Newlyweds With $65K Income Feel 'Trapped' by Debt — Ramit Sethi Breaks Down What's Really Going On

Kristen and Josh tied the knot last year, but continue to feel trapped with a $40,200 (£30,277) debt. The couple recently discussed their financial challenges with millionaire author Ramit Sethi.

When Sethi asked what trapped looks like in her daily life, Kristen, 30, said it is having to second-guess small purchases as low as $50 (£37). She tracks every cent and lives with a deep guilt around spending. Meanwhile, Josh, 36, maintains a 'we'll figure it out' attitude, and can't help his impulse purchases, including spending $314 (£236) monthly on his nicotine habit. Kristen is exhausted from budgeting every dollar, while Josh wonders if more discipline is really the answer.

The couple have assets of $19,500 (£14,868), investments of $8,790 (£6,620), savings of $2,500 (£1,882), and a combined income of $65,000 (£48,956) annually. They save 3% of their take-home pay and invest 5%, while 10% goes towards guilt-free spending.

With 82% of their income tied up in fixed costs, they are left with almost nothing for savings or their dreams of a bigger space for pets and cars. While the couple splits most of the monthly bills equally, Kristen has higher insurance costs of $298 (£224), while Josh's monthly transportation costs are $465 (£350). At the end of the month, they save only $150 (£112).

Kristen works at a med bank and also opened a non-profit and a cat-sitting business. Josh, who works with the county government, often reassures Krinten that finances would be fine, but he barely knows about household finances. 'I'm a manager...[Josh] I guess is an employee. I don't want an employee. I want a partner,' Kristen said.

Sethi described Josh's behaviour as the 'ignorant reassurer,' which is 100% of the time men, because they have an invisible script that their job is to be a provider. Meanwhile, Kristen came across as a resourceful person and has a point of view on life despite a tough financial reality. 'When I have a goal in mind, I am going to accomplish it,' she said.

However, most of the debt belongs to Kristen from her zero-interest student loan, a line of credit, and a Visa credit card. Overall, Kristen can quickly zoom out and start building a plan, but Josh does not have a clear vision of finances.

Josh Grew up Poor, Kristen in a Family That Was Secretive About Money

Josh grew up poor, and his parents divorced when he was a kid. While he does not regret growing up in a financially challenged house, he is happy for it because it taught him a lot of patience and not to take things for granted early on. 'I don't resent my parents. I don't blame them for their choices,' he said.

Josh said that he loses discipline over finances, gets disappointed in himself, and then rewards himself with impulsive purchases, making him even less disciplined. He explained that his resources might be destroyed if he waits for them or saves them for the future, due to a house fire in his childhood, where he lost things he considered precious, like collectables. Josh's dynamic was also shaped by his parents' divorce, which resulted in destructive financial outcomes for them.

'Seeing money as either I want to save it all or spend it all,' Josh said.

Meanwhile, Kristen's family would not talk about money to anyone. Her father had a travel agency business, and her mother worked in a bank for 40 years. They would at times buy lavish 'things' but other times would decline to eat out, saying it's too expensive. This 'hard, weird dynamic' and secrecy around money made it difficult for Kristen to learn about finances growing up. In the end, she turned out to be exactly the opposite of their parents. 'Oh, they did not talk about money. I am going to talk about money, just to be rebellious,' Kristen said.

Sethi Designing the Couple's Rich Life Plan

Sethi urged the couple to focus on repaying their debt as it accounts for a big chunk of their monthly paycheques. They pay $800 (£602) monthly toward outstandings, and clearing these debts would bring down their fixed costs to 64% from 82%.

Kristen estimates that her collective income from the non-profit and cat-sitting business could double to $1,200 (£903) a month within a year. Josh gets a $1 to $2 (£0.75 to £1.5) per hour pay hike every new year, which could ramp his income by about $300 (£225) next year. He also has a commercial driving license, which he plans to utilise for additional income starting next year, potentially earning him an extra $1,500 (£1,129) a month.

Considering that Josh starts netting around $4,000 (£3,012) monthly from next year, the couple's fixed costs, with the debt payments, come down to 55%. He suggests that Josh use the extra money to allocate $700 (£700) monthly towards retirement accounts, $1,600 (1,205) towards emergency funds and put $100 (£75) in the vacation pot.

Sethi personally believes the couple can leverage their expertise to raise their income and bring down fixed costs to 55% in just six months.