Michelle and Ryan, in their early 40s, have a net worth of $970,000 but need help with daily finances. They continue to dig into their savings for regular expenses despite Ryan earning $140,000 annually. The couple spends a lot on their three kids and avoids telling them they don't have the money. "I don't say, 'We don't have the money, we can't afford it.' I don't say those things," Michelle, 42, told multi-millionaire Ramit Sethi on his "I Will Teach You to be Rich" podcast. Meanwhile, Ryan, 43, believes they are on a sinking ship and it won't be long before they run out of money.
Uncontrollable Impulsive Spending Despite Alarmingly High Fixed Costs
The couple's monthly fixed costs are 113% of total income, which includes mortgage, insurance, transportation, and essentials. However, Sethi was surprised when Michelle and Ryan revealed they spend $1,185 on Amazon and $763 on Target monthly, and another $1,230 goes towards groceries. They failed to see their impulse buys of $15-$30, which the couple described as "little things," like bike tyres and kids' sunglasses, add up to a considerable amount over time. "It really is death by 1,000 paper cuts on the Amazon front," Michelle said. While Sethi stressed that the couple is broke because they are losing money with time, they felt it was impossible to change their current situation.
Cutting Back Can Be Impossible When Every Purchase Feels Like A Necessity
The host of Netflix's "How To Get Rich" explained that the couple must make a more conscious effort to trim non-essential spending but first need to understand the root of the problem. While they don't make many impulsive buys, the couple has no systems in place to help them make better financial decisions. When Sethi asked the couple where they could cut expenses, Michelle was sceptical that she could reduce those bills because many of those products felt necessary. "This is what happens when you let your spending get out of control," Sethi elaborated. "It becomes incredibly difficult to downsize because the human mind convinces you that everything you have accumulated is absolutely necessary."
Sethi Urges Them To Look At The Bigger Picture
He suggested that the couple start by analysing their discretionary spending, like dining out and shopping at Target, and work towards trimming their spends by 50% in a six-week timeframe to bring their situation under control. Sethi believes that reaching this milestone will help them slowly come out of their dire situation and live a rich life by making some adjustments. For instance, the couple could explore ways to begin saying "no" to their children for unaffordable things, which will likely be difficult early on. Still, it will help them build a healthy relationship with money growing up.
Set For Retirement, Screwed Right Now
Michelle is proud of how she adhered to good money habits in her 20s, which helped her save and grow her investments. While she indicated that Ryan wasn't as savvy with money, he could buy his own house before the couple got together. Their disciplined approach to building wealth for the future enabled them to accumulate $585,000 in assets and close to $468,000 in investments and retirement funds. The couple sets aside 14% of their net monthly pay for investing in retirement and post-tax investment instruments. While they have done a great job of saving money at a young age, it doesn't help their monthly spending situation. "In retirement, we're set, and right now we're screwed," Michelle highlighted.
"When it comes to your spending, you're spending way too much," Sethi explained. "And when it comes to your investments, you already have enough if you were to literally stop today." Hence, the couple could also try reducing monthly investments alongside trimming non-essential spending to boost cash flow and regain control of their situation. Sethi was elevated to understand Michelle and Ryan were receptive to his suggestions. The couple realised they "actually have control over their spending" and could re-route a part of the money they are over-investing in future funds towards their immediate expenses.
