$37k in Debt and Don’t Have a Plan | Money Makeovers | MONEY

Hi I’m Ramit Sethi, the author of ‘I Will Teach You To Be Rich,’ and today I’m here with KC. KC and her husband live here in Freehold, New Jersey. They make just over $50,000 in household income, and they have just over $30,000 in student loan and credit card debt. Well the good news is this is pretty easy to fix. So I’m gonna go talk to her and then make a plan. Let’s do it. Hi my name is KC Susskind and I’m 29 years old. So Ryan I have been together for — it will be 6 1/2 years. We got engaged when we moved into our apartment in March of 2017, and then we just got married in September, so we’ve been married for about 6 1/2 months. Right now financially we both are just struggling. We kind of got in a rut right before our wedding, and we have not seen ourselves out of it. We’re always still at the end of the month scrimping by. It’s just a lot more than we thought. Last year I made right around $26,000 for the year. My husband made about $33,000, so together we made about $59,000. I want to find that happy medium so I’d rather get a grasp on money and know what mindset I should probably have towards it instead of thinking money is evil, and just have a better— I don’t know — relationship with it. KC, it’s great to meet you. Great to meet you too. So what are you hoping to get out of this? I just don’t want to have a bad relationship with money anymore. I feel guilty after I spend money on a coffee or going out to lunch with my co-workers. I just want a better relationship with money since I never had one and the one that I formed was not good. So what I’m going to talk about today with you is we want to take guilt out of the equation. I don’t want you to feel guilty about anything. In fact I’m going to start off right now by telling you you can buy all the lattes you want, but we are going to talk a little bit about your finances, and we’ll also talk about where you want to go with your money. So let’s start with the debt. How do you feel about that? It’s suffocating. It really just — when I wake up in the morning it always is in the back of my mind. Well I have good news for you which is that you are in a situation — yes you have some debt, yes you want to look at your spending — but the situation that you are in is it’s totally achievable to pay off your debt. It’s also achievable that you can live the kind of life that you want to live. So let’s talk about some of the numbers you make around just over $50,000 a year. Your rent — good news is actually pretty good within parameters. A general rule of thumb is that you want to pay 28% of your gross income or less, and you’re doing that. You’re within those parameters so that’s really good. So let’s talk about your income. How do you feel about that. It’s not enough but I think it’s a start. I agree it’s a start. If you wanted to earn more how would you go about doing that? I would have to another job. You have too much in loans. You should be earning a lot more. I call it the CEO strategy. Cut costs. E, earn more and we’re going to zoom in on that, and then O is optimize your expenses. So optimize is things like once a year, I call up all the companies that I have subscriptions to. For example my cable company, my cell phone company and I call them up and I say ‘You know what? I’m looking at my bill here and what can you do for me?’ A lot of them will actually knock off the price you’re paying by hundreds of dollars. I want you to define your rich life and then you have to make some choices in order to get there. And some of those choices are cutting back on things. C, cut back. But some of those things are E earning more. And when you start getting that extra income suddenly the debt’s going to go down faster than you imagine, your savings are going to start getting built up. You’re actually going to be able to start investing money and that money really starts to grow fast. I mean how does that feel. That would feel amazing. Now you can see it’s like really starting to spin right? It’s all clicking. Yeah, it’s all coming together. So what we’re gonna do now is we’re gonna go down and we’re going to see Doug. You’re going to feel in total control and you’re going to know exactly what to do next. All right. All right let’s do this. All right KC I want to introduce you to Douglas Boneparth. He took a look at your finances and he’s going to talk to you about some of the things that he noticed. All right. So what we first need to do is help you get control over where your money is going. What I call this is being a master of cash flow. Now what I’m about to tell you isn’t fun — going back over the last 12 months and looking at everything you’ve spent your money on and organizing it by category. But what this is going to do is show you where your money is going. Let’s address the debt for a second. I have some of the information here but I want you to be able to take this and organize it in such a way as you know who the lender is, how much is owed, the interest rate, and the monthly payments. I want you do that for each liability — or loan, or debt — that you have so you can see it all in one place. The first thing you’re going to want to attack is your credit card debt. The interest rate is over 25%, respectively. That’s just toxic. It’s got to go. And then with your student loans as to where we might have more flexibility. You said you wanted to get on an income based repayment plan. This may be good as a crutch. The reason it’s a crutch is you can find yourself paying so little that it’s not covering the interest each month. If there’s anything you do out of today I want you to know where your expenses are going and free up as much cash as possible. Kc how do you think that would feel if you knew exactly where your money was going and you changed to where you wanted it to go? I think I feel much better because like I don’t want to feel every day that you need something and you don’t have the money — you know? How can I apply this to my life and how can I make sure that my husband’s going to get on board with that because I know I have to kind of like lasso him in and pull him in with it. One of the best tips — I think Ramit will agree with me here — I can offer you is to systemize as much as possible, to automate as much as you can. The next thing you’re going to want to do is handle short term risks which means having an emergency fund. So let’s make this our two main goals here today — really three. The first one being getting in the proper headspace to handle your financial life. Enough’s enough. The second thing I want you to do is master your cash flow, know where your money’s coming and going intimately. Put in the work. And then third when all of that’s done, build yourself a cash reserve. I’d like to see three months of your living expenses and you’ll know exactly what living expenses are for you by the time you’re done mastering cash flow. Sounds great. You just got a lot of information here. How are you feeling right now? I feel really good right now because I know I can do this. I believe deep down inside, I’m going to tell Ryan this is what we need to do and I want to be in that — almost like a place of nirvana even if it just means being out of debt. Well I feel totally confident in you and your husband as well because of the way you walked in here today. And one thing that you heard today was that you have a lot of time, right? You have time to correct this. That’s when life gets really exciting, and you’re not looking backwards today. Now you’re looking forward and saying look let me attack the debt aggressively, as Douglas said enough’s enough, and then let’s look to the future to see what we can do to grow together as a couple. This whole experience has really helped the way the KC and I talk about money. I learned a whole bunch. It was crazy to see how much we were spending and not knowing where it was all going. It really was me feeling — and I think even Ryan — like he kept beating ourselves up over it, and it’s you know it’s hard because your relationship with money is it’s a big one. Like you don’t think about it like you have you know our marriage is a big relationship. Our relationship and our families are big. But you don’t really think that relationship with money. And it’s something that can either make you or break you. So to have a good, healthy relationship with your money — and for us to talk about it — I mean it really opened our eyes. We’re not out of the woods yet — you know — we still have a lot going on but I think the tools that they have given us is really going to help us in the end. I just really want to thank Ramit and Doug for everything they did.

Leave a Reply

Your email address will not be published. Required fields are marked *