“We’re supporting my mom financially. Can we still afford our Rich Life?”

If you had to support a parent financially, how would that affect your finances? Can't view this email properly? [View in Browser]() [Podcast Newsletter Header Final.png]() {NAME}, If you had to support an adult parent financially, how would that affect your finances? That’s what we’re going to look at today with a couple in their early 40’s, no kids, and a parent living in their home with them. Can they still do it all? Let’s find out. --------------------------------------------------------------- “How do I find “out-of-the-box” travel ideas?” When Cass and I were planning our honeymoon, we had a vision. The trip was going to be a 6-week vacation to 4 countries — and we wanted to bring our parents along for the first stop: Italy. So we thought of specific things we wanted to experience with our parents. What is meaningful to us? We thought about how we wanted everyone to feel: - For my mother-in-law, visiting the Vatican would be very meaningful. So we planned a private art tour at the Vatican. - For my dad, he wanted things to feel easy — not stressful. So we planned a lot of downtime. - For everyone, I wanted a tactile experience, not just passive sightseeing, so people could have “skin in the game”. So we hired a private chef to do a farmers market tour and cooking class Ramit and family in a private cooking class in Rome A private cooking class in Rome with Cass, my parents, and Cass’s parents If you want to plan unique travel experiences for your family, check out this newsletter’s sponsor, Viator. Viator is a website and app where you can book travel experiences, like a private food tour in Mexico City, a “skip-the-line” private tour of the Louvre, or a lake and waterfall helicopter tour of Tahoe. There are over 300,000 experiences to choose from. [Download the Viator app]() and use code VIATOR10 for 10% off your first booking. --------------------------------------------------------------- Check out this couple’s spending Below is the Conscious Spending Plan of a couple who sent in their CSP recently. Here’s what they shared with us: - Age 42 and 39, no kids - 1 working full time and 1 working part-time - Bought home in 2020 (over 20% down payment, 3% interest rate, 30-year mortgage) - Fully supporting 1 parent who lives in their home as well. - Ultimate goal is to downsize to two smaller, separate homes (open to renting at any point), prefer to transition parent to a separate space first - Also want to invest more, travel more, be generous to 9 nieces and nephews and have the ability to work jobs that are fulfilling — not just paying the right salary Let’s see what we can find out… NET WORTH $ Assets (current value of 1 car, home) $817,500 Investments (401Ks, IRA, stocks from employer) $437,000 Savings $125,000 Debt (mortgage) $392,000 TOTAL NET WORTH $987,500 INCOME Gross monthly income (all income before taxes added up) $25,070 Net monthly income (how much you take home after taxes) $16,350 FIXED COSTS (50-60% of take home) 69% Mortgage (includes principal, interest, taxes, insurance) $3,198 Utilities (oil, electric, internet, sanitation) $900 Insurance (medical/dental, auto) $370 Car lease/transportation (gas) $375 Debt Payments $0 Groceries $800 Personal (Clothes, private spending money $400 each) $800 Phone $25 Subscriptions (Streaming services, Spotify, Amazon) $125 Charity $100 Home Maintenance/Repairs $1,500 Health (deductibles/fitness/spa treatments, etc) $1,000 Supporting Family Member (lives with us, no income) $1,600 Miscellaneous (5% "forgotten" costs) $500 FIXED COSTS TOTAL $11,293 INVESTMENTS (10% of take home) Post-Tax Retirement Savings $0 Stocks $0 INVESTMENTS TOTAL $0 SAVINGS GOALS (5-10% of take home) 10% Vacations $500 Gifts $350 Long-Term Emergency Fund $250 Second Home (for relative) $500 SAVINGS TOTAL $1,600 GUILT-FREE SPENDING (20-35% of take home) 21% GUILT-FREE SPENDING TOTAL (Dining out, movies, anything you want!) $3,457 My thoughts… Net worth - Assets of $817,500, probably a house. - Investments are $437,000, nice. - Savings of $125,000. Very impressive. - And debt, $392,000 for a total net worth of $987,500. - Okay, already impressive regardless of knowing what their income is. Let's take a look. Income - Oh, their income is $25,000 per month. Still impressive results in their net worth. - They make just over $300,000 gross per year. You can tell by the major difference between their gross monthly income and their net monthly income that they’re investing. Probably a 401(k). If you look up to their net worth, you can see why their investments have grown so much: they're consistently investing. - Already, you can tell this is a financially savvy couple. Fixed costs - Fixed costs are at 69%. That’s higher than I would like, but without going further, I can already tell you that there's almost certainly a way to reduce this. In other words, at $300,000/year and 69% fixed costs with almost $1M in net worth, this is not as major of a problem as if I was looking at somebody making $30,000 with no investments or savings. - Their housing costs, when I add them up, represent about 16% of their gross income. Very good since I recommend (ideally) less than 28%. - One counterintuitive, non-obvious thing about earning more money is that your fixed expenses disproportionately fall. You could double your income, but the amount you spend on toothpaste or bread is not going to double. Even if you get nicer bread, your entire grocery basket isn't going to double. That's why earning money is so incredibly powerful. It gives you a disproportionate lift to your ability to save more, invest more, and even spend more. - If you want to earn more money, [use my Earnable program](). - Again, managing your money carefully and cutting costs mercilessly on the things you don't love is critical. There's a limit to how much you can cut and no limit to how much you can earn. We see that with this couple who's spending ~$4,000 a month in housing costs, and because of their high income, that only represents 16% of gross income. - They have a car for $375, very reasonable considering their high income. - Groceries are $800. I notice that grocery spend always tends to cluster around $600 to $800, regardless of how many people are in the family. I’ve seen CSPs with two kids, with no kids, just a single person. 85% of those CSPs tend to cluster between $600 to $800 for groceries. It's a funny thing and you see it in other areas too. Like in marketing, there are certain landing pages that no matter what you do, you tend to cluster around a certain conversion rate. Or if you watch Back to the Future, one of the best movies ever made, everything tends to cluster around November 5th, 1955. It's just a cosmic day. We see these things over and over in personal finance, in business, all over the place. - They have their personal spending on fixed costs. At $300,000 a year, I don't mind that. This is one of the first times I've ever seen a couple putting their private spending money in fixed costs. Personally, I love it. This is what we mean when we talk about each couple having their own individual, no-questions-asked-spending account. You want to use it for massage therapy. You want to use it for your nails. You want to use it for golf. It's up to you. I think this couple did a fantastic job setting this up in their fixed costs. - Phone is $25. Amazing. They're probably using our sponsor, [Mint Mobile](). - Charity, I like that they put that here. - Home maintenance and repairs is $1,500. What the hell? Ok, let's recalculate their housing costs now. This takes them from 16% to 22%. Still well within parameters of being less than 28% of gross income, not too bad. But I want to emphasize this to everybody who writes me and tells me that I'm stupid and illiterate and maintenance costs don't actually add up too much. Read a book, please. For once in your life, walk into a public library and go over to the home maintenance section and realize that for the last 50 years, it's been well known. You at least want to assume 1% of the price of your house in maintenance every single year. If I were living in a high cost of living area, I would assume 2% to almost 3%. But that's me and I'm conservative. - Health is $1,000. Fine. - Supporting a family member is $1,600. - Okay, just as I thought at the beginning, there's a lot of fat that can be cut in these fixed costs. If they want to get down to 60% (which I would encourage them to do because it allows them to invest and save more and even spend more guilt-free), they could. - A few things that they could do… - Become a bit more efficient with groceries. Again, don't attack me for the grocery thing. It's just that nobody ever tracks their grocery spending. - Cut their personal spending. $800 is a lot of money. Take it down by $200 each and you just saved hundreds of dollars right there. - Home maintenance and repairs at $1,500, that's a lot. You might have to defer some of those things until later. - Health at $1,000. Again, I love that it's your Money Dial. But if you can't afford it, you can't afford it. If you're over 60%, even 63% of fixed costs, it's starting to cause some issues. You might just cut that by a couple hundred bucks and you’ll be in decent shape. - And then miscellaneous, you could tighten up on that. Still have a little buffer, but instead of $500, maybe it's $400 or $350. Great. Investments - Investments are at zero. That’s because they're probably investing pre-tax. Savings - Savings are at 10%. Let's take a look. - They’re saving $500 / month for vacations, $350 / month for gifts. That's a lot when you have 69% fixed costs. I might cut gifts, bring that down to $100. You can still give gifts, maybe just not as nice, not as frequently. - Long-term emergency fund at $250. That's good. You already have a lot in savings. You already have more than an emergency fund needs. I see you have almost 10 months of an emergency fund, probably a year's worth of an emergency fund if you were to really cut down on stuff. So you may want to take that extra money and redirect it elsewhere. - Second home? I’m not sure what that is. Guilt-free spending - Guilt-free spending is at 21%. Honestly, this is a pretty good life. Overall - If I had one critique to make, it would be that your investments are not going up as fast as they could. So I would encourage them to run a compound interest calculation and see how much money they want to have by the time they retire. For a couple like this, they might want to retire at 55 because they're high earners. They can. But if they want to do that, they will need to be investing more than they currently are. Let me put it another way. With a $300,000 income, you should very likely be investing more than only your pre-tax investment. You should be considering a taxable account or other investment options for high-income earners, not only investing in a 401(k). - Looking back at their goals, they said their ultimate goal is to downsize to two smaller separate homes. They're open to renting. They want to invest more, travel more, and be more generous. They want it all. Right now, they already have a lot of this. They're supporting a family member. That's awesome. They have a line item for charity. That's awesome. They have money for fitness and for individual spending. That's awesome. - The major question they need to ask is how do we go from here to doing more? Investing more, traveling more, being more generous. It's not obvious. If they want to truly accelerate their growth, two major options: - One is to increase their income. They're already doing great. Maybe they go a little bigger, start a side business using [Earnable](), something like that. - Two is to manage their expenses a bit better. Cut some of those fixed costs, take it down to 60%, redirect the majority of that into investments that will help them grow and it might give them an even richer life. Overall, this couple is doing very well. Nice work! What did you take away from this CSP? How can you apply it to your own finances? [Signature] P.S. New podcast: “We have 2 kids and $0 invested, but refuse to get 9-5 jobs” Callie and Travis have made a conscious decision to run their own small businesses without the pressure of climbing a corporate ladder. But how relaxed is too relaxed? Callie is ready to get serious about money. Is Travis? 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