You said we cannot eat out.
Yeah. Because of our housing. We are supporting two households in two different states. It is eating into all of our ability to do anything else. I don't want to just exist in the two houses not doing anything.
Let's take a look at the numbers. Whoa, you are essentially spending more than you make.
I've sensed a chill come over the room now.
We both really love our various home bases. For either of us to give up that is really tough.
If you change nothing, what happens?
You would not be able to pay for the houses. One or both?
I just need to make more money.
Well, it would work if nothing were about to change in two weeks.
Is there something happening in two weeks?
So, like where does the baby fit in financially speaking? Have we modeled any of that?
I'm anxious. I'm so anxious about having enough savings.
We have to make some decisions that might feel a little uncomfortable now, but they are a lifetime of comfort.
I'm about to speak to Nicole and Drew. They're 39 and 40 years old, expecting a baby in a matter of weeks, and they both live in two different states in two different homes that they each purchased. Nicole applied to speak to me. Let me read you from her application. She wrote, 'My partner basically needed me to buy a house. It was a non-negotiable for Drew to stay with me in a house without roommates, so I ended up buying a place. I'm wondering if that was a mistake.' She continues on to say, 'We are unable to eat out and to go to concerts because we are putting all of our funds into houses and needs. It consumes me and worries me so much.' Now, if somebody said to me, 'Hey, we intentionally are making this sacrifice because we want to build equity and blah blah blah.' Okay. But that's not what I'm hearing here. I'm hearing panic. I'm hearing regret. I'm hearing uncertainty, especially with a baby near due. I want to take a look at their numbers by pulling up their conscious spending plan. Okay, let's take a look. Assets 1.2 million, investments 183,000, savings at 67,000, debt 986,000, total net worth 516,000. Now, fixed costs 77%, which is quite high, explains some of the panic that I heard in the application. Investments at 3%, that's quite low. Savings at 10%, guilt-free spending at 10%. When I look at their financial situation, the word that comes to mind for me is complicated. Two houses, two different states, panic over what to do about their finances, and a baby coming in a matter of weeks. I want to get to the bottom of this. Let's begin by speaking to Nicole and Drew. Let's go back to the moment where you were filling out this application. Do you remember where you were, what was going on at that moment that called you to apply to speak to me?
Yeah, we'd been having a lot of conversations about our housing situation, given the fact that we are supporting two households in two different states. Housing costs are the biggest part of our, I guess, CSP.
And what is the tenor of those conversations that you'd had?
Tough. At times it feels like we have slightly different goals, and that's okay.
We both really love our various home bases for important reasons. I have family and community in Southern California, and that's really important to me, and Drew has family and community that she has built in Maui, and for either of us to give up that community is really tough. And it has been a conversation of can we actually support two households with our income?
Okay, let me understand your living situation now. So we have Southern California, Hawaii. What's the situation with the houses?
We are a bi-coastal couple.
Drew owns a 50% share of her house in Maui and it generates income through like rent.
And I own the house here in Southern California.
The house that you own a 50% share in, is that your primary residence as well?
Yes. It's kind of like a boarding house.
Is the structure. It's two three bedrooms and then two studios.
Oh, one of the three bedrooms.
Got it. Okay. We'll look at the income later, but is the income that it generates consistent for you?
What's inconsistent is the like repairs and housing costs that I, because I'm new, so I don't have, I didn't have like the numbers all laid out yet as far as what to expect.
And then Nicole, your house that you live in, that's your primary residence. How many bedrooms does it have?
When I'm not teaching, we spend our time in Maui, and during that time I rent out this Southern California home.
And then Drew rents out the three-bedroom space when we're not in Maui.
I'm very curious to look at the numbers and see how it plays out. Okay, that's cool. And the time period, like how much time are you spending in Southern California versus Maui and vice versa?
It depends. It's approximately 50/50, though.
Okay. Like, 6 months, 6 months?
About. I spend a little bit, I need to spend a little bit more because I teach and I have to be on campus, but Drew will come a little bit later and go a little bit earlier to prepare the house in Maui.
Okay. Cool. What do you teach?
All right. What area of psychology?
Developmental and research.
Very cool. All right. Awesome. When is baby due?
Oh my god. Congratulations.
It could happen right here, right now.
If you're lucky. Call the doctor. Best episode ever. First baby?
Okay. Just so I understand, how long have the two of you been together?
Yeah, 2 and a half years.
Okay. Married, unmarried?
We're on the road to our domestic partnership.
Yeah. It's just more legal hurdles.
Now, I do want to ask about the housing situation for a second. Nicole, I understand that you were living with roommates.
And I think you were quite conscious of your expenses. Is that right?
So, I was a really poor grad student for a really long time and made basically no money. I covered my tuition costs. Like, I didn't want to take on student loan debt. And so, I lived with roommates, and then even when I got my full-time job, I was living with roommates because I was, let's see, my housing costs were like 12%.
Whoa. So, you were a full-time professor living with roommates.
I can love this. This is so counterculture. Yeah, I love this. But just think of it. Who in America can even fathom the idea like I became a full professor and I am choosing to live with roommates? No, we believe, oh, I made it to this level, now I need an SUV, I need this house, I need that vacation, etc. And you were like, no.
No, it's amazing for me. I could save money. I could put money into retirement, things I'd been wanting to do for forever. I was in my 30s when I finally got this job and I was like, oh my god, I can finally catch up.
And I could go like I was living life so well. I could go out to eat and not worry about it. I didn't have to think about a budget because I knew I could cover it.
Yes. Okay, then in your application you wrote the following.
My partner basically needed me to buy a house. I was living with roommates when Drew and I met. I was intentional about saving money. It was a non-negotiable for Drew to stay with me in a house without roommates, so I ended up buying a place. I'm wondering if that was a mistake. Take me back to that conversation.
Basically, Drew said that if I wanted her to come and spend time with me, there could not be roommates.
So, it was like, okay, well, if I want to continue this relationship, I don't want to be fully long distance.
That's going to have to change somehow. I did want to eventually buy a house and I had been pretty aggressively saving, like I'd been putting $4,000 a month into a fund to buy a house. And so, it was like, okay, well, I could just move up the timeline a little bit, you know, instead of 2 years from now, I could just do it now. And instead of the $4,000 a month going into a savings for this house, it will go into the mortgage for the house.
How soon after that conversation did you buy the house?
Drew, what was going on in that conversation for you?
Well, you know, she couldn't come to Maui full-time because of her job. And so that would have been the ideal, you know, like I have a house, come here. And what was going through my mind was like I can't live with these random people and, you know, I just couldn't live like that.
I think there are circumstances where it could have been okay if there was some private space or like a better bathroom situation. It just was, for me, I felt like I was in college and I had been living a different way for so long. I couldn't go back and live like that.
Was that like a major disagreement for you or was it like, Drew, you said, 'This is what I need,' and then Nicole, you were like, 'Okay, cool,' bought the house?
And actually we had had the conversation earlier. We had had the conversation maybe six to nine months earlier and I had said, 'Can we wait for,' I think I said a year.
And we made it six months and she was like, 'I can't do this anymore.'
Like it's got to be either that or I'm just not coming for this next semester.
And so I was like, 'Okay, well, I saved for six more months. It's not the full year. But it's at least half of it. We can at least start looking. We can see what's within my budget.' And so I started looking and we found ourselves very quickly.
Yeah, the housing market was crazy.
How did you decide to buy versus rent?
Okay. So I know your philosophy on buying a house, but...
Wait, hold on. What is my philosophy on buying a house?
That you should know your numbers and only do it if it's right for you.
My god. Yes, you are correct.
And you personally don't own a house yet, and that's okay. That's right for you. And so I think at the time the decision was right for me in terms of I did run the numbers. It was within a percentage that was like reasonable. It was a little on the high end, you know, but it was around like a third of my income. And for being in Southern California, it felt like it was okay. I was already saving the amount that I was going to be putting towards a mortgage. It felt like it was an okay decision at the time.
All of that sounds amazing, ideal. You ran the numbers, it was roughly within parameters. You had already been saving the amount that you would then pay for the mortgage.
Amazing. So you know you've proven excellence that you can do that. I want to know about a time in the last, let's say year, where maybe you were not on the same page with money.
Maybe it caused tension for the two of you. Can you think of a time?
That we had a fight or I don't know if it became a fight, but when we were talking under the tree at Nicole's parents' house. I can like see it in my mind. It was just so tumultuous and I don't actually remember what was happening, but I remember my internal state was like one of feeling so much agitation, like, you know, brewing that I wanted to just hit the eject button and just be like, I can't do this and I need to go on a walk.
It was like actual numbers about something, but I did have to like walk away, like calm myself down, and then be like, okay, I can go back and I can talk about numbers for another hour.
Nicole, do you remember the topic?
Yeah, we were talking about housing and school. So, Drew's currently in school right now, and so paying for tuition, and that's been tough. And then we've had some issues with actually a little bit of instability with the renting situation in Maui, and it's been pretty stressful. And so we were having some really tough conversations about how to make that work.
What was your perspective, like in a couple of sentences?
There needs to be enough cushion so that if things go wrong, we don't have to scramble to get just anyone.
Okay. And what was your reaction to that, Drew?
Just like yes. Like my reaction is yes to, you know, we need to have somebody, we need to have a plan, you know, we need more of a cushion. And then just some overwhelm.
I'm curious about the way you said yes. So, you're like yes, yes, but also no.
Well, I'm like yes, and I don't know what the numbers are, and I don't know how to make that happen.
I'm not a numbers person, but I'm getting excited about numbers in life and being more grounded.
I think what actually made it more of a conflict was that I'm really numbers driven and practical, and it was like, 'Okay, we're going to need $3,000 for this, and we're going to need, you know, XYZ amount that we want to put away into a fund just for this, and how do we do that?'
And what did you notice about Drew's reaction?
Yeah. It was too much detail.
That's what I remember. It was like so like the minutia of it all was so overwhelming because it was numbers almost to like the cent or something, you know? It was just really intense for me, and I felt really frustrated.
Are you used to avoiding numbers?
I mean, sort of. I have dyscalculia, but you know, that's one thing that might contribute to it. And I do feel like I go by vibes, you know. And I can like feel the amount of something, you know, like around about. Like I'm good with a generalized like it could be a five to 15 and I'm good.
There's no need to figure out if it's 895. Like it's too much.
Got it. Got it. And by your smile, I'm thinking you treat money different.
I wouldn't say that I am needing everything to be down to the cent.
But I like to know to the dollar for relative things and then I will, I like, I have, I'm the one with the spreadsheet.
And so I look at our 12-month average or I'll look at a six-month average for things.
Drew, what do you do for a living?
I am a life coach and I'm in grad school right now in my last year to get my therapist license.
I have been on a mission since I left Taiwan where I lived my whole adult life. And since moving to the states, I've had to really like ground into reality a little bit. I'm very much a dreamer and I've needed to start looking at finances and looking at numbers and think about insurance and houses and all of these things that I never really had to consider before.
Before, how were you able to not look at those things?
Oh, it just in Taiwan, it's just not such a big thing, you know. The rent was, you know, minimal and I didn't have a car. I didn't have, you know, health insurance is, everybody has health insurance, you know, it's not something you have to like get through an employer. So, it's just a really different way of living.
So, coming back to the States for me, or coming to the States as an adult, I felt really destabilized. I felt really behind. I felt there's just a big opportunity to like step into this and yeah.
I'm getting a few clues that are starting to help me piece together what's happening here. We have Drew, she's a life coach. She's not particularly interested in pinning down specific numbers. Something could cost five bucks, 15 bucks, whatever. We're in the same ballpark. And then we have Nicole, who is structured about her finances. She likes to project things. She likes to calculate things. What do you think? Are these two views on money compatible? Let me know in the comments below.
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Are the two of you building towards a joint vision of a future together? Have you discussed what that is?
The vision is to have more of a cushion.
And to retire with money, like put money in towards retirement.
Wait, that's our vision? Wait, that's like today and 30 years from now. What about anything in between?
Hold on. Hold on. Hold on. I'll get Nicole, I know you have a vision. Go ahead, Drew.
Okay. Gosh, I really haven't gone there in a little bit because I've been in the weeds. Yeah, and that feels emotional.
That's okay. Put aside this vision that the two of you have talked about, what's your vision?
My vision is community, my friends, my family. It's one of my favorite things ever to go somewhere. Like our last one we did Joshua Tree for a week and just have a bunch of friends come and just be together.
Just totally relax. I love doing that on Maui. I love hosting. I love just having friends come and just enjoying life together. I love really good food. We both love really good food and going out to amazing restaurants and trying different food. And yeah, like my dream, my vision for my life is that work is steady. It's fulfilling. It's pretty stress-free.
And I just get to enjoy my family and my community and nature in the beautiful places that we live.
Got it. Okay. Tell me about the role of the baby.
He came so fast. We actually thought we would have a couple more years.
We were successful on our first try. So, that's beautiful and amazing and it's happening really fast.
He fits in, he's going to join our lives. Like we're bringing this baby into our lives which are going to be filled with love and play and community and we're just, we're bringing him into our fold, you know, we just want to bring him with us with whatever we want to do.
Got it. Okay. Now Nicole, I want to hear about your vision.
One of the things that actually attracted me most to Drew was the fact that we have a similar vision in terms of so deeply valuing community and work-life balance and wanting to live presently not for the future.
So, even though we've talked a lot about retirement, I think that's important. I think we are talking a lot about it because we do have a little bit of concern of when that will happen. But the primary thing for us is that we're not waiting until retirement to enjoy our lives.
Like my goal for me personally because I think yours is maybe even a better percentage but my goal is to not put more than 40% of my capacity as a human into work.
And I want the other 60% for myself and my community and our child and our family, you know, I think that's really valuable. I think sometimes we spend too much of our resources and time working.
And it's not to say that I don't want to work, you know, I do and I enjoy my work but I don't want it to take up so much of our lives. I want us to live now.
Got it. Okay, that's very helpful. Do you mind, let's take a look at the numbers. Yeah. I want to understand what we're dealing with here and then I think I'll have a lot more questions. What was it like putting the conscious spending plan together?
It was kind of stressful. Again, probably me because it's hard to find specific numbers. I'm like, 'Ah, it's about this number.' And that's good enough. And you know, Nicole would encourage me to like go and look and like actually find the number, which was annoying and beneficial.
And what about for you, Nicole?
It was, I had most of it already, and the parts I didn't have, it was just fun. I enjoyed it.
Did you talk about it together?
Yeah, I mean, it was very clear the source of our stress.
You'll see. Our next couple of years are crazy.
All right. Okay, let's see. Nicole, can you read off the word in bold and the number next to it for this entire box, please?
Okay. So, assets is 1,252,000. Investments, 183,764. Savings, 67,269. And debt, 986,526.
Great. Okay, what do you think about those numbers?
It's okay. Yeah, it's like pretty okay. I'm more worried about the other numbers.
I think the one thing that I am concerned about is that the savings, it doesn't cover us for very long.
Drew, what do you think about these numbers?
The debt number, I know that includes mortgage, but to see it laid out is astonishing.
Mhm. Astonishing means what?
Just shockingly high. I know it's very American and it makes sense in this context and it feels astonishing.
Okay. Drew and Nicole, you both have mortgage or let's say a house worth approximately similar amounts. 644, 608,000.
Okay. Investments we have, let's just say out of 183,000, the vast majority of that is Nicole's. Would that be fair to say?
Okay. Same with savings and then debt, looking at it, Drew has 11K, a mortgage of 427. Nicole has a mortgage of 545,000.
Okay. Let's keep going down the list. This time Drew, I would like for you to read off your gross combined monthly income, please.
Okay, great. How much did you think you made per year?
I mean, I knew how much I made. This was the hard part. I didn't know how much we made.
You didn't think about it?
Like, did you have a sense?
I just knew it was enough.
Oh, okay. In your application, do you recall what you wrote as your income?
200K. The actual number is, can you read that number off, please?
Only off by 96,000 dollars per year.
No big deal. That's wild.
What do you think about that?
That's our combined annual income?
I mean, that's pretty nice.
That's a nice number. So, you didn't know that till now?
Because it's not on the sheet. It doesn't normally come up in the CSP, right?
No, you have to multiply by 12.
Yeah, I didn't know that. Surprise, surprise.
That's kind of interesting, right? What did you think?
Yeah, I knew exactly how much I made and I had a sense of how much Drew makes because I know how much rental income is generated and the small amount of coaching income. So, I had a sense, but I didn't know it was exactly that. I would have said probably 250, which is still pretty high.
So, we're either 50 or 96,000 dollars more than you thought. So, are we done here? Are our problems solved?
But how can that be though? If there's a money problem and you're now making 100,000 dollars more than you thought, aren't we done?
Costs are almost all of that.
Because we're still struggling every month.
Do you think if you made 50,000 dollars more the problem would be solved?
Yeah. So, I'm glad actually that we have this massive disparity that we've all confronted and we can laugh about it because we realize 100K more than we thought and it's still not solving problems.
So, let's keep working our way down. Fixed costs, what's that percentage there?
77 percent. So, that right there explains feeling stressed out about money, having disagreements under a tree about money and on and on and on. That explains it right there.
It tells me so much about a couple when I see that number. We'll come back and drill down on that. Let's just look at the rest of these. Your investments are at 3%. So, I do want to note that you are contributing 1,200 dollars a month to your pre-tax, which is great. And on top of that 3%, which is 600 dollars a month, it's nice, not particularly high, but when we combine them it's fine. Savings at 10% and then finally guilt-free spending at 10%. Is that number accurate?
It's actually really accurate. I know that you think that that's not, it's like actually really accurate. It's actually less than that. It's been a lot less than that because we've been saving up a lot of money for legal funds. Because of our domestic partnership and our baby and adopting and stuff like that.
How much will it cost you for legal?
Yeah, and I've paid off 12 of it.
So $17,000 in total to have the baby.
Which includes estate planning and you know, we've gotten very comprehensive with our paperwork for each other.
Good to know because you know some of this like in a heterosexual relationship you would do it. Like some legal planning but some of it not.
I think a lot of people don't know what is involved with same-sex parents having kids.
Yeah, we have a known donor that is a very nice human being who agreed to help us.
And so we just had to pay the legal fee to do the court documents so that all of us are protected.
Otherwise it would cost tens of thousands, maybe hundreds of thousands.
Hundreds of thousands, yeah. So you know, $17,000 is actually pretty affordable.
Yeah.
I don't think a lot of people know how much it costs to have a baby if you're in a same-sex relationship. I have a couple of friends. They had a baby through a surrogate and it cost them over $250,000. That is shocking. And these are things that if you're in a heterosexual relationship you may never think about. But I'm very, very grateful that on this podcast we get to meet people from all different communities, all different parts of life, all different financial means to show you what it takes in order for them to live their rich life. So, I'm thankful that I get Drew and Nicole here to share some of the numbers, even though they are quite modest in their situation, for how much it will cost them to have a baby.
Can we drill down on the fixed costs?
All right. So, here we are at 77%. I would like to take a look at what these numbers include. Whoa. All right. So, your rent/mortgage, all of it combined is $10,022 per month. So, I see two properties here, one for 4,000, one for 6,000 per month.
So, right there, that's 40.5%.
What do we know about that number? What should that number be, generally speaking?
Yeah, less than a third. We say less than 28, but it can be 32, 33 in high cost of living areas, which both of you live in.
But at 40, what do we know?
It's really high. It is eating into all of our ability to do anything else.
Exactly. And in fact, I saw that in your application. You said, 'We cannot eat out because of our housing.'
Now, if you came here and you said, 'Look, we've decided we are not eating out for the next 5 years because we made a conscious decision that we want to have these properties for this reason and we've run these numbers.' I would say, 'Amazing. You've done all the math. You've decided.' Is that the case here?
I don't want to just exist in the two houses not doing anything.
That's, I really like how you put that because that actually describes how so many Americans live. Let's buy a big old house. And then we got to furnish it, and then we got to maintain it, and then for what? This is the American dream.
Then we're trapped. Okay, so you do not want that.
And yet nevertheless, you are here spending 40.5% on housing. Okay, let's look at the rest. Utilities, insurance, car payments at 1125, that's two cars.
Okay. Debt payments at 1071 a month. What's that for?
For my grad school. Yeah.
How much is your grad school debt?
Oh, the debt I have right now is 15K.
And you're paying a thousand dollars a month for that?
Is that all you're going to incur for grad school?
How much is it going to be total?
I'm about to have another 10, like 10,200 to graduate. That's what I'm going to need to pay by the end of May next year.
Okay, where's that money going to come from?
Yeah, that's a question we actually have that we need to figure out.
Okay, we'll see what we can do. Okay, I love this combination here. I never, I don't mind people like tweaking the labels once in a while, that's fine. But this one is great. Clothes/home/home repair and renovation.
Seems like it would all be in the same aisle.
It's overalls and boots to do the home repairs.
And it's $1,400 per month.
Yeah, it was really really high this last year because Drew's house had a massive flooding incident happen and the kitchen was built in probably the 70s and hadn't been renovated ever.
And so it was like, well, if we have to rip out all of the flooring, we're going to have to rip out the cabinets. We might as well replace the cabinets because they were damaged.
How much did it cost, Drew?
Is I think what we, yeah.
Now, let me ask you a question because I learned this on Twitter.
People on Twitter told me that the landlord can simply pass on their costs to the tenants and tenants are paying taxes, they're paying their landlord's mortgage, all maintenance. Now, were you able to just pass on those expenses to tenants?
Wow. You're telling me people online don't know what they're talking about.
So shocking. So, you basically ate the cost. The money had to come from somewhere.
And you can try to raise rent, but you charge based on what the market will bear.
And we actually can't raise rent in Maui right now.
The Lahaina fires, they put in an emergency proclamation that you can't raise.
Yeah, it's actually there's a lot of housing related things. And it's good because it does need to be, we wouldn't raise it anyway. Yeah, we wouldn't raise the rent anyways. But what we did is like hired contractors at the lowest cost we could and then we did a lot of the work ourselves. We laid the whole flooring ourselves.
Yeah, we did a lot of our own work.
We became knowledgeable pretty fast.
All right. Let's look at the rest of it here. We have subscriptions are fine and then miscellaneous, we have 15%. Did you adjust this down?
Because you know your numbers.
Fine. I believe it. All right. So, we're at a total of about 17,000 a month, which, you know, is high.
Is it high? I don't know. If you made $10 million a month, then no, it's not that high. But it's all relative and so what we see is 77%. That part is high. Okay.
I mean, I guess I want to point out that starting next year, I will be able to be making more money. Like I just haven't been so far.
You currently make $10,450 a month.
That's a pretty good salary.
You say maybe making more will positively affect the CSP. I think that's true. It will.
How much are you going to make just so we can take a look?
Well, if I go into a private practice, I can make whatever I need to make within the confines of, like I can make whatever I need to make.
No. No, you can't. I mean, okay, make a million dollars a month. Can you do it?
No, I don't need a million dollars. What I need to have that in 77% be what? 50? What would be like?
50 to 60%. How much do you need?
More than that. Oh, you mean for a month?
Hold on. Go ahead, Drew. I like hearing you talk me through this.
Okay. I think I might need another 12K.
Another 12K on top of this. Let's try. So, let me just, I'm just going to, since you make, actually, now that we're looking into this, I'm like, wait a second. Wait. Do you pay any taxes?
Well, where's the taxes on this? So, here's your gross, which is like what
You get paid. And your net is the same as your gross.
Um, I do pay taxes. I pay, uh, 4.5% on my local taxes, and then I don't know what the government, the big government taxes are.
Why is this number so high? Like, what's happening here?
I don't know. Nicole didn't fix that number for me.
Let's just fix it right now. Nicole, what is the correct number here? Do you know?
Um, my estimate would be like 8,000.
Yeah. Maybe 8,000. Let's say that. It could be 7,800, whatever. 8,000. Okay, I want you to watch what happens to the fixed cost number. Ready?
No, that's so... Maybe that's why I kept it at 10,000.
If you're listening and not watching, first of all, get on YouTube. Second of all, that fixed cost number jumped from 77% to 85%.
Now we have a more accurate representation. So it's high. It's really high. You are essentially spending more than you make.
Oh, yeah. Yes, it's tough.
Every month. I've sensed a chill come over the room now.
But I would rather have the honest truth here.
Oh. The numbers in the CSP are not right? I'm shocked. But actually, I don't mind. I still see comments over and over saying, 'Why doesn't Ramit's team pre-screen them and work with them to get their CSP?' Because I don't want that. It's hard to get your numbers in a correct form. I want to see how you do it because then I can work with you and help you untangle your assumptions. I want to help you understand where you might have taken a wrong turn. Now, there are some clear changes that I see in the CSP, but I'm not going to sit here and lecture them about all the things they should do. I need them to understand first how risky of a situation they are in.
If it was just the two of them working stable jobs making $296,000, they would be at incredible risk. But guess what? One of them is an entrepreneur. That's risky. Oh, and they're about to have a baby. That's risky. They are compounding risk on top of risk, and I want to show them how precarious of a situation they're putting themselves in.
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So, you mentioned that you need to make... Why don't we just double what you make and let's see what happens.
And that number drops to?
61%. So, you are correct. If you doubled your income tomorrow, you're in a healthy financial position and you'd be able to do quite a bit. What do you think about that?
I think... Honestly, I think it's doable.
Like as soon as I graduate, I really do feel like I could make that amount and it would just feel like so much relief.
I think we could keep the two houses.
Great. So, that is an option. So, let's put a pin in that because at least according to the numbers, that part would work.
Well, it would work if nothing were about to change in 2 weeks. Is there something happening in 2 weeks?
Uh, I don't know. Maybe a baby.
So, like where does the baby fit in financially speaking?
Have we... Have we modeled any of that?
A little bit. What's really great is because we will be spending the first year and a half or so of this child's life in Maui, there's a really good community that's set up there with really great community resources. So, our grocery costs are actually going to go down quite a bit.
We'll have access to community support that will help with kind of like child care and things like that. So, we're not going to have to pay for child care as long as actually in either community. We've been really intentional. Like the community here in Southern California, I have my parents that live 10 minutes away.
So you'll be able to have child care, let's say at low cost, no cost, what are we talking about?
For low cost, yeah. I would say low cost. I... an occasional babysitter is the only thing I think we might do.
So that's like how many times a week?
What is that going to be like? 200 bucks?
Okay, that's quite nominal.
And diapers, food, that kind of stuff. What are we talking about?
So food in Maui will be free.
What? Why? Is this like...
Pacific birth collective.
Yeah, so there's an amazing birth collective out there that offers new parents and expecting parents resources.
It's a government funded thing, I think.
Don't they get government grants?
There's definitely grants. I'm not sure if they're government grants, but they're grants. They offer it to any expecting or recent parents.
Like you get a whole bag of groceries every week. You get access to free education classes. Um, free massages.
From, just so everybody knows?
Pacific birth collective.
That's so cool.
You know, like the fact that I am like shocked and... and we live in the wealthiest country in the world really speaks to the fact of how misaligned we are.
The fact that like, oh, two new parents getting groceries once a week. I'm like, what?
But like, isn't that something that we would be able to do or we should be able to do more broadly?
It's amazing. It's sad actually that we don't have access to it here, um, in Southern California because... I haven't heard of anything like it honestly. It's really cool.
And it's not just like a bag of whatever's left over from the grocery store.
It's really nice food.
Really nice food. It's all like for the most part locally grown and they give you staples as well so you can have a stock of rice and beans and canned goods and fresh vegetables and they give you eggs and chicken and it's really an amazing resource.
It sounds like your fixed costs with baby are not going to change dramatically. Would that be fair to say?
Yeah, I don't... I mean barring any like medical stuff that the baby could have. That would be the only thing that could come up in the year.
Do you continue working full-time?
Yes, I mean Nicole's on sabbatical.
Yeah, so I'm lucky. I... the timing was... I don't know if it's miraculous, whatever it is, but I was able to, um, be on sabbatical for the next year. So after I give birth, I'll have until the semester starts and then I'll have our regular unpaid leave, but I have enough sick time to take off 12 weeks.
And so I'll take off the 12 weeks and I'll start sabbatical.
It's paid sabbatical. So I'll get my full regular pay for a full year to go do research, which I can do from home.
Um, and I'm really excited about that.
My income will stay the same.
Um, yeah, minus wherever that 10K is going to come from to finish the school.
And now going back to your income potentially increasing because it seems much more feasible now that I know we've talked about child care and things like that, doubling your income.
Like you already make $10,000 a month. So is doubling your income realistic?
Yeah, because if I'm working as a therapist, um, in addition to being a coach, then I will be able to just see more clients.
And yeah, and I'm going to be doing my own, um, private practice most likely, so I get to charge what I need to charge.
And you're comfortable with that because earlier you mentioned, you know, not raising rent even if you could, etc., etc. Are you comfortable charging market rates or even higher than market rates?
I am. My vision for my work and what it has been for coaching is that I offer, um, like high-ticket prices, but then there's an expectation or a knowing that those people are paying for lower-income people who can't afford care. So, I will have a sliding scale essentially where I will be able to do sessions for therapy for 30 bucks, 60 bucks, like a handful. And then there will be people covering that who have the funds.
So, morally, ethically, I think yes.
Good. Good answers. All right. My assessment on this is you have a high income. $300,000 is a high income and potentially going up considerably.
So, that's great. You also have... You're in the enviable position of having a baby with very low increasing expenses. Like this is highly atypical. Amazing.
And what I always tell people is there's this golden period. Seize it. Enjoy it. Take some of the money, put it towards investments. Take some of the money, save it. Take some of the money, go out and eat. In a way, I've never had a golden period with a baby because baby costs always increase dramatically, but in your case, amazing. You're both going to continue working. You both have child care. You both have food provided. It's like, okay, amazing. So, what do we want to do? I do agree that your investments are low. We can look at what it's going to turn into in the future. Savings are okay. We can talk about what that means. You know, you currently have a few months of emergency fund.
With a baby, you want to have more.
Especially in this economy. I'd like it to be 12 months.
Exactly. We want to become a little bit more financially conservative when there are kids in the picture.
So, for sure, yes. Good instinct. And then, you know, well, what we see now is your guilt-free spending is down to 1% or $273, which we know cannot be right, which is why we have a problem. You're drawing. And so, we have a problem right now, but a potentially bright future. How do we get from here to there?
Yeah. I feel like taking this opportunity and like having, unfortunately, having felt really squeezed and really stressed did, um, prompt me to want to do so much better and to know the things and to prepare. Um, so I think that having the goals set up for what's happening and where we're going to be putting money and what we're going to be doing, especially when I can start making more income.
Um, and then sticking to it. And unfortunately, I think we have to keep living really low this next year. Like keep our spending super low.
I think that, realistically, what I'm seeing is that we're probably going to have to draw down some on the savings if we want to not be miserable all the time.
And I don't think we want to be miserable all the time. And to be honest, that's a little scary to me to know that we're going to be going in reverse of where I like... like I'd like to be increasing our savings amounts. And I don't know if it's possible for us to increase our savings amount because the biggest place to cut from is the place we either have to sell our house or not. I just don't know where else to cut from, to be honest.
So, like do we... Yeah, for the next year, do we just not cut? And do we just... I never even thought about drawing from savings even more.
That's what you've been doing.
It's exactly what we've been doing.
You've already been doing it. You just didn't acknowledge it.
Yeah. Let's explore what the options might be.
But first I kind of want to understand what got you here. Nicole, what do you remember your family saying about money when you were young?
So, we didn't really talk about it a lot out loud. Um, my brain was primarily by my dad's side of the family who's Chinese. And so, we don't really talk a lot about the details of anything. In fact, being here is kind of terrifying.
You don't talk about like what? Numbers, feelings, what?
Numbers or feelings or anything. And if you ask for help, it should only be like within family. Like even then, like why... why are you needing help?
That's interesting. Okay.
Yeah, it's pretty daunting, um, being here. It's exciting as well.
You're doing great. And I think it's, uh, very courageous to ask for help.
Yeah, I agree. I mean, as a teacher, I want my students to ask for help.
So, I get the philosophy and doing it yourself is always a little... a little scary.
Did he teach you about savings, investments?
Saving to some extent. So, when I was in high school, he actually... and this I'm so thankful for this. He had me open up a credit card when I could so I could establish credit. And he told me, you have to put something on it every month and then you just pay it off.
And every month you can put something on it, but you have to not ever put more on it than you have to pay it off.
It's a good lesson.
And have you ever gone into the card debt?
I have, actually. So, um...
Um, when I was teaching adjunct and I was in grad school, I was teaching at like five different places, basically. You have to... An adjunct professor makes a lot less money than a full-time professor. And so, I was all over the place and I knew that if I ever wanted to be able to teach full-time, I was going to have to make some sacrifices so that my, um, resume is the best. Because there are so many people that are wanting full-time academic jobs. And so, I was going to have to do unpaid labor, basically, so that I could make myself be a good candidate. And that's what I did. So, for a year, I cut the number of jobs that I worked and I did unpaid labor at school doing university service. I served on academic senate, things like that. Did work for my department, things that look really, really good on a resume and you can talk about, but they don't pay you.
You know? And so, I knew at that time, and it was such a privilege, that I was going to go into debt and I didn't want to ask my dad for help. So, I took on credit card debt and I said, 'I'm going to get a full-time job this year.'
Could your dad have afforded to help you?
Did you grow up middle class, wealthy?
Uh-huh. And what about your mom? What's her role with money?
Well, not much. Um, my mom, she, um, was diagnosed with cancer when I was four.
And so, for the next five years, she battled cancer. And she didn't do much work.
But we spent a lot of time making memories.
Yeah. I think what I learned was like memories are important, experiences are important more than anything.
Nicole didn't mention this explicitly, but her mom passed away when she was 9 years old. And you can imagine what kind of effect that has on a child. Especially as it relates to money. It's no surprise that some people who lose a parent become even more concerned with safety and security. And I think that is part of what we see here with Nicole. She likes to plan. She wants to make sure that under all scenarios, she's okay. And I think that's fine. I think safety and security are a good thing with money. We have to take this need in light of her relationship with Drew. I don't think Drew particularly feels the need for safety and security with money. I think she likes it. I think she wants to spend it on the things that are important to her. But how do we create a way for them to have a compatible view of money together?
Drew, what about you? What do you remember your family saying about money when you were young?
Um, so I don't remember anything being said. Well, my parents both came out of poverty. Um, we're from the South, Alabama and Louisiana, and, um, came out of a lot of poverty and a lot of trauma.
And they really made a life for themselves, and it's really beautiful. They... I saw for them that money gave them experiences, and we went out to eat at restaurants like 3 days a week.
You know, like they... they really wanted to live it up.
And it was really... Yeah, it's really beautiful to look back on that now. So, I remember when I was a teenager, my parents bought my... both my grandmas tickets to Hawaii to go on a trip with us. And we spent like a couple of weeks on all the different islands with my two grandmas. Um, so there was this like giving, giving to family kind of, um, idea and concept and like just fun. Just embracing life and really living life.
How did your parents go from being in poverty to being able to eat out three times a week?
They were both really smart, not that it has to do with being smart necessarily, and they just... they worked hard.
They really did just work hard.
And did you say you grew up in... was it Taiwan?
I grew up in Texas for 10 years.
And then I was in the Marshall Islands for... until I was 17 and then for college I went to college in Alabama where my mom all lives.
So kind of all over and that was part of their... their life. They were like, yeah, we can go live in the Marshall Islands. Let's go. Let's... let's live it up.
What messages about money do you think you took away from your upbringing?
Um, one that I really had to work through early on when I started working was that you have to work hard to make money.
That one I saw my dad go through that.
And work his whole life and to be able to retire and now to not be in like the best shape to do the things that he wants in retirement.
And then the other one was that unfortunately money can be used as a tool for manipulation.
So there's a lot of like money can cause a lot of pain actually. And thirdly, to, um, share money and just really like live it up as much as you can.
And enjoy life with the money that you do have.
The second point you made about money can be a tool of manipulation. Was that something you experienced?
I watched it.
In my family.
What did you learn from that?
I learned a lot about what it means to be a woman.
And how women couldn't have, you know, bank accounts of their own until the '70s. And how, you know, a lot of women have been stuck in situations that they shouldn't have had to have been in because there was no financial freedom.
And how that still to this day kind of carries on with some boomers and... and other people.
Yes. You mentioned live it up, money, you know, we've got to use it. I didn't hear any money messages about saving or investing. Were those the messages you grew up with or no?
I did actually, you know, I did have some messages growing up around... I remember when I started university my dad told me never take out a loan.
Do whatever you can to not take out a student loan.
Um, he taught me, let's see, when I bought my first car he... he said never buy a car new.
Always buy a used car. They will depreciate heavily when you drive them off the lot.
You have a used car? Or you have a new car?
No, I have a... I bought my car new.
You have a new car and you have a student loan. Okay, zero for two so far. What else?
I'm sorry, Dad. Um, actually I vaguely remember this. I think he offered myself and my siblings at some point a sum of money, like 150 bucks or something, if we would read... I think it was a Dave Ramsey book.
Wait, Warren Buffett's the good one, right?
Maybe it was Warren Buffett.
That's actually pretty... that pretty much encompasses... he's the good one.
He's the good one, right? He's like a family man. He lives like below his means or something. Goes to show you I probably didn't read the book.
Yeah, I mean, okay. So, the big takeaway is he offered us money and we still didn't do it. All right, got it.
