Episode: 61

You’ve Got Money All Wrong: A Step by Step Guide to Living a Rich Life

with Ramit Sethi

This episode will transform your mindset around finances.

NYT best-selling author and Netflix star Ramit Sethi reveals why most people think about money all wrong.

He shares insights on money dials, the four numbers that matter, the 85% Rule, the 10-Year Bucket List, and what not to say about yourself—all to help you live a Rich Life on your terms.

Listen on:

I haven't always been great with money, but now I'm learning.

Ramit Sethi

Featured Clips

Transcript

Mel Robbins (00:00:03):

I am just on pins and needles. I have somebody on the show that I have admired from afar for a very long time. Who am I talking about? I'm talking about none other than Ramit Satie. He has a simple step by step process that he's going to walk us through at zero cost today for how you can change the way you think about money and the four simple things that you need to pay attention to in order to make it a reality. I've got sweaty palms. I'm so excited to talk to this guy. So let's just jump into it.

(00:00:38):

Hey, it's your friend Mel, and today's episode of the Mel Robbins Podcast is rich with tools and strategies to help you make more money. Let's do this thing. Okay. I am just on pins and needles. I have been counting down the days for this particular episode because today I have somebody on the show that I have admired from afar for a very long time. I don't know if there are people that you follow online that you're just like, gosh, I would just love to meet this person in real life one day. Well, today is that day for you and for me to meet one of the most inspiring experts and human beings out there when it comes to being rich and not just rich with money, but rich with experiences and happiness and building a life that you just love. This is a guy that is a New York Times bestselling author.

(00:01:31):

Millions of people come to him to help them change the way they think about money, to get out of debt, to start businesses, to retire early, and most importantly, to imagine design and create a rich life. He has a brand new Netflix series, how To Get Rich. It is just released, it is so popular where he is coaching six people just like you and me on these exact things. Who am I talking about? I'm talking about none other than Ramit Satie. And he's here because he has a simple step-by-step process that he's going to walk us through at zero cost today for how you can change the way you think about money, how you can design a completely different type of life, and the four simple things that you need to pay attention to in order to make it a reality. I've got sweaty palms. I'm so excited to talk to this guy. So let's just jump into it. Do we have him here? Oh, he's here. Okay, let's let him in. Okay, let's get Ramit. Ramit, I'm so excited that you're here. Ramit, thank you for being here.

Ramit Sethi (00:02:44):

Thanks for having me.

Mel Robbins (00:02:45):

It is so exciting to meet you. I have been a fan of your work for so long. I have stalked your website because it is amazing. I can't believe we haven't met until now.

Ramit Sethi (00:02:57):

Why is it I'm trying to figure it out myself, but regardless, I'm excited that we get a chance to do it today.

Mel Robbins (00:03:03):

Me too. Me too. And I'm really excited for everybody to hear what you're about to teach us, because when I think about somebody who could fundamentally change the way that a person thinks about money and the way that they use money to live and experience what you call a rich life, you're the one person on the planet that can do it. I mean, they're not just passing out Netflix shows to everybody.

Ramit Sethi (00:03:34):

Well, thank you. I love talking about this. It's kind of weird. Usually you don't think about someone actually loving talking about money and it's actually, okay, listen, I've written a book about Roth IRAs and automation and

Mel Robbins (00:03:48):

All that stuff. Oh my God, I'm already asleep. We're not talking about that.

Ramit Sethi (00:03:51):

Exactly. Hey, me too. And I'm the one who wrote the book on it. So what I'm much more excited to talk about now is how to actually apply that money so you can live your rich life. And to me, it's that beautiful tapestry of life of I love eating out or I love travel. And to be able to go deeper on that and to use money to do it, what could be more exciting?

Mel Robbins (00:04:12):

Oh my gosh. And you know what else I love about you? I love that you come at this after fucking things up with money. And I love because look, let's face it, there's a lot of experts out there that kind of talk down to the rest of us that aren't at the pinnacle that they've reached yet. And even though you have gone from somebody who, and I'm going to have you tell everybody the story, it's awesome. Even though you're somebody that has made millions and millions and millions of dollars and you are super smart about money, that wasn't always the case. And so I would love to have you take us all the way back to 2004 where you are back as a student at Stanford, you cannot afford to go to Stanford unless you pay your way and you figure out how to apply to 60 scholarships and you self-fund your education. But when you get your first scholarship check, you do something fucking stupid with it.

Ramit Sethi (00:05:22):

Well, I didn't think it was stupid at the time. I thought it was a genius. So here I am in high school, it's like late 99, 2000, and I grew up the son of Indian immigrant parents, and they came from India, built their life here. My dad worked. My mom stayed home with us. And when it came time for college, they told us, of course you're going to college, but we don't have money, so you've got to find scholarships for it. They just told us point blank, and they had raised us. We may not have had a lot of money for us. Eating out was a thing we did once every six to eight weeks, always with a coupon. We would never buy enough drinks for the whole family. We'd have two and we would share it, but they taught us how to work, and they taught us this idea that if you work hard enough, usually the money stuff will take care of itself. So culturally, we grew up knowing education's important and personally, I love systems. I love building a system and doing the work once so I don't have to do it again. That's why I don't like budgets. I don't have a budget. I don't think anybody should have a budget for that matter. And we can talk about that because who wants to track the price of apples for the rest of your life? It sounds like hell.

Mel Robbins (00:06:37):

Does anybody other than a CPA or a controller for a company actually track a budget? Can we just start there?

Ramit Sethi (00:06:44):

No, no. And in fact, some of the very people who tell America to keep budgets don't even keep a budget themselves.

Mel Robbins (00:06:52):

Wow.

Ramit Sethi (00:06:52):

So let's just get real.

Mel Robbins (00:06:53):

Okay,

Ramit Sethi (00:06:54):

So here I am. I applied for 65 scholarships and I built this system. So I ended up doing it pretty rapidly. By the end, it was taking me like an hour an application. I started to get scholarships.

Mel Robbins (00:07:07):

Now, how many of the 65 did you land?

Ramit Sethi (00:07:10):

I probably got 10 to 12. That's amazing.

Mel Robbins (00:07:14):

Okay.

Ramit Sethi (00:07:15):

Maybe 15. Yeah, some were small, some were like a thousand dollars. Some were extremely large, which ended up paying undergrad and grad school. Wow. Yeah. So I was very fortunate, but again, if I hadn't gotten all those scholarships, I still had plan B, plan C, plan D,

Ramit Sethi (00:07:32):

And I think we all should have a plan B because life doesn't always work out the way we think it's going to.

Mel Robbins (00:07:37):

That's true.

Ramit Sethi (00:07:38):

So here I am, I get this scholarship check, and they wrote the check to me, Mr. Ramit Sethi high school kid in 1999 when all I was reading was these thick magazines about tech stocks. I go, cool. I'm going to invest this scholarship money. I'm a genius.

Mel Robbins (00:07:54):

Oh, 1999.

Ramit Sethi (00:07:56):

Yeah.

Mel Robbins (00:07:56):

Oh, wasn't that the year that everything crashed?

Ramit Sethi (00:08:00):

Well, it hadn't crashed when I invested. It crashed right after I invested. So I learned some really valuable lessons. First of all, I lost half my money immediately, and that humbled me. And I think when these things happen, it gives us a chance to choose which path we want to take. For me, I could have been like, investing is a scam and I'm never doing it again. A lot of us feel that way. Luckily, I will say I was so fortunate that my parents, especially my dad, really encouraged me, Hey, try to figure out what happened, look, learn. And also in the grand scheme, losing that money, while a lot of money at the time ended up being a little bit of money in the grand scheme. So here I was at Stanford, now I'm studying social psychology, human behavior, persuasion, and I'm reading all the books about personal finance, investing, compound interest, asset allocation, and I'm looking around and I'm going, the emperor has no clothes.

Mel Robbins (00:08:58):

What does that mean?

Ramit Sethi (00:09:00):

All the advice that we get about money, tell me if this sounds familiar to anybody listening. Don't spend money on lattes, don't buy new jeans. Don't go on vacation. In fact, hoard your money in a little cave. And in one day when you're 93 years old, maybe just maybe society will give you permission to go enjoy it. What kind of horrible life is that? Here I am young guy in college, I want to go out with my friends. My dream at the time was to be able to buy around to drinks for my friends, not worry about it

Mel Robbins (00:09:29):

Without a coupon to me,

Ramit Sethi (00:09:31):

Not a cuppa. Exactly. And so I love that you said that because as I got a little older and I graduated, you know what my rich life was in my early twenties.

Mel Robbins (00:09:41):

No.

Ramit Sethi (00:09:42):

It was literally to be able to go to a restaurant and order an appetizer without worrying about the price, because when we were a kid, we couldn't afford to do it. And what is that? 10 bucks, maybe 15 bucks. And it felt incredible. So in fact, let me ask you, when you think about your early formative twenties, what was a thing for you that you were just like, that feels almost irrationally amazing to be able to do?

Mel Robbins (00:10:14):

I guess to go on a vacation somewhere warm that I could pay for with my friends, I saw not pay for them. Meaning you see all these kids go to spring break, and I always needed, I worked during college, but I needed my parents to spot me the money, or I needed the invitation from another friend's parents who were going to take their daughter somewhere and she got to bring a friend. And so for me, I think a quote, rich Life, which we're going to unpack for everybody so they understand what you're talking about, was like, wow, it would be pretty incredible if I could have my own money, not for textbooks, not for gas, but to actually buy a plane ticket and go to a hotel and be on one of those spring break things that I see.

Ramit Sethi (00:11:09):

I love that each one of us has something, and it usually is in a formative age for us that we vividly remember.

Ramit Sethi (00:11:18):

I remember sitting in the back of a taxi in New York, and back then those taxi ticker things used to tick up every quarter mile, eighth of a mile. And sometimes you're just going, oh my God, how high is this going to go before I get there? And of course I don't think about that now, but back then, part of a rich life for me was to be able to not have to worry about taking a taxi, especially on a hot August day, walking out of the subway, going to a meeting and dripping in sweat. Okay. So I kind of love this idea of where we all start from. It's usually something modest and ultra specific, and we can smell it. We can remember exactly what the people around us look like and we're saying, and that really informs where we came from, which can also inform what our rich life is today and possibly even tomorrow.

Mel Robbins (00:12:08):

I would love for you to talk to the person listening and guide them through the process of locating this core memory so that they have that with them as we move forward. And you help us define this philosophy that you've created called A Rich Life.

Ramit Sethi (00:12:30):

I love it. Let's do it.

Mel Robbins (00:12:32):

Okay,

Ramit Sethi (00:12:32):

So let's, we're going to start in your early twenties, and we're going to zigzag throughout our conversation today. We're going to go back to childhood and we're going to go to the future. We'll do it all. What money is about, it's about understanding the seasons of life and how money interacts. Oh, I

Mel Robbins (00:12:49):

Fucking love this.

Ramit Sethi (00:12:50):

Okay, so in my twenties, again, that irrational joy came from being able to buy appetizers. And for everybody here, I want you to think about, you may have been in college, you may have been working at your first job. What was the thing where you said to yourself, I wish I could do that? Or am I ever going to be able to do that? And remember, it's not usually a big thing. It's not. I want to take around the world trip and stay in all these fancy places. It's often an appetizer. It's being able to pay for your own vacation. A lot of people joke about it's getting the guac at Chipotle. It might actually be that there's nothing shameful about a small vivid aspiration that you had. How do you think everyone listening is going along with this journey so far, Mel?

Mel Robbins (00:13:46):

I think good. Amy?

Ramit Sethi (00:13:48):

Okay.

Mel Robbins (00:13:48):

You think we're good? Okay. Good. Yeah, my producer's like, this is fantastic. I think we're all right there. I have a question to ask you to go a little deeper in this, because I noticed that you've spent a lot of time studying psychology, and you of course help people change the way they think about money.

Mel Robbins (00:14:10):

And I would love to ask you about the way in which your formative years as a child and what you experienced as your parents' emotion or conversation around money, how that impacts your mindset around it. And I am asking that because I feel like it must be somehow related to this core memory of I just wish I could go and take myself vacation. I wish I could buy the guacamole. I wish I didn't have to worry about the needle on the tank of gas getting to empty and not being able to fill it up.

(00:14:44):

And so for me personally, it's interesting, my parents, my father was the first person in his family to go to college and he had to pay for it. And my mother also went to college and had to pay for it. And she ended up dropping out to have me. And then my dad got into medical school, and my mom worked nights for the IRS while she, my dad took care of me at night. And then she took care of me during the day. And we lived in public housing while he was a medical student. And when he was a resident in Dayton, Ohio. And then I was in fourth grade when my parents were able to purchase their first home. And my dad did not pay off his medical school loans until late into his thirties. But here's the interesting thing about it. Even though we struggled, and I can relate to the, we never went out to eat when I was a kid, not until middle school anyway, and I never remember my parents being stressed out about money.

Ramit Sethi (00:15:50):

What do you remember them saying about money?

Mel Robbins (00:15:53):

Nothing. You didn't talk about it? I don't remember them talking about it. And I just had this sense because there was this ease about it that if you need something, you figure out how to get it. That there wasn't a lot of griping or complaint. And I know they were trying to make the ends meet, and they come from very blue collar, modest families, hardworking. They were very hardworking. And so I just kind of got this thing. Money's there when you work for it and you don't need to worry about it. And you know what I mean? Not like I was spoiled or anything. That was not it at all. But they didn't pass on the stress to me. Now, Chris's family had plenty of money, but there was this huge dialogue, you don't deserve that. We don't have it. You're not going to be spoiled. And so his butt is so clenched when it comes to money. The guy's like, how much does the guacamole cost? I'm like, dude, have you seen our checking account? You can afford it. He literally adopted this kind of gripping mentality. How does does that impact the mindset that you have your early childhood years?

Ramit Sethi (00:17:09):

So you just gave us a fantastic journey into your childhood. And if you don't mind,

Mel Robbins (00:17:15):

Please,

Ramit Sethi (00:17:16):

I'm going to dive a little bit deep and kind of shine a light on what you just told me.

(00:17:20):

Okay. So a lot of this comes from my work on my podcast, and of course on the Netflix show with individuals and couples. And many people believe that money is simply about numbers. And of course, the numbers are a very small part of how we experience money. So when you say your family never really talked about money, but there was a sort of ease about it. I'm listening. I'm going, okay. And then it clicks when tell me they were blue collar and they taught us that if you work hard, money will come.

Mel Robbins (00:17:56):

Okay.

Ramit Sethi (00:17:57):

That's a cohesive belief. I totally agree. Sometimes I speak to couples where one person in the couple grew up, let's say white collar, maybe upper middle class, and the other grew up working class blue collar. Their beliefs conflict, and they can't figure out why, right? They think it's about, oh, she spends too much at Target, or his truck is too expensive.

(00:18:20):

But really there's this belief, particularly with different class structures, which we never really talk about in America, which is if something's hard, let's just grind harder. And you can grind harder. There's no doubt about that law school at set medical school. But there's a certain point where grinding a little harder just doesn't work. You have to change the way you think about money. For example, did your parents talk about investing IRA's compound interest when you were growing up? Oh my God, no. Exactly. And so some of the folks who I speak to, they said we were talking about investing at age five or around the dinner table. Here's what happens if you put a quarter in the bank. Now imagine if a couple is meeting, and one of 'em has been talking about investing since age five, and the other has never talked about investment. That's what we discover when we peel back the curtain and we see how beliefs affect us. So if you're listening, the question I would ask you is what conversations do you remember your family having when you were young about money? What phrases? Here's some examples that might sound familiar. We can't afford it.

(00:19:34):

We don't talk about money in this family. We're not like those people. We don't need a fancy car vacation eating out any of these sound. You heard these or your friends heard these?

Mel Robbins (00:19:46):

No, but I have heard these. I'm nodding because I'm like, this is exactly what people hear.

Ramit Sethi (00:19:52):

Exactly. And so here's the consequence of that. Okay, so you hear the most common one is We can't afford

Mel Robbins (00:19:58):

It. Yes.

Ramit Sethi (00:19:59):

Parents just say this, it just comes out of their mouth. Parents, you got to stop because let me tell you what happens. They end up 40 years later talking to me and they heard we can't afford it 10,000 times growing up just reflexively, oh, I want shoes. We can't afford it. I want a trapper keeper. We can't afford it. And then this person, hopefully they end up in a pretty nice job. Maybe they read my book, they set up some investments, maybe they've done well. They have some decent amount of money. They come to me, they go, why do I still feel guilty ordering a salad when I eat out? And my partner is saying, we have the money. Look at our checking account. Why? Well trace it all the way back to conversations you had starting at age six. We can't afford it. And it really shows this key principle of money, which is the way you feel about money is highly uncorrelated to how much you've got in the bank.

Mel Robbins (00:20:50):

Okay, say it again. Say that again.

Ramit Sethi (00:20:52):

Yeah. The way you feel about money is highly uncorrelated to how much you've got in the bank. Most of us believe if I have $5,000 more or $50,000 more or $500,000, finally I'll feel safe and I'm here to deliver some unfortunate news, which is that's never going to happen. Now you can change the way you feel about money. You can, but a number in the bank is never going to change your feelings about it. Uncorrelated. You've got to work. If you want to live a rich life, you got to do two things at the same time. One, you got to understand the numbers, the basic numbers of finance. You've got to know your savings rate. You've got to understand the rule of 72. This stuff is actually not complicated. It's really fun. We could talk about 'em. I'll give you a couple of ratios. It's easy stuff. It's like a sixth grader.

Mel Robbins (00:21:45):

I'm already zoning out on that. We'll get to that in a minute. But first I want to hear the second part of

Ramit Sethi (00:21:49):

This. The second one is you've got to simultaneously work on improving your money psychology. You've got to put a practice into place to start feeling good about money, because so much of society tries to get us to feel bad.

Mel Robbins (00:22:05):

I love this. You

Ramit Sethi (00:22:05):

Do those two things. You're going to be doing

Mel Robbins (00:22:07):

Variable. I love this because whether you are listening right now and you've got millions of dollars in the bank and you're set for life, or you are nearly a million dollars in debt like my husband and I used to be over a decade ago,

Mel Robbins (00:22:25):

Starting with changing your psychology around money changes, absolutely everything. And that's what we're going to focus on today because that is something that we all need to do. Even if you've made a ton of money grinding it out, putting your head down, you probably haven't enjoyed it. And there is a way for you to change the way that you think and relate to and the psychology of money so that you have greater freedom, so that you have possibility so that you're more present, so that you can be more confident and effective in your decision making. And that's exactly what Ramit is teaching millions of people to do. And it's available to all of us, regardless of where we've come from, what class we're in right now, what we've experienced in our lives, we can all just have a zero on the balance sheet. And we're going to go up from here because Ramit's going to teach us how to change our psychology. So where exactly do we start knowing that everybody comes to this conversation, dragging historical baggage that they might not even be aware of about their relationship to just money and what it means?

Ramit Sethi (00:23:44):

Yeah. Let's imagine that it's the first day and you've decided to join the soccer team. Some people have fancy shoes, some people have no shoes. Some people are really physically fit. Others haven't run at all in years. And for this metaphor, I'll be the coach. And what I'm going to say is we're all in this together, and we're all going to start on the same page. So I like to start from a place of, we're going to have fun with this. I'll tell you what we're not going to do. I'm not going to say, oh, he'll pull out this 46 part spreadsheet and let's go through all your spending. Nah, everyone's going to leave. And I don't even want to. It's irrelevant. Instead, I want to do something, an exercise together with you, me and everybody listening about what I call your money dials. So I'm going to ask you, let's do this together. And everybody listening, I want you to follow along. So Mel, if I asked you what is something you love to spend money on, not like, but truly love, look at that smile. What would it be?

Mel Robbins (00:24:51):

Oh, I love buying dessert. Now that I've started, I've gotten out of debt. I make a lot of money. My favorite thing, and I always joke that this is my version of a Lamborghini. When I go out with a group of people, I order every dessert on the menu.

Ramit Sethi (00:25:12):

Okay, what does that get you? Tell me about that. Why?

Mel Robbins (00:25:16):

It feels really decadent and fun. And it allows me to sample things without committing. And it's a way to take care of everybody at the table because everybody kind of secretly wished that somebody would order one of the desserts. And it's a way to relax kind of that grip. Like, oh, I'm only allowed one dessert, so I got to pick the one. It's just a playful way. That's kind of ridiculous. But every time I do it, everyone's like, oh my God, that's so fun. And so I just love doing that. And I'm also a massive gift giver. So I love spending my money on other people and orchestrating gifts and creating experiences for people. Those are my two big things.

Ramit Sethi (00:26:10):

I love it. I hear so many things that I'm so thankful I get to highlight some of the things I just heard.

Ramit Sethi (00:26:17):

So it sounds like what I would call a money dial. The thing you love is either gifting or eating out desserts.

Mel Robbins (00:26:25):

Yes.

Ramit Sethi (00:26:26):

Would that be fair? Yeah. Okay. Pick one. Which is the one that gets you really

Mel Robbins (00:26:29):

Excited? Gosh, I don't know.

Ramit Sethi (00:26:37):

I kind of think it's desserts because you spents 10 minutes

Mel Robbins (00:26:40):

Talking about desserts. Okay, desserts. Desserts.

Ramit Sethi (00:26:41):

It's usually very obvious. People light up when they talk about

Mel Robbins (00:26:44):

Their number one. Well, cause I also feel like it is a gift. Nobody does it for themselves, and it's ridiculous. Why would you order all the desserts knowing everyone's going to take one bite? Because we can. And because it's fun. It's

Ramit Sethi (00:26:56):

Very abundance,

Mel Robbins (00:26:57):

And it's about abundance and play and that it makes me feel like a kid almost.

Ramit Sethi (00:27:03):

Okay, I love it. So here we have Mel in a Willy Wonka chocolate factory, just like we get to get it all, and it's very abundant. So for everybody listening, the most common money dial or thing you love to spend money on is eating out. Number two, most common is travel. Number three is health and wellness. Number four is convenience, which happens to be my money dial. And there's a variety of others you can search online. Okay, so that's great for everybody listening. You should identify the thing you love and go into that detail. If you're doing it with a partner, notice how I ask why, tell me what does it mean to you? Get curious. And then the second question I have for you, Mel, is if you were able to quadruple your spend on your money dial, what would that look like and feel like for you?

Mel Robbins (00:27:53):

I'd send those desserts to everybody in the restaurant.

Ramit Sethi (00:27:58):

Whoa, tell me more.

Mel Robbins (00:28:01):

Just kind of spreading that exuberance and joy and this kind of psychologically, it's not financially extravagant if you can afford to do it. It's not like you went out and spent $200,000 on a car, but there's this level of surprise and exuberance and extravagance that there's delight, there's surprise. There's the fact that it tastes good, that if I spread that through a whole restaurant, I think the positive vibes that would go out and the positive energy that would swell in that space would be fricking unbelievable.

Ramit Sethi (00:28:45):

Amazing. Okay. I'm going to ask you to take that and extend it even more.

Mel Robbins (00:28:50):

Oh, okay.

Ramit Sethi (00:28:51):

Because I know you're very successful. So let's say you eat out once a month. You could do that, no problem. It wouldn't even affect your bottom line. Let's turn it up even more. Not quadruple. Let's 10 x it. Think expansively. Think beyond the confines of a restaurant.

Mel Robbins (00:29:12):

Well, the first thing that came to mind was the Ben and Jerry's free cone day that they celebrate the, it was this year, their 40th anniversary by having a day where they give everybody a free ice cream cone if they show up and they typically support a charity, right?

Ramit Sethi (00:29:30):

Yeah.

Mel Robbins (00:29:31):

I think that's pretty cool.

Ramit Sethi (00:29:33):

So you would do that a day of, let's say outside of school or something or some charity. You're just going to get an ice cream truck and rent and do that.

Mel Robbins (00:29:43):

Well, when you said school, I was like, how cool would it be if everybody got dessert at school for free?

Ramit Sethi (00:29:50):

Okay. I love your answers. There is a cohesive thread that goes through there. It's generosity, it's surprise, it's delight, and it just happens to be around food. But I'm willing to bet in your life, there's a bunch of other things like that. For everybody listening, take this example we just heard and apply it to yourself. Let me give you some examples that will help. Please. For most people, like I said, eating out is their number one money dial. When I ask 'em to quadruple it, they almost always say the same PG rated joke. They go, well, I'd probably have to watch what I eat. I'd be eating out four times a week. Ha ha. I go, ha, ha ha. And then I go, all right, listen, that's very linear thinking.

Ramit Sethi (00:30:33):

The fact that you eat out once, so you're going to quadruple it. You're just going to eat out four times. That's linear. Like, okay, you could eat out four times a week, but are you going to eat at the same place? And people pause. They start thinking, oh, wait a minute. Okay, so if it's like Chipotle or whatever it is that you eat at, wow, okay. And I remember this young man in dc I was speaking there and he said the same joke and I had the same unamused response. And I go, where would you eat? And he thought for a second. And he goes, you know what? I have a list of every Michelin starred restaurant in dc, young guy. I go, wow, okay, cool. You like food? He goes, yeah, I love it. I go, who would you take with you? And he got really quiet the entire audience, pin drop, silence. And he goes, I would take my family. Why? Because they could never afford to eat at places like that.

(00:31:23):

Now, that is a money dial, that is a vision of what you love today. And it could be modest buying dessert for your friends. That's very generous. Also pretty modest. But when you understand, Hey, where could I go with this? Could I turn my dial up two x four x, 10 x? What would it look like? It wouldn't just be more of the same. I might change the quality. I might change the frequency if I love clothes. As a young woman in Pasadena did, I asked her, are you going to still shop at the same place h and m? She goes, no. And when we really explored and played, we came up with this idea that one day she could fly to Italy with her mom and they could get something custom made together in Italy. Now she can't do that today. She can't do it tomorrow. But now she has a vision of what excites her with money. That's how we get started.

Mel Robbins (00:32:17):

Why is it important to start with a vision? That's exciting

Ramit Sethi (00:32:25):

Because money is such a drag for most of us. When you think of money, what are the first words that come to mind?

Mel Robbins (00:32:31):

Debt.

Ramit Sethi (00:32:32):

Yep. Yep. Restriction. Overwhelming

Mel Robbins (00:32:36):

Mistakes.

Ramit Sethi (00:32:36):

Am I too late? Mistake. It sucks. So are we surprised that Americans have terrible financial behavior? Well, I'm not really surprised when everything around us basically tells us, don't pay attention to this until it's too late. I mean, it's more exciting to talk about flossing than it is to talk about money. It sucks. But if we start talking about, oh my God, I love to eat. I'm unapologetic about spending extravagantly on the things I love, as long as I cut costs mercilessly on the things I don't, well, suddenly it's a lot more fun to talk about.

Mel Robbins (00:33:11):

It really is because I think there's so much shame that we carry about money because there's all these expectations that you have about how much you should have, how much you should have by now, what you should have done with it. If only had I had invested back in the day in Apple, I missed these opportunities. I should have done this, I should have done that. And that sort of negative story that you keep reinforcing to yourself, that then has you go, oh, I can't buy the guacamole. I better not get a latte. Fuck, fuck, fuck.

(00:33:43):

It keeps you stuck in that story. But when you allow somebody to play and dream again, because money, it's not only psychology, it's sort of a vehicle to do those things.

Ramit Sethi (00:33:53):

Exactly. Yeah. And I love what you said about the guacamole example, is that because we feel shame because we feel like it's too late. Our field of vision narrows almost like if you've ever felt like you're about to faint, everything shrinks and we shrink our own desires. So I'll often ask people, what is your rich life? And you know what they always say to me, they always go, I want to do what I want when I want. I go, oh God, here we go. And then I go, wow, that's so interesting. I never heard that one except for the 8 million times I heard it. I go, so what do you want? And they are stumped because we never actually thought about what our rich life is. And so then I'm gentle. I want them to come to it, but I also want to have a little fun with 'em.

Ramit Sethi (00:34:39):

And so they'll say something like, well, I guess it would be cool if I had a beach house one day, but it doesn't have to be a big beach house. It could be small, it could be a shack, it could be dilapidated. I don't even need anything. I go, what the hell? We're talking about your rich life and you already shrunk your desires in five seconds. Uhuh, I don't allow that. I go, dream bigger. And then let's figure out if your finances support it, what investments you need to make. And hey, maybe you're not going to get a nine bedroom place in the Hamptons, but maybe you could get a beautiful place, rent it for a week or buy it in 10 years, et cetera, et cetera, et cetera. So we minimize ourselves unnecessarily,

Mel Robbins (00:35:17):

And then that cuts off our access to authentic inspiration.

Ramit Sethi (00:35:24):

Yeah, nobody's inspired by a tiny vision. Nobody's inspired by the idea like, Ooh, I could save 5% on coffee. Who cares? That's not exciting.

Mel Robbins (00:35:33):

It's so true. I want to ask you a question on behalf of anyone that's listening that is up to their eyeballs in debt and is having trouble dreaming and is trying to make ends meet. Or maybe it's not even the debt. It's that with two kids in college and bills to pay and a mortgage, they're just in those crunch years of just grinding it out. What is the concept of a rich life and can you walk us through, regardless of where we are financially, how we start to define it for ourselves? Covered the money dials, but I want to just get a flat definition from you of what a rich life is and what are the steps you walk somebody through regardless of where they are to creating one.

Ramit Sethi (00:36:26):

A rich life is when you look at your life and you go, wow, this feels amazing. Now you can have a rich life and still be in debt. That's okay. You can have a rich life and not be exactly where you want to be ultimately. But a rich life can be traveling two months a year. It can be buying a beautiful cashmere coat. A rich life can be picking up your kids from school every afternoon. The key is that your rich life is yours. It's not mine. It's not your friends, not your parents, it's yours. And in fact, the more you carefully define your rich life and really turn those dials up and down, the more bewildering your rich life will be to other people. I'll give you an example from my own life. My rich life is really weird to other people, and that's exactly what it should be.

(00:37:23):

I love spending extravagantly on travel. I'm a hotel guy. I I have a list of hotels in all parts of the world. I know the exact room I want to stay in. I love it. I'm obsessed. That's my thing. I also love clothes. I love them. I spend a lot on it. And so those things are things I spend extravagantly. On the other hand, my car is not that important to me. And to give you a point of comparison, I've spent more in one year on travel than I spent in 20 years on all of my car expenses added together.

Mel Robbins (00:37:59):

Wow.

Ramit Sethi (00:38:00):

So that's crazy. It makes no sense to somebody listening. And that's exactly how it should be. If you love camping, maybe you turn that dial up, you find a way to have a smaller cost for your rent or mortgage, and instead you're going camping. I dunno, X weeks per year. You've got some behind. You've got some place you go that nobody else knows about. Some equipment. That's amazing. You take friends with you. Amazing. Not my thing. I've got a reader of mine who told, he retired in his thirties with his wife. They travel around the country in an rv. I go, that sounds like hell.

Mel Robbins (00:38:40):

Yeah, me too. To me. No

Ramit Sethi (00:38:40):

Way. But I love that it's their rich

Mel Robbins (00:38:44):

Life. Yes. So are there particular questions other than the money dial that you would want us to ask ourselves or answer in order to start to really define it? Because I agree with you. Most people, when you ask them for real, what do you want? It's like,

Ramit Sethi (00:39:04):

It's hard. It's a really big question.

Mel Robbins (00:39:06):

Ramit Sethi (00:39:06):

What we can do is we can zoom in and out to help people create some context around it.

(00:39:11):

So I have this journal, which you can do solo or with your partner, and I'm going to give you a few exercises that are really helpful. Let's start big picture and then we'll zoom really tight down to day to day.

(00:39:22):

So this is a fun exercise. I did this one with my wife. We sat down and we said, let's create a 10 year bucket list. So in the next 10 years, what do we want to do that would make this an amazing and rich 10 years? We took two separate pieces of paper, we spent a few minutes, we wrote it down, and then we came back and compared it. And this is a really cool opportunity to recalibrate. The way you talk about money dreamy. It's fun. You don't have to commit to anything. So you want to get curious. One of us is like, oh, I want to learn Spanish. And the other one goes, oh cool. You want to do that online? Or would you want to go to Mexico City and do an immersion? The other one of my things was I want to write a book at a hotel.

(00:40:03):

Makes perfect sense. Well, I don't necessarily love writing, but if I'm going to write a book, I'm going to write it in an amazing luxury hotel that I love. Which one? Okay, cool. So there was one in Kyoto that I love and in fact recently went there on a writing project. I achieved one of my tenure books, Eric and the funniest part, my wife was going to Japan anyway with some friends. She goes, Hey, why don't you go and work on your writing project? I know you love that hotel and you've got the time. Why don't you? And I was like, oh yeah, it didn't even occur to me. So sometimes you need somebody to remind you about your,

Mel Robbins (00:40:41):

Now if you're single or you're newly divorced or you've just graduated from college, do you recommend that you grab a friend or a sibling or somebody? Or is this something best

Ramit Sethi (00:40:54):

Done? No, you can do it solo.

Mel Robbins (00:40:55):

You can do it solo. Okay.

Ramit Sethi (00:40:56):

Yeah, you could totally do it solo. So you come up with a list of things and it's things that are exciting that you would look back on and be like, wow, that was a really cool 10 years. I remember. That's memorable. Okay, then, so the two of you have, if you're in a partnership, you've asked each other. If you're solo, you're looking at 'em and you're picking one that really jumps out at you, don't overthink it. It's the one that you go, I want to do that above all others

Mel Robbins (00:41:21):

In the next 10 years.

Ramit Sethi (00:41:22):

Yep.

Mel Robbins (00:41:22):

I got to go to Australia for a month in the next 10 years. I am not saying that's mine, but I'm just saying, what are some of the things you've seen from the millions of people that you've helped?

Ramit Sethi (00:41:33):

We want to take a family trip to Italy.

Mel Robbins (00:41:35):

Super

Ramit Sethi (00:41:36):

Common. Everybody wants to go to Italy, and I love hearing it. I then get to help them dimensionalize it. Italy alone is just a word I want to know. What seat on the airplane are you flying? What season are you going? What are you wearing? Where are you eating? I want to know every detail to the point where we can almost smell it, because then it becomes vivid and aspirational.

Mel Robbins (00:42:02):

Okay?

Ramit Sethi (00:42:03):

So that's what we're doing in this first process. It's actually really fun. Oh, oh my God, we get to go on a pizza tour, whatever. Then you pick that one and solo or together, you go, alright, let's actually make it happen. When do I want to do this? In our case, we decided we want to have an amazing 10 year wedding anniversary. We were inspired by some friends of ours who did it, and we were like, what people actually do that? And then we're like, well, who cares if people do it? We want to do it. And so we said, that's it. We happen to know the exact date we want to do it and the location. If you want to go to Italy or wherever, you got to pick a specific month and year. It's got to now start getting specific, and then you got two more steps and then you're good to go.

Mel Robbins (00:42:49):

The next step is to, hold on, let me just clarify something.

Ramit Sethi (00:42:51):

Yeah.

Mel Robbins (00:42:51):

What Ramit is teaching you to do is to dream again and to attach very positive and aligned emotion with what a rich life would feel like. And I think so many of you are going to have trouble even getting past this part and giving yourself permission to do it because of the amount of mistakes that you made. And I'll just say Ramit, when Chris's restaurant business was really struggling and we had liens on the house and couldn't pay for groceries at times, and I had lost my job, dreaming seemed impossible, but it was actually a lifeline because it made me feel like this was going to be temporary, that we would figure out a way through this. And so I just want to underscore that if you're got crushing student debt right now, if you've gone through a divorce and you're in financial ruin, this is actually exactly what you need to do because if you continue to stare at the debt, you're going to feel disempowered, which means your actions will be disempowered.

(00:44:08):

If we can give you a beacon out on the distance to raise your gaze and get you feeling inspired against something to work toward that we know based on the research, that's your big why when it comes to a goal. And so I love what you're doing here because it's the exact opposite of what a financial advisor would tell you, which is you'd sit down, you'd go through the numbers, you'd feel like an IBU soul, you'd basically get somebody politely telling you you're fucked and you shouldn't buy coffee out and you shouldn't enjoy yourself until you get your debt under control and you pay this off and that can come. But let's first get the conversation fun and exciting again, because when you're in that kind of mood, you're going to be more motivated to do the tedious bullshit that any financial advisor can tell you. Correct?

Ramit Sethi (00:44:59):

Correct. A hundred percent. And thank you for slowing us down and really providing the context behind why we are doing it this way. I don't want us to shrink our world to a spreadsheet that's not going to help you. That's not going to help anybody. Instead, what I want to do is expand our vision, even if it feels impossible to dream and to say, look, just in this moment on this piece of paper, let's dream for a second. And it's having a conversation with yourself or your partner and saying, we may not be able to even see how we can get there today, but we've got time and if we put the intention behind it and we marshal our resources, I think we can do this.

Mel Robbins (00:45:43):

Yeah, that's beautiful. Absolutely beautiful.

Ramit Sethi (00:45:46):

So you've got one powerful vision of what you want to accomplish in the next 10 years. I say powerful because it's not like eating at a restaurant that's not powerful enough. I had a guy once tell me his rich life is coffee. And I just sat there and then I said, that's boring. I just told him point blank, and he was shocked. Oh, somebody's telling me my rich life is, I was like, yeah, that's boring. You can't just say coffee. This guy had a lot of money. I go, okay, if you love coffee, then tell me you want to go to Guatemala and take a behind the scenes tour of a farm. Tell me you want to go to the National Barista Competition and bring somebody tell me something beyond, I want to order an extra Dunkin Donuts coffee shipped to my house. No, that's not acceptable. So sometimes I have to challenge people to think bigger. You got something big. It could be skydiving, it could be a trip, whatever. Alright. You know the date, specifically the

Mel Robbins (00:46:44):

Month. So in the next 10 years, you got to pick a date the month and the year.

Ramit Sethi (00:46:48):

Yep. You got to be specific. Then this is the hardest part, but it should take no more than five minutes. Approximate the cost. So if you're going to Italy people, they start to freak out because freaked, anytime you start talking,

Mel Robbins (00:47:00):

I just freaked out.

Ramit Sethi (00:47:02):

Yeah. It's like we revert back to seventh grade math and we're like, oh, got to do the quadratic equation and get it perfect. I go, listen, you don't need any decimal points. Okay? In fact, you could approximate on the back of a napkin, how much is a flight going to cost approximately add 15% because you forgot about tax and all that stuff. What's a hotel going to cost? I don't know, Google Hotel, Italy, Rome, whatever. Okay, let's double the price. Maybe we want to stay at a nice hotel. Alright, fine. That's the level that we're talking about here.

(00:47:30):

And if you have two different, my wife and I had two completely different numbers. Mine was way bigger. And my rule is if you've got two numbers, go with the bigger one.

Mel Robbins (00:47:39):

Got it. Okay.

Ramit Sethi (00:47:40):

Go with the bigger one. And so now you've got a beautiful vision. You've got a month and year, you've got the approximate amount it's going to cost. The last step is to make it a reality. How do you do that? Let's say that it's 10 years away, it's going to cost $10,000. I'm just making it up. That means you need to be saving a thousand dollars a year or roughly a hundred bucks a month roughly.

(00:48:08):

Okay, we could do that. Suddenly you start to understand a little concept of time and money and you set up an automatic savings from your checking account to your savings account for $100 a month and you call it dream trip 2030, boom. Every month that you are talking about money in what I call a rich life review. It's like a video game. You see we're getting 3% closer and that is a joy.

Mel Robbins (00:48:38):

I love this and I know that you, is that what you call a conscious spending plan?

Ramit Sethi (00:48:44):

Conscious spending plan is a little different, but it would incorporate that. Yes.

Mel Robbins (00:48:49):

Okay. So can I just ask one more question about this? And I know I'm beating a dead horse, but having been somebody that was in a scary place financially just over a decade ago, I want you to explain what will happen to somebody with crushing student debt or who's having trouble just making the ends meet right now and they don't have a lot of savings. How will doing this exercise change their psychology about money starting today?

Ramit Sethi (00:49:25):

Yes, thank you for asking this because if you are in large amounts of debt, whether student loan, credit card, even mortgage, for some people, some of this can sound really airy fairy, and I'm the last guy to get accused of us all sitting around the campfire saying Kumbaya. I'm like, look, I'll talk about psychology, but we're also going to talk about the numbers. And so what I want to emphasize to people is that we often have this belief that we are overwhelmed with money. Okay? It's easy to feel that way, but when I ask people, show me your spending, what percentage of your income is going to housing or investments? I would say 99% of people do not know. Okay, so how can we, I don't know.

Mel Robbins (00:50:11):

I literally don't know.

Ramit Sethi (00:50:13):

Yeah, totally. It's very common. And so how can we feel in control of something if we don't understand the basic mechanics of it? Even when we drive a car, we got to know how to turn the ignition on reverse. So we go through life in this very arbitrary transactional way of like, okay, this bill came in, I'm going to pay it. This bill came in. That feels really bad. It's transactional, it's reactive, and what I'm encouraging you to do is to go from defense to offense with your money. That means once you set the intention of an Italy trip, if you're in crushing debt, you may go, Hey, Ramit, I actually cannot afford to put a hundred dollars a month away. I go, okay, well why don't we write that down a hundred dollars a month towards Italy, but you can't do that today. That's totally fine. Next, we're going to go through your four key numbers in the conscious spending plan. Let's make sure you understand your numbers, and you'll be quite surprised that a lot of people discover they have more money than they actually realized once they go on offense with their personal finances.

Mel Robbins (00:51:24):

Oh wow. Okay. So what are the four type things that we all need to go through?

Ramit Sethi (00:51:30):

Everybody needs these four numbers. This is what I use instead of a budget. I don't keep a budget. You think I'm going to sit around tracking the price of asparagus for the rest of my life? Hell no. Okay. I don't want to live that kind life. I don't live

Mel Robbins (00:51:39):

That life either. Okay.

Ramit Sethi (00:51:41):

Yeah. Alright, so four numbers that you should know. These are all part of my conscious spending plan. The first is your fixed costs.

(00:51:50):

So that would include your rent or mortgage, your utilities, car payment, gas, insurance, anything that's fixed, even groceries every month that goes there.

Mel Robbins (00:52:01):

And what about the minimum debt payment or is that part of another

Ramit Sethi (00:52:04):

Category? Yeah, that counts there. Exactly. Thank

Mel Robbins (00:52:06):

You.

Ramit Sethi (00:52:07):

And that number, you should try to get it between 50 to 60% of your take home pay. Let me run through these all and then I'll tell you what they mean. 50 to 60% of your take home pay for fixed costs. Next up your savings, how much money are you saving every month? This should be roughly five to 10% of your take. Home savings would be an emergency fund or money you don't need for at least one to five years. Things like a down payment for a house, et cetera. Next up would be investments, roughly five to 10% of take home, although I like to see it higher because investing early in life pays well, pays dividends later. And then

Mel Robbins (00:52:55):

Little shame for Mel Robbins did not invest early in life. I'm just going to let that one go and focus on my dream list. Okay. Just wanted to acknowledge that when you said that because people say that, I'm like, fuck, I didn't do that. Okay,

Ramit Sethi (00:53:09):

Well, I wish I started deadlifting when I was 13 years old, but I didn't even know what that was. So we all start from the place we start at.

Mel Robbins (00:53:15):

That's true.

Ramit Sethi (00:53:15):

Okay, the last category is my favorite. One of all, it's guilt free spending. And this is 20 to 35% of take home pay. What? Yeah, that's right. Desserts. Mel, go get 'em. Beautiful cashmere coat. That's for me. Go get 'em. You want to get roller skates? You want to go to your gym? 20 to 35% of take home. Now let me tell you why I love this and why I'm getting excited about, I fricking love this about four numbers, okay? So many of us shrink our lives and we agonize over some stupid $5 purchase. You really think coffee is going to change your life. It's irrelevant. It does not matter how much coffee you buy. So please stop thinking about that. The same people who agonize go, oh, I'm so overwhelmed. I don't know anything. I go, what's your savings rate? They go, what's that? How much are you investing? Well, I try, but I don't really know. Okay, how are you supposed to feel? Not overwhelmed if you don't know any key numbers. So know the four numbers and you will suddenly feel totally in control. Some of you aren't going to be able to hit these numbers. That's okay. At least we can work with it. We got the puzzle pieces on the table. Now we can start assembling your rich life.

Mel Robbins (00:54:28):

Wow. Okay, I think I can do this. So you just carve out some time on the weekend and get your arms around these four things,

Ramit Sethi (00:54:38):

Which should take 15 minutes. Do not

Mel Robbins (00:54:40):

Overthink it. It's going to take me a while. Really? It takes 15 minutes.

Ramit Sethi (00:54:43):

Yeah. Here's what people do for how do you do it? Because the biggest challenge is people don't have the right logins, so their logins are spread all. They got their fidelity account or some old 401k or whatever. So I would recommend breaking it up into two days. The first day is just get all your stuff assembled.

Mel Robbins (00:55:01):

Love it.

Ramit Sethi (00:55:01):

It's like cleaning the garage. And then the second day, 15 minutes and done. Do not overthink it.

Mel Robbins (00:55:07):

Love you.

Ramit Sethi (00:55:07):

We're going for approximate numbers.

Mel Robbins (00:55:09):

That's

Ramit Sethi (00:55:09):

It.

Mel Robbins (00:55:10):

I love you. I love you. Love you, love you. You have that, what is it? The 85% rule. Get 85% of this, right? You're good.

Ramit Sethi (00:55:17):

Yeah. Get on with your life. You don't need to sit there and optimize everything. It's a waste of time.

Mel Robbins (00:55:21):

And I also love this because it can feel so insurmountable when you've made major financial mistakes in your life that this gives you a place to start that you can then start to get better from. And I just actually had a huge wake up moment. I realized that one of the great things about growing up with parents who were very just, I didn't ever see any concern about money and I didn't see them talking about it. Actually, that's not true. I would see my mother sitting at her desk with one of those little calculators with the tapes as she was balancing her checkbook.

Ramit Sethi (00:56:04):

Hey, that's a really important thing that you saw. You saw a woman taking control of money and being capable and competent. That is a very valuable lesson to learn as a child. That obviously has come through for you. That's amazing.

Mel Robbins (00:56:23):

And she then went on to open her own retail store and all the women, my grandmother's a farmer and ran the money and she had a calculator with the tape. And my other grandmother, my grandparents had a bakery and she had the thing with the tape. But what's interesting is that I think the, oh, it's chill aspect has gotten too hands off for me. The fact that I can't answer those numbers like that at this stage in my life. For me, it used to be because of fear and shame and how bad the numbers were. I used to be one of those people that the bills would arrive and I would just not open them.

Ramit Sethi (00:57:03):

Common.

Mel Robbins (00:57:05):

It was confronting to see the debt and confronting to see how much I had spent because I was basically shopping to escape my life with money that I did not afford, that I didn't have. And then you'd open up the bills and be like, fuck

Ramit Sethi (00:57:23):

Yeah,

Mel Robbins (00:57:24):

I guess

Ramit Sethi (00:57:24):

I spent that much.

Mel Robbins (00:57:25):

Yeah, I don't have that money. And so it used to be that, but I think now that I've paid off all the debt and I have savings and I've maniacally saving, I don't look at it at all still.

Ramit Sethi (00:57:41):

Okay. Let's talk about a couple of things that are so interesting about what you just said. I love the honesty. All of us have something in our lives that we feel like we should be doing better and we kind of push the envelopes away. And I deeply understand this because for me it was fitness and I grew up half joking, calling myself a skinny Indian guy. And I really wish I had not said that because it became part of my identity. And if any of us say something like I'm bad with money, I would gently encourage you to not say that. Maybe reframe it and say, gosh, I haven't learned the skills of money yet, but I'm changing that now.

Mel Robbins (00:58:28):

I want to stop right there. Hold on a sec. I apologize for interrupting you, but this is so important. If you just heard Ramit say, I'm bad with money, I want you to pay attention loud and clear because he is absolutely right. Or if you say something like, I don't understand. It's overwhelming.

Ramit Sethi (00:58:53):

I'm not good with math.

Mel Robbins (00:58:54):

I'm not good with math. What are other things that your students say, Ramit, that really crystallize a terrible psychology around money?

Ramit Sethi (00:59:02):

My family's never been good with money. We're all bad. I'm never going to get out of this debt. We always fight about money and I'm just an overs spender

Mel Robbins (00:59:13):

Or my husband took care of the finances.

Ramit Sethi (00:59:18):

Oh, classic. Oh, that drives me insane. Hold on, I'm getting mad, but I am getting mad at multiple things right now, so let me take 'em each in turn. Okay. First off, what you said about not opening envelopes and then now as you've become much more financially successful, it's almost swung the other way is totally common. In my experience, once people start earning around $150,000, they stop really paying attention to the numbers because they basically make enough to not have to really pay attention. And actually I'm a little okay with that. I don't want people agonizing over the price of groceries if they're making 150 K. But what I do want and what I do for myself is I spend one hour per month on my finances. That's it. Just one hour. I review the CSP. My wife and I talk about money.

Mel Robbins (01:00:05):

Hold on. The CSP was that conscious spending plan of the four things, correct, fixed cost. What's your automatically savings, your investments? And then the category I love the most, guilt-free fucking spending people let

Ramit Sethi (01:00:19):

Go. Well, I love it. You added the F word. That's so good. I got to add that. That's beautiful. It is exciting. Okay, so all those things, when you have money carved out for guilt-free spending, it is literally defined so that if you want to eat and get an extra cheesecake or you want to go to the movies, you don't have to feel guilty because you know my debt is being paid off, my rent or mortgage is being covered. I'm even saving money. I'm not trying to save money just like I don't try to brush my teeth. It is happening automatically. It's even better than brushing. So that is, if you're listening, I hope that's a sense of relief that you don't have to feel bad about having debt. You do not have to track a gajillion numbers that you don't even care about. You do. And I would highly encourage you to focus on four key numbers that will totally transform your life.

Mel Robbins (01:01:15):

I love this. I love how easy you're making this. Thank you for that.

Ramit Sethi (01:01:19):

It's absolutely my pleasure. I don't want to spend time doing that either. I don't want anyone else to waste

Mel Robbins (01:01:24):

Their time on it. So I want to clarify one thing. So these four pillars of the conscious spending plan, and again, I come from the lived experience of crushing debt where you feel that unless you can get to zero balance, you don't deserve guilt-free spending, that somehow you're cheating on your goal to get out of debt, which is what every financial advisor pounds into your head. And you feel like that latte robs you of the opportunity to be out of debt. You feel like spending to go on a trip with your friends robs you of the ability to be out of debt. And what you're saying is, no, no, no, no, no. You can start right now by figuring out these four things and allocating incoming to those things.

Ramit Sethi (01:02:19):

Correct. We have a very unhealthy relationship with money in this country. On one hand, we have a puritanical strain that tells us do not buy anything and you're a bad person for having debt, and you should live in a monastery until that debt is paid off. And then maybe you could go buy a pack of gum. Okay? On the other hand, we're like, okay, hold on. Lemme look at Instagram. Oh, my friend's in Bora Bora on Tuesday. Oh, I think I'm going to go take a trip even though I don't even know how much I have in the bank. What a two paradoxical beliefs. And usually it's the consumerist one that wins, but we still feel guilty. We love to feel guilty in this country.

(01:03:03):

I don't want to feel guilty with money also. I'm not naturally, I don't feel guilty. I'm just like, lemme just fix this. So when it comes to having debt, here's my belief. Number one, you need to know how much you owe. 90% of people I talked to who are in debt do not even know how much debt they owe. That's number one. You've got to know your numbers. Number two, you've got to know the exact month and year your debt will be paid off. 95% of people in debt do not know their debt payoff plan. Easy way to do it. Literally go on Google type debt payoff calculator, plug your numbers in and you will see. And don't worry if it seems depressing, oh, it's going to take 28 years. What I want you to do is just plug the number in and sit with it for a day. And later you will learn things like, wow, if I add an extra $50 a month, it can shave off three years from my debt. But that comes later. I just want

Mel Robbins (01:03:59):

You to know what also I also love that you're saying is I love that you're saying it's okay to have it. Most rich people actually finance a lot of things.

Ramit Sethi (01:04:08):

Yeah,

Mel Robbins (01:04:09):

Debt. Go ahead. You're the expert. I dunno. Why the hell I'm talking about money. Go ahead.

Ramit Sethi (01:04:14):

Well, first of all, whether it's okay or not, a lot of people have debt.

Mel Robbins (01:04:17):

Yes.

Ramit Sethi (01:04:18):

So let's just accept us for who we are. That's the fact of life. Now, I do want you to get smarter with debt. So when I look at people, I always look at the snapshot of their finances, and I talk about all these numbers on the podcast. By the way, we have folks who come on $800,000 of debt. They're not even really? Are you

Mel Robbins (01:04:37):

Serious? Well, that was me over a decade ago. Yeah. When the lie

Ramit Sethi (01:04:41):

Hit the out. Wow, okay.

Mel Robbins (01:04:42):

No college savings, no 401k credit cards, maxed out home equity line, maxed out, plowed it all into my husband's restaurant. Business did not go according to plan. I lost my job, liens hit the house. He hadn't been paid in six months. Friends and family had invested. Holy fucking hell. That was my life.

Ramit Sethi (01:05:03):

Okay, so you really know what it's

Mel Robbins (01:05:06):

Like. Yeah. This is not

Ramit Sethi (01:05:06):

A joke.

Mel Robbins (01:05:07):

This is,

Ramit Sethi (01:05:08):

You think about it every day of your life when you're in it.

Mel Robbins (01:05:11):

Yes. And in fact, there's research I believe that says that the number is 75 or $78,000 in the United States is what you need to make in order to be relieved of the day-to-day financial stress that you have, that when you reach that number, there's a level of freedom involved. I don't know if that's true or not.

Ramit Sethi (01:05:37):

I know the research.

Mel Robbins (01:05:38):

What is it?

Ramit Sethi (01:05:41):

People have wildly misinterpreted it. Let me put it this way, and I want to correct it, because people listening who are making $75,000, they're like, wait a second, why do I still feel so stressed? What's wrong with me?

(01:05:51):

And there's not something wrong with you. Nobody is broken with money. Nobody. There are ways for you to get informed about money. So the basic language of money, which anybody can do, you do not have to be a math genius. I'm not. And second to work on improving your money psychology. I spoke to a couple on my podcast and they were in a lot of financial trouble and they think about it every day and they were so stressed out. And I asked them, have you read my book? Not judging. It. Turns out almost nobody who comes on my podcast reads my book,

Ramit Sethi (01:06:30):

Which I find hilarious. And so I said, okay. And they go, well, I haven't really read a lot. I said, okay, you're a new parent. She was a mom. I think her baby was about six months old. I said, when you first had your baby, did you know how to hold her? She goes, no. Did you know how to feed her? No. Did you just wing it? Did you just tried your best? No, I got help. The nurses, my mom, I read a bunch of books and on and on and on, and that is so normal. There are things in life we don't know. That's okay. But we do have to say, Hey, this is important to me. My rich life is important. I deserve to dream bigger than a box of pickles, and therefore I'm going to prioritize learning and also improving my psychology.

Mel Robbins (01:07:28):

I'm going to read your book. I've never read a financial book in my

Ramit Sethi (01:07:31):

Life. Oh, okay. I love it. There's audio version too.

Mel Robbins (01:07:34):

I'm just admit it. I'm just admitting it. I have never,

Ramit Sethi (01:07:36):

I love your honesty. It's so

Mel Robbins (01:07:37):

Good. I read a financial book in my entire life. I have read plenty of blogs and listened to podcasts. I've never read a book. And the truth is, I am intimidated by Investing. And the irony of this is that this is the one area of my life where I have goals and I want to get more into investing and also investing in startups as an angel investor. And I don't know the first fucking thing about it, and there is this, I don't know, self-doubt or whatever that I realize in talking to you is keeping me from starting. And yet one of the things that if I make that 10 year list that you're talking about of dreams, it is to have advised, invested in and nurtured a number of startup companies, particularly by underrepresented founders in spaces and categories that I deeply care about. And it's almost like what I just realized is doing that would help me fulfill in an amazing way that ripple effect of sending desserts to people.

Ramit Sethi (01:08:57):

There you go. That is the money dial. The desserts are beautiful, but they are such a small example. You are so much bigger than a table full of desserts. That is it.

Mel Robbins (01:09:08):

Yeah, it connected the dots between those two. And so you've given us so much to do and so much to think about. And I want to recap kind of what we've covered so far for everybody so that you can also ee tell us what else or where to start, or we're going to link to absolutely everything, all your resources where people can listen to your podcast, where people can find your website, of course, your new Netflix series where you are following a number of people that need their mindset about money changed in a show where you've got like six weeks to turn people's financial life around. And so this is something where you can get coached by Ramit not only through his programs, but through this new zero cost Netflix show. So make sure to tune into that. But I want us to just make sure that we have everybody leaving in action. You've just poured so much into us.

(01:10:10):

Number one, take two days, everybody, one for your logins, for your financial thing, the other to get the numbers straight and don't overthink it. You got to get your conscious spending plan together, which Ramit taught us has four aspects of fixed costs, savings, investments, and your guilt-free fucking spending people. The other one is you're going to do this 10 year dream plan where you get to just get your 10 year bucket list on.

Ramit Sethi (01:12:10):

I would love for people to have an answer to this question. I spend extravagantly on blank and I cut costs mercilessly on blank. And that really is the capstone of a lot of what we've talked about. You spend extravagantly on tipping or on clothes or on whatever it is, and to be able to write that down and be unapologetic about it, oh, you're really standing in who you are, and that's okay. Not everybody has to agree with it. And it also means you have to be honest about what you are willing to cut costs mercilessly on. Maybe I'm actually overspending on my house. Maybe I didn't know about the 28% rule, and maybe I didn't know about 28, 36, and all these different things that you can learn over time. But you have to be willing to also say, if I want to live my rich life, then what am I willing to say? This is not part of my rich life.

Mel Robbins (01:13:09):

What are some of the things that you typically see with the people that you work with that are costs that they, I can't even pronounce that

Ramit Sethi (01:13:17):

Word. They mercilessly cut.

Mel Robbins (01:13:20):

Yes.

Ramit Sethi (01:13:20):

Well, I'll tell you what they overspend on.

Mel Robbins (01:13:22):

Tell me

Ramit Sethi (01:13:23):

Because it's always the same.

Mel Robbins (01:13:24):

Okay.

Ramit Sethi (01:13:25):

The number one area that people overspend on is housing costs. And so in their fixed costs, that is the first, there's a reason it's first their housing costs. A good guideline is that your housing costs should roughly be 28% of your gross income. Now, I will tell you that that's really hard number, especially because housing has gotten so expensive,

(01:13:49):

Especially if you live in New York, la, et cetera. So if people come and they go, well, hey, mine's like 31%. I go, okay, we can approximate. It's like adding a little more salt to your dish, fine. But sometimes they look at it and it's 42%. Now I'm going to tell you what that means because again, most of us do not have the full picture of our finances. We simply pay the bill that comes in and they're wondering, why do we keep fighting about Target? Why doesn't my husband or my wife want to go out to dinner once a year? I'm so annoyed. I go, well, I could tell you right now, it has nothing to do with Target, nothing to do with dinner out. It's that your housing costs is 42% of gross. And because you're spending all your money up there, there's nothing left trickling down the waterfall. You can't save, you can't invest, you can't go out. And when they realize that, then suddenly they have the knowledge and they can go, okay, do we actually love this house? Do we need to live here? Fine. Then what are we going to cut back on? Or do we actually need to live here? Could we downsize? Could we move? Do we have options? Could we rent out a DU in the back if we've got it? Et cetera, et cetera.

(01:15:02):

That's number one. Number two, overspending is cars. You get somebody, I get this all the time and I always get mad at them, and then everyone gets mad at me because in America, we love trucks. So I have nothing against, well, that's not true. I have a lot of things against trucks including safety and a variety of other things. But what I really have a problem with is somebody making 75,000 who buys an $80,000 truck because their buddy Chet at the dealer told them, oh, you can afford the monthly payment. And then they forget to factor in what I call TCO, total cost of ownership. That $80,000 truck actually costs you 120 grand once you factor in insurance, tax, gas, and on and on and on. They can't afford it. So I asked one guy, he comes on the show, they're struggling with money. He goes, it comes out way late.

(01:15:46):

They're like, oh, we tried everything. We buy generic. We buy generic macaroni and cheese. I go, I don't care about macaroni. Tell me about your car. They go, we have this big nice truck. I go, oh, okay. That's so interesting. By the way, why do you have a truck? And he looks at me like I'm crazy. He goes to pull the trailer. I go, what? You can't afford any of this. So anyway, those are the two areas people overspend on. It's house and car. And if you can just avoid that, if you can just get your numbers in line and fit your fixed costs, the rest of your life will be so much easier.

Mel Robbins (01:16:24):

Wow. Wow.

Ramit Sethi (01:16:26):

Do you have a truck Mel?

Mel Robbins (01:16:28):

My husband drives a pickup truck. Yeah.

Ramit Sethi (01:16:30):

What kind?

Mel Robbins (01:16:33):

I think it's a Chevy.

Ramit Sethi (01:16:34):

Well, I don't really mind. I know you can afford it, but let's assume you and your husband made one 10th of what you made now, and you had that Chevy. What do you think about that?

Mel Robbins (01:16:50):

It costs $125,000. That's a lot of money.

Ramit Sethi (01:16:53):

Well, just another thing,

Mel Robbins (01:16:55):

Everybody, well, I guess, but I also live in Vermont and I would not be able to get up my driveway. That's a quarter mile long. During mud season, if we didn't have a pickup truck, we literally have to shuttle people up and down this driveway. I drive a 9-year-old car that just shit the bed. And now I drove it in to get repaired and was told it needs to be towed out somewhere to be sold. So I am currently without a car, so this is very timely, but I'm not a big car person.

Ramit Sethi (01:17:23):

Well, good, I like that, that, see, now what I want to hear is that, and it could be car. I don't need a fancy house. I don't need fancy clothes. Fine, but I also want to know what you are into. And once people start to define those two things, that really helps create the dimensions of their rich life. Also, never buy anything expensive based on a monthly payment. That's a trick. People do this with their house, their car, and they forget all about the phantom costs that are not included in their monthly payment.

Mel Robbins (01:17:56):

So if you've been guilty of that, do you then have to have an honest conversation with yourself? That's like I, and again, I want you to leave us with this rich life concept because while Ramit is a financial advisor, he's the host of a hit television show. He's a New York Times bestselling author, and he is helped millions of people change their thinking and mindset and psychology and relationship with money and launch businesses and get out of debt and create and build the life, the rich life of their dreams. I really want to make sure people leave with a paradigm shift. What do most people without realizing have if they don't have a rich life already? If you think about the people that came on the Netflix show or any of the millions of students that come to your website every month, what is the current mindset that most people have? And then I want you to leave us with a definition of what is possible if you apply these tools and you listen to reit.

Ramit Sethi (01:19:09):

The mindset that most of us have is what I would equate to being at work and getting one email after another and simply being an order taker. Okay, this person emailed me. Oh, I got to get back to that person. And that is life. And that is most people's lives forever when it comes to money. I got this bill. We got to get diapers, ohoh, the car broke down. How are we going to respond to it? It's just one arbitrary problem after another, and I don't wish for those problems to go away. Cars break down. Sometimes we go into debt. That's life. Instead, I want to give you a whole new way of looking at them, which is to say agonizing over some tiny thing at the grocery store is actually never going to go away, and it's never going to change your life. And you spend the rest of your life worrying about it.

(01:20:10):

And in my paradigm, that's a tragedy. What a tragedy. To live a smaller life than you have to, what a tragedy, to defer the rich life until some mythical day, which you don't even know when it's going to happen. And if I ask you, you apply an arbitrary number, no, we're not going to do that because you've listened to the two of us talking today. Instead, we're going to define it right now. What is our rich life? What are my money dials? What do I want to spend extravagantly on and therefore cut costs mercilessly on? And am I comfortable saying to myself and perhaps other people, I'm going to live my rich life today and an even richer life tomorrow. That's the vision I want to leave everybody with.

Mel Robbins (01:20:58):

I fricking love that. Oh my God, you're amazing.

Ramit Sethi (01:21:03):

This is the thank you. This is, I love doing. I love seeing people's lives change when they see money in a different way.

Mel Robbins (01:21:13):

Fantastic. Because when you see it in a different way, you act differently. And that's why this matters. REIT's not saying Think about a rich life and all of a sudden will be a million dollars in your bank account.

Ramit Sethi (01:21:26):

That's not what

Mel Robbins (01:21:26):

He's fucking saying. No, it's notations.

Ramit Sethi (01:21:28):

No,

Mel Robbins (01:21:28):

No,

Ramit Sethi (01:21:28):

No. You got to be competent. You got to know your numbers. Absolutely. I hold people to that. But when most people think about money, they see stress and overwhelm and debt, and when I look at numbers, I see a trip to Disneyland with your kids. I see an amazing food tour in India. I see the ability to never have to look at the price when you're at a restaurant, and that is what you can get when you understand how to use money.

Mel Robbins (01:21:59):

I love this one final question. For those people that have a mindset, I'm terrible with money. I'm bad with money, I'm never going to get out of debt. If you could drop in new programming, please tell them what they should start saying to themselves all day long about money instead,

Ramit Sethi (01:22:26):

The new phrase that I want you to use is, I haven't always been great with money, but now I'm learning. It's so simple, such a simple reframe. Nobody's expecting you to become a multimillionaire overnight. We don't even need that. But day by day, you put a little bit of time and attention into reframing your identity. I haven't always been good, but I'm starting to learn about money now that can be listening to this episode, listening to my podcast, watching the Netflix show. It can be putting some time during your commute to listen to the audiobook and certainly having some conversations with a partner maybe saying, you know what? I realize that when we talk about money, we always stressed out and I don't want that for us. I actually want us to feel good about money, and I realize I've got some work to do. Absolutely. But I'd love to do it together with you. Would you be willing to do that together? That's how you reframe it solo and with a partner.

Mel Robbins (01:23:35):

I love that. I love that. And I want to add one more. I'm thinking about my husband

(01:23:41):

And one of the reasons why I love your reframe. I haven't always been great with money, but now I'm learning to be great with it. I love that because as you know, those sort of mindset reframes only work if your brain accepts it as true. And by leading with the fact that you acknowledge the fact that you haven't always been great. It's not a make wrong, it's a stating a fact. It now opens the door for your brain to go, oh, yeah, but now you're learning to be creative. Okay, I got that. And so I could say, for those of you that are on the spectrum, have always been stressed, but you have it. I haven't always been free with my money, but I'm now starting to enjoy it. I used to be stressed about my money, but now I'm learning how to enjoy it.

Ramit Sethi (01:24:27):

So good. I love that you add that positive emotion because deep down, most of us don't need the fancy villa, but we do want to feel good day to day with our money.

Mel Robbins (01:24:41):

Yes.

Ramit Sethi (01:24:41):

We want to know that if our kids ask us for something for school, we can get it. We want to know that if a friend comes into town and they say, Hey, would you like to meet for lunch? Yeah, we can go. We don't even have to think about the numbers, because we've already built in a margin of safety, we've built in some ability to take these spontaneous things that happen in life. That's a rich life, to not have to always be tight and restrictive, but to be fluid and accepting. And I love the way you put that in joy. Money. That is so good.

Mel Robbins (01:25:16):

Well, and here's the other thing that I love, if I had to put this all full circle, is that one of the things that we talk about all the time on this podcast, and you talk about it too, is the fact that we're all obsessed with getting to someplace. I got to get that beach house. I got to get out of debt because we presume that we're going to feel a certain way when we achieve it. And what you're offering is a very clear, simple, step-by-step roadmap that helps you change how you feel about money and how you think about money, so that as you are creating this rich life and as you are taking responsibility, you feel more freedom, you feel happier.

Ramit Sethi (01:25:59):

It starts today.

Mel Robbins (01:26:00):

It starts today.

Ramit Sethi (01:26:01):

Yeah, exactly. And I never believe in living a life of I'll start doing all these things when I retire. It's about the journey, and I want you to also get to where you want to go, but it's even sweeter when the journey has been intentional.

Mel Robbins (01:26:17):

Amazing.

Ramit Sethi (01:26:18):

And that is what we really want to create a rich life today and a richer life tomorrow.

Mel Robbins (01:26:23):

Amazing. Thank you so much. Congratulations on all your success and all the people whose lives you've made richer and more enjoyable. I really appreciate you taking the time today to hang with us. It's great to finally meet you in person, and I hope this is the beginning day one ramit of our rich new friendship.

Ramit Sethi (01:26:45):

I hope. Exactly the same thing. Thank you for having me. This was a blast.

Mel Robbins (01:26:49):

Awesome. Alright, we'll talk soon.

Ramit Sethi (01:26:51):

Thanks.

Mel Robbins (01:26:52):

Hey, it's Mel, and if you've ever thought, gosh, I just wish I could get Mel to coach me. Well now you can. Once a year, I offer a live coaching program called Launch and it is open for registration right now. If you're interested, I invite you. No, I urge you to check it out. Last year it sold out. It has a 7,000 person wait list. But being a fan of the podcast, I know you're not just the listening type, you're the doing type. You are going to love this. It's 42 lectures. That's the curriculum. It's all new. It is a private premium app driven community. I am the professor. It lasts for six months. There are 11 live coaching calls. You are going to love this. The information is in the link above, and I would love, love, love to coach you. I'd love to empower you to launch a new chapter in your personal or professional life. If you've ever wanted me to coach you, this is your chance. Do not wait. 5, 4, 3, 2, 1. Let's go.

(01:27:57):

Wow. I am so excited to get my logins and go through my numbers. I feel like I have a whole new relationship with money and I'm going to start really enjoying it and feeling more competent. I cannot wait to hear your feedback on this episode. And I also want to remind you that there is another zero cost resource for you to help you take control. If you go to mel robbins.com/take control, I have a three part free training with a workbook, and now that you're inspired to create a rich life, I know that mel robbins.com/take control is going to help with that too, in case nobody else tells you. Today, I wanted to tell you that I love you. I believe in you, and I believe in your ability to forget the balance sheet for just a minute and create that bucket list. You're learning so much about the science of dreams and goals and mindset, and Ramit stepped in today and gave you and I this huge gift.

(01:29:03):

He's taken everything that we've learned in other areas of our lives, and he's applied it in a financial roadmap. I love that getting out of debt and enjoying your financial life begins with dreaming and with aligning it with what really makes you come alive. There is no doubt in my mind when you and I both tap into that. The sky is the fricking limit, baby. Alrighty, I love you. I'll talk to you in a few days. Oh, one more thing. It's the legal language. This podcast is presented solely for educational and entertainment purposes. It is not intended as a substitute for the advice of a physician, professional coach, psychotherapist, or other qualified professional.

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Guests Appearing in this Episode

Ramit Sethi

Ramit Sethi is a financial advisor, bestselling author, and entrepreneur dedicated to helping people design rich lives and master personal finance.

I Will Teach You to Be Rich
Buy as many lattes as you want. Choose the right accounts and investments so your money grows for you—automatically. Best of all, spend guilt-free on the things you love.

Personal finance expert Ramit Sethi has been called a “wealth wizard” by Forbes and the “new guru on the block” by Fortune. Now he’s updated and expanded his modern money classic for a new age, delivering a simple, powerful, no-BS 6-week program that just works.
Netflix: How To Get Rich
Money holds power over us — but it doesn't have to. Finance expert Ramit Sethi works with people across the US to help them achieve their richest lives.

Resources

- Big Think: What childhood money story is shaping your financial behaviors?
- APA: How to model good money management for your children.
- Here is the Debt Payoff Planner Ramit was referring to.
- American Heart Association: Research behind the perks of a bucket list.
- CNBC:Americans spend too much money on housing.
- Bloomberg: What’s happened to our pickup trucks?
- The Atlantic:Why Americans don’t talk about money.

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2 Million Readers.
1 Life-Changing Newsletter