the half the payment that had to be paid, which then brought us down to not being able to meet that mortgage without that check.

It seems to me like you'd be cutting it a bit close if having to switch hotels means you can't pay your mortgage much are we talking about for the hotel?

It was 1600.

Okay. So having to pay an extra 1600 bucks, I agree that is a large, unexpected expense. But from my perspective, if I was down to 1,600 bucks and I couldn't pay my mortgage, I probably wouldn't take a trip. How did you make that decision?

I kind of guilted him, I think, into coming, cuz I feel like he voiced wanting to make a family trip out of it. And then my son, my oldest son heard or was told that, you know, the whole family would be there for him at his competition. And I felt like he never gets that at Nash at like the. The summer competition, he never gets that. And so I felt like it was unfair to my older son to like cut back three days before going.

Did finances play a role in your decision, Victoria, or.

No, not at all. I feel like I just went off feelings for this decision.

If I weren't here and we weren't talking, what would you be doing with your money?

Probably still hoping that we can make

it to December, open a new credit card.

I mean does it work opening a new credit card?

I don't know the strategy you've been using so far. Hoping opening a credit card. Does it work?

No.

I only have one credit card in my name. I think he has three or four. Four when we met. We met five years ago and then since then we got married, moved to a different town, bought a bigger house, had two children. I was working and I'm not working anymore. And then once I stopped working, we happened to have a trip out to my brother that was already planned the month after I stopped working. And then we missed our flight and sign up for an Amex because it would have been nice to have that lounge access that day. A 12 year old and a 10

month old, you signed up for an AMEX to get an on the spot

lounge which we didn't get to use on the spot.

That credit card gave us the opportunity to not worry about the paycheck to paycheck at the moment.

And has that been the case for the last two years?

Yes. Yeah.

If we could rewind and take a time machine back to that AMEX lounge and you didn't open up the AMEX card, what do you think would have been different?

That's where I, I get stuck in situations like that. You know, I'm never going to let my family, you know, not be able to eat or pay for something that's needed. So if I have to open a credit card to make it to the next month, then to me that's, you know, it may hurt my credit, but it's needed.

How did that happen? How did a credit card avoid the paycheck to paycheck cycle for the first

year that we had it? It definitely helped because we are fortunate enough to get a financial gift from my mother in law in December that

lets us ride for X amount of time.

Yeah, it definitely helped the first year, the credit card getting to December with me not working and not having any income to contribute to our bills.

How?

Because it allowed us to pay everything and get food like John is saying, and keep the house running.

Something was going to come where we could then pay it off.

Right. So then we knew.

Hold on, can I drill into this? So if I'm interpreting this right, your expenses were high and because Victoria, you were not working the credit card allow you to basically float money so you could spend it on food, whatever and then you could pay off a certain amount. I'm guessing you didn't pay it off in full and that allowed you to float.

We did not pay it off in full.

Can we talk about the debt?

Sure. It's about 4055 grand of credit card debt, I think, among all of the cards.

Okay, let me understand a little bit more about your relationship with money. How often do you talk about money?

Once a year.

Not often enough.

Whoa. That was a very. Like. That just rolled right off the tongue. Once a year. Like what. What month?

December.

Oh, okay.

So you use.

Do you use my rich life philosophy, December, that kind of thing, or is it just December?

It's just December.

Oh. Oh. I was hopeful for a second, like,

oh, they do the full rich life visioning.

They have an expansive play. Okay. No, it's just December. All right, well, what do you talk about in December?

Where we're at with credit cards.

Yeah, hold on. Where you're at with credit cards? Explain that to me.

Which card needs the bigger payment first?

Okay. And then.

And then I try to see if we can make it to next December.

Oh, how long does this conversation take?

Well, last year, I think it took longer than normal because we added the American Express credit card, and I was probably like a week and a half of me in a spreadsheet.

Why does it take a week and a half to talk about credit card. One or two credit cards?

I was attempting to do like a projected. This is our balance in our bank now. This is when we get his income deposits on this day. These subscriptions or payments and auto bills pull out on X, y and Z dates. Which bills can be paid on credit? Which bills need to be paid with cash? Which credit card has the higher interest? And if we put a bigger payment down, payment in on this card, can we charge more throughout the year and just fiddle with the numbers to see which one would have made us to December?

When you just said that, look at your breath.

I noticed you're like, I'm out of breath.

Yeah.

How does it feel telling me what you did? Even just describing your December financial meeting. What does it feel like?

It would have felt better describing it if I could say at the end of all that that it was going to plan, but it's not.

Yeah. So you're out of breath describing your week, week and a half long process. And you said it would have been better had you reached the outcomes you planned for. What were those outcomes you wanted to plan for?

Just to be able to make it to December with groceries and bills and mortgage.

Oh, can I say something? I. I don't know how to say this more politely. It sounds A little depressing that the entire plan is just to tread water to make it until next December.

And as it's slightly depressing, but it's that or go back to work and not be with the children, I think, are my only options.

Are you guys decisive about money?

No, we. I think we just do whatever.

Yeah. John, you agree?

I agree. That's why I think my big outtake would be a semi rigid plan to kind of know, see where we're going. That's what Victoria's been kind of doing over every December.

What's. What is happening right now? Are you telling me what you guys need? I feel like if you knew what you need, you probably wouldn't be talking to me right now. Well, yeah, it's like me going to a car mechanic and telling them how to fix my car. Why am I talking right now? I don't know anything about cars. Right. You guys came to me for help. Let me help you.

Yeah, okay.

Oh, sorry.

No, I'm. This is actually very revealing. I appreciate it. So I asked, are you decisive? Victoria was like, no, not decisive. John, I don't know what you just trying to tell me how to diagnose your own money problems. It's not going to work. But do you all just, like, talk about money and you don't make decisions? Is that how it goes?

I don't. We don't even really talk about it. Like, we really just talk about it

in December in a format that's not really decisive. Right?

Yeah. No. Right, right.

This is interesting. So you don't talk about money. Is it surprising that you're not in a good financial situation?

It's not surprising.

Great. All right, I'm with you so far. You don't talk about it. You're not in a good financial situation. I agree. Those two follow. So what if you did talk about it?

It would hopefully be better.

I hope so. Why? Why using the word hope? Like, if I'm. If I never played basketball and then I. And you're like, hey, Ramit, you never played basketball. Is it a surprise you are not good at basketball? I'm like, no. And then you go, hey, Ramit, what happens if you go out there and practice dribbling for, like, two weeks straight for two hours? And I'm like, I hope I would be better. I'm not going to hope. I'm going to be better at basketball. If I practice dribbling for two hours a day, I'm going to be better. Is. Am I missing something?

I say I hope so because I don't know. I mean, talking is one thing, and I've been trying to wrap my head around is, is there something else? You know, we still. Are we still going to live paycheck to paycheck if we talk about it?

How come you don't talk about money?

I don't know. I think I just. I just. It just sucks knowing that, like, we want to do things and want to get things and to some extent still do, but it comes at what cost?

What is the answer to that? What cost?

Stress, okay? Stress and worrying about whether or not either of us, either he has to change jobs, like tomorrow, or I have to start work tomorrow, and how am I going to do that? Okay, I'm going to just start a job tomorrow.

John, why don't you talk about money

with work and the kids Sometimes, you know, for me, I'm super exhausted. So even trying to talk, you know, without having something come up or take care or something at the house, there are bigger priorities so it doesn't happen.

John and Victoria's entire financial life runs on hope. Hope that they'll make it to December. Hope that a gift from family will cover their shortfall, hope that the credit cards will float them just one more month. But hope is not a financial strategy. What's really going on is that they are avoiding the one conversation that might actually change things. Think about it. They talk about money once a year, just once in December. And even then in that conversation, Victoria spends time shuffling numbers around a spreadsheet. Not trying to build wealth, not trying to plan for their future, just trying to survive for another 12 months. Does this sound familiar? Like so many people, they are playing not to lose instead of playing to win. They're at 97% fixed costs means no cushion, no margin for error. When an unexpected $1600 hotel charge hits, they can't pay their mortgage. This is a structural problem. It's not a tactical problem. You can track the price of apples and try harder to spend less on coffee, but that won't solve a structural problem. The vast majority of us do not recognize our own structural problems. We don't even know what it means. What is this freaking Indian guy doing talking about structural problems? What? That's like a fish swimming in water that's becoming more and more acidic, so it's harder and harder to swim.

What do they do?

They swim harder. This example is really falling apart because first of all, fish don't swim like this. And also they didn't choose for the water to become acidic. But there are Structural forces outside. Never mind with money, we don't recognize that we are in a situation where we are set up to fail. So we try harder and we beat ourselves up and we feel overwhelmed and ashamed. If this sounds familiar, I can help. My money coaching program will show you how to identify the actual problems with your money and then radically change your relationship with money. It's not about cutting back on granola. You will learn the basics of personal finance and you will build a system that works for you fast. You can sign up@iwt.com moneycoaching do it right now. Change the way that you relate to money. Now. John and Victoria aren't going to be able to avoid this anymore. The only way out is for them to face it head on. They've got to show me that they can look at reality and do it together. So let's see if they're ready. That's coming up next.

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Let's rewind a second. Can you think of a time in the last six months where you were not on the same financial page?

I mean, I'm assuming it's every day.

Every time I see an Amazon package.

Oh, is that right?

Some of them are needed Amazon packages. Like we get our sponges and we get.

Sorry, did you just within 2 seconds start justifying Amazon purchases?

Yes.

Why is that some of.

Cause I don't. Those are things that I don't buy when I go out. Yeah. They're not things that I just. They're not on my, my list of shopping guys. Like there's three purchases. I think that I agree with Victoria.

I'm finding it very hard to connect with both of you right now. And I want to. I really want to help both of you. I feel like you're recreating this story as if your job here today is to simply tell me your story and to justify it. I don't think your goal here today is for you to defend yourself. I think you came here because you want help. Is that accurate or not? Please tell me 100%.

Yes.

Okay. If you continue defending your behavior, your actions, the way you think about money, if you justify it, if that's your mental model of today, we're going to get nowhere. It's Almost like you're holding up a shield. And any questions I ask are just bouncing off. I don't want that. It's. It's not a good use of my time. And you are going to end with nothing changed.

I don't think that's why you're here.

Victoria, do you remember my question of

a time we didn't disagree in the last six months?

A time that you were not on the same page with money? And your answer was, every time I

see an Amazon package.

Give me some more examples.

This is just the last three months, but there was a $60 peanut order for the birds.

Keep going.

$20 or $12 bird seed purchase. There was silicone popsicle mold for $13 that.

Are you looking at a spreadsheet right now?

A list that I made.

Oh, is it on your computer?

Yeah.

Oh. Can you share the screen?

I'm sure I can.

Okay, okay, hold on, hold on. Let me look at this. So I see Amazon purchases. I see silicone popsicle molds, 1299. DeWalt impact right angle attachment, 1999 solar post cap lights, 12 pack, 79.99. Why don't I know any of these words? I literally don't know a single one of these things. Grouting, sponge, another word I don't know. $9. Wildlife peanuts, $60. And gold class car wash for $9.69. Okay. Hey, while we're here, I see a note called money wish list. What's that?

Oh, oh, oh.

I like. Can. Can I talk about this?

No, it's fine.

So this is a money wish list. I actually love people having a wish list of things they want to find.

My biggest thing is being laser focused on, you know, a plan. And this is kind of where the grand scheme of things, where it starts.

All right, let me describe the money wish list. I see air duct cleaning, 1600 bucks. Bar stool, 750 bucks each. Dining table, chairs, 2400. Lounge table, 800. Lounge seating, 500. We got medical bills, 2500. And there's a check next to that. Does that mean that you have done that?

It's been done?

Yep, it's been done. Okay. Other things that have been done, including a landscaping bill for 1500 bucks. Home energy efficiency test for 800 bucks. Backyard deck for $3,000. Now I'm going to continue on with more wish list items that have not yet been done. And these are projects. Home projects. Second floor bathroom, 20K, basement bathroom, 5K. Water purifier, 6,000. Bedroom blinds, 12,000. Guest closet, 2,000 AC upgrade for 30K and solar panels for 30K. And there's a note under, in bold, underline that says this list totals 82k. All right, and then let's look at the last one, which is called Far Far Future. Also just want to say I love this. I love planning out what is in your rich life. This is cool. Backyard, driveway, carport and driveway, 180k. And then finish attic for 15k. And that list total is 195k. Okay, that was cool to see who maintains that money wish list.

I think it's on my. Oh, it's shared. Yeah.

And how do you guys feel about that wish list? Like, what's the context of that list? Is it just things you want to get one day you put on there?

Yeah, it's. It's desires and goals, you know, for living in this house in a very comfortable manner.

Okay. I noticed that some of those were already done. There was a check next to them. How do you decide which ones you're going to do?

So the ones that are checked were, like, just absolute necessities that, you know, we're either already a bill and had to be paid or were things that we wanted to do, like the home energy test to see where we're potentially losing heat out of this house and are we spending more that way through that method.

John, what about you? What do you say?

Basically, everything is just either the cheapest but the most necessary to get done. Everything else was, you know, nothing we need now but would like. So we've kind of left that once, though. We can kind of focus on that.

All right, who spends more money?

I think John does.

Okay. All right, so, John, you make more of the purchases. And it sounds like, Victoria, you kind of manage that end of the year process where you try to reconcile spending and keep your family financially afloat until next December. Would that be fair to say?

Yeah.

John, do you feel included in the financial planning as much as I probably want to?

Yes.

Okay. I think there is a lot.

I know Victoria enjoys that, so I try to, you know, let her do most of the planning. I don't mind.

How do you feel about that, Victoria?

He's accurate, but I. I do enjoy planning it all out and figuring out, you know, where we could stay afloat or how we can cut back on certain things. We have, you know, quite a few subscriptions. Nothing crazy, I would say, throughout the last two years or so, but I don't know, it just seems that, like, we can plan, but there's not as much like willpower or accountability to sticking to the plan.

I think John and Victoria actually did something really cool right here. They sat down together. They created a vision for their future that is specific and detailed. And best of all, they did it together. I want to acknowledge how connective that was, but I'm also noticing that they love dreaming. They love it, but they hate deciding. They've got over $250,000 worth of home projects on their wishlist. They're talking about air duct cleaning and solar panels in some attic. They're planning how to spend money that they don't have on a house they can barely afford. This is really common with homeowners, by the way. The house becomes the center of everything. You buy a house, suddenly your world shrinks to the house that you bought. It's almost like another family member suddenly. It requires time and attention and money. And it never ends. For so many Americans, every conversation, every dollar, every decision revolves around making their house better. And when you ask them why, they always say the same word.

Equity.

I'm not getting into this equity bull on this podcast today because I've done it a million other times, and I'm trying to keep my heart rate low so I can stay in zone two. But if you want to know, so many people think equity is this magic financial hack, but they don't even understand what it is or how to get equity out. By the way, all the homeowners are getting mad at me right now, typing equity is actually real. It's so good. It's so powerful. Meat smoke coming out of your keyboard. Do you know that if you upgrade your house, you do a renovation, you're not actually going to make a profit on the majority of those renovations? Are you getting even madder now?

Good.

Don't write me. Go watch my videos. Keep in mind, they used a check meant for their kids clothes to cover the mortgage, and now they're fighting about $60 in birdseed. Planning a $30,000 air conditioning upgrade is actually a lot easier than asking the hard question, should we even be in this house? So let's look at our conscious spending plan, because the numbers are going to show us whether this vision is actually possible or not.

What do you say we take a look at the numbers?

Sure.

All right, Victoria, can you read off the word in bold and then the number in full next to it for the entire net worth box, please?

Assets are $1,049,278. Investments is 35,600. Savings is 1,155. Debt is $483,823. And our total net worth is $602,000. 210.

What do you think about those numbers?

It was nice to see our net worth. It's very positive, but it doesn't help us in the day to day.

Okay. Okay, fair enough. John, how about you?

It's. It's eye opening, but then again, it's like that. Where. Where is it?

Does that confuse you that you have a $600,000 net worth, but you are struggling day to day with credit card debt?

Yes.

Yeah. Is it confusing to you, Victoria?

Yeah. I feel like we shouldn't be in this position with a $600,000 net worth.

Okay, can I ask you guys just. You have a $600,000 net worth. Where is the money?

It's in the house. It's all in the house.

It's all in the house. And so if it's in the house, how do you get the money?

Yeah, we can't. We'd have to move into something smaller maybe.

Yeah, likely. There are some other ways. I'm sure you've heard people talk about home equity, lines of credit and stuff like that.

Refinancing.

Refinancing. You've heard about that kind of stuff?

Yeah.

But in general, it can be very confusing to have a high net worth, but then to struggle on a weekly or even daily basis.

Right.

I want to acknowledge that.

It's exhausting.

Yeah. And confusing.

How can this be?

Okay.

Right.

Let's continue. Let's look at the income. This time, I'm going to ask you, John, to read off the total combined monthly income. What's that number?

$10,311.

Great. So your household income is $123,735. Did you know that? Yes. Victoria, did you know that?

Yeah. John has a yearly, like, performance review, and at the end, he usually gets a bonus. And so I think it's March that it occurs. He always tells me how it went and tells me what his projected new deposit is.

Okay, hold on, hold on. Is. Is the bonus included in the $123,000?

It's a yearly raise.

You get a raise. Okay, all right, fine. All right, so you make $123,000. And just to note that John is the sole earner. So John is making $10,311 per month.

Correct.

Can you tell me about your occupations, John? What do you do?

I do various IT stuff for hospital.

Okay, cool. And Victoria, before you were full time at home, I believe. Can you Remind me what your occupation was.

I did bookkeeping.

Bookkeeping. Okay, got it. I am a little confused how your net is higher than your gross. I'd love to know myself. How do I make my net higher than my gross? Please tell me, Don.

I can.

I didn't know how to incorporate our December financial gift that we get, so I put it into our net.

Okay, talk to me about this. What is this gift?

My mother in law gives us a financial gift every year.

How much?

Well, it changes every year.

Whatever the max is, whatever the IRA max code is, that's what we'll get. So last year we got 17 each.

17k each?

Each. Okay, 34.

Why?

Why you take such a deep breath, Victoria? What's that?

Because I feel like it sounds like so much and we should be still so further ahead than we are.

You feel that because you're getting $34,000 a year as a gift, as a household, you should be further ahead than where you are.

We should be less in debt than we are.

Okay. And you're not.

And we're not.

Okay. What does that feel like?

It sucks.

Go a little deeper than that.

I feel like we're letting our. My mother in law down.

Can you tell me, like, how do I say this? Like. Like I have young nephews and nieces that use the word sucks? You're an adult. What does it feel like that you get $34,000 a year and you're not as far ahead as you would want?

I don't know. It sucks. I don't know. What's a better word?

Hold on. All right. Straight from the therapist's office to Money for Couples. You see this on screen right here? It's called the Wheel of Emotions. And it was given to me because I also struggle to sometimes share how I feel. I need better descriptions so I can understand what this feels like.

It's disappointing. I want to say it's also embarrassing slightly.

Why is it embarrassing?

Because I feel like other people would be so happy to get that same kind of money. And here we are just wistfully wasting it away. Not all of it, but I feel like sometimes we are.

How do you waste your money?

By not talking about our credit card choices, which again, some of. Yeah, I'm not going to go into that. I was just going to try and justify it again. I won't do that.

Why were you going to do that?

Because I feel like some of it is needed. Some of the credit card purchases are needed because we do send some of our bills to our credit Cards. And without me working, there's no other way to survive. But then some of them are. Did we need to swipe the card for that?

And when you ask those kinds of questions, John, your answer seems to be, yes, we did need that for some

of the stuff, yes.

Like, what about that bird feed, bird seed type of stuff? Was that needed or no?

No, it's not needed. But again, I guess I won't go there either. I'm not gonna justify it.

No, no, go ahead. I'd like to hear the justification.

For me, it's just enjoying my house and being able to, you know, enjoy my surroundings and see I can, you know, take care of my house and, you know, use my house as I would like just to get some, you know, enjoyments out of, you know, living here.

Living here.

It's just small things for me. You know, just being able to see the birds and the squirrels, you know, just simple things. Such a simple man in and of itself. I guess it's not worth it.

All right, let's. Let's take a look at the full picture before we start to make value judgments. All right, so you all make $123,000 a year as a household. Let's look at your fixed. Whoa, what's that number? What's that fixed cost number, Victoria?

97%.

All right. You guys are broke.

Yeah.

Those birds don't need to be eating birdseed from a couple that can't afford it with 97% fixed costs. You know, those birds, you hear them, like, chirping in the background. Whatever bird sound makes. What they're really saying is, I can't

believe they keep feeding us when they

have 97% fixed costs. What the. That's what those birds are saying. I speak bird language. Birdies. That's what they're saying.

97%.

What do you guys think about that?

Shameful.

Okay?

It means that I'm not doing enough.

Oh, can you explain that?

I'm not making enough money. I should be doing better.

Okay?

I need to do better.

What else? Victoria, how does it feel to you?

It feels like I have to go back to work. It feels like he needs help.

That's not a feeling. That's jumping to a solution. How does it feel that you are spending 97% of your take home pay on fixed costs alone?

I don't know, It's. It hurts. It's hard to describe because I feel like all of our fixed costs are needed. They're at their fixed costs. They're what we have.

I guess I Didn't ask for justification. I asked, how does it feel? If it were me in this situation, I might feel anything from embarrassed, ashamed, indignant, angry, irritated. I might feel confused. I might feel determined.

Use the good word. Confused and determined are good words. I always keep saying that. I feel like I need to start a business. Right. Which would be a solution.

Why are you. Why are you selling the solutions?

Because I think it's my math mind.

Let me venture a guess. Family didn't talk about feelings at all growing up.

No, not on my end.

Yeah, I. I already know. John. I was coming to you next, but I know that too.

My parents never fought. They just fought in Spanish. So. Yeah. And we never talked about money.

Let me say that again. My parents never fought. They fought in Spanish. Yeah.

Because I don't speak Spanish. They never taught us.

Okay.

They still fought, right?

I'm sure they did.

Okay. No fluency with feelings. I don't know if you guys have noticed this. Several times today I ask, how did that feel? Both of you have the similar tendency. What is the tendency?

Justify.

Justify it.

Or find a solution.

Yeah. Jump to solutions. And can I just be really candid? Your solutions are not good. They're not good.

That's why we're here.

Exactly.

We wouldn't be here.

Exactly. So maybe the old approach of justifying and then jumping to a solution which is not even good is just not the right strategy. If I were in your position, I

would be like, holy Ramit just pointed

out something I don't think we've ever

realized we do over and over.

And if we're just doing it right now 20 times, we'd probably do it a thousand times in different parts of our life.

Maybe I should listen and let him take us to a place that we

can't get on our own. But that requires you putting yourself in the mind of a student.

It's really hard. It's really hard.

That's why I have a lot of respect for you coming on this show, for any guest that comes on the show.

The two of you coming here talking

to me, this is not easy. It's forcing you to take a really hard look in the mirror. But in order to get there, I need you to put yourself in my hands because your strategy is not working. You're spending 97% of take home pay on fixed cost alone.

You are broke.

Yeah, we are.

Do you understand that you are spending more than you make every single month?

Yes, I do know that.

Great. So we know that your approach doesn't work. We can all agree on that, which is a great thing. Now the question is why? And what can we do about it? Would you be willing to go down the path with me?

Yeah.

John and Victoria justify everything. The birdseed, I just want to enjoy my house. The Amazon purchases, some of them are needed. The credit card spending without me working, there's no other way to survive. Everything is needed. Everything has a reason and it gets explained away. It reminds me of my business when it took a sharp downturn years ago. I hired an outside consultant to help me analyze what was going on it. And he asked me, at your peak, what programs were you running? And I started listing them off. I was doing this, I was doing that. Then he asked me, why'd you stop those? And I gave him a full 5 minute explanation of all the rational, very logical reasons that I cut each of those programs. And he listened and he, he nodded and he said, it sounds like you have very good reasons for eliminating those programs. The only problem is you're not getting the results you want. And that's corporate speak for like, you dumbass. Hearing that was a spear to my chest. I might think that I was right about every individual decision. But if I'm getting the wrong overall result, does it really matter? What I should do instead is ask myself, where did I take a wrong turn? And I did take a wrong turn. Victoria even caught herself doing the same thing. Justifying. She started to explain why certain credit card purchases were necessary. Then she stopped herself mid sentence. She knows she's doing it, but she can't stop. And that $34,000 gift they get every year from John's mom, that is life changing money. That could pay off a huge portion of their credit card debt or build an emergency fund. Basically, it could change their financial situation in a very meaningful way. But they're still broke, still at 97% fixed costs, still can't pay their mortgage without helping. So where's the money going? They have no idea because they're so busy justifying every individual purchase that they have completely lost track of the big picture. I need to see the actual breakdown because I suspect their fixed costs actually include a lot of things that are not really fixed. We're going to get back to the numbers right after this.

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your fixed costs, we're going to come back to those and go line by line. But let's just look at the rest of the csp. Your investments are at zero, so you're not investing. You did mention something about a 401k.

Yep.

How much you putting in?

I put in 6% of my gross and then it's matched at the end of the year.

How much?

Seven and a half percent.

All right, so it's like 15,000 bucks or something per year?

Ballpark.

Fine. All right. Savings are at 1%. You have $125 a month for gifts and then everything else guilt free spending says 2% or $223 a month. Well, we know that's not true. The bird feed cost 70 bucks.

Well, that's okay. That's once a year.

Wow.

Are you disagreeing with what I said or not? Because we all know I'm right. You guys spend more than $223 a month. Are you going to push back on that?

No. No.

Okay. What you just did was really interesting, John.

You.

I know you're about to go into the bird feed is only once a year, but actually blah, blah, blah, doesn't matter. You're actually fighting the wrong battle. And I think this probably happens a lot. This need to hyper focus on a tiny detail in front of you but miss the overall point.

I really don't care if you order

bird feed once a year, once a decade, or once a day. It does. I don't give a. Your number is wildly inaccurate. You are spending way more than $223 a month on guilt free spending. Probably 10 times that. In fact, 15 times that. That's the important thing about this. Not the frequency of bird feed purchase. Would we agree?

Yeah.

Okay. Even know why I asked that?

I know it's right.

We don't need to agree. That's the right answer.

How much do you think you spend

on guilt free spending? Well, it's not. Let me rephrase. How much do you think you spend on discretionary purchases?

I have no idea.

But you do the credit cards every year.

I mean, I know by the end of the year we're probably always maxed out, but I don't know how we've gotten there.

Okay.

I think too much.

Wait, these answers are like extremely vague. I feel like I'm a math professor and I'm asking you guys to answer this math problem and you're giving me answers in words. It's like a lot

more.

I'm like, well, we. I was just gonna do it again and focus on one purchase, but we did buy $5,000 outdoor furniture last summer that we probably shouldn't have bought.

Necessity or desire?

Desire because I'm home and wanted something to be outside with.

You know, there's this funny phenomenon when it comes to weight loss. It relates to money in a really interesting way. And one of the things is just, you know, being active helps people become healthier. Whether losing weight, building muscle, whatever. Not for the reasons that people think. Yeah, walking burns a few calories here and there and stuff like that. That's important. Yes. It gets you active cardiovascular health, great. But one of the under reported benefits of just going for a walk is that if you're walking, you're probably not eating a bag of chips. It's crazy, but it's often as simple as that. When people are at home, average American is snacking.

So if you are doing anything else, literally outside counting blades of grass, at

least you're not eating hyper palatable food. Food, which can be really beneficial. This is one of the reasons that when people are walking in Europe, it's not their freaking yeast, it's that they're simply not sitting at home eating out of a bag of corn nuts. Well, that's actually true for people and their money. Victoria, you just mentioned I'm at home, and so therefore. Finish the sentence, please.

I wanted something to be outside with.

Bingo. I'm at home and therefore I spend money. And it could be in the form of backyard furniture, it could be in the form of renovation, it could be in the form of any number of household items, recreational items, et cetera. Do you see that pattern?

Yeah.

What do you make of these numbers? 97% fixed costs. What do you think?

It doesn't seem feasible to continue this way.

Agreed.

John, saying this is something's wrong.

Agreed. You all have three kids, correct?

Yeah.

Yes.

Your fixed costs every month are $11,000. Your amount in savings are $1,155. John, if you lose your job, how long could you go?

However long it takes to foreclose the house.

I guess you could go like less than a week. Yeah, that's it with three kids. And do you realize we've been talking for, I don't know, an hour or two hours already? And we have talked about bird feed, we've talked about random purchases here and there on Amazon. And do you realize that you have one week's worth of savings? If you lost your job, it's over.

We had more.

Oh, please continue justifying. Tell me. Tell me. All the things that used to be good and now they're not. Tell me.

Yeah, well, you're used to being good.

You have less than one week's worth of savings with three kids. What does that tell you?

We're not doing this, right?

Yes. What else?

That we're in trouble. We are probably in very big trouble.

Yes. Severe danger. Severe red flag. Massive.

Stop everything.

You're in danger. John, what's your reaction?

Something needs to change today. Um.

Oh, solutions. Are we. Are we doing that already? I think sometimes the two of you use solutions to avoid the reality of your life.

Yeah, I could see that.

You talk about the future in this aspirational way as if you're both going to magically become different people. We need to stop purchasing random things. We need to earn more. We need to xyz. Why don't I look at the reality of my situation? Let me start there. What is the reality of your situation, John? Describe it to me.

It's not bright. There's no. There's no room for excuses anymore.

Victoria, what about you? Describe your situation.

Financially speaking, it's worrisome. I don't know what to say other than that. Other than how can we fix it.

I feel like worrisome is something that I might use to describe if my savings rate went down from 14% to 11%, like that's. That trend is a bit worrisome to me. I would like to keep an eye on it and six months from now, reevaluate. That's worrisome. That's not this.

It's dire. It's begging for a change.

Yes, dire. What does that word mean?

Severely urgent.

Yeah. It becomes even more urgent when we look at the fixed costs. Let's take a look under your fixed costs. When we look at your mortgage, we see 39% of gross. What do you think about that number?

I think it's too high.

It's way too high. It is one of the reasons that you are both struggling and you feel overwhelmed. Your house poor. You bought way too much house for your income. That number, we like to see it under 28% in high cost of living areas. Like to see that number. You know, it can go up to 30 to 33 if you have no debt. Maybe every percentage it goes up becomes more and more risky and more and more stressful. You are the prototypical example. Your housing costs are too high. Every month you wake up. Your mortgage costs you too much. You have Very little leftover to do anything. On top of that, you have debt payments of $1,836 a month. And that's not even paying all your debt.

No.

Your debt is $483,000. I'd like to know what is underneath those numbers. Can you break it down for me?

Sure. It's about 40 grand in my student loans that I'm not paying because I don't have a means to. 55 grand of credit card debt. I think among all of the cards.

Okay.

The rest is the house.

How much is the house?

396. $823 left in the mortgage, principal.

Okay. What do you think about those?

It feels crushing, John.

Unavoidable and I guess like. Like strangling the bus.

Yeah. How come you say unavoidable? That's a very interesting choice of words. Because I would say you've done a very good job of avoiding the debt.

Well, it's things that we need that we put on the credit card that Victoria brought up, that we put on the card that we planned to put on the card and then pay off throughout the year. So some of it is just stuff that we need, like the propane bill, the insurance payments, the water bills, stuff that we need. But it's.

Put it on.

On those medium is. It's unavoidable and it's. You know. But it's strangling us. Those are usually the big ticket items.

Our expenses are more than his income. And that's why it's crushing, because the credit card interest is killing us if we don't stick to charging just what we need to.

How do you reconcile having $55,000 of credit card debt and still buying thousands of dollars of backyard furniture and multiple Amazon purchases every week?

The end of the day, you really can't.

But how do you.

You avoid it. You just avoid it.

You don't really look at it. You don't really talk about money. It's basically push it off. As long as our lights are on, as long as the basic stuff is working, we'll deal with that problem another day.

Yeah.

John just said if he loses his job, they could last however long it takes to foreclose the house. That's less than one week of savings with three kids. And for the last two hours, they've been talking to me about birdseed and Amazon purchases. Sometimes I wonder why you let yourselves get this far far with your back against a wall. You would never let a kid or a loved one get in a situation you would tell them you're in danger. But when it comes to ourselves, we are so comfortable taking on arrows and letting our back get against the financial wall. I think part of it is we think it's all going to work out. We're hopelessly optimistic in America. And also we haven't actually heard stories of what happens when things break, don't work out. Y' all see a bunch of people on crypto Twitter and crypto Reddit talking about, oh, I made a million bucks. I'm so rich, I don't know so much money. But when those people lose money, they don't come out and write a very cogent list of what happened. And all the poor decisions they make, they simply vanish. That is the same whether it's picking penny stocks, whether is buying a house that they cannot afford and foreclosing, or if in some cases, actually going homeless. You don't hear those stories. They simply vanish. And what I'm trying to show you on this podcast is how much risk you are taking on. For what? So you can sit here and come on a show that you've applied to and been screened for months and then talk about the importance of birdseed. What are we doing here? Why is it so difficult for us to actually focus on big, difficult changes? It's a really common phenomenon. Most people struggle to focus on the key levers, the things that actually matter. In fact, we spend so much of our lives playing small that we simply do not know how to focus on what's important. To me, it's obvious as somebody from the outside, their housing costs are 39% of their gross income. That number should be under 28%, maybe 32, 33% in a high cost of living area, if you have zero debt, but 39% with $55,000 in credit card debt and student loans and three kids with barely any savings. This is the issue, and of course, the deeper issue is how they allowed themselves to get into this and to perpetuate this situation for years. The house they love, the one with the backyard that they want to furnish, that they're Planning to spend $277,000 in improvements for. That's the very thing that's financially drowning them. Try to imagine if you have an equivalent situation in your life. I almost promise that you've got one, because we all do, me included. We've all got a situation where we fixate on tiny issues when we ignore the huge, looming thing that is the actual problem. Victoria just said their situation is dire and she's right. But I need to understand exactly how they got here. We're going to dig into that credit card debt and see where all the actual money is going right after this. Just guess the average wait time to see a doctor in the United States. I'm not talking about a specialist, just a regular standard family doctor.

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Can you walk me through your current credit card debt?

Our Amex I think is Max at the moment.

That's how much?

32 I think.

Okay.

His Apple card, which I'm a user on, is I think Also max number 6500.

Okay.

PayPal accounts, it's 1200.

And then I have my one credit card that I'm not paying. So it's I think up to like 1500 right now.

Which credit card is that?

Just a Visa, I think. Visa or master credit card, nothing special.

Okay, I think we're missing some money here. What's the rest?

Student loans, I guess.

No, you told me 55k of credit card debt. I don't think that adds up to 55k.

Oh, is the micro loan that we have that I took out to pay for the, the second hotel.

You guys took out a loan for that? I had it.

We had a. At the time we had to get out since we didn't have anything available.

Oh, we didn't have a choice. We had to leave where we were.

Okay, how much?

That's out of. At the end of the loan, we've had paid 1600.

Okay. I think we're still missing a few thousand dollars, but that's okay. I think we get the general idea. And I notice in your conscious spending plan, you spend $1,500 a month on groceries.

It's more like 1800.

Okay. What's that about?

We just. We like to eat. We like to eat. We like to cook from home. And we have two allergies in the house.

Never feels like, you know, we're getting anything unneeded.

Right.

So what?

It's. Every time I go to the grocery store, it's like $165, I feel like. And I go two to three times a week. And that's just the grocery store. Then there's the bulk store where we get a lot of the, like, children's snacks and our meat. That's another like $400 once a month.

Can I see the kitchen?

Do you want to see the kitchen?

I would love it.

Okay, I will.

Okay.

Take the computer venture to the kitchen.

Okay. This is awesome. Okay, so I see, you know, nice counters and we got a. You could tell it's a family fridge. So. Victoria, do me a favor, open up the fridge. Yeah, perfect. You got the hand thing, right? Let's get the fridge. What do I see in here?

We have in the process chicken that I'm preparing for the freezer. We have cut up watermelon for the kids, yogurt for the kids, eggs for breakfast, fruit over here, all our cooking condiments.

Looks like a pretty standard fridge to me. Some condiments, some meat, some fruit. Okay. And you know, like a. There's some milk in there. Okay, fine.

What else?

Yeah, what's in there? What's in those little drawers?

Dairy free tea.

What was that? Dairy free What? Cheese.

Dairy free anything Cheese, sour cream, butter.

It doesn't seem like there's much here. Where's the 1800 bucks a month?

We do keep a basement pantry as well.

Let's go see that. Okay. While you're walking, I'm going to ask John a question. John, what do you think about the amount of food that you all spend on?

I think it's in normal amounts. You know, we. We usually write a list beforehand that we try to stick to, so we usually get what's on the list. I don't think it's anything. We don't have too many snacks. That's Nowhere.

You have a list, but you don't have a number you track. Right, I know that.

No, no, it's our rich lifestyles, our food. So we kind of.

All right, hold on.

Try to stay within.

Don't, don't. You don't. Don't take my terms and bastardize them. Okay? You can't say it's my rich life when you are at 97% fixed cost. Don't do that. Okay.

Wow.

They have like a. Literally, like a restaurant level industrial cage down here of pantry stuff. Now we're getting to it. All right, what do we got?

Holy.

We got a freezer. A. A separate freezer of. What is this stuff?

Some of it is meat that I stock up from Costco so I can get a better deal on food.

Okay.

And then the surplus will stay down here. Whatever we're not using.

What else? Okay, let me look at this. What is this? Chocolate?

These are in particular snacks for the babies. And then these are also snacks for the babies.

Lesser evil makes food for babies.

Yeah.

Those guys are good, man. I love their pocket.

These are also snacks for the babies. Surplus from Costco, from upstairs.

Your baby eat better than I do. Baby has like a. Like a richer taste profile than I do. All right, I've seen enough. Thank you.

I'm serious.

That kid eats more diverse food than I. I don't know if that's good or bad.

We like to eat, we like to cook, we like to spend time in the kitchen.

John and Victoria spending eighteen hundred dollars a month on groceries. When I asked to see their kitchen, I found a full refrigerator upstairs, a basement pantry with an industrial storage cage, a separate freezer stocked with bulk meat, and then shelves of specialty snacks. And of course they justify it. We have two allergies in the house. It's for the kids. John even said it's part of our rich life. Let me put a stop to that phrase right now. Stop perverting my concept of a rich life to justify whatever you want to buy. In fact, let me be really clear. You cannot twirl around three times and say rich life when you have 97% fixed costs and one week worth of savings. You actually have to be able to afford it. And if you can't save for it, you get to enjoy the things that matter to you because you've handled the basics first. You realize how absurd some of this sounds, right? If somebody says, my rich life is to buy a spaceship, we'd be like, shut the up. But yet we do the same thing, just at a Different scale with high end specialty snacks, with home renovations, with travel. We do this all. Of course, we're not as frivolous as wanting to buy a spaceship, but yet we're doing the exact same thing in our own houses. John and Victoria have not handled the basics. They're drowning in debt. They're spending more than they earn every single month, and they are calling it a lifestyle choice. But why? Why the stockpiling? Why the constant justification? That's what I want to know. And to understand that, we need to go way back to when they first learned about money.

Can we talk about the credit card debt? What is your strategy to pay down the approximately $55,000 of credit card debt that you have?

There isn't one right now because I feel like we shouldn't have been. We shouldn't have gotten this high. So we don't have a plan because we don't talk about finances.

I'm interested to know where this is coming from. The fact that you are both in dire financial circumstances and yet you are candidly telling me we don't have a plan. John, let's go back to your childhood. What do you remember hearing your family say about money when you were growing up?

I mean, it was never really discussed. I lived in two households, one of my parents and one with my aunt and uncle as guardians as a young child. I never. I mean, I never saw. Never saw them work, let alone talk about money.

How did they make money?

I'm not really sure. I think probably handouts from, you know, my grandparents. I'm assuming, you know, just to keep us afloat as children more.

So you mentioned that you had your parents and then your guardians.

This.

Can you explain that? I. I've never heard of that before.

My parents were not capable of being parents, so I. They got divorced, and neither of them were able to take care of myself and my sisters, so my father's brother's family took us in.

So they became your legal guardians.

Correct.

So let's fast forward to today. You. You mentioned your parents may have gotten handouts. Yes. Your mom now gives you $34,000 a year?

My aunt.

Your aunt. Okay. I don't even like the word handout. I feel like it's a very loaded term. But there are some parallels between your parents and now the way that you both make money. Would you agree?

Yes. Okay.

Do you see how these generational patterns often repeat themselves?

Now that you put it that way, yes.

Did you ever make that connection before just now?

No.

What other money messages do you think you bring from your childhood experience with money to your relationship with Victoria, that

if I think we need it for whatever reason it's needed and I need to purchase it.

You ever say no to myself?

No. I think I have to. Victoria. And I probably have made her feel bad because I. I know I get. I still have money that I have in my personal account that I can, you know, sort of justify it,

but

then for her, it's not as easy. So it's easy for me then to say it's not needed.

Seems like it's painful for you to

say that a bit. Why is that hard to then correct? I guess.

John, do you think you really get the type of financial danger that you're in?

Yeah. And I mean, I do, yes. And I often get anxiety from it, but it's hard to then do something about it because I know I always, you know, from. For me, my approach is always, you know, for everything I learned from like growing up with my aunt, uncle is if I want something, I gotta work hard for it. So for me, the. It's always been, oh, I gotta get a new job that pays more. I gotta study to get a better job. So for them, it's never been no. But for me, it's. It's been no, it's been, you know, go for this, keep going, keep pushing as hard as I mentally can or physically can.

Can you do it? Can you keep pushing?

No.

It's pretty honest. I don't think you really get how dangerous you're. Your financial situation is. I don't even think you got it in the answer you just gave me. You pivoted right to no, right. What you need to do, which obviously your aunt and uncle and probably your relationship with your parents had a lot to do with how you need to keep driving, you need to keep moving, you need to keep growing. You need, need, need, need, need. Very little awareness of what is going on around you. Very little awareness of what is going on inside of you. Victoria, any reactions to hearing what John just shared?

It's hard to hear. It's. I'm. But also everything he's saying, I feel like perfectly describes how he is with money now and it kind of sucks to hear.

What part surprised you that there are

parallels between his parents and himself and that it almost seems like he may not have learned from what happened.

Do you realize that there are parallels between his parents and what he's doing or what we're doing and your kids?

Yeah.

Victoria, what do you remember about money when you were growing up?

That it wasn't really talked about. Sometimes the TV went off, and then I came back on in 20 minutes. And then some days the cell phones didn't work, and then the next day they did work.

Wow. So you were. Would you say you were poor growing up?

I wouldn't say we were poor, but I say my mom juggled and pick and chose what bill to pay in what month.

That sounds very familiar. Do you know anybody else who does that?

Us.

Not just us. It's not the two of you.

You.

Me? Yeah. Yeah.

Did you ever recognize the connection?

So I'm. What? Yeah.

So your mom juggled bills, didn't talk about it. You never heard them fight? Although they probably fought in Spanish about money. Okay, what else do you remember lessons you took away about money as a young girl?

That if you can make more, you can spend what you have now? I think my mom started a business to help the financial situation. Whether or not. I actually don't know whether or not it was out of financial need or just creative desire, but either way, it is something that she still does to this day as my father is retired.

She ever talked to you about saving money, investing money, any of that stuff?

No.

You get your wages garnished, right? Victoria, what was the story with that when you weren't paying your student loans and they garnished your wages?

For a while, I didn't have a bank account. I wasn't able to get a bank account. And so when I graduated college, I was giving my work paychecks to my mom, who was supposed to be paying my bills for me through her bank account. And somehow the student loan was the one that was continuously not paid. I don't know how she got into that predicament. She told me I wasn't giving her money for it when I was. We were keeping a book of what my money was supposed to pay, and that was a big fight between the two of us many years ago. So it's just something that I felt so defeated on that I was trying to pay them through my mom. And then when I came to the realization that they were not being paid, they wanted the whole loan amount all at once.

What did they do?

They just sent a pink letter in the mail. And I'm like, oh, what's this pink envelope? Why am I getting a pink envelope from my student loan company? And they wanted the whole amount. And by the time it got to the point where they would have probably been able to start collecting my work wages, Covid happened. And so everything in that sector Was paused.

What about now?

They most recently took our tax return.

How much?

7,200.

How much do you owe?

Probably about. I think it's like 36 or 40,000.

That will never go away. They will. No, they will collect it. Even with bankruptcy, most likely. How do you think the messages that you learned about money from your parents show up in your relationship with John?

Any medical bill that I didn't account for, I just don't open the mail. Wow.

Okay.

So you avoid it.

I avoid it.

Okay.

I don't want to have to think about where the money's coming from to pay it. I mean, this year and last year, I probably should change that habit because we do have money set aside for it. Specifically. I still don't even open the mail.

Okay, John, that was the. I would say the story of my childhood was avoiding financial responsibility. I probably lived in four or five houses before I was nine years old.

Okay, now we're getting somewhere. John had a really difficult childhood. His parents couldn't take care of him, so his aunt and uncle became his legal guardians. And that is a lot of instability for any kid. Now, thankfully, his aunt and uncle gave him that safety and stability, and they taught him a great lesson that if you work hard, you can get what you need. But it came with a cost because John never learned how to say no to himself. And now, as an adult, he's receiving $34,000 a year from that same aunt and repeating the same pattern his parents did. He actually didn't make the connection until I pointed it out. Victoria's mom juggled bills. One month she paid the electric, another month she skipped it. TV went off, came back on. Phone service stopped and started again. Victoria watched her mom avoiding talking about money and just hoping things would work out. And guess what? Victoria does the same thing now. She doesn't open medical bills. She avoids looking at the hard stuff. She and John spend their December just trying to figure out how to make it to the next December. Just like her mom juggled which bills to pay each month. You know how a lot of people on social love to talk about generational wealth? What you are seeing right now is actually how most generational wealth works. Parents unknowingly pass on bad habits to their kids because the parents themselves don't know about money. They don't learn how to talk about money, and they treat it like a taboo subject. This is exactly why I wrote Money for Couples, my new book, and why I include a special section on how to talk to your children about money, including Word for word scripts that you can use starting today. Growing up, John learned, if you need something, work harder, push through, never say no to yourself. Victoria learned, avoid the uncomfortable stuff, don't open the medical bills, juggle when you can, and hope that it works out. And now their kids are watching them do the same thing. The saddest part about this is that their kids are about to experience the same things. Oh, sure, it might be different details, but it's basically the same story. John and Victoria are about to face the hardest truth of this entire conversation. Candidly, I'm not sure they're ready for it.

Whoa. Your kids are about to do the same thing.

Wow.

Look at the reaction from the two of you. That was a very uncomfortable body turn that both of you gave me.

Yeah, I would hope not. I would hope not. I was raised my entire life in a single hassle. I never moved.

Guys, what are you talking about? I hate to be this direct, but you have $1,000 in savings. You spend more than a hundred percent of what you make. You have no money left over. You can't stay in the house. This has never occurred to you, right?

No.

Here's the deal. If you make no changes, you will probably lose your house. It's just a matter of time. You're spending more than you make. You're running out of savings. The way that you are surviving is essentially just borrowing from here and there, waiting for your gift at the end of the year, hoping you get a tax refund which immediately gets garnished. It's just a game of whack. A mole.

Yep.

And it's going to catch up with you. You will lose the house if you change nothing, first of all. Do you believe that?

Yeah, that's very easy to see. If nothing changes in debt and no more income comes in, then, yeah, it's very easy to see that we're going to lose the house.

John, do you agree?

I 100% agree. No other thing that could happen.

Great. Then I want to ask you, what do you want to do?

We need to make better decisions on how we're spending money. Like cutting back on groceries and cutting back on potentially wanted but unnecessary purchases.

Like.

Like anything that's not a necessity. Anything that's not.

Anything that's not discussed and planned, like

Amazon, Like, I don't know, anything that

doesn't get directly, you know, applied to our debt. I mean, it doesn't keep us in this house, basically.

Is that what you want? Do you want to stay in the house?

I would love to Stay in this house.

That's my goal. Are you sure?

Kind of weird that I asked that question, right? It's a weird question for me to ask because in America, everyone presupposes that once you have a house, you need to protect it. Like with your. With your life. Now, if that's what you want, we can talk about it. If you truly want to stay in this house, we can talk about it. It means that both of you would need to work full time and you'd need to make a lot more money than you're making right now.

A lot more.

It means that you would not go on vacation. Forget about going to a hotel with your kids. Forget that. That's not happening for the next five years. It would mean that you would not eat out. It would mean that you would cut your groceries by approximately 40%. There would be almost no Amazon purchases, and the two of you would be working a lot. If that's the goal you want, we can talk about it. I can help you crunch the numbers on that. You can't afford to live your current lifestyle.

I want to do whatever it takes. I know it might be uncomfortable, but it's what's needed.

Why? Why do you want to do whatever it takes to keep the house?

John's family is in this town.

I don't want to see my kids go through what I went through.

Your kids are going to go through a very difficult time when you struggle over the next few years to keep this house, pay off a hundred thousand dollars of debt which is growing faster than you can imagine because $55,000 of that is high interest debt. John, that ship has sailed. Can I give you a different alternative?

Yes.

I feel like you're stuck. I'm going to give you some options. You choose. It's not my money. It's not my life. It's your life. So I will never tell you what to do. But I can give you some options. At 39% of gross, your house is too expensive. It's unaffordable, and you two are house poor. Not only are you house poor, but you have a substantial amount of debt. The biggest lever you could do would be to downgrade your housing costs. Like, huge. That is huge because it is a recurring savings that you would have every single month. You're not used to thinking that way. You're used to thinking about one off money. Tax return. Throw it here.

Bonus.

Throw it there. That's part of what's gotten you into this trap you're constantly playing. Whack a mole and waiting for some money to come in and. And then you're just immediately moving it over here. That is the wrong way to approach it. And you will never get out of this financial quicksand. The better approach is you have to change the entire structure of your finances so that every single month you have plenty of money left over. Now, how do you do that? Your first conclusion, as always for people in debt, is we need to earn more income. People in severe credit card debt never say, we need to actually start controlling our costs as well. Because they don't want to make a change. They like the lifestyle they're living. They don't want to make a change. They don't want to go to the grocery store and have a number and be able to say, oh, we can't afford that because it's nice. It's nice to be able to buy whatever you want. They don't want to have to set up a freaking list and not be able to get stuff on Amazon because it's nice to be able to just click what you want. But the problem is you will never escape this. There is not enough one off money coming in to be able to get out of this. So another option is take the housing costs, sell your house. You actually have equity. You might actually do pretty well on it. Take that money, pay off your debt, start fresh, downsize dramatically, radically change your relationship with money. It will be the hardest thing you ever did. It'll be incredibly difficult. The two of you will have to change the way you talk about money. You'll have to involve your kids. You'll have to make this something that you openly talk about. And that will feel incredibly uncomfortable. You'll feel like you're failing as parents, but it also gives you the chance to reset. Now, I'm not telling you to do it. I'm simply painting a picture. If, on the other hand, you say, nope, we appreciate the idea, but we want to keep the house, then the conclusion is, you both got to work. You still got to cut almost all discretionary costs down. There's no room for error. Anything on that list has got to go. There is no more house renovation work being done at all because it's too expensive.

Babe, how would you like to approach our situation?

I don't think we have a choice anymore.

We can maybe worry about that in a few years, but I think now we got to really.

We don't have a few years. I don't even know if we have a few weeks.

John and Victoria just heard something. They've been avoiding for years. They cannot afford this house. They've spent this entire conversation justifying their spending, defending their choices, hoping things would somehow work out. But now the math is staring them in the face. 39% of their income goes to housing, 97% to fixed costs, one week's worth of savings, and $55,000 in high interest credit card debt that is growing faster than they can pay it down. The house they love, the one they're planning to spend more than 250k in improvements for, the one they are desperately trying to keep, is actually the thing that's drowning them. So now they have a choice. They can sell the house, pay off their debt and start over. But it would mean admitting they made a mistake. It would mean having to tell their kids that they're moving. And it would mean facing a lot of shame and discomfort that they have been running from. Or they can try to keep it. Both of them working full time. No vacations. Groceries cut by 40%. No Amazon, no breathing room. Five years of grinding just to stay afloat. What would you do? Next week, in part two of this episode, you. You will hear what they decided, and I promise you will not want to miss it. Because we're going to finish this conversation and they're going to come back for another conversation with me two months later to show us the changes that they've actually made. You know, a lot of people say they want to change. Very few actually do it. Next time on Money for Couples.

We have a plan for our money.

The good news is you built a plan. The bad news is your plan is based on being 100% perfect in a way you never have for your entire lives. Like, if one bad thing happens, what do you do? Can't imagine you'll be destroyed.

Sorry.

I want you to give yourself the ability to withstand life. Right now, it's like there's a tug of war happening. I'm trying to pull you into financial safety. Do you want to stay in this situation for the rest of your lives?

No.

No.

Next week, we'll find out what they've done. Make sure you subscribe to my channel

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