Dominique, 33, and Chris, 34, make a combined income of $180,000 per year — and while that may sound like a lot of money, they’re still living paycheck to paycheck.
They’re one “f–ck-up away from losing everything,” Dominique told Ramit Sethi on his I Will Teach You To Be Rich podcast. At that moment, Chris has just $64.18 in his checking account.
While on paper they have “an amazing income,” their short-term money mindset “has them living very, very tightly with their finances,” said Sethi. For example, they bought a second house “based purely on vibes.”
Dominique and Chris have been together six years; they’re engaged and raising a toddler. They bought a second house, which they’re currently renting, but that’s costing them $1,000 to $2,000 a month — though if they offload the house in this market, they could end up losing about $40,000. Their childcare costs are also set to quadruple.
But they spend without thinking and don’t crunch the numbers, even on major purchases, leaving them financially unstable. There’s also a disconnect around how much they each contribute.
Dominique manages parenting, full-time work, and the household finances, which makes her increasingly resentful. But Chris tunes out their financial issues, becoming more and more disengaged.
Chris wasn’t working for a while “and it just felt like everything was piling on and piling on, especially because we don’t communicate about finances together or… work things out as a team,” Dominique told Sethi.
“I kind of shut down in those situations because I don’t like confrontation,” Chris admitted to Sethi.
Chris is now working, and when Sethi breaks down the numbers, he finds that Chris makes a gross monthly income of $9,240 versus Dominique’s $5,709.
“Their finances are driven mostly by emotion, not by math. And if they don’t make a change, they are at risk of losing everything they’ve built,” said Sethi.
This money mindset is the culprit “behind everything from their daily spending to their hesitation around investing,” he added. “There’s not a lot of conscious spending, conscious saving, conscious investing. It’s pretty reactionary.”
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A short-term money mindset usually involves living paycheck to paycheck, making impulse purchases, and overusing credit cards, as well as avoiding savings and investments.
But if you make impulse decisions on major purchases like a house, car, or vacation — especially if those decisions are based on fear — “you will pay the price,” said Sethi.
That price can be financial, like higher costs over time (such as putting a major purchase on your credit card that you can’t afford to pay off right away, leading to accruing interest charges). Or, it could mean you’re more vulnerable to emergencies (if you don’t have savings or an emergency fund).
But it can also lead to stress, anxiety, and even major health problems.
An Intuit consumer survey found that 61% of those aged 18 to 35 experience financial anxiety, with the main culprits being rising living expenses (76%), job uncertainty (48%) and increasing housing costs (46%).
That financial anxiety ties into their overall mental and physical health, with 58% saying that managing their finances improves their quality of life. Yet, 49% still live paycheck to paycheck and 32% struggle to plan for unexpected expenses.
Ongoing stress and financial fears can lead to negative mental health side effects, such as anxiety, depression, relationship problems, and even problem substance abuse, according to the Newport Institute.
A recent Health is Wealth report found that 66% of U.S. adults experienced trouble sleeping (40%) and headaches (37%) due to financial stress, while 67% say inflation has negatively impacted their physical or mental health.
But it doesn’t have to be that way.
Sethi says there’s a difference between being problem-oriented and solution-oriented. “You can be someone who talks about problems or you can be someone who finds solutions,” he said during his podcast.
As for Dominique and Chris? They’ve “spent years in problem mode, spinning their wheels, going in circles, arguing, avoiding, reacting.”
If they really want to change, Sethi said they need to shift “from being problem-oriented to solution-oriented.”
Sethi’s advice to Dominique and Chris is to start by learning the basic language of personal finance. That might mean reading books, watching videos, or taking workshops; it could also mean financial counseling.
They also need to start communicating about money — and their future goals. That could mean setting aside a regular meeting time to discuss money matters and start setting goals for their future together.
From there, they can create a budget, open a joint savings account, set money aside for emergencies and automate their bill payments, savings and investments. “It needs to happen every month consistently, automatically,” said Sethi.
They’ll also need to make a decision on their second house, which they’ll take a loss on if they sell (which may or may not be the right decision after they crunch the numbers).
But a major factor that could influence whether they’re successful or not is whether they can shift away from their short-term money mindset toward a solution-oriented, long-term mindset.
“That’s a profound shift,” Sethi said. “That means going from ‘can you believe this?’ to ‘how would I fix this?’”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
