My Spending Habits Are Getting in the Way of Building Wealth

Summary

The Ramsey Show Highlights: “My Spending Habits Are Getting in the Way of Building Wealth”

Episode Overview Released on January 3, 2025, “My Spending Habits Are Getting in the Way of Building Wealth” is an episode of The Ramsey Show Highlights, hosted by the Ramsey Network. In this episode, a 25-year-old engineering professional grapples with managing his substantial income to achieve financial freedom. Despite earning over $150,000 annually and being debt-free, his uncontrolled spending habits are hindering his wealth-building goals. The hosts provide actionable advice to help him regain control over his finances.

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Guest Introduction and Financial Background

At the outset, the caller, a young engineering professional, introduces himself:

• Guest (B) [00:06]: “My dream is to achieve financial freedom and continue to build wealth. But I feel like my spending habits are getting in the way of that. A little bit of background. I'm 25. I'm making over 150,000 a year.”

Despite his impressive income and lack of debt, the guest acknowledges challenges in managing his finances effectively to meet long-term wealth objectives.

• Guest (B) [00:20]: “I have no debt. I'm putting myself through school, but I find myself spending unnecessarily on things I don't need. And I'm just wondering if I can get some advice on how to rein in my spending and start building wealth and achieve my financial freedom goal that I'm shooting for.”

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Identifying the Core Problem

The hosts delve deeper into understanding the guest’s predicament:

• Host (C) [00:55]: “You're putting yourself through school debt-free. Correct. You have no other debt. So is it investing you're looking at? Is it just your spending habits that you feel like you're making a lot, but there's not a lot to show at the end of the month?”

The guest clarifies his main concerns:

• Guest (B) [01:13]: “I feel like I have. I don't have boundaries when it comes to spending. I feel like I could be using my money for better things like investing for the long term, but I find myself spending a lot of time online shopping or going out, and I don't have a lot at the end of each month to put in my investment accounts like I like to.”

A critical revelation is the absence of a structured budget, leading to uncontrolled expenditures.

• Guest (B) [01:39]: “Not really. I just kind of spend what you want. Yeah.”

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Strategic Advice to Curb Spending and Build Wealth

The hosts offer a multi-faceted strategy to address the guest’s financial challenges:

1. Implementing a Detailed Budget

   • Host (C) [01:43] emphasizes the importance of budgeting even for someone in a stable financial position: “I would tell you 15% of your income should be going into retirement. And knowing you're doing that as well is going to give you a lot of peace and freedom.”

   • Host (C) [02:00]: “The monthly budget, I think is going to be a really great tool for you to help.”

   This structured approach allows the guest to allocate funds deliberately, balancing spending and saving.

2. Allocating Funds for Discretionary Spending

   • Host (C) [02:50]: “Put a line item in your budget and deciding a dollar amount ahead of time to say, okay, yeah, I can go shopping, but I'm just going to put this amount and that automatically is going to give you a guardrail to enjoy it.”

   This method ensures the guest can indulge in discretionary spending without derailing his financial goals.

3. Setting Investment Goals

   • Host (C) [02:10]: “15% of your income should be going into retirement.”

   Allocating a specific portion of income to retirement accounts fosters long-term wealth accumulation.

4. Reducing Social Media Consumption to Curb Impulse Spending

   Recognizing the link between social media usage and impulsive purchases, the hosts advise:

   • Host (A) [04:34]: “Let me recommend a non-Internet hobby to be done on downtime. There is research out there that says the more time you spend on social media, the more money you spend because social media is the world's worst Jones’s next Door.”

   • Host (A) [05:00]: “Just unplug from social media, take a social media fast and say I'm only going to do social media 30 minutes a day.”

   By limiting exposure to online shopping temptations, the guest can significantly reduce unnecessary expenditures.

5. Adopting the EveryDollar Budgeting System

   The hosts advocate for proactive financial management using tools like the EveryDollar app:

   • Host (A) [07:25]: “Give every dollar an assignment before the month begins. On your budget. On your every dollar budget. Put your every dollar budget down and you cannot go to Amazon unless it's to buy something you budgeted for.”

   This approach ensures disciplined spending aligned with pre-set financial priorities.

6. Establishing an Emergency Fund

   Building a safety net is crucial for financial stability:

   • Host (C) [07:40]: “Open up a high-yield savings and have a savings goal to say, yeah, I need a fully funded emergency fund of six months and beyond that, have things you're saving up for to at least have the motivation to put that money away and do spend.”

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Guest’s Acknowledgment and Commitment to Change

The guest recognizes the validity of the advice and expresses a commitment to implementing the strategies:

• Guest (B) [06:39]: “No, this definitely sounds right. I definitely need a hobby outside of the screens.”

• Guest (B) [07:18]: “Yeah, that's definitely me.”

These acknowledgments indicate a readiness to adopt the recommended financial practices.

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Conclusion and Final Recommendations

The episode wraps up with final recommendations to solidify the guest's financial plan:

• Host (A) [07:55]: “Create your free EveryDollar budget today. The simplest way to budget for your life.”

By following these structured steps—budgeting, limiting social media, allocating funds for spending and investment, and building an emergency fund—the guest is well-equipped to overcome his spending challenges and advance toward financial freedom.

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Notable Quotes with Timestamps

• Host (C) [01:43]: “15% of your income should be going into retirement.”

• Host (A) [04:34]: “Social media is the world's worst Jones’s next Door.”

• Guest (B) [06:39]: “I definitely need a hobby outside of the screens.”

• Host (A) [07:55]: “Create your free EveryDollar budget today.”

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Key Takeaways

1. Structured Budgeting is Essential: Even with a high income and no debt, a detailed budget is crucial for directing funds toward meaningful financial goals.

2. Discretionary Spending Must Be Controlled: Allocating specific amounts for leisure ensures enjoyment without compromising long-term wealth building.

3. Limit Exposure to Impulse Triggers: Reducing time on social media and online shopping platforms can significantly curb unnecessary spending.

4. Invest Consistently: Allocating a portion of income to retirement and other investments fosters financial security and growth.

5. Use Financial Tools Effectively: Utilizing budgeting apps like EveryDollar helps in assigning every dollar a purpose, enhancing financial discipline.

By implementing these strategies, individuals can transform their spending habits, paving the way toward sustained wealth and financial freedom.

Transcript

[A]

Brought to you by the EveryDollar app. Start budgeting for free today.

[B]

My dream is to achieve financial freedom and continue to build wealth. But I feel like my spending habits are getting in the way of that. A little bit of background. I'm 25. I'm making over 150,000 a year. Wow.

[A]

Good for you.

[B]

Yeah, I have no debt. I'm putting myself through school, but I find myself spending unnecessarily on things I don't need. And I'm just wondering if I can get some advice on how to rein in my spending and start building wealth and achieve my financial freedom goal that I'm shooting for.

[A]

What do you do and what are you studying?

[B]

I am studying engineering and I am in pretty much an entry level engineering position. And I love what I do. I'm able to work from home and I have a lot of great benefits, but I feel like there's more that can be done.

[C]

Okay, so what are you wanting? Yeah, when you say there's more because, I mean, you're putting yourself through school debt free. Correct. You have no other debt. So is it investing you're looking at? Is it just your spending habits that you feel like you're making a lot, but there's not a lot to show at the end of the month? What's, what's your biggest pain point?

[B]

Yeah, I feel like I have. I don't have boundaries when it comes to spending. I feel like I could be using my money for better things like investing for, for the long term, but I find myself spending a lot of time online shopping or going out, and I don't have a lot at the end of each month to, to put in my investment accounts like I like to.

[C]

Okay. Are you on a specific budget, like a pretty detailed budget?

[B]

Not really. I just kind of spend what you want. Yeah.

[C]

I mean, honestly, for you, Sarah, that's. That in an investing goal are the two things that will, I think, completely change your life. I mean, if you have it, if you have a budget because you're doing well financially, right. You're not going deep into debt. You don't. You're not trying to, you know, pay off debt.

[B]

You.

[C]

That you really are able to use the cash that is coming in from your income and you're going to be able to spend some. I mean, you're at this point that you will be able to enjoy some of it, but you're not able to really enjoy it because you're questioning every purchase. And so being able to put a line item and deciding A dollar amount ahead of time to say, okay, yeah, I can go shopping, but I'm just going to put this amount and that automatically is going to give you a guardrail to enjoy it. And still, you know, because you're at the point, again, I will reiterate, you don't have debt, you have a great income, so you can enjoy part of it, but you want to do it with some level of control and purpose. And then knowing on the other end that you do have an investment goal. And I would tell you 15% of your income should be going into retirement. And knowing you're doing that as well is going to give you a lot of peace and freedom. But that, that monthly budget, I think is going to be a really great tool for you to help. Because I'm the same way. I'm a spender. I enjoy spending, shopping, all the things, and, and I do it now with such more peace, knowing, okay, yeah, there's a specific dollar amount per month that I have the ability to spend and I'm going to cut it off after that. And so that, that takes a level of discipline, but it also allows you to enjoy life and enjoy your money so much more.

[A]

So as an engineer, you're learning or have learned to project plan. What Covey used to say, beginning with the end in mind and with your money, what's happening is you're getting to the end with no plan, and it's not satisfying because it didn't go where you wanted it to go. And so it'd be like building a bridge and making it up as you go. You don't do that. We lay out a plan, we do drawings, we run the math to make sure the structure will hold, and then we build the bridge. We don't just kind of start moving dirt and hope it all works out. And that's kind of what you're doing with your money. So let me ask you this, let me see if I'm getting this picture correct. Okay. You're 25, you're single, you're in Boston, and you work from home and you go to school, correct?

[B]

Yes.

[A]

The school online.

[B]

Yes.

[A]

So your work is online and your school is online. And you said, I spend money shopping online and I go out, which would make you, thank God, a normal human being, because otherwise you're trapped at home online, and instead you actually go out for human connection. Good. Okay, so you should allocate some money.

[B]

For like 12 hours a day.

[A]

Yeah, you should. You should allocate some money for what's called a social Life. Yes, because otherwise your brain is going to melt. Okay, that's good. Humans are, it's not good that man or woman be alone. We should be out seeing other humans. Okay, So I want you to do that now. The problem is you need a. I'm going to recommend a non Internet hobby to be done on downtime. An analogy downtime. Because your downtime now is Instagram, Facebook and Amazon Prime. And there is a direct. There's research out there that says the more time you spend on social media, the more money you spend because social media is the world's worst. Jones's next Door. You see everyone else's highlight reel and they've splashed suggested products. Mix it into your Instagram feed, mix it into your Facebook page and, and whatever else you're consuming. TikTok is even worse. And so instead of when I've got 10 minutes, I'm going to doom scroll. Your spending is always going to be there if you do that. Just unplug from take, do a social media fast and say I'm only going to do social media 30 minutes a day between 5pm and 5:30. That's all. Or 5 and 5:15 would be okay with me. All right, that's all. And your spending will go down and you cannot go on Amazon ever again unless it is to specifically purchase a certain thing that you thought of as a part of your budget. You cannot go on there and scroll because Amazon is the world's best marketer. They will sell you crap. You following me? Is this, does this sound right?

[B]

No, this definitely sounds right. I definitely need a hobby outside of the screens.

[A]

Yeah, you, you know, I, I, because it's, it had to be with the way you're living your life because your life is in front of the screen and you go, okay, I got 10 minutes. I'm gonna take a little break. I'm gonna, I'm gonna, I'm gonna have some brain junk food and I'm going to doom scroll for a minute just because my brain's hurting from class. Right. That would be, that's what I would do. And I'm 64. I'm not susceptible to it like you 25 year olds because you grew up with this crap. I didn't. But I still, I have to watch myself if I get bored. I end up buying something if I'm not careful. That sound familiar?

[B]

Yeah, that's definitely me.

[A]

Okay.

[B]

And I am putting money away for retirement. I'm just wondering.

[A]

But you start with the.

[B]

I want you to give Amazon. Where should I put it.

[A]

Yeah. Give every dollar an assignment before the month begins. On your budget. On your every dollar budget. Put your every dollar budget down and you cannot go to Amazon unless it's to buy something you budgeted for.

[C]

And the other money to save? She asked besides just retirement. You know, open up a high yield savings and have a savings goal to say, yeah, I need a fully funded emergency fund of six months and beyond that, have things you're saving up for to at least have the motivation to put that money away and do spend.

[A]

Some money on social engagement. You need it. It's good for you. Create your free every dollar budget today. The simplest way to budget for your life.