Feed Drop! Money For Couples - 192- We spend 98% of what we make—Where is it all going
18:09 Share

This is Smart People Podcast. A podcast for smart people, where we talk to smart people, but not necessarily done by smart people.

Hey, Smart People Podcast listeners. We have a new show we can't wait to tell you about. If you ever wonder, where's all our money going? You're not alone. In episode 192 of Money for Couples titled, We Spend 90% of What We Make, Where Is It All Going? You'll hear real stories and practical strategies to help you align on finances, stop money fights, and build a shared financial vision.

We're going to play a portion of that episode for you now. If you want to hear more actionable strategies to build your rich life today, search Money for Couples wherever you listen to this podcast. On today's episode, meet Justin and Deepika. I'm thinking more about the future, and I think Justin is very much thinking about now. Justin is 40, Deepika is 32, and they're caught in a cycle of credit card debt, even though they have a high income.

It feels like we are living paycheck to paycheck and it stresses me because we just have the money we have and then we wait for payday and we do it all over again. Justin has a side hustle that he wants to take to the next level, but his business partners are not as invested as he is. Me...

My brother and my family bought this building. And then finally, when we finally did pay it off, all of us kind of like went our separate ways. Deepika wants to eventually buy a house, but she can't figure out where they're overspending. We've looked at our credit card statements time and time again. We cannot figure out what is causing the revolving cycle of debt.

They both struggle with their money psychology. It's like the second you get a dollar, it's, oh my God, it's a dollar. Oh, what can we do with this dollar? And it's that one dollar brought us joy, but then it was this fleeting joy. Money is for rich people and you have to work super hard to get it. And they don't have a shared vision for their money, which is preventing them from living their rich life. I have to understand that

For the first few years of our marriage, we weren't allowed to have dreams. Can they kick their old money habits to the curb and adopt a different strategy for managing their money? It seems like the folks around us have been able to figure this out and we just haven't. And maybe the answer is so obvious it's right in front of me, but we have not been able to figure out what the change is that we need to make. Now, let's meet Justin and Deepika. ♪

All right, I've got Justin and Deepika CSP in front of me getting ready for our conversation. Let's take a look at what I find. Let's take a look. Assets, 5,000 bucks. Investments, $111,000. They mentioned that Justin's income goes towards savings. Maybe that counts investments too. Savings at $38,000 and debt at 43K. Okay, it's all about the income here. What the hell? $21,000 per month.

month Okay

So they make $260,000 a year. All right. What's the problem? First off, okay, they're taking home $13,000. So they're at least presumably maxing out 401k. How they have 98% fixed costs at that income, especially when their mortgage or rent is $1,650 a month. Whoa. All right. Where's the money going? Utilities at $700 a month. That's high, but okay. Insurance at $3,000.

$3,800? Why? How can insurance be $4,000 a month? Okay, well, we'll find out. Car payment, $1,800 a month? No, hell no. Debt payments at $4,000.

Groceries at 800. I told you it's always 800 to 1200 bucks. Clothes 200 bucks a month. You can't spend 200 bucks a month on clothes when you have 98% fixed costs. Investments are at zero. Okay. Savings are at zero. That's a problem. We got a spending problem here.

That's it. I mean, it's all in the fixed costs and we can already narrow it down to a few different areas. All right. I'm going to find out what's going on here, especially with a salary this high. There's something going on here.

When I saw the different prompts on your Instagram, the one that stuck up to me was the one about having the business idea and not having it pick up off the ground. I saw this and I thought of Justin. Justin and his business really is this incredibly untapped financial resource that we could be benefiting from. It's something that he's been wanting to do for a few years now. He had the LLC created after our son was born.

So he has done a lot of the groundwork. So typically, when it comes to all things finances and larger decisions, because I take on the weight of the world on my shoulders at all times for all the people in my life, I'm stressed about the untapped financial stream that could be coming from his business. If we want to do something like buy a home or...

try to do something for our son's future, we don't have the resources to do things like that. And I think like that's what my concern is. So I'm thinking more about the future. And I think Justin is very much thinking about now. Justin, I never focused on future stuff. I've always focused on what happens now. So she's absolutely correct. There is money to be made in what I'm trying to do. But I always feel like there's

Always some sort of blot. My biggest problem right now is I'm trying to renovate the space and I either don't have time or I'm trying to do other projects and so many other things jump on top of it that when I try to focus on the business, it never really works.

anywhere. Is your full-time business? No. So I have a full-time job and this business is more of like a side hustle. Okay. How long has it been a side hustle for? 15 years. What? You serious? So me, my brother and my family bought this building and

And me and my brother were in the mindset of... We can turn this place into a recording studio slash venue. Because it has multiple levels. We all pooled our money together. And we never had enough money to actually put into the building. It was just a matter of paying it, paying it, paying it. Making the bills or meeting the bills. And then finally, when we finally did pay it off... All of us kind of like went our separate ways. So it's just me thinking like, hey...

This is a great opportunity to do what we originally wanted to do. What about the family members who put money into it? My brother is now in Miami. My older brother is here, but he's not very much interested in doing this anymore. Did you buy him out?

No. When I got the building, he didn't have a place to stay. So I renovated the top into an apartment. The main floor is a venue and the lower level is the studio. So he still lives up here. This doesn't sound like a structured business, right? They don't really care about the money, but legally they would be entitled to it. There's like somebody living upstairs, not paying rent. Does it sound...

unusual to you as I say it? Yeah. So that's... I went through this in therapy as well. And what happened? It was basically like, you do realize like this is toxic. Things should be. Oh, okay. She said it, not me. Yeah. Thank you, therapist. Don't worry. Okay. And then what did you do? I tried to talk to him, but he doesn't want to pay.

So you just want to like, you know, stay for free. Okay. So you told all the details to your therapist, presumably over multiple sessions, your therapist was like, this is super toxic. And then you went to your brother. You're like, Hey, not sure if you should stay here for free. And then he was like, Oh, I'm not trying to pay rent. And you were like, okay,

Yeah, basically. It's like a family thing. Like, yeah, you get involved in family and then, you know, this kind of stuff happens. Are you Indian? Of course. Okay. All right. So this explains a lot. You want me to set up the call right now and get all the family members on Zoom? I'm not part of the family. I'll wrap this up in 15 minutes. All right. Maybe not.

So, all right. Now that I understand a little bit more about the family business, Deepika, what's your take? I think it's a fantastic opportunity for Justin because he's actually been doing a majority of the manual labor. He's the only one that has the vision and wants to execute on it. So I'm in full support of him actually moving forward with his business. I think it's just a matter of prioritizing and finding the resources to actually execute. All right.

So we have this side business, has a lot of family embroiled in it. And Deepika, you're managing your family finances on a day-to-day basis, things like tracking things, planning where the money's coming from for vacation, those kinds of things, right? Yep. And Justin, do you ever feel stressed about money? It's not something that I stress over only because I feel like we have a safety net.

When we have it, it's great. It makes me happy because you can get what you want in terms of like, you know, gifts, vacations. You don't have the stress of, oh no, I can't do this or I can't afford that. So yeah, when money is there, the levels of stress are down, which to me makes me happy. It doesn't really surprise me that you are stressed out Deepika and Justin is happy because he's like, yeah, whatever. The roof is here and we're eating well and it's good to go, right?

You've seen this pattern on the show before many times, right? Yeah. Yeah. We have the warrior. We have the avoider. The avoider is like very happy. And the warrior is like... Sometimes they try to get them. They get into this chaser-avoider dynamic. But in general, it's just like...

It is what it is. And in fact, you said Deepika that you tend to take on the world in lots of parts of your life. Well, I think we should start with looking at your numbers because I understand the general dynamics, but I don't really understand what's going on with your finances. Let's take a look at the numbers, shall we? Yes. Justin, can you read off the words in bold and then the number in full next to it? Assets, $5,000.

$328,000. Investments, $111,793. Savings, $38,000. And then debt, $43,251. Total net worth? $111,870. Great. What do you think about those numbers?

It's scary. There's really not much there. Deepika, you want to add anything on those net worth numbers? Yeah. Now that I'm looking at the numbers, I don't know if we did the assets part right because we have four cars. You have four cars with two people?

Yeah, it's a long story. So you have these cars, but your assets read only $5,000. We were confused. How do you value it? Just plug it into Kelly Blue Book or whatever. Yeah, let's just approximate it right now. Who cares? It doesn't matter. Get it right within $10,000. It's fine. It's probably worth $40,000. Okay. We'll put $40,000.

All right. So your net worth is $151,000. Okay. That's cool. Again, you can tidy up the numbers later. At this point, it doesn't really matter. It's just directional. Moving on. Let's talk about income. Deepika, can you read off this combined gross monthly income, please? Sure. $21,684. Per month. That's a lot. What do you think about that? Doesn't feel like a lot.

I just feel like we're middle class. You guys want to say it? Go ahead. Get it out. It really feels like we are the epitome of middle class. By the end of the month, we just don't know where it all went. Right? Okay. You got it. Yeah. All right. All right. All right. Your net income, I found this interesting, is $13,577. Why is the difference so big?

Justin pays, I think it was $1,900 a month for health benefits. It's mind-blowing. He's part of a union, and I think maybe the health benefits are included in the union dues, and maybe that's why the number looks so inflated. But that was a very eye-opening moment for us because I don't think either of us realized how much was going towards health benefits and union dues until we completed this.

Is there a pension involved as well, Justin? Yes. Yep. And is it a pretty good pension? Yeah. So once you finish the years, I think we get around $2,700, $2,800 a month. $2,800 a month. Okay. Are either of you contributing any pre-tax money to a thing like a 401k? Yeah. Yep. How much? I think mine was 2% or 4%. Mine was about the same. So like about $650 a month towards a 401k total. So about...

$7,800 a year. All right. But what really concerns me is the next number. What's this number, Deepika? The fixed cost number. 98%. Okay. Justin, you see that number? Yeah. What do you make of this number? What number should it be, theoretically? 50% at least. 50 to 60. Yeah. And for a couple with an income like yours, probably towards the low end, if not even lower.

Because your fixed costs don't tend to often scale as much with high incomes. So we got to figure out what's going on here. I'm going to dive into those fixed cost numbers in just a second. But let's keep going down the list just so we see the rest of the CSP. Your investments are at zero. So you're basically not contributing anything more beyond your 401k, which explains how the investments, which theoretically should be higher with an income like yours, are not higher.

Your savings are at zero. You have about three months of savings and that's it. And then finally, your guilt-free spending, you put childcare for $1,200 and then you put everything else $500 a month. Do we all agree that fixed cost is a problem area? Huge problem area. Yeah. Okay. And Justin, do you agree as well? Yeah, absolutely. All right. We're narrowing it down already. Let's try to figure out what's going on here. Do you rent or own?

The rent. Okay, your rent is $1,650. That's good. That's 10.83% for housing. Whoa, whoa. And that includes your utilities, which are 700 bucks a month. What's up with that, by the way?

We have done a lot of investigating over the last couple of years. For some reason, our gas and electric combination bill is sometimes north of $800, $900, which is unheard of. We've asked the gas company what's going on. We've had them check for gas leaks. We've had them come and look to see what's going on. How could it take a couple of years to figure this out? We can't.

We can't get anyone on the phone. We've just been in this cycle for the last two or three years and we can't figure it out. There's something going on there. Maybe it's right, maybe not. But let's keep going because we got a lot more. Insurance, you're paying $3,835 per month for insurance.

What is up with that? It's the union. That's how much they take out of the paycheck. It's almost like half per paycheck. Well, have you asked your friends at work like, hey, do you pay this much? So when I talked to them, they said it's a pretty high amount. I just left it at that because I'm not very good at this stuff. I don't mind not being good at money. None of us is born being good at money.

But it's a skill we learn, right? Like, what do you do for your union job? I work in event services. If you asked me how to do that, I'd be like, I don't know. I'm not good at this stuff, which is true. But if I wanted to get good or it was something important to my life, I would get good, right? It's just like, it has to happen.

So already we're going down this list and we're three things in. And I've heard, I don't know why we're paying that much, but we just can't figure it out. And I'm a little confused. I don't hear this from almost any other couple. I can understand one month, three months, six months, but like two, three, four years doesn't make sense to me.

I'm going to be honest, Deepika and Justin have me a little bit confused. Their fixed costs are at 98%, which is very high. It means that they are essentially spending every single dollar they make. But that's especially confusing at their income level. They're high earners, and their rent is extremely low. And when I asked them specific questions like, hey, why are you paying so much for insurance? Or why is your electric bill so high? They give me a very casual, I don't know.

I don't know. It's like when I'm seven years old, I come home, a big old stain on my shirt. My mom goes, how did you get that stain? I don't know. Which, by the way, does not work. The world has a way of making you tell the truth, whether you want to or not. So you might as well do it early on.

Now he uses the excuse, I'm not good at this stuff, and then happily continues avoiding money. Meanwhile, Deepika is on a different end of the spectrum, worrying, stressing about their future. It's not a healthy way to approach money.

You just heard the first portion of episode 192 of Money for Couples. If you're interested in hearing more real, actionable advice with stories from real couples who face the same financial challenges you're dealing with, search Money for Couples wherever you listen to podcasts. Let's start building your rich life today.