Jim and Dana, both 58 and five years into their marriage, are facing significant lifestyle changes as they approach retirement. The couple is concerned about their financial future, mainly whether they have saved enough to retire comfortably. However, a shocking revelation about their finances led to a breach of trust, which came to light while planning their budget.
To get their finances in order, Dana and Jim turned to Ramit Sethi's podcast, "I Will Teach You To Be Rich." As they delved deeper into financial advice from the millionaire author, Dana discovered an additional, undisclosed debt while filling out a conscious spending plan. "It was pretty traumatic," Dana remarked.
Ramit Sethi, the founder of the Netflix show "How to Get Rich," provided insights into the couple's deteriorating financial situation during his YouTube podcast, highlighting lessons others could learn from their experience.
A Shocking Reveal
When Jim and Dana moved in together, Jim disclosed some expenses but assured Dana not to worry about them. Initially, Dana believed that managing a $20,000 debt was feasible. However, a year later, Jim revealed that he had accrued a staggering $77,000 in credit card debt, expecting Dana to help fix the situation. To make matters worse, Jim couldn't account for how he had spent the money.
Understandably, Dana was furious about this "financial infidelity." Her anger was compounded when she discovered an additional $12,000 in debt. "I can't believe this has happened three times, and I can't trust this person," she lamented. "It felt like he was seeing somebody on the side. It felt that bad."
Such a situation would impact anyone, but it was tough for Dana because these were the patterns she sought to escape when she married Jim.
Jim's Perspective
When Sethi questioned Jim about his thoughts on the situation, Jim admitted feeling sick upon seeing the debt details in the spending plan. Jim confessed he didn't have a plan and eventually disclosed how he had accumulated the debt.
Jim had been paying for gas, electricity, and other expenses using a credit card, accumulating over $20,000 in debt. He also covered additional costs such as furnace repairs, cattle raising, and vacations with the card. A significant portion of the debt, around $6,000, was due to shopping, especially on clothes for himself and others. He also bought new tyres for the truck, car, and medicines for his mother and paid for friends' meals on trips to maintain appearances.
Dana realised Jim was embarrassed to tell her about these expenses and wanted to provide for her. Jim had worked over 60 hours a week in his former job, often doing overtime due to a heavy workload. After injuring his shoulder at work, he survived on disability funds for four months, barely covering his mortgage and insurance payments. During this period, he relied heavily on his credit card. Despite earning less in his new job, Jim continued living as if he were still making his former income.
Reflecting on the past five years with Dana, Jim acknowledged he should have given her more control over their finances, admitting "she's better at" managing money. Sethi observed that Jim was distracted by the details; his listed expenses didn't fully account for the total credit card debt. Additionally, Jim's previous lifestyle threatened his self-perception as a provider, which many men consider their primary status symbol.
Jim's Modest Background
Dana knew Jim from high school and knew of his low-income upbringing in Pittsburg, Michigan. When she reconnected with him 30 years later, she was impressed by his accomplishments: owning a house, holding a regular job, having a 401(k), and providing for his family. At that time, Dana was going through a divorce, had bought a house, and was dividing up retirement accounts.
Dana admired Jim's achievements, considering his humble beginnings. Sethi pointed out that assumptions about money can be dangerous in a relationship. While Jim and Dana discussed finances while dating, they didn't delve deeply enough into their financial habits.
Jim's family owned extensive farmland but lived paycheck to paycheck and never discussed money. Jim realised they were poor when he noticed the difference between his homemade bread and butter and his classmates' Twinkies and Doritos. This embarrassment lingered with him, driving his need to provide for everyone even when he couldn't afford it.
Jim recalled his father's financial downfall in the 70s, going from being worth a quarter of a million dollars to being in substantial debt due to poor deals. They moved from a lovely farmhouse to a lesser one and eventually to a house trailer on his grandfather's farm. Despite the consequences, his father's financial habits remained unchanged.
What surprised Sethi was that Jim's younger siblings were in even worse financial situations, still relying on their parents. Jim revealed that his father spent large sums on Belgian workhorses, even though he couldn't afford them. With a sigh, Jim admitted he had "become his parents" by getting buried in debt.
Jim's Past Aversion to Debt
In his former life, Jim took loans and multiple gigs to pay off his student debt in six years. He always paid off any debt early because he hated it, a trait he inherited from his grandfather, who managed money well, buying and paying off two farms. Jim spent many summers with his grandfather during his childhood, learning these financial habits.
Sethi emphasised that financial habits are often passed down through generations and that money is more than just numbers; it involves stories, lessons, and phrases. He encouraged people to be humble enough to recognise that their behaviour might result from their environment. Understanding this allows one to unpack that environment and decide whether to change their financial behaviour.
Dana's Perspective
Dana grew up in Ecuador and Honduras, returning to the US when she was almost 14. Dana felt like the wealthiest person in Honduras, attending a bilingual school with the ambassador's children as her friends. Her mother warned her that she wouldn't be rich in the US but among the poorer people. Dana's transition was challenging when the family moved to a rural area in the US due to a worsening political climate in Honduras.
Her parents were missionaries, but her father specialised in organic farming, teaching people how to maximise crop and cattle production. He also diligently saved money, invested, and prioritised teaching Dana how to budget. Dana's father learned these skills from her grandfathers, who were into real estate. One grandfather aimed to live on 10% of his income, giving away the rest. He was a self-made man who returned from the US Marines to start a heating and air conditioning company.
Dana often talked about her affluent life in California, which she missed. Planning her finances with her ex-husband and watching everything collapse felt like a significant downgrade. Sethi noted that socioeconomic mobility in the US is very low, meaning those born poor are likely to remain poor and vice versa.
Dana grew up with educated parents who emphasised the importance of money, saving, and investing aggressively, typical of the upper-middle class in the US. Her shift from a higher socioeconomic class to a lower one after her divorce was devastating and isolating. What could have worsened her situation was giving up a $5,000-a-month alimony for life.
Examining Their Finances
Jim and Dana's combined assets are worth £637,000, including a house, three vehicles, and farm equipment. They have investments totalling £636,000, with £35,000 in savings. Despite these seemingly decent figures, their outstanding debt stands at £448,500, with £77,000 in credit card debt, £6,500 in car loans, and a £365,000 mortgage.
Their combined net monthly income is £16,654, with £10,600 coming from Dana's paycheck. However, their fixed monthly costs are high at 69%. Breaking down the numbers, Jim's fixed costs are 97% compared to Dana's 53% because he makes the £2,279 monthly mortgage and other debt payments.
The disparity caught Sethi's attention. Jim explained that he had been paying the mortgage since the beginning, so he continued while the debt had nothing to do with Dana. Sethi was unhappy with their bill-splitting arrangement, stressing that Jim's 97% fixed costs were unfair.
Dana's trust issues with Jim over the credit card debt resurfaced, making her feel like she was "throwing good money after bad." She feared a repeat of the credit card debt episode.
Sethi suggested that if Jim sold his farm equipment and some collectables, they could earn £22,000. The idea of selling a portion of their 10-acre land was also considered, which could solve all their problems, but Jim was unsure, probably because it meant giving up part of his heritage.
Jim realised he needed to think outside the box and consider everything he could sell to repay the debt quickly. Meanwhile, Sethi even suggested selling their house and land to rent if it meant becoming debt-free.
Final Thoughts
The financial journey of Jim and Dana highlights the complexities of managing finances in a relationship, especially when secrets and past habits are involved. Their story underscores the importance of open communication, mutual trust, and a willingness to make difficult decisions to achieve financial stability. By learning from their experiences and applying financial advice from experts like Ramit Sethi, couples can navigate their financial challenges more effectively and build a secure future together.
