Amy, 28, and Tori, 27, experienced a year marked by significant milestones.
“The couple bought their home in September 2022, left their jobs in pursuit of better ones, and got married in September 2023,” they recently disclosed to Ramit Sethi on his “I Will Teach You to be Rich” podcast.
Regrettably, their financial situation wasn’t conducive to these decisions. While planning their “dream wedding” and embarking on a honeymoon in Greece, they accrued approximately $44,000 in credit card debt.
“Now, between making payments on that debt, adding $17,000 in debt and a mortgage that is significantly higher than they anticipated, ‘you’re effectively broke,'” Sethi pointed out to them. Recognizing their predicament, the couple sought assistance on Sethi’s show. Here are some of the missteps that led to their situation and Sethi’s recommendations for moving forward.
Underestimating the cost of significant purchases is a common pitfall. While the notion of expensive weddings is widely acknowledged in the U.S., they needn’t be exorbitant. A marriage license typically costs around $100 or less, depending on the state, and most other wedding expenses are discretionary.
Tori and Amy’s wedding planning timeline was compressed to just four months, primarily because Amy was captivated by a venue, compelling them to make rapid decisions. While they had a budget in mind and anticipated assistance from their families, the urgency resulted in hefty deposits being paid to numerous vendors within a short period.
Expenses quickly accumulated, surpassing their budget. With insufficient time to bolster their savings, they resorted to charging many costs to their credit cards. Amy lamented on the podcast, “It was an inevitable drowning from how close the contracts were [signed].”
While there’s nothing inherently wrong with desiring a lavish wedding, a beautiful home, or another major purchase, it’s crucial to ascertain the actual costs and anticipate spending significantly more, advised Sethi.
Reflecting on his wedding planning, Sethi allowed for a considerable margin of error, adhering to the adage of doubling the budget. Despite this prudent approach, he still exceeded his budget, albeit to a lesser extent.
Amy and Tori also overspent on their home. They assumed their mortgage rate was fixed upon contract signing, only to discover it had increased before closing, resulting in a monthly payment exceeding their initial estimate by over $500. “It’s important to incorporate a substantial margin of error because once you start overspending on these significant purchases, and you will overspend, because, again, most of us are mostly the same, you’ll have money set aside,” Sethi advised the couple.
When delving into their respective relationships with money, Sethi uncovered contrasting backgrounds between Amy and Tori. Tori endured periods of significant financial instability during her upbringing, while Amy’s family enjoyed relative comfort without the burden of financial concerns. While Tori tends to err on the side of caution with finances, Amy adopts a more optimistic outlook, leading to alternating cycles of saving and spending.
Amy’s commendable saving habits enabled her to finance her college education and graduate without debt. However, she admitted, “There were a couple of times where I had $10,000 in my savings account and then frivolously drained it.” In preparation for purchasing their home, Tori highlighted the couple’s commendable discipline.
They diligently paid off their debts, set smart goals, and adhered to a strict budgeting regimen. However, once they attained the house, their approach became more relaxed. “We paid all of our debt off, we were very strict, we wrote smart goals, and every week we’re budgeting,” Tori recounted. “Once we got into the house, it was a little bit more lenient, I think, because we finally achieved our goal.”
Sethi observed this pattern of “episodic” spending and saving that Amy brought into her relationship with Tori. While not uncommon, Sethi acknowledged that altering such habits can be challenging. “The solution, of course, is not to simply try harder,” Sethi emphasized. “It is to have a powerful, specific vision of why you want to change, and then it’s about getting help.”
In terms of the couple’s future, Sethi’s foremost recommendation for Tori and Amy, aiming to alleviate their debt burden to a manageable extent and meet their financial commitments comfortably, was to concentrate on augmenting their incomes. At the time of the podcast recording, they collectively earned $125,000 annually.
Their decision to depart from their jobs shortly after purchasing their home was driven by aspirations of entrepreneurship. However, their current financial predicament has underscored the importance of securing more stable sources of income.
With a nearly $3,000 mortgage payment and an additional $3,000 allocated to credit card debt each month, the couple found themselves constrained to the essentials, with little provision for emergencies, let alone discretionary spending. Exploring alternatives such as selling their home and residing with Amy’s mother or leasing out their spare bedroom, Sethi assessed that a substantial income boost would yield the most significant impact in expediting their debt repayment within a reasonable timeframe.
There’s some positive news on the horizon: Amy shared with Sethi that she recently accepted an offer for a new job, projecting a $10,000 increase in her annual salary, providing the couple with some financial breathing space in the forthcoming months. Both of their entrepreneurial ventures are thriving, with expectations of continued growth. Tori intends to maintain her focus on her business full-time, while Amy plans to juggle hers alongside her 9-to-5 job.
“Sometimes I think that when we have really big challenges in life, we dance around it, but sometimes the solution is just to walk through the fire,” remarked Sethi. “We need to face the problem and just own it. Go straight at it.”
