David, 33, and Halima, 37, are nearly $520,000 in debt.
But, “I actually feel like I’m rich,” David told self-made millionaire Ramit Sethi on his “I Will Teach You to be Rich” podcast in December. Their last names were not used.
The couple makes a combined $192,528 a year, and the mortgage on their New Jersey home makes up most of their debt. They came to the podcast hoping that Sethi could help them figure out how David could retire early.
Here’s a look at their finances at the time the podcast was recorded:
- Assets: $524,000
- Investment: $11,249
- Savings: $63,752
- Debt: $517,045
- Net Worth: $80,956
Their debt includes their $447,000 mortgage, as well as $47,144 in car loans and $22,900 owed on credit cards.
A series of red flags left Sethi worried that not only would the couple fall short of David’s early retirement goal, but they could face even more financial upheaval if they don’t change their attitudes and money habits.
As Sethi told them, “You’re making a lot of money, but you’re not making money that a lot of money.”
Here are three money missteps that helped put David and Halima in the red, and how Sethi advised them to get out.
1. Chasing someone else’s financial dream
David and Halima got out of a terrible financial situation earlier in their lives, which is part of why they feel good about their finances today. Owning a home was like a dream come true.
“Buying a house was instilled in me,” Halima said. “Growing up, it’s like you have to get married before you have kids, buy a house — that’s the American dream, that’s why my parents came (to the U.S.)”
But Sethi said the dream doesn’t have to be everyone’s goal. He asked Halima what was coming after the “house with the white picket fence” and neither she nor Sethi knew the answer.
“So many of us follow money stories that someone else wrote for us, and they didn’t even finish it,” Sethi said. “Don’t just follow an idea that someone else created.
What David and Halima were really looking for when they bought the house was safety and security, Sethi said. And home isn’t necessarily the only way to do that, he told them.
Specifically, their home has become something of a money pit. They bought a “fixer top” and spent thousands renovating it, bringing their total credit card debt to nearly $23,000. Sethi recommended that they stop renovating and pay off their debt as soon as possible before jumping into another project.
2. An “unrealistic” view of money
Although they currently have a solid income, some of their rocky financial footing comes from around 20 years of David trying various “get rich quick” schemes, as Sethi called them. Over the years, David has tried to make money through two different multi-level marketing companies, invested in cryptocurrency, and earned his real estate license.
“I wanted to create a life where I can take care of my wife and kids, no (I have to) say no. I want to give them a better life than I had,” David said of his money habits.
But as he learned the hard way, none of these ways were easy or sustainable ways to build wealth.
Although David now has a steady income, he still falls into money traps, Sethi said, such as thinking a 0% APR balance transfer deal is the solution to their debt problems and buying a timeshare to save money for a vacation.
“David is looking for ways to get rich quick,” Sethi said. “He confuses wants with needs and basically buys things without understanding how they affect his big picture.”
He encouraged David and his other podcast guests to talk to a therapist who can help them uncover where these beliefs come from and get to the root causes of any issues. A professional can help him “understand why he has this unrealistic relationship with money that manifests itself in so many different ways.”
3. Not working as a team
One of the issues behind the couple’s financial distress is the fact that David has been making all the financial decisions himself because Halima doesn’t feel good about her financial literacy.
Additionally, both have long held that the “master of the house” should be the primary provider, and as such, David is competitive with their individual salaries. But they didn’t succeed very well.
“Life is better now because we have each other,” David said, highlighting the struggles they faced as individuals before they met. “But financially, we’re back in the hole.
Sethi asked Halima to take money seriously and try to ask questions when she doesn’t understand financial concepts. But he also encouraged David to see Halima as his teammate, not someone he should ever compete with.
“You can definitely push each other, you can set ambitious goals, you can (say), ‘When we hit this number, let’s do X,’ that’s very motivating,” Sethi said. “And you can congratulate your partner — ‘Oh my God, you’ve done such a great job. I love you. I feel totally confident with you’ — those are the ways you can be a team.”
He pointed out that if two people compete and one of them wins, the other is the loser. “I really don’t want my partner to feel like a loser,” Sethi said.
Watch the full podcast episode here.
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