Brad, 55, and Angie, 56, joke that you might mistake their home for a millionaire’s if they lived in a more expensive city.
In reality, the couple are empty-nesters living in Wisconsin, where they earn a joint income of around $245,000 a year. They aren’t millionaires, but “financially speaking, the two of you are wealthy,” author and personal finance expert Ramit Sethi told the couple on a recent episode of his “I Will Teach You to be Rich” podcast.
The amount they earn should go further in Wisconsin than areas with higher costs of living.
But the couple doesn’t feel that way. In fact, they owe about $430,000 between their mortgage, student loans and other debts.
Angie handles most of the couple’s finances and constantly feels stressed out about stretching their paychecks from month to month, despite using tools like budgeting apps and Sethi’s own conscious spending plan.
“We’re spending too much money, but can’t seem to fix that,” Angie said on the podcast. They recalled one instance when Brad was traveling and had his cards declined.
Here’s a glimpse at Brad and Angie’s financial situation:
- Assets and investments: $888,000
- Savings: $3,000
- Mortgage: $243,000
- Student loans: $107,000
- Home equity line of credit: $39,000
- Auto loan: $30,000
- Credit card debt: $11,000
Their dream retirement plan is to buy an RV and travel around the country, which they’d like to do in two years. But that probably won’t be possible, unless their spending habits and debt balances change dramatically, Sethi said.
In trying to pay down their debt and save toward their retirement goal, the couple said they don’t live extravagantly. They buy their clothes at thrift stores and do home renovations themselves, they told Sethi. But he doesn’t believe that’s the full truth.
Brad and Angie are hesitant to call themselves wealthy not just because they stress about money, but because they also believe the words “wealthy” or “rich” have negative connotations they don’t want, Sethi said.
“You’re getting the worst of both worlds,” Sethi told them. “You’re playing small and you’re telling yourself, ‘Oh, we’re simple people.’ But you’re deeply in debt.”
The couple have been focused on “three-dollar questions,” like whether to get a Star Wars toy for Brad’s collection or a new piece of clothing, Sethi told them. Instead, they should ask themselves big-picture questions, he said.
“The question is, why do you make $250,000 and have only $2,900 in savings? That’s the question we should be asking,” Sethi said. “Why do you have all this debt when you make $250,000? That’s the question we should be asking.”
At the rate they’re going, Sethi told Brad and Angie it will not be possible for them to achieve their RV dreams in two years, and it’s unlikely they could realistically get there in five. While they have been investing 20% of Brad’s income in his 401(k), the contribution from Angie’s salary was around 8% because she was afraid of investing too much.
Sethi said this fear is incompatible with both her income and the couple’s belief that she had been successfully managing their finances.
Looking closer at the couple’s spending, Sethi found that the bulk of it was going toward their numerous debt payments, which are mostly a result of purchases they don’t see as extravagant.
However, Sethi took another view. Home renovations like a backyard pond and bathroom upgrade may have theoretically added value to their home, but are unaffordable luxuries in reality, he said.
“Do y’all see that you have been overspending, even though you’ve told yourself you haven’t?” Sethi asked them.
Based on their follow-up videos, Sethi isn’t sure Brad and Angie have fully committed to taking the necessary steps to address their relationships with money and make a realistic plan to hit their retirement goal. But he’s hopeful they learned something in working with him.
“I want you to feel good, I want you to feel confident [and] competent,” he said. “And I actually think if you put a little bit of planning into it, you can live a much richer life than you ever thought possible.”
Check out the full episode here.
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