Fixing My Subscribers’ Finances

I'm getting a lot of emails from people who want me to look over their numbers and give my feedback. Well, I'll tell you something, one of the things I have learned over the last few years is that people love seeing how other people spend their money. How much do they make? Where does it go? What would I do differently? So today I'm going to fix three of my subscribers finances and you get to watch from a front row seat. My team went through hundreds of conscious spending plans that you sent in and they selected three for me to analyze. Now I don't know who these people are, I don't know their names. All I see are the numbers on the screen and a few key details that my team shares with me. And these are simply my off the cuff reactions. So let's get into it with conscious spending plan number one. Here's the only information that my team gave me on this couple. Mid 20s, no children and they live in Las Vegas. All right, let's take a look. Their assets are $3,000, okay. Investments, 14,800 savings, $400 and their debt is 9,500 bucks. Their total net worth is $8,644. Okay, I don't know what to make of this yet. You know, if they make minimum wage then this could be quite impressive. If they make $200,000 a year, this is a problem. But let's take a look. We don't know what this means until we put it in context with their income. Their income, all right, so their income is over $80,000 a year. So already I'm going their net worth is a little low because that's a pretty good income, especially in Las Vegas. So let's see what's going on here. Okay, I can see that one partner makes double what the other does and the lower earning partner makes about $30,000 per year. Alright, that's a little low, especially in today's day and age. So a lot of times when I speak to couples, particularly young couples, you know, they have this idea like I should be able to buy a house and I should be able to travel and all this stuff. Sometimes when I see somebody doing a job that is roughly comparable to what they could make doing minimum wage work, I ask them why and almost always they'll go, yeah, I know I should be earning more. I just haven't gotten around to it. So I don't know if that's the case. But that's just a clue, something I've seen before for. Let's take a Look at their expenses. Oh, fixed costs are 77%. That is to be expected when, you know, when one partner is making $30,000. Okay. Their housing costs are about 26%. Not bad. Not bad. Again, we typically want to see those numbers below 28% if possible, as it starts creeping up towards 28%. First off, it's still good because housing is very expensive. But what it means is you have less margin to play with. So if you imagine if your housing is 20% of your gross income, gosh, you have a lot of margin. You have at least 8% to play with, which you might spend on childcare, vehicle investing, whatever. But if it's 26% or 28%, you don't have much to spare. That means if you have debt, you're in trouble. If you have an expensive vehicle or childcare or any number of other things, you typically are over. They're at 77%. So they're definitely over in something. Let's see. Insurance. No problem. Car payment at $108. Fantastic. Very low. Oh, here we go. Debt payments at $750. Recall again that their debt is $10,000. Hard to say if that's student loan or credit card debt. If it's credit card debt, I would be paying it off super aggressively. If they are financially savvy, they would only be paying $750 a month, which is quite aggressive. If it's credit card debt, why I say that is because credit card debt has a high interest rate. So If I had $10,000 of credit card debt, I would be putting as much as I possibly could to pay it off quickly. Groceries at 600 bucks for two people, maybe. Maybe again, almost everybody can reduce their grocery spend because almost nobody actually tracks and carefully comparison shops. Clothes at 50 bucks a month. Okay. Phone at zero. I don't know if I believe that. What are you using for a phone? Come on. Subscriptions, 44 bucks. Miscellaneous. Okay. They used my conscious spending plan that automatically adds 15%. This is very helpful because people always forget about stuff like holiday trip, which cost $1,200. That actually means you need to add $100 a month for vacations in here, which nobody does. So what we can see is that there's nothing really outrageous here. They have nice nominal housing, nothing crazy. Their car payment is totally normal. It's the debt payment that's really getting them. Here's the good news. Once that debt is paid off, their fixed cost percentage will drop from 77% to 63%. So in a Way, if I'm right about the fact that they have credit card debt, what they have decided to do is we're going to sprint. We're going to put all of our money towards this credit card debt. We're going to pay it off in like a year. And after that, our fixed costs are going to drop to 63%, which is basically within range. Okay, if that's the strategy, I can get behind it as long as their guilt free spending is low. Let's take a look. Their investments are at zero. All right, that's frustrating. I'll tell you why it's frustrating. I want everyone to be investing at least $50 a month. At least. Let me tell you why. Imagine you own a factory and you used to produce a thousand widgets a day, but you know, times are tough and now you're only producing like a hundred. I want you to still produce that hundred because if you turn that factory off, you gotta lay everybody off and the machine stops working and everything rusts. It's really hard to turn it back on again. Same thing with investing. Even if you have to cut your investments down to $50 a month, at least it's automatic and it's still being transferred every month. Then when times are good again, you can turn that up to 100, 500, 5,000amonth. But for now, I still want to see people still automatically investing at least $50 a month savings. At 4%, they're saving $200 a month. Let's take a look at their savings. Their Savings are only $400. What is. They started saving two months ago. What's up? Did they just read my book I Will Teach youh to Be Rich two months ago? Like, what is this? I'm not sure what to make of that. Guilt free spending, 20%. What the. No, no, no, no, no, no. You cannot be paying off $750 a month in credit card debt at 77% of your fixed costs, which is way over the 60% limit that I recommend. You cannot be investing zero and saving only 200 bucks a month and still spending $1000 a month. It's probably more. Probably more like 1500amonth on eating out and other guilt free spending. No way. We got to change this. If it were me and I were sprinting to pay off this debt at $750 a month, then I would accordingly cut my guilt free spending way down. You cannot have 77% and 20% and have no saving or investing. This is a quick way. This is how a lot of people Live. They basically are living month to month or in this case year to year. But at the end of all that, what do you end up with? You have no savings and you have zero investments. This is a recipe for disaster. So you need to change some of these things. Take the money you're spending eating out and on guilt free spending, redirect it, start getting your investments turned up. Even if $50 a month savings need to go up because right now you have essentially nothing in savings. And if something goes wrong, you're both in big trouble. And finally, the income, that's something I really want to focus on. Again, person two, who makes like 25 to 30 thousand dollars a year. I would ask why? What can you do to improve that income? Right now the economy is sizzling. There's lots of jobs and wages are going up, particularly in low income jobs. Yes, this is true. You don't hear it, but it's true. What can you do to increase your income? Increasing your income after you rationalize and change some of your expenses will be the single biggest thing you could possibly do. All right, I wish you the best. Thanks for sending your CSP. All right, onto conscious spending plan number two. Here we have a couple. He's 42, she's 39 and recently became a US citizen last year. He is starting grad school next fall and she's currently getting her Master's and works 11 months every year. They have two children age 9 and 3 and, and they live in Montclair, California. Apparently they sent a very long email with all kinds of details about. We have one direct deposit and one transfer here. And each person has a fund money. And 3. This is too much. I don't know what any of this means. Let's just get to the numbers. First thing I notice is that they've split their account. So they have person one and person two. Okay. Sometimes people keep their money separate. Usually when they're married they combine it, which generally I recommend. Let's take a look though. I'm just going to go to their total assets, that's $12,000. Their total investment's $100,000. That's good. $12,000 in savings, not as good, but okay. And their credit card or their debt is $48,000. I'm guessing that's a student loan debt, but who knows? Their total net worth is $75,000. But notice that $74,000 of that net worth are all from one person. So person one has all the assets, all the investments and a lot of the debt. Debt as well. All right, let's see what it means. All right, well, their gross monthly income is almost $14,000 a month. That's very good. So we got over $150,000 in income. One person's making double the other. Fine, let's take a look here. Okay, first of all, their fixed costs combined are 83%. So that's not good. Already you can tell they're stressed about money because of this number right here. So people don't get stressed out because they spent $25 extra at Target or they got a Big Mac. They think that's why they're stressed out about money. But that actually has nothing to do with the Big Mac. Has nothing to do with your stress level. Trust me, please. There's two numbers that really stress people out and they never realize it. Number one, people overspend on their housing. Number two, people overspend on their stupid truck. Excuse me, their vehicles. Everyone's got a different vehicle choice. It just happens that in 48 out of 50 states everybody chooses a truck or a SUV and they don't know why. They don't realize that government mandates have made it. That's this much more advantageous for you to get trucks and SUVs. They legitimately think, oh yeah, since the 90s, I just decided to get an SUV because I have kids and I need to protect them. I don't even want to get into this. Let's move on. Okay, so they're at about 25% of take home pay for their housing. It's not bad. It's not bad. We want that number to be less than 28% ideally. Now if you live in a high cost of living area, it's going to be almost impossible to hit that number. You can stretch it 30, 32, even 33%. But the higher you go, the more risk you are taking and the more stressed you're going to feel. Insurance is fine. Car payment and transportation is 600 bucks a month. That's a lot. But let's. That's okay though. It's doable. Let's look here. Child care at $1300 a month, also difficult. The primary reason why they have a very high fixed cost. This is common for a lot of parents. Right? It's. Child care is incredibly expensive. Oh, they have 2,500 bucks in credit card debt. That's not good. So they are putting roughly 300 bucks a month towards that. No, that's not good. Let me tell you why that's not good. Credit card debt is typically bad. Because it's a sign of overspending. And most people who are in credit card debt after a while, they just learn to live with it. They go, it's not so bad. Still got a roof over my head. It's not that bad. To me, it's a red alert. It's huge. It is like, stop everything and fix this immediately. All right, let's keep going. Phone is $87. What? One partner doesn't even have a phone. Okay, fine. Economizing subscriptions. 100 bucks for. What's up with this? How come one partner doesn't have any of this? Maybe they're just sharing, I don't know, medication. 100 bucks. Life insurance. 95. Please God, let that be term life insurance, not whole life insurance. And then random kids needs for a hunt. Fair enough. If you have child care, you probably have random kids needs. I like that they listed it out. Okay, bottom line, it's just a very expensive. With child care and credit card debt. Taken individually, having a couple thousand dollars of credit card debt making like $150,000, it's not fatal. It's not. But when you combine child care, which is over $1,000 a month, with credit card debt, then a car payment of $501, $601 probably doesn't even factor in a bunch of phantom costs like maintenance, maybe even gas. This is why they're spending so much on fixed costs. All right, let's continue going down. Investments are at 1%. Yeah, they're not investing because they don't believe that they have the money to. It'd be very difficult to invest at this time. Keep in mind, by the way, let's just look here. Their investments are. One person has 90k, another person has 10k. They have a total of 100k invested, and they're basically around the age of 40 with two kids. I would really like to see that number higher, especially considering that they have a fairly high income. So you have a high income but less than a year worth of investments. I would like to see that number a lot bigger. Remember, time is on your side. When you are younger, it's a great time to invest aggressively, but you won't get around to it. If you're spending so much of your money on fixed costs, how can you be putting $75 a month away for your kids? 529 when you yourself have credit card debt and not enough invested? No, we're not going to do this anymore. I'm not going to hear from parents exactly this age. It always happens 38 to 42. They write me, hey, Ramit, what should I do about my son's investment? You know, I go, how old is your son? They go, oh, he's one month old. I really need to start getting it together for him because he's going to go to college soon. I go, he's one month old. He doesn't even have teeth. Then I'll ask them before we talk about your son, who can't even see out of his eyes, how about your investments? How are those doing? And they always do the same thing. They go, not so good. We only just started investing recently. What they are really saying deep down is, I've lost the game of investing for myself, but I'm not going to let my son or my daughter lose their game. And I understand the emotional appeal. You want to take care of that little one. You love them. Do me a favor. Love yourself first. Take that money you would have put towards some indeterminate educational outcome and, and instead put it towards paying your debt off faster and starting to invest more aggressively. Why? Because your son or your daughter has time. You have much less. So you can figure their stuff out later. I don't even mind if they take on a little student loan debt. But you need to focus on yourself and put your mask on to take care of yourselves first. What I would do is I would take that $75 a month that's going towards the 529, and I would start investing that right away, immediately into your own investments. Let's take a look at saving. Interesting. Their savings are at 10%. So they have $50 a month for gifts. No. What the hell? You can't be spending $600 a year on gifts when you have 22, 2,500 bucks in credit card debt. No way. Take all that money immediately, redirect it towards credit card debt, pay it off faster. Long term emergency fund at $600 a month. That's a lot. Let's just take a look at their savings again. They have $12,000 in savings, which is basically enough for one month of if they lost their jobs. All right, Okay. I. I will notice one thing. She very diligently is saving money for the one month that she does not have income. Now that is smart. That is incredibly smart. This is a key distinction of rich people versus everybody else. Rich people plan ahead before they need to. Knowing that you're going to have one month off, she's putting money away every single month to handle that. That is how you do it. That's how you can apply the same principle if you have variable income where it goes up and down. When times are up, put a little bit away because times are also going to be down. This is fantastic. I love this. Let's talk about guilt free spending. 6%. All right, so in this case, for some reason I believe this couple. I'll tell you why I believe them, because I think they sent over a page long list of all these random things they're doing. Those are the only people who I believe about guilt free spending. Almost everybody else lies about it and they don't even know they're lying, but they're lying. In this case, they spend 596, not $600 a month, but $596. Well done. I'm sure they're hardly ever eating out. It's all, you know, they're like Sunday night between 7 to 8:30, we're going to eat out. Okay, good job. I applaud you. Let's go back up and let's look at the real problem here, which is the fixed costs at 83%. They're making it work. Let me tell you how they're doing that. The way that they are making this work is they are investing very little and they are spending very little on guilt free free spending. That's what they're doing. Most people don't do this well, they don't save anyway. Nobody saves, nobody invests, whatever. But most people, they have high fixed costs and they will keep eating out and going on trips and things like that. In this case, I tend to believe them. You could do it. Look, if they're 40 and they're like, we have these young kids, we need to buckle down for a few years and one of them is about to go to some grad school. Okay, it could work. Let's see what they said. One of them is planning to start a business. I think that's a great idea. Especially if you use my earnable program. That will be a great idea because it will increase your income which will therefore bring your fixed costs down and allow you to take some of that extra money and invest it and save it as you need to do. And then they're planning to purchase a house. Hold on. Everybody wants to purchase. You're at 25%. I mean you could, but I wouldn't purchase a house unless it was going to bring my housing costs lower. I don't know if you're able to get lower than that. I would simply say be careful and run a buy versus rent analysis. Living in California. And you're planning to move within the state? In most parts of California, it makes far better financial sense to rent than to own. Let me say it again, because everybody just heard me saying. What? This guy's insane. He must have misspoken. He just said the sky's green. No, I didn't. I spoke correctly. You heard me right. In most parts of California, it is cheaper to rent than to own. Why do you think I rent? I could buy a house, but I rent because I'm saving thousands and thousands of dollars every single month. I know nothing I said makes sense to you. You're getting mad at me right now. Your face is getting red. Is Ramit Sethi a secret landlord? Is he trying to depress property prices so he can go in like a vulture and swoop up? No, I'm just telling you to run a simple calculation. Please, for the love of God. That's all I'm asking. Please, before you spend a million dollars, will you please type in some freaking numbers? All right? Before you. This couple. Before you go and buy it, please just run a calculation. All right. Oh, I also, I did not catch that they have a student loan for $469. Although that's not really going to change much. Oh, groceries at 800. Okay, I want to talk about groceries for a second. Maybe 800 is the best you can do. But in almost every case, when I talk to people who have grocery expenses, they are not particularly diligent about shopping. And this is an easy win for most people. They'll go, oh, inflation is crazy. I go, oh, yeah, inflation's so crazy. By the way, do you track the prices when you go grocery shopping? Do you comparison shop? They're like, no, no. But inflation's insane. I go, listen, pick a number and try to hit that number with groceries. $200 a month here would actually change the picture in a pretty decent way. You could apply that to savings, take some risk down, or you could pay off your debt much faster. And when you're able to pay that debt off, you're going to free up hundreds of dollars a month in cash flow. So if you can get $200 a month optimization on your groceries again, it starts to add up. The rest of it. Miscellaneous. I mean, families have miscellaneous costs. I'm not going to tell you to not have them. Random kids, needs. What am I going to tell you not to get lotion for your kids? No, that's why you have to focus on the areas where you have control over groceries. You definitely have control over Even your subscriptions. Consider $50 a month right now. Combine that with the $50 from your investments and the other $50 from your other investments. You suddenly are talking about hundreds of dollars a month to put towards your debt. You can't change this overnight, but you can start to cobble together 50 bucks here, 100 bucks there and really change the picture over a long period of time. Here's what I know about this couple. They are in their mid-30s, she's 35, he's 37. They rent and they don't own any cars. Let's take a look. Okay. Their assets are zero. Okay. Investments are $221,000. All right. Savings 168. Very nice. Debt at zero. Wow, this is great. Total net worth, $389,000. So again, mid-30s. Almost $400,000 of net worth. All right, impressive so far. Gross monthly income is $21,800. That's $261,000. Very good salary. You can see that they're taking home 15k. So they're definitely contributing to their 401k or some other pre tax. Fixed costs are at 29%. What? Fixed costs are at 29%. That's very low. What is going on here? Hold on, I got to run some calculations. Okay, so they're spending like less than 12% on their housing costs. Now what do we typically say number should be less than 28% of gross. Ideally, yeah, you can stretch a little. They're spending way under. I love it. I. I love it. The renting, making a high income, obviously banking a bunch of the difference in what other people might be spending thanks to their high income and low expenses. Let's see what else. Great. Insurance is $26. Do they work in a hospital? They must have. Or maybe they work for the government. Their insurance must be very good to be paying this little. Maybe renters insurance, that's it. Okay, fine. Car payment is 100 bucks. That's probably transportation. Maybe they take public transportation. Debt payments at zero. I'd love to see that. Groceries at 700 bucks. Okay, fine. If they work in tech, maybe they eat at work and you know, they go out a little bit or they, they cook at home, like a little bit. But anyway, 700 bucks for two people. Fine. Clothes are at 120amonth. Fine. Phone is at 112. Again, I just want to point out that they spend less on their phone than a lot of people I know who come on this show and have $55,000 of credit card debt. Your cell phone should not be that expensive. There are lots of cheaper places to find it. Do that. Subscriptions at 215. All right, fine. Miscellaneous. They added in 15%. They added 15% as I recommend, and they still are at 29%. So what's going on here? Here's the key thing. First off, their housing cost is extremely low. Okay? Now what this means is they're definitely living beneath their means. Fine. You can also notice that they have no debt. That's a big deal. No credit card debt, no student loans, none of it. So that's amazing. And then finally, they have very low transportation costs. You basically hit the trifecta. All right, this explains it, along with a high income, why they're able to have their fixed costs so incredibly low. Let's take a look at the rest. Now, Investments are at 50% of take home pay. Okay? So let me tell you, there's a number where I go that's fine, like 5% of take home pay for your investments. There's a number where I go that's solid for me. If I'm looking at somebody, I go 10%. Even 15% solid. Super solid. That's fantastic. Above a number like 20%, certainly 20% of gross. I start to go, what's going on here? Why are you so afraid of the world? And at 50%, there's only two answers here. Number one, you want to retire early, and you are aggressively sprinting towards that goal. That's one option. Number two, you are afraid, perpetually and perennially afraid of something that might happen. So. So you are shoveling money into your investment account as a defense against this cruel, scary world. Want to know a secret? A lot of times the same people who are going after number one also have a detrimental fear of the world. Number two, who knows? But the fact is they are putting away $7,500 a month in investments. You can invest too much money. It's possible. Let's see what the rest of their finances tell us. Savings are at 10%. Now, this is a reasonable number. I'm laughing because it's a little bit at odds. You have somebody investing 50% and then they're saving 10%. It's like, all right, that's a bit unequal, but it's fine. They're putting away, let's say, 1200 bucks a month for vacations. I like seeing that. That's great. 340 bucks a month for gifts. Okay. Long term emergency fund is at zero. But that's probably because they already have $168,000 in savings. So they've already maxed out their emergency fund. They don't need to keep funding that. Now they have correctly shifted to saving for other things, bigger things like a vacation. So so far this looks great on the saving side. Let's now talk about guilt free spending at 10%. It's low. It's low. So this all makes sense. I'm not saying I agree with it, but it all makes sense. They underspend dramatically on their housing costs. They have essentially no transportation cost. They have no debt, so they have a ton of margin to play with. Now what did they do? That margin is not going towards savings. That's just 10%. It's fine. That margin is not going towards guilt free spending. In fact, they underspend on guilt free spending, which I typically recommend be 20 to 35% of take home. No, they put it all towards investments. Here's what I would suggest. First off, my question would be why are you investing so much? And they'll give me some blah, blah, blah, oh, this, that the world is scary. I'm going to retire early and compound. Whatever. Okay. You could get the same result with 45%. My suggestion would be, I'll listen to them. Fine. But I would encourage them to spend a little bit more on guilt free spending and to build that muscle of knowing how to spend your money more meaningfully. There is no point going so far, aggressive on the investment side and underspending so much on guilt free spending. You know what's going to happen? You're going to end up on my podcast 20 years from now going, oh, we have $16 million. We don't know what to do. I go, why don't you buy some nicer bread? But the sourdough bread is so expensive. It's such a waste of money. I hate wasting. Shut the f ck up. Start spending your money. Of course, by that point they're 72 years old. It's too late, they've atrophied, and that's the end of the ball game. What are you going to do? Don't do that. You've done a fantastic job keeping your fixed expenses low. I think they're a little bit too low. You know, the question would be, are you, are you living in a place where you actually enjoy or is where you live not that important to you? Fine. Public transportation, probably fine, no problem. I love public transportation. But what else? What is your rich life? I would ask you that. I would push you. I. Is it travel? 1200 bucks a month for travel. When you're making this much money and you're going to be multi, multi, multi, multi millionaires, I think you could probably dream a little bit bigger. Do you like coffee? Maybe you don't have to drink Dunkin Donuts anymore. Let's dream a little bigger. And if you do that, you're still going to save a tremendous amount of money. You're still going to invest and have millions and you can live a rich life today and an even richer life tomorrow. Thanks for submitting your csp. Overall, great work. Tweak it a little bit. I think you're going to be much happier. What were your biggest takeaways from looking at these three couples? Spending? Leave a comment below. By the way, you can download your own copy of the Conscious Spending Plan template from the link in the description and plug in your own numbers. If you enjoyed this video, let me know in the comments. If you'd like to see more videos where I analyze your spending, I hope that I'm giving you a new perspective on your money and a new way to think about your rich life. Now check out this video to watch more.