Episode 209: “We Bought a House We Can’t Afford, Now What?”

Money For Couples with Ramit Sethi
Host: Ramit Sethi
Release Date: May 20, 2025

Introduction

In Episode 209 of Money For Couples with Ramit Sethi, Ramit sits down with newlyweds Sunny and Jasmine, who recently purchased a house in Washington D.C. despite having significant debt and no prior in-depth discussions about their finances. This episode delves into the financial and emotional dynamics that emerge when couples make substantial financial decisions without a solid plan, highlighting the importance of transparent communication and strategic financial planning.

Meet the Couple: Sunny and Jasmine

Sunny and Jasmine are a young, ambitious couple in their late 20s with a combined gross annual income of approximately $180,000. Despite their impressive earnings, they find themselves grappling with $45,000 in credit card debt, no investments, and minimal savings. Their recent decision to purchase a $526,000 house was driven more by fear and a desire for security amidst a changing political climate than by a calculated financial strategy.

Jasmine reflects on their pre-purchase mindset:

"[...] Would have asked us six months ago when we were going to buy a house, we would have told you six years maybe. This was just not in our five year plan. It wasn't even in our one year plan."
— Jasmine [00:26]

Financial Breakdown

Ramit guides Sunny and Jasmine through their Conscious Spending Plan (CSP), highlighting critical financial metrics:

• Income: $14,948 per month (approximately $180,000 annually)
• Savings: $3,250
• Debt: $578,775 (including $519,000 for the house, $3,500 for Sunny’s car, and $55,275 in credit card and student loans)
• Net Worth: -$9,525

Ramit’s Insight:

"A lot of people do. Did you know that?"
— Ramit Sethi [05:24]

Despite their high income, their net worth is negative, primarily due to the substantial mortgage and existing debts. Ramit points out that while negative net worth can be alarming, their young age provides them with time to rectify their financial trajectory.

Emotional Reactions to Financial Decisions

The emotional strain of their financial situation becomes evident as Ramit delves deeper into their feelings about the house purchase.

Sunny expresses anxiety:

"I'm scared of doing something wrong and not being able to come back from it."
— Sunny [01:11]

Jasmine shares her concerns:

"I worry God forbid anything happens to him and his finances. Leaning back on me, we gonna fall."
— Jasmine [00:36]

Their initial attempts to discuss money, including using Ramit’s book for monthly financial meetings, led to frustration and hostility, revealing a lack of preparedness and mutual understanding.

Ramit’s Analysis and Advice

Ramit identifies several key issues in Sunny and Jasmine’s financial management:

1. High Fixed Costs:
   Their fixed costs account for 71% of their income, significantly higher than the recommended 50-60%. This includes the hefty mortgage payments and other essential expenses.

2. Lack of Investments:
   With 0% of their income allocated to investments, they are missing out on crucial opportunities for long-term financial growth.

3. Minimal Savings:
   Their savings rate stands at 11%, primarily consisting of a small emergency fund built over three months.

4. Debt Management:
   Significant credit card debt with high-interest rates poses a substantial risk to their financial stability.

Ramit emphasizes the necessity of joint financial responsibility:

"Partnership does not mean one person does everything. I don't care if you earn more, Sunny. That's fine. But right now you're the one bringing up these questions. And it feels like you're pulling teeth from Jasmine."
— Ramit Sethi [61:42]

He criticizes the couple’s reliance on one partner to manage finances, highlighting the unsustainable nature of this dynamic, especially in unforeseen circumstances such as job loss or emergencies.

Implementing Changes: Sunny and Jasmine’s Action Plan

Under Ramit’s guidance, Sunny and Jasmine take decisive steps to restructure their finances:

1. Reducing Fixed Costs:

   • Selling Sunny’s Car:
     "We were going to look at being open with each other. [...] So, I'm going to pay off my credit card debt."
     — Jasmine [63:57]

   • Cutting Insurance Costs:
     "We're in the process of changing it. We're saving $115 per month."
     — Sunny [48:25]

2. Debt Repayment:

   • Sunny aggressively pays off credit card debt:
     "So I'm going to use the money that I would essentially use as my paycheck for my business to pay my car off."
     — Sunny [48:42]

   • Jasmine commits to paying off her debts within five years:
     "I think realistically for me as paying off that debt at least within the next five years, not just two years."
     — Jasmine [42:39]

3. Cutting Subscriptions and Variable Expenses:

   • Jasmine reduces her subscriptions:
     "I can cut it down to under 100."
     — Jasmine [72:37]

   • Reallocating Disposable Income:
     "I'm going to do it because now I am ready."
     — Jasmine [33:28]

4. Starting Investments:

   • Sunny sets up a 401(k) to take advantage of employer matches:
     "I also did set up my 401k, which has a 5% match with my job."
     — Sunny [82:29]

   • Opening an investment account:
     "Finally opened my investment stock that I've been procrastinating on doing as well."
     — Sunny [82:47]

5. Career Development:

   • Jasmine commits to finding a more lucrative career path through Ramit’s program:
     "I'm willing to do that."
     — Jasmine [77:10]

Progress and Outcome

A month after their initial consultation with Ramit, Sunny and Jasmine report significant financial improvements:

• Reduction in Fixed Costs:
  From 71% to 56% of their income.

• Debt Elimination:
  Paid off credit card debts and reduced insurance costs substantially.

• Increased Savings and Investments:
  Achieved their three-month savings goal and started contributing to retirement accounts.

Jasmine shares their progress:

"We've really been cognizant of everything we've done so far. I've seen a big change in our savings and yeah, I'm just excited."
— Jasmine [82:54]

Sunny adds:

"We've got to be direct to put ourselves in a better position."
— Sunny [79:02]

Conclusion

Ramit underscores that while purchasing a house is a significant milestone, it should be approached with thorough financial planning and open communication between partners. The episode highlights the importance of:

• Transparent Financial Communication: Ensuring both partners are aware of and involved in financial decisions.

• Strategic Financial Planning: Balancing income, expenses, debt repayment, and investments to build a sustainable financial future.

• Empowerment through Education: Encouraging both partners to educate themselves about personal finance to make informed decisions.

Sunny and Jasmine’s journey illustrates that even when initial financial decisions may seem imprudent, with commitment and strategic planning, couples can realign their financial goals and work towards a secure and enriched life together.

Note: This summary excludes advertisements, promotional segments, and non-content sections from the original podcast episode.