Despite their high income, a lack of control when it came to expenses led them to be almost bankrupt.
Michelle and Ryan are an American couple, ages 42 and 43 respectively, whose income is around $140,000 annually. They always considered themselves a financially stable couple. They have 3 small children and their assets reached US$970,000. Although it seemed that in financial terms they were saved, they recently confessed that they are going through a complicated situation.
Beyond their high income, fixed monthly expenses, including mortgage, insurance, transportation and other essential expenses, exceeded earnings and everything began to become unsustainable. On the other hand, what seemed like unnecessary purchases accumulated disproportionately. Michelle admitted that in stores like Target and Amazon they spent $2,000 a month.
Financial education
Financial mistakes that brought the wealthy couple to the brink of bankruptcy
During their interview on Ramit Sethi’s financial podcast, “I Will Teach You to Be Rich,” the couple began listing the mistakes made to get to this situation. First of all, not getting into the habit of telling your children “we can’t buy this, we don’t have money” was one of the contributions to the mountain of unnecessary expenses.
The driver did not hesitate to be direct with them “You are losing money every month. You are bankrupt.” Although they tried to justify their expenses, he made it clear that their problem was not just those frivolous purchases, but the lack of a system that would help them make more responsible financial decisions. Not being able to say no to their children was not only problematic for their finances, but it also generated irresponsible behavior in them and harmed their relationship with money.
As for their long-term investments, they had been disciplined for 20 years, thus accumulating assets of US$585,000 that included a property and also US$468,000 for retirement. In any case, despite allocating 14% of their income to that retirement, the way of life they began to lead forced them to start consuming those savings they had generated.
Financial Lessons and Recovery Plan from an Expert
For Ramit, the key was getting the couple to adjust their lifestyle gradually. The main thing was to reduce discretionary expenses such as going out to restaurants and shopping in stores by at least 50% to begin to stabilize their flow. In any case, he understood the difficulty, because he considers that these expenses later make your mind consider them necessary.
In this way they came to discover that they did have control over their finances. And so they were able to begin to stop using their savings to live for the following months. They also reduced long-term monthly investments, and were thus able to afford some pleasures that they had put aside, such as date nights as a couple.
Source: Ambito
