“We’re broke paying for $55k private school tuition”

On the income that the two of you make.

You make too much money to be behaving this way.

There are sacrifices that are gonna have to be made.

So goodbye Tesla. Goodbye to a lot of the expensive things you would have ordinarily done, because you are taking all of of that money and redirecting it to $55,000 a.

Year for private school. Are you both mentally centered and emotionally ready for that?

That is a struggle. That will definitely be a struggle.

So the question simply, simply asks is, are we setting ourselves a failure?

Well, what's the worst case for YouTube, financially speaking.

Continuing down the path?

Yeah, for sure. The path that we're on is the worst case.

Wow, wait until you hear this episode. Sarah and Kevin make over $250,000 a year, but they're broke. They recently sold their house and paid off a bunch of debt, but six months later, they're back in $50,000 of credit card debt again. In part one of our conversation last week, we discovered some of the psychology behind how they treat money. And they told me about some of their fears about repeating some of the generational money mistakes that their parents made. But at the end of the conversation last week, there was a big surprise. They told me that they've decided they're going to spend $55,000 a year on private school for their children. In today's conversation, I want you to make sure that you listen until the end. Today, something quite amazing happens. Please make sure you follow through until the end. And remember, you can watch this episode on YouTube. As always, the body language and the facial expressions tell you so much more than just listening. So remember to follow me on YouTube. You can search for Ramit Sethi and of course on Apple and Spotify. I am Ramit Sethi and this is I Will Teach youh To Be Rich.

Are there any other things that are really important for the two of you.

To start doing saving for the girls school next year?

What? How many? What? Where'd that come from? We haven't talked about that at all.

No. So they, they're in private school and so we switch their school. It's for all three. It's about. Without financial aid, it's about 55000 a year.

What the. Where did.

How are these secret expenses coming up right now?

55, 000.

What else?

This next year. I think that's it.

That's all.

I mean, the school.

Don't you have to make a donation to these private schools too? No.

Okay.

She's like shrugging. All right, okay. So 55. Where's that money come from, by the way?

So this was our first year, and we used some of the house. The money that we. When we sold the house, we used it to pay it for the first year.

And where's it going to come from next year and the year after? And after that?

Great question. That's. We're asking ourselves that same question.

All right. How do you think we should fix this problem? Let me lay out the elements just.

So you hear me, because I know.

You'Re embroiled in all the weeds. Here's what I see. The two of you make a high income. You make like $210,000 a year in base salary. You have $180,000 of debt. Of that debt, $50,000 is credit card debt. You have $93,000 in savings. You have some things you want to do. You want to buy land, et cetera. You have three kids. So you guys basically just want to be upper middle class in terms of income, but essentially have no net worth for the rest of your lives. No, that's what people who, who end up. They live in a nice neighborhood, they live in a nice house, Their kids go to private school, and they have nothing. That's exactly what they say. What if you lived in an area with a better school district for your.

School age children that require moving out.

Of state, and would you be open to that, or.

No.

Well, not with his job. No.

Okay. No. Okay. And would there be any other places within the state that you'd potentially be able to move to?

No. We are in the best school, high school, school district in the state.

Okay, got it. And have you both agreed that this is like, it's either private school at 55k or homeschooling? Has that been. That's the discussion you've agreed on, Kevin?

Well, it's been just private school.

More private school. I have entertained in my head the possibility of dwindling one, one, one child. It's so. It's so hard.

It's.

It's very difficult.

Okay, it sounds like this private school is one of the things that is critical to you.

Yeah, yeah.

Why don't we see if we can make it work. And that will tell us in very stark numbers, and then we can decide what our options are. How about that? All right, so pay off credit card debt was number one. School payments number two. Is there anything else that are the big rocks for you?

Well, I want to say the house, but.

You're, you're shaking your head. What are you thinking?

That's, that's not happening anytime soon.

This was a house you wanted to build. Told me it was a dream of yours since you were young. Okay, and, and you say it's not happening anytime soon. Why?

Well, because I get. Because it's a sacrifice that I had to be willing to make for my children to be and have the education that we want them to have.

Okay, Okay, I can respect that. Sometimes these trade offs are really hard. You know, there's a vision we have of our life as we expected it, and then other things come up that you never could have predicted. And suddenly that dream you had, that crystal clear vision of what you want in your life is just not within reach or it's a trade off. Have you ever thought about that before?

And small things. Yeah, but in big dreams, I'm always been the one that's like, I'll make it happen. However I need to, I'll make it happen.

How do you make it happen? Usually.

Pushing harder, Sacrificing, expanding myself, running myself ragged. Typically.

What would your kids think about you when it comes to money? Do you think that they see you running yourself ragged? Sometimes, yeah.

Let me explain what's going on here. Sarah and Kevin have decided that they absolutely, positively must live in a specific.

Neighborhood that has the best school for their girls.

Not only that, they've decided to spend $55,000 a year on private school. When I ask if they'd be willing to move anywhere else, they say no.

Okay, fine, I can respect that. If you asked me if I was.

Willing to wear Crocs, I would say no too. I've learned that it's not helpful to tell people they simply cannot do what they want to do, especially when they can technically afford it. So I'm going to do a little exercise with them. I'm going to show them exactly what this private school will cost. I want them to be able to internalize and visualize what, what their life will be like for the next 10 plus years if they choose to go down this route. And this is something that most of us never do. We stay at the surface level. We say things like, I want that car, or I want to take this vacation, I want to buy that house. But we never interrogate that belief and say, okay, how is that going to affect our lives? That's because we very, very rarely understand the relationship between what we buy and how it affects our finances. Many of us don't even understand the relationship between our finances and our day to day lifestyle. That's what I want to change. So let's start with how Sarah and Kevin talk about money with their kids. Sarah told me that she's had a dream for a long time of building a house for their family. I going to ask her what her children would think about their parents financial choices.

You think they care about this land, this house that's in your head?

Yes and no. I, I think that, I think partly they see how much I want it and so I think they want it for me. And we talk, I talk about it and I talk about dreaming with them and I talk about I, I get, I've gotten there and what do they want, what do they want their rooms to look like when we do this and to try and get them to be a part of the process. So I think they're invested in that way.

Let me ask you a question. Do you talk to them similarly about your investments and your savings? What lesson do you think you're communicating to them?

To dream but not be realistic?

Maybe. And that maybe success is buying a house or buying something and maybe it is for them, who knows? That's their future. It's not us to decide, but gosh, I really would like for them to see mom and dad, your own words.

Being good stewards of money.

Okay, everybody sit down. We've got 50 bucks and we're going to go out to one place to eat. How do we want to choose? Well, we can't do it all. We only have 50. Oh my gosh. If we choose that one appetizer, we're not going to be able to buy anything else. Then a little bigger. The 13 year old. Quite savvy. You can do a lot with a 13 year old.

Yeah.

Wouldn't it be nice for them to learn about trade offs like you are learning about trade offs right now?

Yeah.

Yeah. So the excitement that you have communicated to them about this house, I love that you are able to do that. I love that. I think we might need to redirect it into something else for the next while. Trust me, if they see you getting excited, they're going to get excited.

Yeah. Yeah. All right.

So paid off credit card debt, school and the house. It will certainly take you time to, to come to terms with that. But do you feel deep down that you could come to terms with not moving forward on this house for the Next, let's say 10 years.

Eventually?

Okay, that's a fair answer. Can I tell you something? There are things that I would not be able to come to terms with. It would be really hard for me to and some of them are materialistic. Like, I've gotten used to certain things that I. Like, if you told me I could not do it anymore, it would be really re. It would be devastating for me.

I mean, I remember when I was like, seven years old, like, well, so my parents bought land, like, gosh, when I was really young to be able to build on. And I think it was like six or seven around that time period. And then that never happened. They ended up having to sell it. And. And I remember, like, hearing about that and getting to design a house and. And I was 7, and on the old, like, computers, I would go and, like, try and draw my own house plants, like playing Barbies. I just wanted to set up the house. Like, I didn't care about actually playing. I just wanted to build and create. And so this is. I mean, literally been my tire. My grandfather was builder. It was in. Is in my blood. And I love that kind of stuff. And so it's very much passion. Yeah, it's going to be passion project.

Well, there is a possibility in the future at some point, but if right now, with the current income, Even if the two of you make $100,000 a year more, that house is not in your future for at least the next decade.

In my opinion, it is respectful to tell people the truth, looking at their income and expenses and their financial habits. And Sarah and Kevin have no chance of being able to build a house in the next decade. Now, I never would have told them this at the beginning of our conversation. I needed to understand their finances. I needed to understand their attitudes. But now I get it, and I've built some trust. I think that a lot of us spend our lives dreaming about something big that we want to do. I find that less than 5% of us actually try to plan it out. Oh, Ramit. We want to live in Rome for a month someday.

Awesome. I go, that sounds amazing.

How much would it cost? Can you get time off work? What about your kids? For most of us, we simply defer these logistical questions until some day in the future. And I think the reason for that goes quite deep. Some of us don't want to look into it because the reality might be too scary, that the dream we've been telling ourselves we want to do for our entire lives actually might not be possible. It's too scary to think about. So we never open a single calculator. But if someone comes to me and they ask for help, I believe it's respectful to tell them the truth. Now that Sarah knows she cannot Build a house for at least the next decade. She can start to go through a process, probably starting with grieving and eventually accepting it, which will allow her to focus on a more realistic tomorrow. This is what I mean when I say, in order to live a rich life, you've got to be honest with yourself and with the people around you.

I hear making up for the past. The credit card debt, I hear incurring over half a million dollars for our children in school. That's important to you. Okay, you want to send them to private school. I hear you, but I don't hear anything about going and getting ahead.

200, $300,000 a year. What a tragedy it would be to.

Simply be treading water for the rest of your lives. Is there anything we can do about that?

Yes.

What?

Putting money into investments?

Yeah, I'd like to.

Because right now it feels like you're.

Swimming against the current, doesn't it? Everything you're doing, it's just like, why is this so hard? And then we get a cash infusion, we sell the house, and then we're back in debt. And then we get an inheritance. But we already know if we spend that, we're going back into debt. You're just swimming against the current.

Nothing's changing.

And don't you think if you make an extra $150,000 a year, you're going to find some other way to spend that money?

Yeah.

So you've got to start getting ahead, even while you are dealing with some of these things.

Okay.

All right. If you want to do all these things, let's just say that's $1,000 a month for paying off your credit card debt. I'm just picking a number out of the thin air. If you did $1,000 to pay off this credit card debt, by the way, you would. It would take you five years to pay it off, and you would pay on a $50,000 balance. You would pay $42,000 in interest. So that sucks. But all right, let's just say $1,000. You could change the numbers dramatically if you do 2,000. But I'm just giving you an example. School is going to be how much a month?

It's 5,500.

Okay, let's just say 6,000. Okay, 6,000amonth. And your investments should be what. What's a number we can pick as a ballpark?

Well, 10%.

Yeah, let's say 10%. And should it be gross income? Let's start there. 10% of gross income. What's your gross income?