56 Minutes of Money Wisdom for High-Earning Couples
Money, Marriage, and Monthly Meetings - January 6, 2025 (3 months ago) • 56:39
Transcript:
| Start Time | Speaker | Text |
|---|---|---|
Ramit Sethi | 50% of the couples who talk to me do not know their household income money for most is not a source of connection it's a wedge | |
Sam Parr | I wanna go deep on this this is actually cool | |
Ramit Sethi | in most relationships there is one money person and this is a huge mistake | |
Sam Parr | how do you get someone who's a worrier to start spending you need to | |
Ramit Sethi | learn the skill of managing money but you also need to learn the skill of spending money meaningfully | |
Sam Parr | tell me what to do | |
Ramit Sethi | I have 7 quick steps it's very easy first off | |
Sam Parr | alright we're live ramit so the reason I wanted to have you on was because sean and I were talking the other day and at the end of the episode at like minute 55 we got to the total end and somehow it came up that my wife sarah and I we do this thing that we just call our monthly money meeting and the way it works is that we like break down our monthly expenses our income and we also look at our net worth and we talk about how can we spend the next month to like make ourselves happier like what how can we use like money as a tool and are we happy with our consumption and whatever the the previous month and sean made fun of me and he was like that's you're running that like a corporation like a business and at first I was embarrassed to say that I'm running my marriage like a business and then afterwards I was like actually no like I can love my wife and that's the number one reason why I do this and also in order to make it run effectively you kind of have to run a tight ship like a business or have like business attributes and you have this book money for couples and you tweet all about this stuff with your relationships and running it like a business and I thought you should come on and kinda talk about the other stuff of a relationship other than love which requires running it a little bit like a business | |
Ramit Sethi | well first of all I appreciate that sean makes fun of you that's one of my favorite parts of this pod but when you are married you are running a business it is the business of running a household together and it's only in the last 100 or so years that americans became infatuated with this idea of love as the only reason to get married that's ahistorical that's not been the case for a long time and just to give you example it's so culturally dependent my parents knew each other 7 days before they got married so you have to remember that it's not unromantic to talk about money I actually find it very romantic that you are building a connection and there's a whole bunch of other benefits that I'm sure you and I both experience because we talk about money regularly | |
Sam Parr | and you got this amazing podcast and a lot of the people you have some like really wealthy people I think you had someone who was making like 2 or $3,000,000 a year and they talked about spending but I think your typical bread and butter is low ish 6 figures but our audience makes like I'm gonna just make up the sabotage of like 2 to $400,000 a year and they work at tech companies | |
Ramit Sethi | I think this topic is so fascinating to me because it cuts across psychology numbers communication and I personally think it's underexplored I think there's a lot of people online who talk about how to make money how to invest money very few people talk about how to spend it meaningfully and even fewer talk about how to do it in a relationship so if you're listening and you're single or dating or you've been married for 20 years odds are very likely that you have not substantively talked about money with your partner and it's important it is it's one of the core things in a relationship that's why I love talking about this | |
Sam Parr | do you remember tim ferris in the 4 hour work week he had this thing called like the dream scenario or something it's very similar to the stuff that you do it's something like write down all of the things you wanna own and then like reverse engineer it to figure out how much do you have to earn in order to afford this and like like just like be intentional about what you want and specifically say it and work backwards towards it so I used to do that as a 22 year old I think I had like at one. I've owned everything that was on that list and I was like oh like half that list I don't really give a shit about even after I owned it but I remember a year into dating my wife it was like hey this is promising it appears we're gonna like this is going towards marriage which is great and we did that dreamlining together and we used to do it all the time where it was like tell me like what's your ideal like life scenario like what would you how would you like to live and like let's like how much would that require like what responsibilities are you willing to take and what should I take on it was so helpful to do that early on in a relationship and it sounds weird but it was like a great conversation | |
Ramit Sethi | I love that it's amazing that the 2 of you did that early on because it's one thing to do with solo it's entirely another thing to do with a partner but what is amazing is that you 2 were on the same page of even talking about that you have to remember most couples they're not like that they're not sitting down to dream one person is probably a worrier another person might be an avoider or probably for the people listening they're optimizers spreadsheet freaks who love to look at compound interest all the time and they're not even communicating in the same way so one person is like look at our returns look at our net worth and the other's like why are you talking about this like I don't think we're gonna have enough why did you spend $20 at the gas station so you guys were speaking the same language most couples not even in the same planet when it comes to money | |
Sam Parr | optimizers what is that | |
Ramit Sethi | oh there's 4 money types I talk about them in my book I talk to thousands and thousands of people and I found these 4 types that describe a lot of people 1st avoider this is the most common they avoid money they do a series of conscious and unconscious techniques to do it if they're in a relationship they'll say stuff like you're just better at money I'm not good at math sometimes they even sabotage conversations by saying stuff like why do you always have to talk about money can't we just have a good time that's an avoider and there's a whole bunch of techniques that you can use to not be an avoider or to have a partner that's an avoider then we have optimizer that is me that's you that's a lot of people listening optimizers you know they they can do a lot of good because they're saving they're investing the problem is you take it to the logical extreme and they become incredibly boring and cheap and all they care about is like the cost and how much is it gonna we shouldn't buy this coke can because if we compounded that for 45 years it would actually be $1,200 it's like get a life optimizers are really hard to be partners with because they always go how much does it cost that's all they're concerned with but they can change as well we have worriers worriers worry about everything and in fact many of them saw that growing up and when I asked them what would it look like if you didn't worry about money they have no idea because that's all they have ever known and finally dreamers dreamers believe that success is just around the corner dreamers it's it's the next gig it's the next deal these are the folks who typically fall into get rich quick schemes and they are incredibly difficult to be partners with they're not listening they're not reading my book let's put it that way and the only reason they can live in la la land is that they are often subsidized by someone else often their partner those are the 4 money types | |
Sam Parr | you seem like you know you teach us stuff so I assume and I know you so I know it's true that you have your act together when it comes to money and if you are an you're an optimizer now you said what flaws do you still have and how do they present itself like on a daily basis | |
Ramit Sethi | yeah like for for everyone listening sam was like we were texting and sam was like hey what are you getting on black friday and I was like I don't shop any place that does black friday sales and and that's like that's the difference but the fact is like you're you're an optimizer so am I they just manifest in different ways | |
Sam Parr | so where do yours manifest in in ways that are good but also in annoying ways | |
Ramit Sethi | dude the annoying ways are the ones that when I was 22 it was like all about like look at these numbers you just need to do this it's so easy it's so clear and and then I could see people's eyes glazing over but I didn't know why and once you get a little bit older a little bit more mature a little bit better skilled at communicating you realize nobody wants to be talked to like that and in fact like in the areas where I have been really weak like fitness where I didn't grow up knowing what protein was until my late twenties if someone was like dude it's so simple it would have been overwhelming and it would have made me feel stupid so I learned how to slow down become a little bit more emotionally connective but dude it's still there when I when I'm talking about money sometimes I'm like like okay I get it let's let's get to the part where we do the numbers and it happens regularly my wife and I have monthly money meetings we have our annual richlife review and I can see it in myself I just wanna get to the end because for me you know I was raised like efficiency is a virtue getting to that part is a virtue and I've had to really try to learn and I'm still learning sometimes slow it down take the journey have fun along the way we'll get there but don't be in a rush to get where we're gonna get anyway | |
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Sam Parr | what's this you know it's december 30th when we're filming this what's the annual review | |
Ramit Sethi | oh man we're we're in the middle of it right now so this is like one of my favorite times of the year so in every december we have an annual rich life review and I would encourage everybody to do this so we sit down and we do it over several days we're in no rush and we start off by just going through our photos from the year and we go like what were our most memorable things that happened this year and a lot of them are favorites but some of them are not so good you know things that just bring up visceral memories | |
Sam Parr | you're talking about like a like a death or yeah something like that yeah | |
Ramit Sethi | yeah something bad that happened but a lot of good things like travel we did family we saw things like that and you just know it when you see it you just know it and looking over our photos what we do is we just put like 10 20 and we text them to each other then we talk about it | |
Sam Parr | what's this look like though actually look like like in the evening are you just hanging out over dinner what's what are you guys doing | |
Ramit Sethi | what if I'm like sam I told you we're running a freaking business we're in a conference room what do you think no okay the truth is when we did this just recently we were sitting across from each other like basically on our couch chilling but most of the time we have these conversations we're actually traveling so we love to do this in a place that is different than our normal place it's expansive usually we try to surround ourself with beauty but you know that's not always possible so the. The setting helps but it's just about the 2 of us having time and space so here I am looking at my photos and it becomes very obvious to me the photos I chose like out of 20 18 of them were with friends and family wow like that really tells me something about what's important to me and so we start off there like wow what was memorable we then talk about we had this little exercise that we did this year I came up with these questions which was what if 2025 next year was incredibly generous and we started there and we're just like what would we do if we were incredibly generous and we just like came up with the idea back and forth next adventurous so it was like like a wilderness course you know I don't even know how to start a fire what if I went to a 3 day wilderness course and and my wife was like go on your own I'm not trying to go to that but that's cool too you find out what you like what you don't like next was luxurious that was cool relaxed and then social so we're just dreaming we're just like coming up with ideas and we're writing them down and that's it then we start getting into a little bit more specific stuff what did we love this year what do we wanna do more of these would be things like take a trip with friends spend time with our parents that kind of thing and then we're like what do we not like what do I wanna do less of oh we tried to eat at this we got this reservation at this restaurant and it was a big deal and we actually don't really care about that type of stuff and then the last thing we do is we get into the numbers | |
Sam Parr | you don't need to say your numbers but tell me the the title of the numbers so for example you look at like your like your personal family's annual burn your personal family's income what else | |
Ramit Sethi | we're talking at the expense level now so we're talking line item but these are like the major categories in my conscious spending plan so things like housing travel for us is a big discretionary expense all the clothes fitness those are the items we're talking about and we're like okay we projected this we hit this why did we diverge and so then it's like do we need to tweak it next year or do we need to add more income this is the type of stuff where we're talking about like what are our distributions I don't know if we can handle that next year etcetera | |
Sam Parr | and when you this is like I wanna go deep on this so you're setting the budget for the next year as well and and when you're doing the review what percentage on track are you typically are you typically over what is your family over or under | |
Ramit Sethi | that's a very good question we're never exactly on never we are we are definitely over in certain categories travel almost always over so we adjust it every year the dream is like you're gonna nail it but we never will we leave buffer we always leave buffer you add 20% oh yeah I have like handy guidelines for buffers so for example for like a wedding you 2.5x like right there | |
Sam Parr | yeah | |
Ramit Sethi | okay for a trip for travel add 50% right off the bat so if you think your trip is gonna be 3,000 it's actually gonna be 45 | |
Sam Parr | got it so it's it's not like unilaterally like alright we budgeted $100 just assume that our in or whatever $100,000 for the year for our whole life assume that it's gonna be 120 | |
Ramit Sethi | we would do that for fixed costs so fixed costs which are like your rent your auto you know your fixings typically I would say add 15% because there are things that people forget about that's just got it your guideline | |
Sam Parr | by the way that's what I do with my businesses I like whatever we say the budget is in my head I'm like 30% over | |
Ramit Sethi | okay let me tell you why I think there are so many different ways with money you can internalize lessons like fitness luxury I had this experience we stayed in a hotel in thailand it's a it's a high end hotel and I whenever I go to one of these hotels I always ask to see the general manager and I go on a walk on the property with him | |
Sam Parr | him or her | |
Ramit Sethi | and I go why why are you laughing it's weird | |
Sam Parr | it's just that's a really karen thing to do but you're doing it for a positive thing | |
Ramit Sethi | what the hell are you talking about I'm not saying like hear all the things that are wrong I asked them but tell me how you run this hotel like what are the clientele so if | |
Shaan Puri | we do do you | |
Sam Parr | do that at the front desk or does your assistant or you send an email I'll be checking in like dude I wanna get yeah let let me explain ari here's why ramit said hey do you wanna come to new york city and hang out with me I'm gonna plan for something to us to do and I was like hell yeah and he was like what do you wanna do and I was like whatever you're interested in because I know you're super into it take me along and so we went to the aamangiri or ama new york is that what it's called ama ama new york | |
Ramit Sethi | yep | |
Sam Parr | like the fanciest hotel in new york city and the general manager or some like a some manager type gave us this like 1 hour specialty tour of this like 3 or $4,000 a night hotel and I was like dude how do who did you email to get this | |
Ramit Sethi | so I I like hotels I like hospitality and whenever I go to these hotels the manager will when you're staying there the manager will come up to you at a certain. And greet you so I'm always like hey I'd love to like learn more about the property do you have any time and they love it they love it | |
Sam Parr | got it | |
Ramit Sethi | so we went on a walk and it was december at the time so I said what's your occupancy and they had something like 40 keys or 40 hotel rooms he said it's about to get busy christmas is our busiest of all but we always keep one room off market and I'm like why would you do that when it's the busiest most high demand most expensive time of the year he goes luxury is about always having something in your back pocket he goes maybe our regular guests who come every year for the last decade bring an extra family member we need to be able to accommodate that so I will hold it off market and I'm like ah that's a very expensive thing but I think about my mom growing up she always had extra food if we brought a friend over luxury just at a different level so same thing with money I wanna always build in a buffer so that if something happens we're good | |
Sam Parr | no sweat and how much what percentage do you like do you do you assume that every year your spending is gonna go up like 5% 10% | |
Ramit Sethi | no that I probably should but I don't do that that that would be good we we look at what we're gonna do next year and typically like we have like certain things don't really change for example rent or whatever it won't change that much but if there are big life events those might change so we're not doing it on a percentage basis we're looking at big discrete events because we already have the foundation kinda laid out | |
Sam Parr | and then do you assume and you you guys are both entrepreneurs and so let's do it for the question of like you and me entrepreneurs and also let's do this for like a facebook employee do you assume that your income is flat up or down | |
Ramit Sethi | great question my wife and I are both entrepreneurs so we we we take a standard salary which we talk about at that annual rich life review what is our salary going to be and it's typically the same salary I didn't change my salary for like 13 years but we talk about distributions so are we play how does the business look next year what numbers are we going for what do we think our distributions will be and we use distributions which makes our system a little bit complex we get them on a quarterly basis if we take them and then we have a determination we have a percentage like where does it go how does it get split up all that stuff is all documented we look at the document once a year in december and we decide is this fair does this feel good do we need to tweak anything but it's once a year | |
Sam Parr | yeah and that's where it gets complicated because I do this with sarah and I'm like well if business goes good then it could be this if it if something happened you know shit happens you know like if you run an seo based company Google makes a change and like my my situation has just changed | |
Ramit Sethi | like I don't I have to tell you this is maybe a strength also a weakness I don't wanna have to go backwards right so like it that appeal to me that's true in a lot of parts of life for example speaking of hotels if I stayed at one hotel room one time I'm not going to a lower level hotel room I wanna stay at the same level or go higher why just because for me that's a. Of pride and something I value for other people it might be their car you know they finally got a whatever's a nice car and they don't wanna go back to the honda civic that they grew up driving whatever say I feel the same with money if we decide we want something I'm gonna be very very careful before I commit to spending on something that is probably something we don't wanna go backwards on otherwise I just wouldn't do it as an example if somebody starts to fly well I know you've talked about flying private you know for a lot of entrepreneurs it's like one of the things they wanna do great if that's a goal I wouldn't do that until I knew I have no financial chance of ever going backwards because that's actually really hard for you | |
Sam Parr | and that's but that's rooted in your business which means like my business is stable enough that it's likely gonna continue to grow at some even if it's a small 5 or 10% but it's like a stable recurring ish revenue business that type of thing | |
Ramit Sethi | yeah or you have enough net worth to float it yeah but what I'm really encouraging people to do is you don't have to do this for everything you know like some years you have a splurge on some restaurant maybe you're gonna go back maybe not whatever but if it's really important to you it might be we're sending kids to this school or we're gonna decide that we're flying business class or whatever be very very careful before you make a purchase that is recurring and yeah you don't wanna go back once you do it make sure you're solid forever | |
Sam Parr | how long does this annual meeting annual review last and what's the homework to prepare for it | |
Ramit Sethi | it lasts several days we're in no rush so it's like we'll talk for a couple of hours and then we're off doing whatever we're doing whether we're is | |
Sam Parr | it on your calendar | |
Ramit Sethi | yeah it's on the calendar it has a link to all of our docs the one from last year we review it some of it is so some of it is structured like we're talking about we have these questions what do I wanna change etcetera and some of it though is really organic and I think that is the part that might surprise people so in my life I'm an optimizer and so I'm I love structure I love it and I think that has become a weakness of mine where I always want the black or white answer and I need to like make sure it fits in these cells and so I've been trying to become more intuitive and I find that I'm most intuitive when I'm traveling because I'm like what do I feel like seeing where do I feel like going well what about us and I'm trying to bring that to these meetings so like this question about like generous and adventurous that was a intuitive thing that I was thinking about and then we started talking about it and there was a lot of energy so we spent like few hours talking about that that is how I love to approach this a combination of literal and also intuitive | |
Sam Parr | what's the monthly meetings look like ours usually looks like we use monarch do you know monarch money that's just like a cool thing in my opinion that's my favorite tool for tracking monthly expenses we so we go over that and then we say like alright next month like what adventures or things do we have planned and is there any like deviations or alterations that we want to make make for that we also talk about different goals that we have throughout the year like it could be we wanna take family on trips well it's like alright like do we have do we have that plan and what went well last time what didn't go well whatever and then we talk about like do you wanna buy anything like is there anything you wanna buy | |
Ramit Sethi | I love that I I love every time I hear you guys talk about how you do money it makes me really happy because like there's a lot of connection and I hope that's inspiring to other folks because money for most is not a source of connection it's a wedge it's actually something that's avoided most couples really substantively talk about money about 4 times in their entire life | |
Sam Parr | what does that mean so like is there like a bunch of I mean I guess this is obvious this is an obvious question but I guess there's typically a bunch of wives out there who have no idea like what the income is and like is is that like typically what it is | |
Ramit Sethi | 50% of the couples who talk to me do not know their household income 50 they don't know their household income as an example this happens all the time I had a couple recently who said I think we would we would feel good if we made a 120,000 and we're look I'm looking at their numbers which they prepared for me and according to their preparation they make 80 k okay so now I'm digging into this and I'm asking about bonuses they go oh yeah we get a bonus once in a while and I'm adding it all together it turns out they make something like a 121,000 and they just look completely dumbfoundy why because for years they've been telling themselves we'll stop worrying when we make a 120 k they've been making it for years and what it really shows is the way you feel about money is highly uncorrelated to the amount in your bank account so no they don't talk about money most see it as a negative thing they see it as something to protect their partner from they see it as something like you do the dishes all mow the lawn but it's none of those it's got to be a source of connection | |
Sam Parr | which is the thing you talk about but by the way you were giving me credit for these meetings like they still like occasionally end in fighting like like it's like it does it always it doesn't they don't always end well which is like there's not we are on the same page to discuss it but we are not always on the same page of our wants sometimes there's decisions where there's a winner and there's a loser and so it's like you know how can we both win in in one of these situations but it definitely becomes like a who's the money person and it's like not just like who's earning it but who's driving I guess it's frustrating to have if I'm the one driving all the time I'm like I want you to care about this as much as I care about this | |
Ramit Sethi | sam I'm with you okay listen so in most relationships there is one money person and this is a huge mistake again most of us think of it as something that's just divided like every couple does we all divide tasks just on time intuition etcetera or just habit but money when I got together with my wife of course I was it would have been natural for me to be the money person | |
Shaan Puri | this is | |
Ramit Sethi | what I do for a living I think about it every day and I very early on realized that would be a horrible mistake and I told cassandra I said we're gonna do this together I'll tell you why number 1 one day I'm gonna get hit by a bus some shithead from goldman sachs wealth management is going to call her oh we'd love to help you be a steward of your portfolio fuck you wealth management industry so she knows exactly about expense ratios and fees otherwise I'd be looking up from hell saying what's about to happen right now with this conversation but I know she's an amazing manager of money then I wanted us to have a second set of eyes no matter how good you are at money it's always better to have another person make decisions together and 3rd is just way more fun way more fun to be doing this together where do you wanna go next year who do you wanna be generous with all those things so it's a huge mistake to be the money person in a relationship or let your partner and that is becoming bigger and bigger because a lot of men die early leaving in in heterosexual relationships they leave their wife often defenseless dwight doesn't even know where the money is much less how much much less what to do with it bad bad situation so that is a big no no | |
Sam Parr | dude I was telling sarah the other day ever since we had a kid I have this weird dream it sounds weird to even say it but I have this dream that she dies and like 3 weeks after her death I'm like I don't even like so the way my household works is I like focus on making the money and she is in charge of like tracking and spending it so like paying rent or mortgages and things like that and like I like when we when I when she died in my dream I'm like who do I pay this rent to or like do you know what I mean I was like I I literally don't know like what health insurance provider we have and how they get their money versus how like we like there's or like who's our dentist you know what I mean like I didn't even know like certain things like that and it honestly freaked me out and I couldn't imagine being on the other side of that of like how do we earn | |
Ramit Sethi | exactly I mean it's kind of funny when you say it but it's not funny if you're the person who doesn't know where the money comes from or how are things supposed to be paid and it's actually terrifying and very very bad situation to be so alright let me talk about the monthly money meeting and how to do it it's quick it's 60 minutes so you're kinda moving through these things I have 6 quick 7 quick steps it's very easy alright first off appreciation kind of unexpected always start off with something you appreciate about your partner look at sam's face right now sam's going what the fuck is this woo woo weirdo talking about move to la and start talking about appreciation where's the crystals | |
Sam Parr | I laugh because we do that and it's definitely still uncomfortable | |
Ramit Sethi | oh yeah okay fine damn impressed | |
Sam Parr | like I think you told me about it like I've been doing we've been doing these for years but I'm like I'll like you or someone else like share something and I'm like I'm gonna add that | |
Ramit Sethi | yeah I'm thankful I'm so I appreciate that whenever we travel as a family you always make sure we get to the airport at the right time simple I mean you cannot say enough nice things alright so that's number 1 number 2 is partner 1 updates quick things usually each partner will own one part of the financial system it could be they own how much you spent on groceries last month or it could be making sure that this account flows to that and changing things just a quick update if something has not gone right like hey we agreed that we're we're gonna spend 700 on groceries last month I actually wasn't able to hit that it was 8.50 here's what I'm doing about it next month right they own it they get ahead of it they talk about what they're doing as a plan take shine a light on it don't let it fester partner 2 does the same thing 3 then you're doing joint updates so are there any things we need to talk about together hey what's up with your 401 k are you having the correct match that kinda thing 5 review our numbers so like are there any critical numbers I actually don't look at many numbers on a monthly basis because we plan it on an annual basis and we look at it on a 6 month quick check-in because that gives us time to adapt if we need to but I'm not trying to look at the freaking price of noodles in february I don't wanna talk about that 6 open issues anything open and then 7 wrap it up always end with I love you I appreciate you give each other a hug start to align money with feeling good and it might feel cheesy at first you do it 4 5 10 times you're gonna actually start to feel it | |
Sam Parr | you tweeted out this thing or I think it was from the book that you shared but it had percentages for it had like threat like benchmark numbers of like save this% invest this% spend this amount on guilt free things can you do those same percentages but for a couple that earns 300 or let's we're we're actually gonna round up for math $500,000 a year | |
Ramit Sethi | okay I'll give you the standard numbers first quickly and then let's talk about how things change if you earn more so there are 4 key numbers you need to know in your financial infrastructure I love it just 4 you don't need to track the price of pickles the the first is fixed costs that's rent mortgage groceries debt auto that's 50 to 60% of take home pay next up is investing that's 5 to 10% of take home pay of course that's where real wealth is created so I would prefer the higher the better next is saving this is an emergency fund saving for a down payment even saving for a kid's activity or a vacation 5 to 10% and finally my favorite one of all guilt free spending this is eating out travel buying a round of drinks whatever 20 to 35% so for me the beautiful part is if you can fit it in like tetris fantastic you can buy whatever you want as long as you're hitting these key numbers it's very freeing now when I look at couples or individuals who make a lot of money 500 k as an example there's a couple of things that are common the first is their fixed cost number tends to go lower because their income is higher so instead of 60% or in some cases people have 60 70 80% their number is like 50% it's on the lower end of that range once in a while depending on where they live it can even be lower than that their investing is typically higher people who are making that kind of money typically not always but typically tend to be a little savvier with investing and because the price of bread is basically the same like yeah you might spend double the price on bread but you're not gonna spend 50 times more on bread therefore you have more money left over typically that goes into investing some of them save aggressively so sorry they for investing they might have 15% of take home pay if they're in the fire community or they're very aggressive they might go 20 25% of net pay I like to see that number around 20% as your income gets up because you when you have that kind of money take it make it work for you you have the earlier you can do that you can really let it ride and grow savings 5 to 10% sometimes they go a little bit higher you know what I often find with guilt free spending they can certainly be spending at the higher end of that 35% of 500 k is a lot of money or 35% of the take home | |
Sam Parr | oh these are all post tax | |
Ramit Sethi | correct post tax sometimes I will see people who are investing like crazy they're doing 40% or 30% of take home pay and I'm like there's a lot of money your savings is really high and then I get down to the bottom of the conscious spending plan and they're spending like 8% on guilt free spending and I'm like what do you guys do for fun and they're like they always say the same thing well you know we like to go we go to the park we actually have money set aside and then I go like this do you actually spend it and then they both look down because they wait till the end of the year they don't spend their money and then you know what they do with the money that's left over from guilt free spending they sweep it right into their investing and they go we're so good we don't spend money we invest it that's a big mistake you need to learn the skill of earning money you you need to learn the skill of managing money but you also need to learn the skill of spending money meaningfully so if you're making 500 k you should be learning how to spend that on the things that are meaningful to you | |
Sam Parr | how do you get someone who's a worrier to start spending | |
Ramit Sethi | it's very difficult let me tell you why it's so hard I I frequently have multimillionaires who come on my show and you know sometimes one or both of them is like we wanna learn how to spend more and people listening are like what kind of freaks don't know how to spend money that doesn't make any sense | |
Sam Parr | I'm one of them | |
Ramit Sethi | yes it's a very common affliction and it is an affliction because there there are a lot of reasons for it often people grew up financially insecure family only said we can't afford it the only way they've related to money is scarcity but when the numbers change they change faster than the psychology changes the problem is that you can get to a. Where you have more than enough but you're unable to actually spend and I see several things happening 1 I see people who realize at a certain. Like this isn't something's wrong we have these numbers on a spreadsheet but it doesn't feel real | |
Sam Parr | I went through this where it was like as an entrepreneur who so my business I sold it and made I had a windfall leading up to that it was like like I think I think I ran the company for 4 years but something like the 1st 3 years well the first two years I paid myself roughly $24,000 a year which was so stupid people should not do that because my business was doing fine I could have paid myself more and so the 3rd year was more but it was like $100,000 a year which in san francisco is not like crazy amounts of money so but so there was like a long. Of like not a lot not a lot not a lot a lot and then it took like another 3 years to acclimate to the reality | |
Ramit Sethi | I love that reality it's pretty unusual most people don't get the windfall like you did but it may as well be the same thing because they look at the numbers and they're still feeling the way they felt when they were 7 years old sitting around the dining table and their mom or dad said how dare you ask for that we can't afford that and so I know you've been on a journey to spend more money it's awesome to see you talking about menswear now talking about taking your family traveling like that's not easy that is really not easy what what I find is the ultimate thing that happens with folks is they start to ask for help and they look around and they make 2 mistakes 1 is they ask for help among a bunch of other frugal people so I see this in the fire community every day hey everybody I I realize I've crossed my fire number but I can't seem to know like I can't seem to bring myself to spend money and then within 3 comments people are like you don't actually need to spend money it's actually better to save you should save it because who knows what health care's gonna cost in 2,065 I'm like you're asking a bunch of frugalistas how to spend money you're asking the wrong community well it's like asking me how to go camping don't ask me I have no idea okay that's the first 2nd is they come around and they start to actually try something maybe they eat out at a restaurant whatever and the first time they do it it's it's not particularly great maybe they picked a bad restaurant maybe they don't have the palate for it maybe they hired somebody to come clean their apartment or house and they don't like how the person folds their clothes okay that happens so then they go this shit doesn't work I actually I'm a good person because I don't spend money I don't need to do all this frivolous stuff that other people do so they've created this self contained tautology which ensures that they're never gonna change there's a much better way to do it it's to build the skills now it's to start spending on little things discover what you like what you don't become clear with your money dials enjoy it do with a partner and over time you learn that spending money as a skill is often as important as earning and managing it too | |
Sam Parr | and I think that like the important thing is figuring out what makes you happy because you like there's been times where I'll talk to you or me to you and we force what makes us joyful onto the other person like for example you like fancy hotels and you're like you should go stay at this hotel it's like that's just not it I'm not I'm I'm kind of this is a fake story a little bit because you don't do this too much but or or maybe even ever but it's like go stay at this like fancy hotel you're gonna love it it's like that's not my I don't I don't get joy out of that but what I love is like services like monthly services like so for for you for example you don't own a house because you're like I just don't get joy from that and I don't I don't know what your apartment looks like there but like for all I know it could be just like a very very modest apartment because you get joy spending elsewhere and I think that that's like a really that's a really challenging thing for people to get over because for example they'll say like here's a really easy one they'll say like buy a home it's a great investment and I'll say well it's typically not a great investment or or like that's not the reason to buy it and they're like well you're gonna throw away money on rent and I'm like well you're not throwing money away I'm acquiring a service and it makes me happy and I'm also like buying I'm like I'm my money is now in a in the index fund that's growing so like that's a good investment and they're like so you shouldn't buy a home and it's like well no no definitely buy a house just like I bought a steak last night I bought this steak last night because it brought me joy and if like owning your home makes you happy and by the way it oftentimes could be a good store of value but like which is a which is just a cherry on top but do it because you work and this makes you happy and that's a good reason to do it it's hard for people to understand just doing something because it brings you joy and and I've been there too | |
Ramit Sethi | yes I love what you're saying and I love watching you on twitter because you're one of the only people who actually understands buying a primary residence is is sometimes but often not a great investment here's what I think I think that people use the word investing way too much like I have a personal trainer that's not an investment that's a luxury if I if I were to buy a house today that would not be an investment that would be the most expensive luxury I have ever bought I will lose 1,000,000 one day when I buy a house I guarantee it I'm gonna lose mil and I'm gonna do it with a big smile | |
Sam Parr | and you're gonna be ridiculed on the internet because people know you as the guy who has they they they say but ramit you said never buy a home | |
Ramit Sethi | well illiterate people who don't actually read what I've said I never said don't buy a house I said run the numbers then consider the nonfinancial and then but yes you're right there's gonna be | |
Sam Parr | a big | |
Ramit Sethi | problem when I buy a house anyway we use the word investing a lot to justify purchases like I've had people who literally said buying a mattress a $2,000 mattress is an investment that's not an investment that's a luxury so and when I asked him I this got me very obsessed how do you know if you can afford it and do you know what people said to me they were like your back is the most important investment you can make I was like hey when I ask a question about affordability your answer better have a number in it affordability is a number not a feeling and what I've realized is so many of us use investment to justify purchases | |
Sam Parr | but what's the the ramit approved answer to that | |
Ramit Sethi | my so my answer for an investment I narrowly define it as something that can provide a financial return simple otherwise here I am justifying a $3,000 a night hotel oh their air conditioning is triple filter therefore the hair on my arm doesn't stand up therefore I can write a new book that makes me a $100,000 it's bs same for the face cream I use it's not an investment it's a it's okay to say I like this and I'm going to buy it because I like it that's totally fine now the affordability question becomes more complicated you have to know your numbers and you have to have your percentages dialed in but affordability is a financial question it is not about feelings and for the optimizers listening I will say sometimes when you're talking to a partner who's not an optimizer they wanna talk about feelings and in the book I emphasize how important feelings are you've got to meet your partner where they are you can't just talk about numbers alone but sometimes you need to actually engage with the numbers feelings are good you should spend a lot of time on them but at a certain. | |
Ramit Sethi | You're running a business the business of the household and you need to look at the numbers | |
Sam Parr | how do you get over disagreements like if you or your wife is complaining to each other | |
Ramit Sethi | the most common reason for these disagreements is there is no shared vision of a rich life it's literally one episode after another of nitpicking and the perfect example I have is a person who wrote me on instagram dm and said can you convince my husband to stop buying iced tea every day I said okay how much does it cost she goes it's $5 every single day we can make it at home I said okay interesting hey out of curiosity what's your household income and she became very cagey but I generally asked her to share it she lives in new york she and her husband you want to guess what they make | |
Sam Parr | I don't know what $200,000 a year | |
Ramit Sethi | $600,000 a year so what you could see is that it's really not about the $5 to him it was like hey we work hard this is just a little treat that I enjoy every day it's great to her it was values based on how she was raised and why would you spend money outside a couple of thoughts when couples have disagreements whatever the scale the first is I always ask them what is your rich life couples don't know they never talked about it they've only talked about why'd you spend that much on a drink so what do we want in our life what's important to us do we wanna travel do we wanna send our kids to this activity get into all of that which I go into detail on the next is to have your accounts set up so that you don't have to have $3 conversations sam you said that the audience we're talking about today makes 200 or so + k per year you should not be talking about $3 purchases if you're making $200,000 a year if you are talking about $3 purchases you have misaligned your money systems and you probably don't have a rich life so the way that you set up your accounts to be united in a marriage I highly recommend all the money goes into a joint account and from there you each have some of the money flow to a separate individual account a no questions asked account which both of you know about but each of you only has access to your own and if that person wants to buy the $5 lemonade or the $20 tip it's totally up to them that's their money no questions asked that is how you unify your financial relationship and also give each other a little bit of flexibility | |
Sam Parr | yeah I did that this year I have like my own little my own account | |
Ramit Sethi | how how did it change things | |
Sam Parr | you know I think that even though you called me an optimizer I'm a little I'm more of a worrier and I I I definitely feel I feel guilt oftentimes buying things if they're above a certain amount maybe in the 1,000 of dollars range and so I put $20 into an account because I was like here I'm newly into somewhat newly into clothing and I got interested in like the the the craftsmanship and a lot of like this japanese shit that I love it's like pretty expensive like it's like $600 for like a button up shirt but like it I'm just like deeply fascinated by what I'm reading and I just wanna like feel and touch it and it's interesting to me but I would feel a sense of guilt around it so I was like look I've allocated $20,000 I could spend this guilt free and so I will spend it I still feel guilt but it's it's definitely less guilt but now at least I know that like I I used to feel a little sense of I'm disappointing sarah because even though she's like on board with it I'm like I'm taking money away from from the shit that she could use for something else and I was like and I'm also like I'm embarrassed to spend $600 on like a shirt and I don't want her to know do it it came from all these just being raised poor shit that like you you know it it never goes away you just like it's just like any other like daddy issues anyone ever ever has you it never goes away you just try to manage it | |
Ramit Sethi | yep I like what you said about I used to feel that I was taking away from her yeah and what I see in the way you talk about it and how curious you are because we text about this stuff a lot is it feels to me now you are actually adding to your own curiosity of course your family finances should be dialed in of course you should have all your ratios working and your money flowing of course but we should remember that 2 partners have got to be intellectually financially fulfilled it makes them better partners and as long as you're managing your joint money you should be spending on your own one of the one of the worst things I see this happens a lot with men is men become shells of who they used to be so you talk to a guy in their twenties they have all these hobbies and interests you talk to them by their fifties and I go what do you like to spend money on they go whatever my wife does I go we're not doing that here answer my question what do you like to spend money on and a lot of times they've lost all hobbies I see that in myself I have to fight to to try to find some new hobbies because if it were just up to me I would simply shrink myself and so this happens to happens to a lot of people but especially men and I I wanna encourage us to try to fight against that | |
Sam Parr | when I was kind of up and coming in my like entrepreneurial journey I used to make fun of like like self development people which you you fall in that category and so do I and I'm gonna stop | |
Ramit Sethi | playing right now | |
Sam Parr | well no but like I wouldn't make fun of you but like just the idea of like people would be like I'm hiring like an executive coach or I'm hiring a coach I'm like what like man up what are you doing and then I and then I started like hiring a fitness coach and then a nutrition a nutritionist and by the way a fitness coach could be like as cheap as like 50 or $100 a month with like future or one of these things but basically just someone to like answer questions and then also just tell me what to do and I started doing that for so many different things so I did for it starts with fitness because that's the easiest application but then you're like we we actually hired a a home organization expert to come in and like teach us and I'm like dude this is so much better way of learning to like read a book and also like you know the book youtube whatever all that stuff take it the general knowledge but then have an expert come in and pay them money yeah it could be a small sum like you could you could do a lot of this shit for a $100 like a cooking class or something like really simple on groupon if you really wanted to but like simple coaches to come in to teach you but then the best situation is like some type of ongoing like class do you know what I mean it's like the greatest way to learn | |
Ramit Sethi | I love that you said that I also love that you said I used to say man up because just think about what's embedded in that phrase right that suffering is masculine and that if something is hard it is therefore more valuable I think there's some truth to some of that but I also think | |
Sam Parr | that yeah yeah like there's grit grit's real | |
Ramit Sethi | yeah agree and I think that sometimes we make things too easy for ourselves and there is value in a challenge but I also think that there's no prize given for living a smaller life than you have to so I I really wanna inspire people to think about the things that you are interested in there's probably somebody who can help you enjoy it more I talked to a guy in the fire community and he was like I just don't really like to spend money like I'm good so I asked him like what do you like and he gave me these generic answers so I probe I really like to ask tell me more he goes I love coffee and he goes I buy these beans okay and he's like that's that was the limit of what he thought he could do I said hey what if you hired a barista to come to your house and teach you how to make your coffee in even better it never occurred to him and I love that he was receptive he later went on to do that imagine that that's a $100 $200 incredible I had a a book that I read about posture I was like I don't understand these freaking diagrams how am I foot I don't get it so I hired them to come to my apartment and teach me how to improve my posture that posture coach was transformative for me | |
Sam Parr | did it work this that worked | |
Ramit Sethi | dude it changed my life when we think about posture I I had something that was going on like when I would stand I would find myself crossing my legs it became uncomfortable on my back and I'm like this is weird I'm like a young guy why and I finally going from problem orientation to solution orientation is like a major shift we can complain about stuff all day long but there's a certain. Where some people go I wanna fix I found her she came to my house the first thing that happened when I opened the door she looked at me and she was like shocked but she's like what and I was like hey why are you looking at me like that and she she said something to the equivalent of her average client is like 75 years old and I was in my late thirties at the time and I said look I've got a little weird thing but really this is preventive I wanna learn how to be better at this before I have problems and that is the dream of any coach is for somebody to come to you before they have major problems proactively we worked together I think 6 or 9 times she taught me it's posture is not just about putting your shoulders back it starts from your feet and your knees and your glutes the way I walk she videotaped me walking and changed that and the pain there's no pain there but more importantly I can understand how the body works a little bit better than I used to | |
Sam Parr | to to the last question I wanna wrap up this is funny that you put this on this doc that we had but someone messaged me he's a good friend of mine and I love him to death so I'm making fun of him but I I I I love him he was like I wanna come in and talk about credit card hacks and I was like you know like ways that you could save like get like 5% cash back and shit like that and I'm like I get why you you like that and like sometimes that's always fun to geek out on like cool puzzles and whatever but like that's not needle moving to me or to a lot of people like I don't give a shit about like you know 2% cash back because that means I gotta have like 10 credit cards and that's like fucking complicated and it's like just to make $1,000 it's like I'm gonna spend like 10 hours on this I'm probably gonna forget the pay like it just this is a fucking nightmare and you have on here you're like fight for simplicity the more successful you get the more you have to fight for simplicity I have found that to to be true and this is definitely a champagne problem but I was like some things get as you get a little make a little bit more money like you start thinking like well everyone else has a wealth adviser or everyone else is doing this or people everyone else is investing in pe should we like do these things should we do that and what's funny is like maybe there's some other level I'm sure there is like when you're worth 100 or 1,000,000,000 of dollars where it's like yeah like you actually do need to be a little complicated but for the most part for most everyone listening simplicity is the answer I think is that right | |
Ramit Sethi | I think so I understand why when you're up and coming and young it it's fun to do credit card hacking I get it and it's fun to just learn new skills I I get that but I have found that it's very difficult to turn off the grind mindset and to become much more calm and run things like a ceo not a hustler I find this is true a lot with personal finance people I know people who are worth a lot of money and they still do credit card hacks and if we look at how much they make it's a negligible amount like I do it because I cannot turn the page on what got me here and I don't realize that what got me here won't get me to the next level so part of fighting for simplicity is that as you advance up whether it be financially relationally etcetera there are things that you simply cannot afford to do anymore so I I would not afford to be able to open up 10 new credit cards to save a total of $1,800 per year that does not compute for what I'm trying to save and invest and my time that's a so that's very important to know as you advance you've probably gotta stop doing certain things that got you here and think about what is the new chapter of my life | |
Sam Parr | you're the man thank you for doing this | |
Ramit Sethi | thanks sam always a pleasure man | |
Sam Parr | when's the book officially out | |
Ramit Sethi | the book is officially out january 1st | |
Sam Parr | oh sick alright 2 day 2 or 3 days thank you for doing this you're the man we appreciate you |