This couple recently emailed my team with their finances, and I want you to follow along with me as I evaluate their money situation
Hey,
This couple recently emailed my team with their finances, and I want you to follow along with me as I evaluate their money situation — and then give them specific advice on how to improve it.
For context, this couple is 25 and 26, and they live in Las Vegas with no kids. These are their assets:
You can find more of these personal finance hotseats on my YouTube channel.
What do you think? A good net worth for a couple in their mid-twenties?
Most people will look at the debt and immediately say, “No.”
But the answer is: It depends.
If this couple makes minimum wage, they’re doing pretty good! If they’re making over $200,000 a year…they have major problems.
So to get a better sense of things…
Let’s break down their income
This particular couple has a dual income, but one person makes significantly more than the other:
So, person 2 is grossing less than $30,000 a year ($2,461 X 12 = $29,532).
Let’s pause here for a sec.
Whenever I talk to young people, I often find they’re making the equivalent of minimum wage. And when I ask them if they know that, they usually sigh…or tell me they haven’t gotten around to changing it yet.
The thing is, it’s worth it to get around to it! Because earning more is an easy, fast way to get your finances in order.
And it would certainly help this couple.
But besides income, what else is affecting their situation?
Let’s examine their spending habits
This couple’s housing costs (rent/mortgage + utilities) are around 26% of their monthly income.
That’s…not bad! I typically recommend that this category doesn’t go above 28% of monthly net income.
If you can lower your housing costs, you have more margin to play with. That could mean extra money for SO many things:
childcare
vacations
subscriptions
and of course…any other guilt-free spending!
But before we make any conclusions, let’s look at some of their other spending numbers:
I’m not sure I believe the $0 phone bill. Uh, are they living off-grid?!
Okay, this couple could probably cut down on their grocery bill if they really wanted. But otherwise, these spending numbers generally look fine.
Except this line item right here…
$750 in debt payments every month!
This debt is strangling this couple’s finances. The good news: Once this amount is paid off, their fixed costs will drop from 77% to 63%. That’ll be a huge relief!
But could they pay it off faster?
The answer lies in these next few numbers…
We can see that their investments are zero. That’s a big red flag for me.
No words when someone tells me they haven’t started investing yet.
I recommend everyone invest at least $50 a month. If times are good, and you’re making a lot of money, you can bump that number up. And if you lose your job, or need to take time off, you can cut back. But it should always be at least $50 a month. That’s nonnegotiable for me.
The next category is savings. They’re putting away $200 a month, but only have $400 in savings total. So they only started two months ago?!?! Better late than never, I guess.
Now here’s the category that REALLY stood out
As soon as I saw this, I flipped. Not only are they leaving money on the table, and holding onto expensive debt…
Their guilt-free spending is 20% of their take-home pay!
Don’t just spend freely, hoping it “all works out” — create positive spending habits. You can get started by downloading my Conscious Spending Plan.
Normally, I love hearing about how people are spending guilt-free on things they love. You won’t hear about cutting back on lattes from me. But in this case…are you kidding me?!?!
They’re spending $1,099 a month (probably more like $1,500) while not investing anything, they only have $400 in savings, and they pay $750 towards debt every month!!!
So here are my recommendations for this couple:
Cut back on the guilt-free spending.
Put away $50/month for investments.
Aggressively pay off the debt.
Once that debt is paid down, they can revisit and revamp guilt-free spending. But for now, the other categories should get priority.
It all starts with “running the numbers”
Money is so much more than just a dollar amount. Money also represents growth, safety, and possibility. Money is a tool to live your Rich Life.
But none of this is possible without running the numbers.
If you want to “fix” your finances, my New York Timesand Wall Street Journal bestselling book is a great place to start.
For most people, the book is enough. You can follow the steps from start to finish and build a fortified financial system that sets you up to live a Rich Life.
But some people need a little more, because they:
have a complicated financial situation
have insurmountable psychological blocks to tackle
want a community of like-minded people to hold them accountable
want to fast-track living their Rich Life
If any of these sound like you, I have exactly what you’re looking for.
When you join my Money Coaching program, you can work with me personally.
I’ll help you:
Identify problem areas in your finances — just like I did for this couple — and fix them once and for all
Create a simple money plan that fits your unique situation
Stay on track with monthly group check-ins and guided lessons
We’ll also create a vision for your Rich Life and concrete action steps to achieve it.
If you’ve been meaning to get your money in order for a while — or you’re just ready to stop stressing about money all the time — Money Coaching is for you.
P.S. Want to dive into your finances and work directly with me? Then join me in the Money Coaching community by clicking here.
You’ll get access to:
My in-depth playbooks to defining your Rich Life, setting up an automated financial system that works while you sleep, and learning how to spend. Yes! Spending is a skill that has to be learned.
Group coaching calls with me. I’ll do money makeovers and dive into various financial topics.
A private Slack community where you can trade notes, and support each other.
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