Couple in $285K Debt Made 3 Common Money Mistakes You Should Avoid, Self-Made Millionaire Says
Ramit Sethi gives his insight on their major missteps in an episode of his popular podcast.
Most of us have some amount of debt, especially since we live in a world where everything seems to be getting more and more expensive. But just a few missteps can cause a little debt to snowball into something completely unmanageable—which is what one couple who is now $285,000 in debt has come to realize. The pair opened up about being in the red and how they got there in a new interview with self-made millionaire Ramit Sethi. Read on to discover what he believes are the three money mistakes they made.
A couple admitted that they're $285,000 in debt.
In the Oct. 31 episode of Sethi's I Will Teach You to Be Rich podcast, a couple opened up about their current financial challenges. Trin and Lucas, who are both 35 years old and have two children, said they want to build wealth and savings for their kids' future. But there is currently a huge barrier in their way: $285,000 of debt.
When it comes to what they're bringing in, Lucas runs his own consulting business, so his income can be inconsistent. But he told Sethi it typically ranges between $8,000 and $12,000 a month. Trin, on the other hand, works a corporate job where she brings in a little under $3,000 a month. All in all, they earn around $140,000 a year.
But they currently spend around 154 percent of their monthly income, according to Sethi's calculations. "You're broke," the podcaster told the couple.
RELATED: 10 Easy Ways to Save on a Fixed Income.
The self-made millionaire revealed three money mistakes that led to this.
While talking to Trin and Lucas, Sethi acknowledged that he was "very troubled" by what he heard from the couple.
"[They] are losing money every single month," he said. But the couple hasn't always been living like this. Between 2021 and 2022, Lucas alone was overseeing the family's finances, and they had started to acquire a lot of cash and put it into savings, according to Trin.
"He's doing a fantastic job," she said. "But in the end of 2022, he came to me and was like, 'Hey, we don't have any money.'"
This revelation came as a surprise to Trin. But in talking to the couple, Sethi was able to pinpoint three major money mistakes that led them to their current situation: setting outlandish goals, focusing on monthly payments only, and trying to "get rich" quickly.
He said their future financial dreams are "not feasible."
Despite their massive amount of debt, Trin and Lucas' financial dreams are big. The couple told Sethi they ideally want to be "financially free" in five years, and have $187,000 coming in as a family on a yearly basis after taxes. According to Lucas, this would allow them to "have the lifestyle" that they want.
"Lucas is saying he wants to go from where he is today—in $285,000 of debt—to having about $3 million in the bank post tax within five years," Sethi explained. "This is not feasible."
But setting "outlandish goals" like this is a common money mistake that people make that puts them deeper into debt, according to the podcast host.
"And then next thing they do is they take outlandish risks to hit the goal that they never should have set in the first place," Sethi said. "Now it's one thing to set ambitious goals … it's another to be totally unrealistic."
They should be focusing on the total cost for major purchases.
It's not only the outlandish goals that have put Trin and Lucas in a concerning place. In the second part of the podcast, the couple told Sethi that they bought their third car, a Mazda, in April. When they did, Lucas said he assumed they could afford the monthly payment without any problems.
But the issue is that the total expense of the vehicle—which is around $31,000—was not factored into their budget. "Never make major purchase decisions based on monthly payment," Sethi said.
This is something the self-made millionaire has told guests on his podcast several times in the past.
"It is really easy to make a series of transactional decisions and miss the big picture, which is what has happened here," Sethi explained. "It's better to live slightly more modestly or take slightly less risk in order to avoid ever getting into a super risky situation."
Sethi says trying to "get rich" quickly never works either.
The third money mistake boils down to how the couple has been trying to bring wealth in. According to Sethi, Lucas is a "believer," as he has experimented with many different methods to try to build wealth and improve his financial situation. This includes investing in real estate, adding authorized users to his credit card, and overfunding a life insurance policy.
But none of these methods have worked because they're part of this "overcomplicated" idea of building wealth.
"Lucas seems to be deep in the get-rich-quick world," Sethi said. According to the podcaster, there are a lot of financial influencers who tout "get-rich-quick" strategies that are way too risky and complicated for people like Lucas, whose income fluctuates from month to month.
Instead, you should be focused on advice that can help you build serious wealth over time, even if it feels boring or like it will take too long.
"Your finances should be quite simple," Sethi concluded.
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