Multi-Millionaire Reveals How to Fix Your Finances

Today I'm reviewing the finances of real people. I'm talking about their income, their debt and their actual spending. And then I'm going to tell them exactly what I would do in their situation. Stick around too, because you'll actually hear follow ups from some of the people whose CSP I work with now. If you'd like a chance for me to look over your finances in a future video, go to iwt.com submitcsp which I've linked for you in the description below. But for now, let's get started. Starting with Conscious Spending plan number one. Here's what I know about this person. They are in Denver, Colorado, 30 years old, single parent with one child and they are a middle school teacher. Their name is KC and Casey said, ever since I read your book, I paid off $13,000 of credit card debt, built an emergency fund, started a college fund for my daughter as well as invested in the S&P 500. My next big step is I'd like to buy a house because it's been my dream for a long time. I'd like to be an inspiration to other Latina women and for the single parent community. As a single mom who is successful, I want to secure my child's future, feel fulfilled personally, and use this townhouse as a rental in the future, assuming I remarry. I've also been traveling very heavily for the past two years. I'm filling out this form from Japan as we speak. Okay, hold on a second. So I'm going to look at these numbers I'm going to do with an open mind. But I just want to say, do you notice the contradictions in this question? So this person wants to buy a house because they want to be a single mom who is successful. Well, kc, I think from what you're telling me, you're already successful. If you want to buy a house. I'll see if your numbers will support that. But I just want to emphasize you don't have to own a house to be successful. Note the other part here that says I want to secure my child's future, which buying a house, I would question if that helps or hinders. And I want to use this townhouse as a rental in the future. Again, buying a primary residence but also mixing that treatment as an investment can become very confusing. Finally, she says, I've been traveling heavily in the past two years, which would kind of be the opposite of buying a house with its heavy carrying costs. So I'll look at the numbers and I'll do so with an open Mind. But just want to point out that sometimes people's questions are quite revealing about the way they think about their goals. And sometimes there are lots of ways to be an inspiration to others to be successful, to secure your child's future that might require a different approach. Her question, can I keep traveling if I buy a house? Okay, great. Let's take a look. Assets are $28,000. Investments, 37,000. Savings, 14,000, and debt is 57,000. Total net worth is $22,000. Okay. Income is 6,000amonth or $72,000 a year. Okay. 72,000, by the way, is around the median household income in the United States. Household income could be one earner, two earners could be a variety of different things. But in this case, this is actually quite interesting because it's right down the middle. Finish. Fixed costs, 47%. Very impressive. All right, let's take a look. Housing costs, which is rent plus utilities, are 19%. So Casey is obviously living beneath her means. That is amazing. And I believe Casey said she lives in Denver. That's impressive. Denver is not a cheap city. Well done. Car insurance, 169. Car payments, 452. Groceries, 400 bucks. Amazing. Student loan at 157. And gas at $60. Okay. Amazing. I just want to say I'm struck not only by the number 47% fixed costs, but also the simplicity of Casey's fixed costs. She has 1, 2, 3, 4, 5, 6, 7. She actually removed some of my suggested items, which I think is extremely fascinating. I probably think she's undercounting some of this stuff. You know, especially if you have a child, there are unexpected expenses that come up. Doesn't matter how old they are. And I noticed that she doesn't have my 15% miscellaneous costs in there. So I would probably say, realistically, instead of 47%, she might be at 53, 54, 55. But regardless, this is impressive. All right, let's look at investments at 7%. Okay. I don't know if that's good or bad. 7% is between that 5 to 10% that I recommend. And particularly being the case that she's earning $72,000 and she's 30 years old, I don't mind it. It means that she has opportunity to grow that number as her income increases. She could keep that number at 7%. She could also do what I highly recommend people do, which is at the end of each year in December, you do a full annual rich life review, and you simply increase that number by 1% if it's 7% that she's investing this year. In December you make it 8% and the next year 9% and so on. That single decision alone can be worth hundreds of thousands of dollars to you over the course of your lifetime. I actually have an entire video I did in my money coaching program, specifically on how to run your annual Rich life review. Whether you are solo or in a relationship, what questions to ask, how to run it, what changes to make, and that single meeting alone can be worth hundreds of thousands, even millions of dollars to you or over the course of your lifetime. I'll put a link to that program in the description below. It's called money Coaching. All right. Savings are at 4%, $100 for a college fund and $100 for an emergency fund. Just taking a look at her emergency fund, she has six months of an emergency fund. But I will note that that is $14,000. See, when you're dealing with smaller numbers, it's almost like things become a little less stable. Right. So if you have six months with an income of $150,000, that's a, that's a broad financial base. But it's kind of like if you put your feet together and someone pushes you, you're very likely to stumble and fall down. Whereas if your feet are put shoulder width or broader apart, if someone pushes you have a little bit more stability. So it's true. Casey has six months of emergency savings, which is fantastic. But when we look at the absolute number, that's four. $14,000. Imagine that her car gets totaled. That's $14,000 she's got to find right away to get a new car because the absolute numbers are relatively small. It's almost like having your feet close together. And what I'd like for her to do is to be able to broaden that number out a little bit. Again, I don't typically talk about this concept, but I love being able to because here I have somebody who's earning the median household income. So there are certain dynamics we need to adapt and change for a situation like this. I like that she's still contributing $100 a month towards her savings. Personally, I probably would not contribute $100 a month towards her kids college fund because she probably needs the money going forward, particularly when we're talking about things like the savings account and maybe investments. Although I need to calculate that. Guilt. What the hell. Guilt free spending's at 42%. Okay, well, I was wondering if she's dramatically underspending on fixed costs and the investments are nominal like 7%, not even 10%. Savings are 4%, not even 5%, which is the minimum recommended. I'm like, where's all the money going? Oh, here we go. Guilt free spending. So this is probably that traveling she's talking about. I think she said, I'm filling out this form in Japan as we speak. And the question is, can I keep traveling if I buy a house? Well, right now, you're not in a position to buy a house, Kasey. Like, let's take a look at some of the basic numbers here. First of all, you have six months of emergency fund at that amount, which is $14,000. Again, that number's a little bit risky, but okay. Where would the rest of the money come from for a house? You live in Denver. The median sale price for a house in Denver is $580,000. If we assume you put 20% down, that's over $116,000. Even if you put 10% down, we're still talking about a lot of money, tens of thousands of dollars. Right now with only $14,000 in savings, and you're not saving up for a down payment, you're not in a position to buy a house, unfortunately. Now there are options. You could redirect some of the money, for example, from guilt free spending, you could theoretically take $1,000 a month. That would take you down to 21%. And you could take that thousand dollars a month and invest it. But even still, if you did that, which I would probably encourage you to do, it would still take years to be able to buy a house. I don't know the age of your child, and I don't know if owning is important to you while they are living with you. But I think you're in a situation where I might start to think about what goals are realistic for me. Let me go further with your investment so we can get a full picture. Right now. If we take a look at your investments, which are at $37,000. Nice. If we calculate how much you're going to have by the age of 65, you will have $997,000 at your current rate. Okay. I think the number will actually be higher than that, particularly because at age 30, your income is going to go up, as most people's income does. Now, I note that you are a middle school teacher. You probably might have a pension, although that's not reflected here. So I don't know if it exists or not. I'm going to simply leave that out of my assessment. But as a middle school teacher, you will be able to predict where your income will go. So you'll be able to model that in here. You will also be able to say, hey, if I don't have enough money, maybe I want to consider switching schools, taking a side job. I know a lot of teachers are students of mine in my earnable program. They end up being tutors on the side or they do a variety of different businesses. They can actually make very good money and still stay as teachers. Sometimes teachers look at the numbers and unfortunately they realize maybe education is not the industry that will serve their financial goals. And sometimes they switch out of it. Now, I have a lot of love for teachers, especially public school teachers. My own mom was a public school teacher and I went to public school all the way, elementary, junior high, and high school. So I am a lover of public education and I desperately want for more talented people to become teachers. Let's take a look at the investments. We know that as it currently stands, you're going to have $997,000 when you are 65. The question is, what does that mean? That's just a number. It's a big number. People hear this stuff all the time. We want to apply the 4% rule just as a basic guideline which tells us that 4% of $997,000 is. Is the amount that you can safely withdraw every year knowing that you will be safe and you will not run out of money before you die. Now, how much does 4% get you per year? And the answer is $39,896. That's about half of what you are currently making. 55% to be precise. So, KC, I think that this raises a lot of questions for me right now. I would say you are not on track to be where you want to be. And the question of, can I keep traveling if I buy a house? Might not even be the right question. I don't see a way for you to immediately buy a house anytime in the next five years. Again, I hate to be somebody who seems like I'm putting a damper on it. What I'm really trying to do here is to show you how to be analytical about your own money. As I always say, in order to live a rich life, we've got to be honest. Honest with ourselves, honest with the people around us. Us. It's not a bad thing that you cannot buy a house within five years. This is a very common thing, particularly right now when houses are historically unaffordable. That's one of the reasons that I'm out here talking about build more housing. We need teachers to be able to afford housing so they can live in the same cities that they teach in. So I hope that that changes. It probably will not change immediately in the next five years. So let's accept reality and make a plan. Right now, you're not saving any money towards buying a house. And even if you did, based on where you live, it will be very expensive. So if we accept that, we have a couple of options. One, you could toss everything aside. If you say my number one goal is to buy a house, we might be able to find a way to do it. You might buy a small apartment. You would probably have to cut back dramatically on your guilt free spending. You might give yourself 2, 300 bucks a month and take all the rest of that money, roughly $2,000 a month, and invest it. And after 5, 10x years, you would have enough to put a down payment. It would take all of that money and put it into this one apartment or very small house. And I think if you were to actually look at that, you would realize, gosh, why am I sacrificing all my travel, all my guilt free spending? Why am I doing all these things just so I can buy a small house, One that I don't even really like? Another approach is you say, hey, I want to buy a house. I don't want to give up all my spending. Another approach, candidly would be for you to switch industries and make more money. Now you're a teacher, you might ask, what are the other options I have for my career? How much more could I make? And if I made, let's say instead of $72,000, 90,000 or $110,000, what could I do in terms of taking that extra money and investing it? How would that affect my ability to buy a house in five, 10, 15 years? Again, that is an analysis you could run. That's one of the things I teach in my dream job program, how to find that dream job. Realistically, most people do not want to change their entire industry just to get a house 15 years from now. I almost never see people making that decision. So another option is if you accept that you are not currently on track to buy a house, you go, okay, well what if I just keep, keep renting? What are my options? I probably need to be saving money each year for potential rent increase. Typically, people assume a 3% increase in rent per year, although especially in the last few years, it's gone up quite a bit. Some years it also goes down if I Were in your situation, I would be carefully monitoring the rental market. And every time the market looks soft, was flat, or went down, I would be negotiating the hell out of my rent. That's exactly what I did in Manhattan. My. My rent went down four times in 11 years. But it didn't just magically happen. I had to go there, present the data, and negotiate my rent. Remember, landlords are not going to bend over backwards to just give you free money. You need to leverage your power as a tenant. You also need to be aware that sometimes they might say no. In fact, get out. So you need to be aware of all the ramifications. Right now, with only $14,000 in savings, I would tread cautiously on that approach. But. But I'd like for you to get to a place where you can keep an eye on the rental market and negotiate appropriately. Let me just play with something, okay? I'm not saying you have to do this, but let me just play with a couple things. I'm going to take the $100 a month you're putting aside for your kid's college fund, and I'm going to instead invest that for you. Why? Because your child has a lot more time. You have much less. What would happen there? Instead of having $997,000, you'd have $1.1 million. That's not bad. That's $170,000 just from making one flip of a switch. Do you all understand how important that is? One flip of a switch and you just made $170,000. People will agonize over the price of almond butter for their entire life. And right here, if we just made that one change, you have 170,000 more dollars. You literally do not have to work. You. You don't have to lift a kettlebell. You don't have to go to work an hour early. You made one flip of a switch, and that's it. The money will be there. It's math. Sometimes I think that we don't understand compound interest. We don't understand the importance of time. But most importantly, we don't really believe money is real unless we see it in our checking account that money's real. 100 extra dollars put towards your investments is an extra $170,000. Let me also just take a little bit of this guilt free spending because it's. It's making me nervous. Kasey, honestly, you are overspending on guilt free spending right now. You can't afford to be spending 42%. It feels like you can because you're like, hey, I'm writing from Japan. I'm having a great time. But as we've seen, you haven't saved or invested enough to be able to buy a house. And that's unlikely for the foreseeable future. But more critically and more worryingly, you don't have enough for retirement. Now, I know you're only 30, but this really gives you an opportunity to correct that. Let's fix it. So let's say instead of 2151, I'm going to take 500 bucks of that. Okay, let's see what happens. So Now I'm putting 500 extra dollars per month invested. Let's see what happens. You have $2 million at the age of 65. That's $80,000 a year, safe withdrawal rate. Now we're talking. That, to me, is like the minimum I would want to end up with. Because you have to remember right now your rent and utilities are at 19%. Okay, keep that in mind. But we have to also assume that rent prices will go up. Historically, they have gone up, trended out over time. Year to year, they go up and down, but over time they tend to go up. That's just basic inflation. So. So right now you make $72,000 a year. I want you to be able to easily pay your rent in retirement, knowing that right now you're not on track to own a house. If it were me, I would be wanting to save even more. I don't want to cut it close when it comes to retirement. I want to clear that bar with ease. Right now, all I did was something so minor. I just took $500 a month away from your travel. Probably you could have an amazing travel experience throughout the year, but you just need to be more judicious with how you spend that money, how many trips you take, et cetera, etcetera. Kc, I think that you can live a very rich life, but I think that you probably need to reallocate a few things. Number one, it will be tough, but I think it's probably important for you to internalize that. As of now, you are not on track to buy a house. And it will take a little grieving, probably because a lot of people have that dream. Unfortunately, because of NIMBYism and a variety of other factors of historical housing unaffordability. It's really hard right now for people, particularly making $72,000 a year, to afford a house. Once you have internalized that and accepted it, Casey, then you can start to move to the next part, which is, how do I want to adapt my plan. Like, let me get really honest. What do I want to do with my plan? I know I want to take care of my child, but I do need to put myself first right now. That means I need to focus on investing aggressively into my retirement retirement account. That also means I probably need to cut my guilt free spending down to the parameters, probably down to 20%. I need to cut that by at least half, maybe even more. And I might need to look at my income. Are there ways for me to increase my income? Also, have I not factored in things like a pension which would potentially dramatically change what this looks like? You could do most or all of those things and you could actually end up a multimillionaire. You could. You would still be able to travel every year, but you'd have to make a couple of compromises. You probably wouldn't be able to buy a house, at least at prevailing rates. Two, you'd probably have to start having honest conversations with your child depending on how old they are. And you'd have to encourage them to think about college costs. They would likely have to take on some debt. You should probably encourage them to get scholarships as my parents did, and on and on and on. You'd have to have a different set of conversations there. But I do think that you have some ingredients here that could set you up quite well if you make those changes. Conscious Spending Plan Number two here's what I know about this couple, Emily and Steve. Emily is 35, Steve is 40. They live in Michigan, 20 minutes outside of Detroit. They're married with kids. Emily is a stay at home mom, Steve is a lab supervisor. Here's what Emily wrote. I am a fully licensed social worker but quit when my son, age 3 was born and plan to go back to work when my daughter, age 10 months is in school. We have very little childcare help for me to do therapy on the side and I don't want to sacrifice my time with the family during the weekends. I ran the numbers and paying for childcare makes no sense for me to work part time. My husband and I love to travel and even with the expense of IVF and completely remodeling and updating both our old home and our current home have always been able to make travel a priority until I quit my job. We plan to have our home paid off in less than three years and are considering investing that money in real estate to generate more income if the numbers add up. My husband likes his job and although he could make more elsewhere, most of those positions involve Weekly travel, so that's not something he wants. Their question, how can we get back to traveling? Am I daydreaming to think we can start again? Let's take a look. Assets are $350,000. Investments $190,000, savings $9,000, and debt is $35,000, for a total net worth of $514,000. Let me tell you what I already see in these numbers. First off, assets are. Hard to say how meaningful that is probably a house. It's hard to say how impressive assets are because I could have $80 million of assets but have $81 million of debt. So just assets alone doesn't tell you much. You need to know the full picture. But the investment part is pretty impressive. Of course, I need to know their income again. If they make a million dollars a year and they only have $190,000, that's not impressive. But in general, having $190,000 invested at age 30, 35 is impressive. More importantly, it shows that they can continue to invest consistently. That is one of the biggest determinants of someone being able to build a truly rich life with a good amount of money. Then their savings, only $9,000. That's a huge disparity for a couple that's invested $190,000. To only have $9,000 strikes me as a little interesting. And I'm going to dig into that when I see their income and their savings rate. But already my antenna are going up on that debt at 35,000. I don't know. I don't know what that means. We'll take a look. Wow. Gross monthly income is 9,000. Now, I remember that Emily used to be fully employed. So obviously when she was employed, they were probably able to save more money. The reason I just reacted that way is it would be very difficult to invest $190,000 at this age with only $9,000 a month of income or $108,000 a year. That's impressive. They've done a good job. Some couples could do it if they started investing early and consistently. But this couple did it. Good job. Their net is about half of what they gross. Okay. That's where the investment's coming from. They're probably maxing out 401k, etc. That's just a guess. Fixed costs are at 67%. That's high. That's high. I typically recommend 50 to 60%. Sometimes that number creeps up to 62, 60, 63%. But above 63, certainly above 65, I start to go what's going on here. And when it's at 67, the good news is that's in the universe where we could probably get it down to 60 if we needed to, particularly if I spent a couple hours with them on my podcast. We could work through it or they're in my money coaching program. But 67 is also pretty high. It typically means if something goes wrong, you're in big trouble. And I don't ever want to get that that close to the line with my finances. Let's take a look. What the hell? Where'd they say they live? 20 minutes outside Detroit. Their mortgage is 500 bucks. Damn. Utilities are 320. Their housing costs are 9% of gross. Wow. Nice job. Nice job. But also, what the hell, because how can your housing costs only be 9%, but you're at 67% total fixed costs, obviously spending a lot on something else. Let's take a look. Insurance is 400, which is almost as much as their mortgage. Car payment, 250. Very reasonable. There we go. Groceries, diapers, and personal hygiene are $900 a month. Okay? I mean, having kids is expensive. That's the bottom line and we have to acknowledge that. So this adds color to the numbers. See, the numbers are just a static snapshot at one moment in time. But what I can now see is that paying for diapers is not going to last forever. Okay? There are going to be certain expenses that are going to be very high for an acute period of time. And that's important to know. For example, if I were going to exceed 60%, if I were going to go to 63 or 64, I might feel more comfortable knowing I'm going to be there for two, three years, but then I'm bringing it back down. Okay, but if I just kind of creep up on 65, 66, 67 without being being intentional about it, that's a problem. I mean, the rest of this is quite modest. Clothes are 20, phone is 40, subscriptions are 20. I will say the miscellaneous at 368. That is using our built in CSP template, which you can get from iwt.com CSP I'll put the link below. We automatically build in 15%. Well, guess what? If you're at 67%, you can't afford 15%. You need to be tighter on your miscellaneous expenses. So I'm going to bring that down myself. I'll still give you a little buffer. I always want you to have a little bit of buffer. It can't be 368 bucks. No way. Let's take it down to 100. We're at 61%. Not bad. Not bad again, that means you need to more closely monitor and plan for things. But in general you just can't allow 15% when you're that tight. Let's look at the rest. Investments at 10% and that's likely on top of pre tax investments. Pretty good. Okay. Savings goals at 13%. They have $450 a month going to an emergency fund. Let's take a look at their savings. So they have roughly three months of emergency saved. It's pretty low for a single earning family with two kids. To me that's risky. We need to adapt my guidelines to our own personal situations. This is really important. I have never been a person who comes on here and says you must do X. What I do is I teach you these guidelines and then I teach you the nuance of how to think and adapt it to your own situation. For example, if I have one income in a family and two kids, that means risk is high. If my husband loses his job, we're in trouble and fast. So that means I probably need to prioritize an emergency fund. I never want to wait until my back is against the wall to make a decision. Another couple that makes, I don't know, $400,000 a year and their expenses can be flexed pretty easily. Three months of emergency fund might be perfectly fine for them. Okay. You need to be able to understand the theory behind my guideline and then adapt it for your own needs. Now I understand the trade off I'm making because it's much easier if I just tell you what to do and then scream at you when you don't do it. Shame you for not spending money exactly as I spend it and then tell you that you can safely withdraw 8% and make 12% in Good Mutual funds. I understand that that is an easier way to live life. I prefer to show you how the numbers work and then trust you to adapt those to your own personal scenario. In this case, I think your emergency fund is way low. I would prioritize that. I'm glad you're putting 450 aside, but that's going to take you years to double. Gifts at $50. Okay. And your guilt free spending is at $690, which is 16%. Let's look at the question again. How can we get back to traveling? Am I daydreaming to think we can start again? There's one more piece of information I need to know which is are they on track for retirement in 25 years, their investments will be worth $1.3 million. And using the 4% rule, that means that they could save, safely withdraw about $54,000 a year while they currently make $108,000. So that means in retirement, they could safely withdraw about half. Now, is that enough? That's a difficult question. Probably their house will be paid off so they could save, I don't know, about 10,000 bucks a year on expenses, but that's a pretty big drop in income. Can you imagine going from making $108,000 and how that makes you feel to Suddenly only making $54,000 a year? A lot of people would find that very stressful. Even if they don't have diaper expenses and even housing expenses. A lot of people are not rational robots who sit there and look at their spreadsheets all day. They look at how much is in their checking account, and then that's how they determine how to feel about money. Okay, that's it. In fact, a lot of people just look at whatever they see on social media. Ho they said the market went down yesterday. Maybe I should be worried. We're not rational when it comes to our money. We need to acknowledge that. We need to know our numbers, and we need to master our own money psychology. Emily and Steve asked, how can we get back to traveling? Am I daydreaming to think we can start again? Now, there is no single answer to this question. But I'll tell you what I would do. Personally, I would be concerned with the csp. One, income already is risky, but it can be done. Two, you have expenses for the children that are quite high. $900 a month. However, I might ask myself, talking to other parents, et cetera, what do I expect this will become in two years, three years, four years? And at that time, what are my career plans? Do I plan to go back to work or not? That will allow me to contribute X dollars, which will allow our retirement to grow to Y dollars when we retire. And therefore, in. In five years or six years, we can travel to xyz, or maybe even we can take a couple trips before then. I think those are decisions for both of you to discuss. More importantly, in the near term, your savings account concerns me three months. It's a little risky. It's cutting it a little tight. If something goes wrong, it could go wrong very, very quickly. I don't see any major areas for you to cut back on. I did tighten up your miscellaneous expenses. But when it comes down to it, you. If you truly wanted to travel more then one suggestion would be to simply look at the income side of it. It's clear that you can control your expenses. I have no doubt about that. If you were for example, to make an extra 20, $30,000 a year, whether it be through a side business, a part time job, Steve changing his career, et cetera, that would provide quite a bit of breathing room and room relief. It would allow you to quickly fill up your emergency fund much quicker than it's going right now. It would allow you to invest more aggressively. At this stage, even an extra two or three hundred dollars a month would make a big, big difference. Five hundred dollars a month would be considerable. And you could also start putting money aside every single month for an annual trip that you wanted to take. So those are my conclusions. Again, there are other people who would be much more risk seeking. They would say yeah, go for it, it's fine, figure out the rest later. I personally want you to be set up so that you're comfortable today living a rich life today, but also on track to live an even richer life tomorrow. And that means sometimes you have to be able to say no when something won't work for the foreseeable future. Thanks for writing in. I wonder where Emily and Steve are going to be a month after implementing my suggestions. Let's hear from them now.

Hi, it's Emily and Steve. As far as what we are doing to try to change things, Steve has worked on negotiating a raise at work and I have am planning on taking on a couple more clients. So in total we're probably looking at about an extra 400 to $600 a month that we will be putting towards our savings account. I kind of ran the numbers and it looks like probably in about a year we should be up to the six month emergency fund amount with our retirement. I didn't include our pre tax, so running the numbers with Ramit's calculator, it looks like we should be okay as far as retirement goes. I plan on going back to work full time probably in about 4ish years. So of course we'll put more towards retirement and savings by then. But our hope is that in the next two or three years we can start putting a little bit away towards vacation. A little disappointed that we can't do it yet, but we know it's a goal to work towards in the future.

Emily and Steve, thank you so much for that follow up. I really appreciate you. All right, before we move on to the next conscious spending plan, I'd love it if you do me a favor, hit that subscribe button and turn on notifications so you don't miss out on any of my new Money videos. Conscious Spending Plan Number three. Here's what I know about this couple. G and N live in North Idaho. G is 37, N is 38, married, no kids. G is a grant coordinator and N is an elementary school teacher. Here's what they wrote in we are both extremely risk averse and default to low risk high yield investments. G manages all household finances. We made significant contributions to our brokerage account last year. To catch up, we've maxed out traditional IRAs every year and G was in a non profit field with no retirement for years. Significant amounts in cash are primarily around because of high yields in non brokerage accounts and cost to buy into the market. And they wrote, no, not trying to time the market, just finding the right time to buy in. What the. That's timing the market. Hold on. Why is it that every single time people go I know you shouldn't time the market comma but and then everything they say after the word but involves timing the market? Do you guys understand what timing the market is? It's trying to decide, should I get in now? Is it too expensive? Is the market going to go down? Is it going to go up? In chapter six of my book, I talk about the fallacy of timing the market. You have to be right when it's low and you have to be right when it's high. Most of you are not right about tying your shoelaces, much less trying to time the market. Do you guys know that in a 15 year period, if you miss just the wrong three or four days, you'll cut your returns by something like half? I'll put the study up on screen. The trick is you don't know which days they're going to be until they already happen and you look back. So please stop trying to time the market, including this couple. Gnn, I know I haven't even looked at your CSP yet. I'm not getting mad at you. I'm just saying stop timing the market and then telling me you're not trying to time the market. Additional considerations are we'd like to have a child and thus having a nice nest egg is something to fall back on. Okay, hold on. I need to emotionally calm down again after that timing the market thing. I'm here to help. Ramit Sethi. You're here to help. The questions looking at suggestions and alternatives for new investments in or outside the market. Specifically, does investing in real estate. Make sense, or should we actually put more into the brokerage account we have? All right, let's take a look at the CSP. Assets are $420,000. Investments are $277,000. Savings are $227,000. And debt is $196,000, which is a house. And two car loans. Small car loans. Total net worth, $727,000. Remember, they're 37 and 38 years old. So far, so good. Gross monthly income is 10,532 or $126,000 annually. Great. Net is 8,100. Fine. Fixed costs are at 67%. What? I'm kind of surprised by this already because they have a lot of investments, a lot of savings. So why they have so much in fixed costs? I'm curious about that. Housing is only 16%. Okay, so where's the rest of it coming from? Car payments. Two car payments for a total of $550. These. These folks are driving a Honda Civic. I love it. Debt payments? None. Groceries? 800 bucks. Oh, they put in miscellaneous at $2,000 a month, rounded up for miscellaneous items. Listen, guys, you all know how you have a junk drawer in your kitchen? Does everyone have it or is it just Indian people? Every Indian person has a junk drawer. Okay, I don't know if this is like a universal thing or just an Indian thing. The point is, you don't just have one junk drawer. Then it expands to two and three, and you're like, this is so disorganized. And that's how I feel about $2,000 a month in miscellaneous costs. Come on, we gotta break this down a little bit. I'm not the guy who's over here talking to you to count the price of your broccolini. But $2,000 a month, that's a little bit much. It becomes a little disorganized. And I guarantee you we could cut, like 30% of that like that if we knew what that is. So this my video. So I get to do whatever I want. So I'm just gonna cut that down because if you have disorganized for me, then I get to clean it up. 2000 becomes 1500. Goodbye. We're down to 61%. How did I do it? Who knows? I just typed it in and the numbers reflected it. Fix your. And you won't have me coming around and reorganizing all your stuff. Investments are at 14%. They are contributing $1,167 to investments. Great. And possibly more. Although I think this is probably a safe assumption. That's good. All right, cool. That's a 14% investments. Fantastic. When I say 5 to 10% minimum, I prefer that you invest more, especially early on in your life, because every additional percent that you invest early on, particularly in your 30s, that turns into tons and tons of money. If anything, I would rather have you be aggressive in your 20s or 30s. Make that number 10, 11, 12, 14, 16% if you can, and then dial it back later on in life. Maybe you get a mortgage, maybe you have kids, et cetera. But the money you already put will just compound and compound and grow and grow. I have videos on the power of compounding. The point is, if you can invest early on, you set yourself up for a fantastic life later on. Not everybody can do it, but if you can, like this couple's doing in their third 30s. Ha. Fantastic savings goal. 1%. What? Oh, that's because they have $227,000 in savings. Yeah, you don't need to save anymore. You're fine. Interesting though, not to be flippant, but when you save a lot of money over many, many years, at a certain point you're like, oh, I don't need to save for an emergency fund anymore. I can take that money and redirect it. Oftentimes people redirect it to investments. Oftentimes if they're in the position where they've maxed everything out, they're like, oh, what does that guy Ramit Sethi, what does he say about a rich life? Maybe I need to put it in guilt free spending. Maybe I need to travel a little better, stay at a nicer hotel, eat out more often, hire a nanny, and on and on and on. So good they don't need to invest for an emergency fund. I still put some money aside for saving because I think it's helpful to have some disciplined items that you are working towards, some milestones. Even if you have enough money, you still want to be having something you're working towards. It also just forces you to have this discipline of what is it that I'm working towards and do I have my automation set up Again, as I always say, keep the factory running and their guilt free spending is at 24%. Okay, this is an interesting CSP. It's different than what we normally see. Let's take a look at their question again, looking at suggestions and alternatives for new investments in or outside the market. Specifically, does investing in real estate make sense or should we put more into the brokerage account we have? I Note that they don't ask any questions about should we spend some money to make our life easier? Should we try a different restaurant? Should we invite our parents to come stay with us for a while or have a friend's trip or buy a round of drinks or tip 30%. The answer is right now, your investments in 28 years will be $3 million. That's fantastic. That means you're going to have $120,000 per year, which is great. That's right around what you are making a little bit less than that. I suspect that because you're young, you will actually increase your investments. You also have $227,000 just sitting around. You could literally take 50k of that, drop it right into an investment account, and watch and see what happens. In fact, I'll just simulate that for you right now. So instead of $277,000, which you have, if you just took 50, $50,000 out of your savings account, which is just sitting there, basically it's earning fine money, but it's not earning what it could be invested. Instead of 3 million, you'd have 3.3 million. And if you took 100,000 out of that 227 and you invested it, you'd have 3.6 million. So my advice for GNN is you asked about looking for alternative investments, which to me sets my antenna off. It's a huge red flag already. The easy, easiest thing you could do is take the strategy you're already executing on that is working for you really well. Take the extra money you have sitting around in a savings account and just decide what amount of that do you want to put in investments. You could take 50 or 100k. It would not change your lifestyle one bit, but it would be worth hundreds and hundreds of thousands of dollars to you down the line. Now, I think the real question here is what is your rich life? You're going to be able to be financially successful. You already are. Your net worth is $727,000. So there are things to ask. Maybe you really love real estate. If that's the case, you could take some of that $227,000. You could probably use it for a down payment on one or multiple properties, depending on where you want to buy. You would need to understand the implications. You'd probably need to learn a lot about all the different costs and how to properly, profitably run this real estate, property or properties. But you could do it. If it's me, I've thought a lot about investments and my rich life. My rich life is having my money grow with very little time spent on it. I don't want to be tracking things. I certainly don't want a tenant calling me. I don't even want to deal with a property manager. I don't want to go to Home Depot or any place like that. I don't even want to touch the, the hand of a plunger for the rest of my life. Okay? That's how little I want to do with that. Alternatively, you may want to travel more, you may want to plan to have kids, which may affect timing, et cetera. There's so many things to consider, but in general, the fact that in your question, you openly say to me, hey, we are very risk averse. We default to low risk, high yield investments, and G manages the household finances. I would say there's a lot of things that I could improve or suggest improving here. First, G should not be managing all household finances. That is a recipe for disaster. Both people need to be involved in your monthly money meeting. You need to know your numbers. You need to both understand at least the basics of investing, how it works, where's your money going? Why, et cetera. Right now, you don't just want one person doing it. If that person gets hit by a bus, the other person is screwed. Next up, I really want you to have some serious conversations about what's our rich life Right now. It feels like you're playing catch up. You're playing defense. Notice what you said. G was in the nonprofit field for years with no retirement. We had to catch up. We have significant amounts of cash because of high yields in savings and cost to buy into the market. Like, you're worried about what happened in the past and you're worried about what might happen in the future. Is the market going to go up? It's going to be too expensive right now. It's too much. Take all that stuff out of it. Serious investors are not thinking about the things you just said. You need to turn the page. You need to take an honest assessment of your numbers and say, like, wow, first of all, let's celebrate. We've done really well. Even though G didn't have retirement for many years, we have invested aggressively. We're on Track to have $120,000 in safe withdrawal income by the time we retire. We're not losing. We've already done a great job. Now let's talk about what we want to do. Do we want to eat out more? Do we want to pay a little bit to make our life easier? Do we want to get Hulu what do we want to do? And once you start talking about that from a position of possibility, it's going to become clear what to do with your money. Candidly, I think just from the way you've written the question, I think you should probably take a vacation or a staycation, go to a concert, something that really feels good for both of you. Then figure out a way to spend just a little bit of money consistently every week or every month in a way that makes both of you happy. I would suggest having guilt free spending for each of you if you haven't already split that 24% out. Each of you should have some individual guilt free spending and then some joint guilt free spending. And I will give you a little link to something that I think will help you a lot. My Journal. The I Will Teach youh to Be Rich, not no Numbers journal is really helpful for individuals or couples who want to start thinking about what their rich life is, but they find themselves playing small or living in the spreadsheet. So get that journal. Get two copies for the two of you. Go through it together. It's going to be enlightening. And please let me know what you decide to do with your money and with your rich life.

Hi Ramit, we appreciate the suggestions. A large chunk of our miscellaneous goes to our fur babies. I also itemize travel costs other things in there when I filled out the budget, but we will definitely work to cut junk out of the miscellaneous. Appreciate your thoughts on our investments. You're right, we can't time the market and I am not a serious enough investor to even try. Even before we reached out, my wife and I were planning on putting some of our excess savings into the market. I am glad that is a feasible option to you as well. We really love the idea of working towards a milestone. Our budget tends to steer us toward a certain path and I love the idea of integrating new ideas and goals into our plans. We have started to integrate your idea of monthly money meetings into our routine and we are turning this into a priority.

Remember, if you'd like a chance for me to look over your spending in a future video, go to iwt.com submitcsp and I'll also link that in the description. I hope this video gives you a new perspective on taking control your money and helps you on your own path to creating a rich life. And now check out this video to watch more.