Reacting to My Subscribers’ Finances

Let alone a stranger. But today I'm going to do exactly that. I'm going to show you the salaries, the net worth and the spending of three conscious spending plans that my team selected. Please know that I don't know who these people are. All I see are the numbers on the screen and a few details that my team shares with me. These are my off the cuff reactions. So let's get into it with conscious spending plan number one. Me. These are my off the cuff reactions. So let's get into it with conscious spending plan number one. Here's the info my team shared about this couple with me who's nine years old. One dog, a Yorkie baby. That is tmi. I don't need to know what type of dog it is. And they live in the Bronx in New York. They have $0 in assets. It's fine. Again, if you rent, you don't have typical assets like a house or a car. If you live in the Bronx, fine. Investments. $95,000 at age 43. That's a little concerning. Savings are $200. That's a problem. Already I'm getting, I'm starting to sweat. Their debt is $25,000. Okay. Which is manageable for a total net worth of $70,000. Before I go on, let me already tell you why I'm getting a little bit nervous at age 43 years old, which is for many people getting up near, you know, sort of climbing to the peak of their career earnings. This is where compounding can start to really pay off. If you invested in your early 20s. Most people have not invested in their early 20s. They start typically getting serious about investing right around the age of 40. But the fact that I see $200 in savings tells me that this couple probably is not being very aggressive with any of their financial goals. But who knows, let's keep looking their income. They make $14,000 a month. That's a very good salary for 174,000. Almost $175,000 a year of household income. That's good. And $104,000 of take home pay per year. Okay, great. Well, that's a great salary. But I'm wondering why are they not saving any money or investing more? Let's take a look. Oh, there's the answer. They spend 83% of their income on fixed costs, which is way too high. I guarantee this couple feels stressed out about money. I guarantee that they're probably getting in little fights about little things. But the fights are not about the little things. They're about Everything rolling up to their 83% fixed costs. Let's take a look. Their rent is. Wow. 3,000 bucks or 22%. That's good. Especially in New York. Well done. Insurance, 482. Okay. Car payment, 495. I don't know if that's car payment or transportation, but okay. That's a little pricey, but it can be done. Debt payments of 781. What? Okay, so they have some type of credit card debt. Maybe student loans, $25,000. If that $25,000 is low interest. Student loans, that's okay. If that's $25,000 of credit card debt, that is a red alert. I don't know, but that could affect a lot of things. They spend 1200 bucks a month on groceries. What again, is this? Two people? Oh, they have one. They have a nine year old. Okay, again, people somehow think I'm like the grocery store Grinch. I'm not. Okay. Somebody asked me the other day, they're like, ramit, you should really do some tips on shopping at the grocery store. Like, do you know who you're talking to? I'm not the grocery store man. Okay. Sitting here comparing pomegranates. Oh, this pear is ripe. Everybody, look, it's perfect. Better get it tonight. Not me. Not what? I'm going to tell you how to optimize spending on limes. But I will tell you this. I've looked at a lot of people's finances. Almost nobody tracks how much they spend when they're grocery shopping. So when I look at any couple, just an easy guideline is you could probably shave off 100 bucks off your groceries. No, no problem. 200, probably 400, 500 sometimes. Sometimes. 1200 bucks on groceries every month is a lot of money. Could it be cut a little bit? Yeah, I think so. I think so. I can feel very comfortable saying that Child care is 160. Wow, that's low. Okay, that's great. Good for you. What? Their pet's 500 bucks a month? Is this why they told me it's a Yorkshire whatever? What is that? Does that stand for the most expensive dog in the world? Oh, God. Hold on. Twelve hundred bucks on groceries every month is a lot of money. Could it be cut a little bit? Yeah, I think so. I think so. I can feel very comfortable saying one thing I don't need is for the ASPCA and every dog owner in America to come after me telling me, oh, my God, this is part of my family. I let the dog lick the food. Out of my mouth. I don't need all that. Okay? Please don't write me any dog owners, in fact, any pet owners, because it's never just a dog. It's a dog, a cat, a lizard, a chinchilla. I don't need it. I don't. Will say again, that's a lot of money. 500 bucks a month, which I'm glad that they are actually tracking it. Food, unexpected vet bills, all that stuff. And could a family pay 500 bucks if they're making $175,000? Of course. Of course they could. Can they do that and have $781 in debt payments and have $1,200 in groceries? That becomes a lot harder. That's really the point of the csp and that's really the point of living your rich life. You spend extravagantly on the things you love. That might be your dog. Fantastic. I'm not going to tell you, don't spend money on your dog. The other part of the sentence is you spend extravagantly on the things you love as long as you cut costs mercilessly on the things you don't. And so, you know, when all these grocery store people get mad at me, the fact is there's a limited amount of money here. We got to make choices. So I can see why this couple has 83%. I also note, by the way, that they are not adding miscellaneous, which would be 15, in my opinion, hundreds and hundreds of dollars here. They're definitely spending close to everything they make on their fixed costs. It's not sustainable. If you're 43, you have $200 in savings. That means that if there was a job loss in the family, they could last what, like three days? That's extremely dangerous. So I'm concerned. Let's look at the investments. Oh, zero. That makes it easy. All right. Savings, 2%. By the way, I like how the, the I like how the ratio of savings is $100 a month on an emergency fund. Total savings is $200. So they've been doing this for two months. But they're also saving $88 a month for vacations. Again, if I'm paying $781 a month in debt payments. If I'm paying $500 a month for Yorkie, the York, I don't see how you can afford to go on vacations when you're living on a razor's edge. Finally, guilt free spending at 14%, which I don't believe. I think it's higher. All right, let me tell you my assessment of this. I am concerned because this couple is one step away from financial disaster. And it's hard to imagine that when you make $175,000 a year, that's a lot of money. And it's hard to imagine that when your rent is 22%, that's actually really good, especially living in New York. But what they've done is they've added multiple costs on top of each other and that money is sucking away money from savings and investing. They are essentially spending every last dollar they make so it works well. They can take the dog out for a walk, they can eat really good food, they can spend money on guilt free spending, probably eating out. That's what people in New York love to do. It works great until one day it doesn't work. And that would be a layoff, job loss for medical reasons. Somebody wants to retire. And that's when I get these heartbreaking emails from people who are 64 years old and they say, ramit, how about helping us older folks who didn't do the right thing earlier on in life? And I wish I could help every single person. I really do. I want to. But when you are much further along in life and you haven't saved and you haven't invested, then you're faced with only, only a series of pretty grim choices. Choices are typically reducing your vision of the rest of your life. It's not going to be traveling around and gallivanting around. It's going to be, I have a fixed income, pretty much Social Security. What can I do with that? And is increasingly hard to live on just Social Security. I don't want you to be in that position. So the good News is at 43, you could actually change a lot of things. You, you have a high income. What I would do if I were you is I would take a complete blank CSP and I would say, what do we want our life to look like? Okay. I would start off by just following the percentages in the CSP. That means I would start with 10% savings and 10% investments, minimum. The reason I'm not suggesting you go 20 or 25% investments is that it's effectively impossible. Not. Nobody's going from investing 0% to overnight investing 25% even if you need to. It's just too hard. Therefore, I would rather have you say 10%. Let's set a goal. It's ambitious. We can hit it and then from there we'll increase it to 11, 12, 13, 15. Fantastic. You're going to have to make some tough choices. Just looking at your numbers right off the bat, I can tell you you're going to need to get aggressive about paying off that debt as quickly as possible. $781 a month is a lot of money. That money needs to be paid off. Going towards investments, groceries, that's really one of your biggest opportunities to cut back. That's going to have to go down, pet. I'm not sure what to say about that, except that's a lot of money. And if you could find a way in your spending to cut 3, 400 bucks a month, that would actually go a long way. I'm looking at subscriptions. That needs to go down. Basically, you're seeing that you need to start making some hard choices now. But if you do it, you still have a very good chance. If you wait even five years, those chances go from hard to extraordinarily difficult. And if you go and wait even 10 more years, they're not just difficult, they're actually fairly impossible choices. So I want you to get ahead. Now, I see possibility. Of course, there's always a possibility of increasing your earnings, but that's not really the point. It's working with the money you've gotten now, I would love it if you follow back up with me in six months, because I think you can make some big changes in just that amount of time. All right, next, conscious spending plan number two. Here's what I know about this couple. They're in their mid-30s. They have two kids in daycare, which costs more than their mortgage. They paid off $100,000 of debt last year. That's credit cards, car loans, and some student loans. They hate debt and they want it gone. And the question they sent us is, is it better to pay off their debt or to invest? Let's take a look. Assets are $730,000. Wow, that's pretty good. Probably a house. Investments are $114,000. Good savings, 20k, good debt, 535,000. Probably the mortgage. Total net worth of $329,000. Again, they're in their mid-30s. All right, let's take a look at their income. Their income is 18,500amonth gross, or $270,000 a year with a bonus. Let's just say 270 means they're netting 14k or 168. Okay, fine. Let's take a look. What the hell? Their fixed costs are 90%. How come everyone's just spending all their money on their fixed costs? You guys want to save Anything. Have you all read a book called I Will Teach youh to be rich? One million plus copies sold is. It has. Nevermind. The rent is 17%. That's outstanding. Daycare. Oh my God, again. Do I need to even make a comment about how difficult this country makes parenting? Spending $2,700 a month on daycare, that's a lot. Probably living in a high cost of living area. There's not much they can probably do about that. I'm just going to leave that there. Car payments, 250. That's reasonable. Debt payments. Student loans are $3,400. Let's talk about that. Groceries are a thousand. Okay, fine. The grocery Grinch is not coming out today. Clothes are 100. Phone subscriptions, 230. No, not anymore. That's goodbye miscellaneous. They added their own miscellaneous at 1,285. We need to fix that as well. All right, the grocery store Grinch is coming out because we need to make some changes here. At 90%, you can't use a surgical scalpel to go from 90 to 60. You have to take out a big old machete. I don't even know what a machete looks like. But you. I don't know if you hold it like this or like this. Just take it out and start chopping. Usually people can't do this. Have you ever heard the podcast episodes? They're like, at 98%, sometimes 118%. And I'm like, okay, what do y' all want to cut back on? And they're like, well, well, we have the Netflix, but we have the Netflix Pro. I think we should go to the ad free. The other one's like, no, I hate ads. I'm like, are you seriously debating a $2 a month change when you're at 118% of fixed costs? That's not gonna cut it. That's pretty much what's going on here. But let's look at the rest. Investments. What? Investments are at 1%. Okay. Savings are at 1% and guilt free spending is at 8%. So basically, they're spending all their money on their fixed costs. That's what's happening here. Okay. And their fixed costs, the big ones here, it's not the rent because that's fairly reasonable. It's daycare, which is big. Not much we can do about that. It's debt payments. 3400 bucks. It's groceries. I'm sorry, but that's gonna have to come down because there's nowhere else for it. Unless you want to cut Back on daycare. If you can cut back on daycare, keep the groceries where they are. But I would say 99.999% of parents are like, I can't cut back on daycare clothes. Okay, you should cut back on that. Make it part of your guilt free spending. But that hundred dollars, it'll make a bit of a difference. Okay, let's talk about the last two subscriptions and miscellaneous. Subscriptions at $238 just simply doesn't make sense when you're spending 90% on fixed costs. It's too easy of a winner. I shouldn't see that here. What I should see is something like 40 bucks a month on subscriptions, which gets you, you know, a Netflix. Maybe it gets you a discount gym. And like that's it. That's the situation we're in here. It is that dire. So I'm not saying cut back on everything. You should have some type of streaming service. Fine. But $238 is more than a lot of millionaires that I see in here. Finally, miscellaneous. I appreciate that this couple put miscellaneous because most of us do spend money, money that we don't account for. But when you look at this number, which by the way is only 11%, that's an area that they can optimize right away. So guess what? If you have 90% of your income being spent on fixed costs, you need to get really dialed in with the unknown money. There basically needs to be no unknown money being spent. The cost of you having really high fixed costs is that you need to actually be tracking things a lot more carefully than somebody whose fixed costs are at 52%. I'm sorry to say, but that's reality. Now I want to point out this debt payment thing. They asked a question, should we be investing more and paying off less debt? In order for me to answer that question, I would need to know two things. Number one, how do you feel about debt? I'm not really concerned about that at this point because 90% means feelings are going to be less important than math. Number second is what's the interest rate? Now if the interest rate is like 8% for debt payments, that's kind of like you should pay off your debt. Why do I say that? Because you can safely assume that you're going to get about 7% returns in the stock market in a low cost index fund, fully diversified. So if your debt payments are like at 8%, I would pay the higher thing off every day, same as a credit card, which is going to be 26 or 30%. If your debt payments are like 2%, I would pay the minimum on those debt payments and I would put a lot more towards saving and investing. That is the crux of the question here. Now a lot of people are like, well, what if my debt is like 6% or 7%, basically the same as I can get in the market? Then there's no clear cut answer. But I often like to split it in some way. It could be 50, 50. 50% of the money you have goes towards debt. 50% goes towards saving and investing. I'll tell you what I don't like. I never want to see people turning off savings and investing altogether again. It's like a factory. You never want to shut that factory off completely, slow it down. If you need to make two widgets a day instead of 200. But keep the factory moving, keep those investments going, even if it's 20 or 50 bucks a month. Same with savings. You got to keep the money flowing. In general, two things that stand out to me here are the daycare, which hopefully they can model out how long they're going to have to keep paying that and they need to think very carefully about what they're going to do once daycare ends. So I would be extremely careful about continuing that level of spend because you can't sustain this. You cannot sustain what you've currently got going on. The second thing is your debt payments. Obviously that just needs to be brought down, so you need to stop paying as much. I hope that your interest rate is low. Contact your lender, see what they can do to help because this is crippling for you at 3,400amonth. And now I'm looking back and I see that your student loans are $135,000. Yeah, I would contact them. It seems like you're overpaying, but I might be wrong. It just depends on the interest rate. What I'm thinking about right now as I look through your numbers is that your Savings are at $20,000, which is really good. And I'm wondering how did you get there if you're currently only saving a hundred dollars a month? Month. My guess is that when daycare came along, you had to cut all your savings and put it towards daycare. If so, I actually feel a little better about that because that shows that you understand how a system works. You know that certain times you're going to have to divert money from here and move it over here. That's a good sign because when daycare ends you can divert money back to savings, etc. Overall, I think that this couple has some really promising things going on. They have a really, really strong income. They have a demonstrated record of excellence, which is saving and investing before. That's the best thing of all because the best predictor of our future behavior is our past behavior. And I see some really good past behavior might be the case that just they're in a pickle right now. You had to cut all your savings and put it towards daycare. If so, I actually feel a little better about that because that shows that you understand how a system works. You know that certain times you're going to have to divert money from here and move it over here. That's a good sign because when daycare ends, you can divert money back to savings, etc. For the next few years. They have really high childcare costs. Okay, if so that's the case, then you need to figure out what you're going to do. You're going to accept a lower amount of savings. You're going to maybe have to stretch out your debt payments. You're definitely going to have to cut your guilt free spending because even at 8%, it's a little tough when you're spending 90%. You just. Overall, I think that this couple has some really promising things going on. They have a really strong income. They have a demonstrated record of excellence which is saving and investing before. That's the best thing of all because the best predictor of our future behavior is our past behavior. And I see some really good past behavior might be the case that just they're in a pickle right now, can't be doing 90. So. So my suggestion, rework your CSP, bring that 90 down. It can be higher than 60 at these times in our life. It could be 65, 68, even 70. But 90 is too high. I would recommend that this couple make a plan for what they are going to do with their bonus money. It says here that they make a bonus. What are they doing with that bonus for the next few years? They have really high childcare costs. Okay, if so that's the case, then you need to figure out what you're going to do. You're going to accept a lower amount of savings and you're going to maybe have to stretch out your debt payments. You're definitely going to have to cut your guilt free spending because even at 8%, it's a little tough. When you're spending 90%, you just. Is that bonus just getting sitting in a checking account and getting invisibly spent? If it were me, I would make a plan. You know, my plan is basically like 75% of unexpected income goes towards investments. Here's the rest of what my plan for unexpected income looks like. I would encourage this couple to do the same thing. All right, I have one conscious spending plan to analyze. Left can't be doing 90. So my suggestion, rework your CSP, bring that 90 down. But do me a favor really quick. If you're not subscribed to my channel, hit that subscribe button so you don't miss out on any of my new money videos. Now let's move on to conscious spending plan number three. Here's what I know about this person. Single mother, a nine year old girl. She's a nurse practitioner for just under three years. At this job, cash equals security, so she hoards it. It can be higher than 60 at these times in our life. It could be 65, 68, even 70. But 90 is too high. I would recommend that this couple make a plan for what they are going to do with their bonus money. It says here that they make a bonus. What are they doing with that bonus? That's what my notes say. She would like to be debt free and she wants to buy a house in a couple of years. Okay, let's take a look. Her assets are 17,000. Her investments are $80,000. Okay. Savings are $23,800 and she's holding $19,000 in her checking account. Okay. Already I can tell you is that bonus just getting sitting in a checking account and getting invisibly spent. If it were me, I would make a plan. You know, my plan is basically like 75% of unexpected income goes towards investments. Here's the rest of what my plan for unexpected income looks like. I would encourage the scarcity of money. Fear of money makes decisions based on what she sees in her checking account. This is very common for people who don't know a lot about money. They determine all of their financial decisions based on how much they see in their checking account. Whereas when you're savvy with money, you understand that my money in retirement is real money. I need to factor that in. You understand that just because it's in my checking account, this couple to do the same thing. All right, I have one conscious spending plan to analyze left. But do me a favor really quick. If you're not subscribed to my channel, hit that subscribe button so you don't miss out on any of my new money videos. Now let's move on to conscious spending plan number three. Here's what I know about this person. Single mother to a nine year old girl. She's a nurse practitioner for just under three years at this job. Doesn't mean that it is all for me. It might have already been I Cash equals security. So she hoards it charged up on a credit card which is going to be paid off on the 25th of the month. Just looking at a checking account in and of itself is a very simplistic way to look at your money. To be really good at money you need to understand the multiple buckets you have. Multiple savings accounts, checking account, retirement account, non retirement accounts, and on and on. That's what my notes say. She would like to be debt free and she wants to buy a house in a couple of years. Okay, let's take a look. Anyway. Savings at 23,800 bucks is pretty good. Debt at $90,000. Okay, probably student loans for a total net worth of $30,000. Fine. Income is 10,800 bucks a month, which is 100. Her assets are 17,000. Her investments are $80,000. Okay, savings.