Podcast Summary
Understanding Values and Priorities for a Richer Life: The Journal, a tool for introspection, can help individuals gain clarity on their values and priorities, leading to a richer life, even if they're struggling to save despite a good income.
Designing a rich life goes beyond just managing money. It requires introspection and understanding one's values. Raveed Sethi, the host of the I Will Teach You TO Be Rich podcast, recently held events in New York, Philadelphia, and Boston, where he brought couples on stage to discuss their financial situations. He introduced The Journal, a tool to help individuals envision their perfect week, month, and year, without focusing on numbers. During the podcast, Raveed spoke with Anya and Alex, a couple with a combined income of $125,000 but struggling to save money. Anya, who has no idea why she spends money, uses an unconscious script called the innocent dough technique. Her partner, Alex, handles their finances and has always saved, even during periods when his income was less than hers. As Anya prepares for maternity leave and needs to save money, she's struggling to understand why she can't save despite earning a good income. Raveed encourages her to reflect on her relationship with money and consider that she might be spending too much, even if she's unsure on what. The Journal can help individuals like Anya gain clarity on their values and priorities, ultimately leading to a richer life.
Shifting focus with innocent dough routine: Using innocent act to draw others into financial problems can be effective but deceitful, ask direct questions to get to the root of the issue and take responsibility for financial situation.
Some people use the "innocent dough routine" to shift the focus of uncomfortable conversations about their spending habits onto others. They do this by acting innocent and clueless about their expenses, and then drawing others into helping them solve their financial problems. This technique can be effective because it makes the other person feel useful and involved, and it can also deflect attention away from the original issue. However, it's important to recognize when someone is using this technique and not get drawn into their web of deceit. Instead, ask direct and specific questions to get to the root of the problem. This can be uncomfortable at first, but it's necessary for making real progress towards financial health. Additionally, being aware of our own tendencies to evade the truth about our spending habits can help us take responsibility for our financial situation and make lasting changes.
Justifying Expenditures and Maintaining the Status Quo: Be honest with yourself about spending patterns and recognize consistent expenses. Seek out new opportunities and helpful tools for enriching experiences without compromising financial stability.
People in financial trouble often use mental tricks to justify their spending and maintain the status quo. They may view certain expenditures as exceptions or one-offs, but when examined closely, these expenses can be part of a larger pattern. Honesty and self-awareness are crucial in managing money effectively. For instance, in the conversation discussed, the woman kept deflecting and separating her large credit card debt into smaller, seemingly insignificant expenses. However, when the bigger picture was considered, it became clear that her spending habits needed attention. A key tool for better financial management is being honest with oneself and recognizing consistent patterns in spending. Additionally, it's important to explore various resources to enhance our lives and experiences. For example, using platforms like Viator to book travel activities can lead to unforgettable experiences and memories. By being open to new opportunities and seeking out helpful tools and services, we can enrich our lives without compromising our financial stability. Lastly, investing in tools designed to improve our well-being, such as the pod cover from 8 Sleep, can lead to better sleep and overall health. By prioritizing our needs and finding solutions that cater to our individual requirements, we can improve our quality of life and make the most of our resources.
The Impact of Small Expenses on Overall Finances: Small frequent expenses can add up and impact overall financial health, and it's essential to monitor and manage them to maintain stability.
People often underestimate the impact of small, frequent expenses on their overall financial situation. Anya, in the discussion, mentioned that she doesn't overspend on big items but instead accumulates smaller expenses, such as buying multiple cheap handbags instead of one expensive one. This behavior can be a mental trick we use to justify our spending, leading to an underestimation of our spending habits. Additionally, the conversation revealed that Anya and her husband have different income levels and spending habits, with her handling most of the expenses. They consider themselves financially stable because they were able to afford a vacation to Portugal, but their checking account balance is a good indicator of their financial health. Growing up in a financially struggling environment, Anya learned that she could always make more money, but the importance of managing and monitoring expenses was crucial to maintaining financial stability.
Childhood experiences shape our relationship with money: Recognizing and addressing past beliefs and behaviors towards money can lead to healthier financial habits.
Our past experiences and beliefs about money can significantly impact our financial behaviors. The speaker shared how growing up in poverty made her feel the need to spend every penny she earned as soon as she had it, as she had never experienced having extra money before. However, this mindset is no longer serving her well, as she now earns a substantial income and has significant investments. To change her financial habits, she must not only shift her mindset but also develop new behaviors, such as saving and investing. The speaker also acknowledged that she grew up without learning the importance of saving and preparing for the future, which has carried over into her adult life. This realization is the first step towards making a change and building a healthier relationship with money.
Understanding Beliefs and Past Experiences Influence Spending: Beliefs and past experiences shape our relationship with money and spending. To change habits, it's essential to understand motivations and consider reframing thoughts about money, expanding perspective beyond checking account.
Our relationship with money and spending can be influenced by our beliefs and past experiences. Anya's belief in being able to earn more if needed can be both positive and negative, as it can encourage hard work and abundance but also lead to overspending when circumstances make earning more difficult. To change spending habits, it's essential to understand the underlying motivations and consider reframing the way we think about money. For example, instead of focusing solely on what's in the checking account, it's important to consider other financial resources like savings and credit. By expanding our perspective, we can make more informed decisions and work towards financial stability.
Two Approaches to Managing Money: Simple vs Complex: Consider the risks and benefits of simple vs complex methods for managing money. Simple methods rely on others but come with risk, while complex methods require self-awareness and effort but offer long-term control.
There are two ways to approach managing your money: the simple, straightforward method with a high cost, and the more complex, introspective method with potential long-term benefits. The simple method involves relying on someone else to manage your finances, but it comes with the risk of being left defenseless if that person is no longer available. The complex method requires a deep understanding of your spending habits and a willingness to change them, but it empowers you to take control of your financial future. Another interesting concept discussed was the idea of finding value in small, expensive experiences, like a high-quality tea, and applying that mindset to your everyday life. This can lead to greater satisfaction and enjoyment, even if the actual cost is higher. Lastly, productivity tools like Superhuman can help save time and streamline your email management, allowing you to focus on more important tasks. Overall, the conversation emphasized the importance of taking a thoughtful, intentional approach to managing your finances and finding value in both the big and small aspects of life.
Meeting people financially where they are: Understand individual's financial situation, prioritize debt repayment, build a buffer, and avoid unnecessary optimizations.
It's important to understand and meet people where they are financially, rather than imposing our own worldviews on them. Changing money psychology and behavior is a challenging but potentially life-changing option for improving financial situations. It requires hard work and dedication, but the results can be long-lasting. Another key principle is leaving a financial buffer for unexpected expenses. Additionally, focusing on paying off debt before worrying about credit card points is crucial for financial stability. Avoid trying to optimize for things you have no business worrying about yet, such as credit card points when in debt. Instead, prioritize paying off debts and building a financial buffer before moving on to other financial goals.
Prioritize paying off credit card debt: Focus on reducing credit card debt by cutting non-essentials, creating a payoff plan, using debit for necessities, and setting a cash budget for discretionary spending.
Focusing on reducing credit card debt should be a priority over other financial concerns for those struggling with high balances. This means cutting back on non-essential spending and creating a plan to pay off the debt as quickly as possible. Using a debit card for certain expenses, like groceries and necessities, can help keep spending in check and provide better visibility into one's financial situation. Additionally, setting a cash budget for discretionary spending can help individuals stay within their means and learn financial discipline. The ultimate goal is to eliminate the "oxygen" that keeps the debt growing and take control of one's financial future.
Embrace learning financial skills for long-term success: Learning financial skills, even small sacrifices, leads to deeper money management understanding and long-term financial success. Use tools like envelope system, debit card, and consider flat fee services instead of percentage based advisers.
Developing financial skills, even if it means making small sacrifices now, can lead to a deeper understanding of money management and long-term financial success. The speaker shares her own experience of having to be mindful of prices at the grocery store due to her upbringing and encourages listeners to embrace learning new financial concepts, no matter how basic they may seem. She also recommends using tools like the envelope system and a debit card to help build these skills. Additionally, she warns against the hidden costs of paying a percentage of your portfolio to a financial adviser and instead suggests looking into flat fee services like Facet. By taking control of your finances and learning new skills, you can set limits and make informed decisions that will benefit you in the long run.
Empowering yourself financially: Believe in financial growth, reframe self-perception, set goals, adopt healthy habits, and achieve financial freedom.
Individuals have the power to set their own financial limits and improve their relationship with money. The speaker, Ramit Sethi, emphasizes that it's important to acknowledge past financial struggles but believe in the possibility of growth and abundance. He encourages listeners to reframe their self-perception and visualize a successful financial future. The speaker's personal experience of learning money management from a partner demonstrates the potential for transformation. By setting personal financial goals and adopting healthy habits, one can overcome past financial demons and achieve financial freedom.
