Amy (32) and John (40) are raising two young kids in Canada, earning a solid $155,000 a year. But with $768,181 in debt and fixed costs at 168% of their income, every month feels like a losing battle. Two years ago, John hid hundreds of thousands in business tax debt from Amy—what she calls “financial infidelity.” Since then, trust has been fragile, money is tight, and they often feel like they’re fighting on “two separate life rafts.” Amy’s trying to rebuild their future, but when more than HALF of their monthly income goes immediately towards debt, they’re struggling to find a path forward. Can Ramit help them bridge the gap between good intentions and hard numbers—and finally get on the same team?
In this episode we uncover:
- How their fixed costs rose to 168% of their income
- Why John hid his business tax debt, which shattered Amy’s trust
- How years of financial strain forced Amy to shoulder household finances alone
- How Amy’s volatile income and John’s shrinking business payouts created a $4,000 deficit
- John’s Dreamer attitude collides with the harsh math of his monthly debt payments
- The emotional impact of having no safety net
- Amy’s plan to launch a new business vs. John’s struggle to keep his afloat
- Why managing risk isn’t about optimism
- Amy’s frustration with carrying the mental and emotional load of finances while John “focuses on income”
- Ramit’s direct call for decisive leadership and clear planning to get out of financial free fall
Chapters:
(00:00:00) “He spent two years hiding his debt from me”
(00:18:03) Ramit breaks down their numbers
(00:26:27) “I was humiliated driving that Tesla”
(00:39:52) “We’re flying blind”
(00:54:47) “I feel like I’m carrying this weight alone”
(01:02:13) “Hope is not a strategy”
(01:24:56) “This is what happens when we finally get specific”
(01:42:25) Where are they now? Amy and John’s follow-ups
Links Mentioned In This Episode:
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Transcript
Download the full transcript PDF
[00:00:04] Amy: I handle all of our finances, and I can see that there's no savings. I can see if John gets hurt tomorrow on a job, we're [Bleep].
[00:00:14] Ramit: You have 168% on fixed costs. You're broke.
[00:00:18] John: I feel we're so strapped for money that I am just trying to bring in as much as I can.
[00:00:24] Ramit: You are spending more than you make every month. That's for sure. It's not sustainable.
[00:00:28] John: This is an unbearable amount of stress, and I feel it every day, all hours of the day.
[00:00:37] Amy: I am carrying this weight over here on my own when it comes to how our household is being run and what our monthly finances look like. That's on me. We've got nothing. There is no cushion if we fall. We lose everything overnight.
[00:00:53] John: It feels more and more like I'm just getting attacked here. So I'm starting to feel defensive to be quite honest.
[Narration]
[00:00:59] Ramit: This is directly from Amy's application. "We are in a combined $400,000 Canadian of debt, not including our mortgage or car loan. I don't know how to create a CSP when there is no money left at the end of the month even after cutting out every single extra cost we could."
[00:01:20] Today, I am speaking with Amy, who's 32, and John, who's 40, and they are struggling to come together as a team to manage this mountain of debt. I'm looking at their CSP or conscious spending plan. You can download the same thing for free on my website if you're in the same boat as this couple and you're struggling to figure out where to even start, I go through that in detail in my money coaching program, which you can get at iwt.com/moneycoaching.
[00:01:48] Let's take a look at their key numbers. Assets, $900,000. Investments, 0. That's a big red flag. Savings, $2,160. Very low, especially for a family with kids. Debt, $768,181. Total net worth, $133,979. They earn a combined income of 155k, which is very healthy. Their fixed costs are at 168%, which explains everything.
[00:02:19] They are spending 68% more than what they earn every single month, just to keep the lights on. That's the whole ball game right there. Investments are at 1%. No surprise. Savings at 1%. Guilt-free spending is at negative 70%, which of course is impossible. I have a lot of questions, so I say we get right to it and meet Amy and John.
[Interview]
[00:02:42] Ramit: Amy, in your application, you wrote something to me that really caught my attention. You wrote, "He spent two years hiding his debt from me, while I thought we were financially good and we were spending as normal, even going so far as to buy a new car." What was your reaction when you finally heard the truth?
[00:03:07] Amy: So much rage. We luckily didn't have our kids at home that night. They were over at my in-laws, and he sat down on the couch and just very nonchalantly mentioned that he had gotten a call from the CRA, Canada Revenue Agency here, and that they had talked to him and given him some numbers, and there was debt. Without giving me specifics, all this debt has accumulated from his business.
[00:03:38] Ramit: Did you know at that point how much the debt was?
[00:03:42] Amy: No. And it took a few weeks of me to really pull the answer out of him, and it took a few more weeks for even him to know the final numbers because it still hadn't been completely tallied up on the CRA end either.
[00:03:59] Ramit: Did you have a sense of $5,000, $50,000? Do you have any sense at all?
[00:04:05] Amy: None.
[00:04:07] Ramit: If you had to guess at that moment, what would you have guessed?
[00:04:09] Amy: Probably $50,000, maybe 100 tops. But I'm not in the business. He had started it before we were together, and I've never had a role in it, and I have always just trusted that it was managed. And so I wouldn't have had a good idea or even a guess of what numbers that debt was.
[00:04:31] Ramit: When John told you in that conversation that CRA had contacted him and there was debt, how did you feel hearing it?
[00:04:45] Amy: I was fed up. I was so defeated because it felt like this business had continued to take so much from us. And he was working so hard, and he had never not been working hard, and we were never once financially doing okay. Just to hear this, it was like that kind of one last blow. I was just so done, and I wanted it to just be gone completely.
[00:05:20] Ramit: John, how does it feel hearing Amy's recollection?
[00:05:25] John: I remembered a little bit differently. I thought that in that night we talked about the numbers. But I could be wrong. I felt ashamed and defeated that it was such a huge number. I had been trying to chip away at this for a long time, and I was finally at the point where my last, option fell out from under me. I had some big jobs I was looking at getting that was going to be a big payment towards this debt, and I thought I had plans to tackle the debt.
[00:06:03] Ramit: How much was the total amount?
[00:06:07] John: It was 240, 280, something like that?
[00:06:12] Ramit: Wait, which one? Those are different numbers.
[00:06:15] John: Yeah.
[00:06:16] Ramit: What?
[00:06:17] Amy: Well, it continued to grow as the months were going on, and it was finalizing interest and penalties and everything. So it took a bit.
[00:06:26] Ramit: All right, so 240 to 280.
[00:06:28] Amy: Uh-huh.
[00:06:29] Ramit: Okay. Can we walk through the debt? So this is business debt. What type of business, John, and how did you accumulate this debt?
[00:06:38] John: It is a cabinet business. There's personal income tax, and then the business is source deductions, which is like, here in Canada we have to pay unemployment insurance. As an employer, I have to match my employee's contribution as well as Canadian Pension Plan CPP. So I have to match those for the employees I have at the time, and I fell behind on those payments.
[00:07:09] I'd pay myself everything we needed to pay for the mortgage here, on our personal side of things. Doing that didn't leave anything on the business expenses side. So all those accounts suffered because I had to basically pay ourselves 12,000 a month to pay our bills.
[00:07:32] Amy: That was true up until a certain point because then money was so tight on the business that he wasn't able to bring money home either. So money was getting redirected at a certain point into the business only and not coming home, in which case that's when I started to work and it was my income was keeping us afloat. His income was keeping the business afloat.
[00:07:56] Ramit: How many years did it take to accumulate this amount of debt?
[00:08:00] John: It was three years now.
[00:08:04] Ramit: Okay. At what point did you start to say, "Uh-oh, this is a problem?"
[00:08:10] John: About a year and a half ago, I guess. That's when the CRA reached out and we started talks, and I had to start paying them, which is where my income on the personal account started to drop off, because I had to start committing to payments to the CRA. So it was 3,000 a month at first, then it grew to 5,000. Then they're asking for 7,000.
[00:08:34] Ramit: When you stopped taking home income, I assume the two of you had a series of conversations about that. Did that happen?
[00:08:43] Amy: Not a lot of detail to my recollection.
[00:08:47] Ramit: Wait. If one partner stops bringing home income, that seems like you'd talk about it. Where am I missing it?
[00:08:54] Amy: I would ask, "Is payday coming this week?" And sometimes the answer was yes. Sometimes it was late. Sometimes it was half of the payday. And then I started working, and I wasn't really planning on it. I was at home with the kids, and I was expecting that money to be able to go into savings, paying off whatever other debts we had.
[00:09:14] And then rapidly it started to shift into, John wasn't able to have a payday. So I would bring my money in instead and use that to cover bills and the mortgage. And then that started happening more and more where his payday wasn't coming in at all. And mine was taking over everything.
[00:09:35] Ramit: Could you make it on one income, on your income alone, Amy?
[00:09:37] Amy: Yes. Yeah, we could. We were doing okay. There was definitely some times where I remember having to help cover the rent for his shop one month, help cover extra wages of one of his employees one month that was coming out of our personal income.
[00:09:55] Ramit: There's a bit of the boiling frog metaphor. Just like the temperature went up just one degree at a time. How accurate would you say that is?
[00:10:04] Amy: Absolutely. Yeah.
[00:10:05] Ramit: All right. What about the ramifications of this secret debt? What have they been?
[00:10:14] Amy: Our relationship has probably gone through its roughest year because of it. It's called financial infidelity, I believe, and it was 18 months to two years of not knowing that he was accumulating this debt. And he had a plan. He thought he could handle it until he couldn't. And then that was when I found out.
[00:10:37] Ramit: John, what have the ramifications been for you?
[00:10:42] John: After the conversation last year, the idea was that I was going to close down and work for someone else. So losing the business was pretty depressing. But also, I know that I did a lot of damage in our marriage and the trust. So I lost a lot of that. And so it took a lot to build that back and just show her that I'm here for us and our family and I'm not choosing the business over our family.
[00:11:20] Ramit: Yeah. Since this came to light, the secret debt, how did you stay together, stay connected? What did it take?
[00:11:33] John: Credit to Amy for being the one to always spark the conversation, the hard-to-have conversations. They're uncomfortable, but as we got into them, we got through them. And we went to bed together still at the end of each of those nights. And being willing to put in the work for our marriage and our family, all of those things was what was driving me to get through it.
[00:12:03] Ramit: Amy, what about you, from your perspective?
[00:12:06] Amy: We've been together for 10 years, and I really love him, but also really trying to hammer home to John that we're a team. That even though that's his business, it still impacts me. It impacts our family. And the choices he makes over there have the potential to risk everything for us.
[00:12:27] And to do that by himself, that's a huge weight for him to be carrying on his own, not fair for him. I'm his partner. I'm his teammate. That that's supposed to be something that we carry and we figure out together. And because he had made a choice to continue carrying that weight by himself for so long, it took such an extra toll on him that it didn't need to, and it prevented this huge timeframe where we could have been figuring something out together. So that was really frustrating and something that I really tried to get through to him as well.
[00:13:06] Ramit: Got it. Amy, in your application you wrote, "I don't know how to create a conscious spending plan when there is no money left at the end of the month, even after cutting out every single extra cost we could." Both of you are nodding. What was the feeling like? Confusion, helplessness, what?
[00:13:31] Amy: All the above. Yeah.
[00:13:33] John: If you don't mind, I'll jump in. There's some curve balls. So we were in the process of me switching gears. I had something lined up and realized that that income that I was going to bring in was going to be significantly less than what I could do with the business. And nearly the same time, Amy's pay got cut quite a bit as well.
[00:13:58] Ramit: What'd you guys do? What I want to know is, what'd you do when you discovered this massive gap?
[00:14:05] John: So I turned down the job, and I stuck with the business, and I laid off some employees. And now bringing him a consistent paycheck. And that's where we're at right now. And Amy's got some schooling that she is in the works with to boost her income.
[00:14:24] Ramit: Okay. Sorry, let me just pause you right there. So I'm trying to understand if-- when couples see numbers that are staggering and stark and not the direction they need to go, sometimes, in fact, most times they do nothing. They simply bury the piece of paper under the couch cushions and then they go, "Ah, whatever. It'll work itself out. This sucks."
[00:14:49] It's like learning to live with a toothache. In a rare, rare number of circumstances, maybe 3% to 5%, they go, "What the [Bleep]? And it's a red alert. It's like they do a spring cleaning. Which one was it?
[00:15:04] Amy: We did the spring cleaning. We did. And I'm the one who manages all of our household finances.
[00:15:09] Ramit: What? You did the spring cleaning?
[00:15:11] Amy: We did the spring cleaning.
[00:15:12] Ramit: Okay. All right.
[00:15:13] Amy: We cut out everything. We spent hours sitting down and adding up every single number. And I know you don't like the semantics of the spending, but it was like, "Okay, how much are we spending a month on groceries? If we're eating out, how much are we spending on that?" So getting the lump sums and where the money was going and then being like, "Okay, we need to cut that down by this much."
[00:15:32] Ramit: Did you do it?
[00:15:33] Amy: We did. So there's no eating out at all.
[00:15:38] Ramit: What matters is you actually were quite responsive. You did cut your spending, which is great. That tells me when circumstances required it, you two both said, "We got to make a change." Great.
[Narration]
[00:15:49] Ramit: Amy used the phrase financial infidelity. She thought that their finances were fine. They were going out to dinner, buying a new car. But it turns out that John was hiding hundreds of thousands of dollars in debt for years. And we can fix a little overspending. It's a lot harder to fix broken trust, especially around a topic like money, which is one of the most intimate taboo topics there is.
[00:16:16] What do you think happens when one of you is not honest about your finances with your partner? Right after this break, I'm going to walk you through their numbers, and you're going to see just how deep this hole really goes.
[Interview]
[00:16:28] Ramit: Let's look at the numbers. Amy, can you read off the word in bold and then the number in full next to it, please?
[00:16:38] Amy: Assets, $900,000. Investments, 0. Savings, 2,160. Debt, 768,181. Total net worth is $133,979.
[00:16:58] Ramit: All right. What do you think of that?
[00:16:59] Amy: We were happy that we weren't in the negative when it came to the total. That was the astounding part.
[00:17:05] Ramit: All right. That's good. John, what do you think of the numbers?
[00:17:07] John: Yeah, same. I was expecting that to be a negative, but to be slightly in the positive was a nice surprise.
[00:17:14] Amy: Yeah.
[00:17:15] Ramit: Wow. All right. So far so good. Net worth is a moment in time. It is a snapshot. We want to get a little bit more information so that we understand monthly what's going on. So this time I'm going to ask you, John, to read off your gross combined monthly income, please.
[00:17:36] John: That is 12,940.
[00:17:39] Ramit: Okay, great. And that means that combine, the two of you make $155,000 per year. Did you know that number?
[00:17:46] Amy: Mm-hmm.
[00:17:47] Ramit: Amy says yes. John just took a deep breath.
[00:17:50] John: Oh, I did not.
[00:17:52] Ramit: John did not. All right. Wow. Hold on.
[00:17:54] Amy: I don't want to be your statistic. No.
[00:17:56] Ramit: Everyone take a deep breath and recognize statistics matter. 50% of people I talk to do not know their household income. And here, right on the money, 50% on this call do not know. John, how do you feel to be a statistic?
[00:18:15] John: Do I have time to defend myself?
[00:18:17] Ramit: It's not defensing. It's a fact. You don't know your number. Now you know your number. You make $155,208 a year household income. Great. Let's get to the number that's giving me, I don't know what this feeling is in my body, but it's giving me some kind of feeling. Hey, Amy, can you read off the fixed cost number please?
[00:18:36] Amy: Our fixed costs are 168%.
[00:18:39] Ramit: 168% fixed costs. What does that mean?
[00:18:46] Amy: It means that we're basically screwed at the end of every month and rely on some credit card debt in order for us to get by.
[00:18:55] Ramit: You are spending more than you make every month. That's for sure. It's not sustainable. I agree. John, what does it mean to you?
[00:19:03] John: Okay, so Amy's income was basically halved. I set my income at 7,000, and we were projecting her income to be 4,000. It's less than 2000
[00:19:16] Amy: Well, it's 2,500.
[00:19:18] Ramit: We'll fix the income. Is it going to matter? 168%, 134%? Does it really matter?
[00:19:26] Amy: No.
[00:19:28] John: If her income hadn't dropped, those numbers would be in a much better shape. This is a snapshot of where it is, and it's a horrible number, and it's not sustainable, yes.
[00:19:41] Ramit: Hold on, hold on, hold on. Let's fix it. Let's fix her number. So in a hypothetical world where her income did not drop, what is her take home pay? Tell me.
[00:19:49] Amy: It would've been the same as John's.
[00:19:51] Ramit: 7,000. Okay. Watch. What happens to your fixed costs?
[00:19:57] Amy: Still higher than it should be, but it would still be manageable.
[00:20:00] Ramit: It's 72%, which is way better. That's totally manageable. Okay, so now the question is, how come you are not making $7,000 a month take home, Amy?
[00:20:12] Amy: Because in the world of doing the kind of content creation stuff that I part-time do, it's just volatile and wasn't all in my control.
[00:20:22] Ramit: Fine. All right. So that's a good exploration. I agree, 7,000 net would change things considerably. But you don't make that. It would've been great. It doesn't exist. You have 168% on fixed costs.
[00:20:35] Amy: Mm-hmm.
[00:20:36] Ramit: You're broke.
[00:20:37] John: Yeah.
[00:20:38] Ramit: We all agree?
[00:20:39] John: Yes.
[00:20:40] Amy: Yeah.
[00:20:40] Ramit: All right. Why don't we go through the rest just to get a good gauge at the high level. So investments are at 1%.
[00:20:47] Amy: Mm-hmm.
[00:20:48] Ramit: $40 a month to a registered RRSP. All right. Fine. 1% going to savings, which is $50 for gifts. Always funny to me, $50 to gifts and $20 to a registered education. Please tell me this is not for your kids.
[00:21:04] Amy: It is. You get tax exempt. It's a positive thing to do if you're making a lot of money. It's a good thing to--
[00:21:11] Ramit: That's so nice. I wonder what your kids will say when they have $1,800 in their college plan while their parents are homeless. What do you think they'll say?
[00:21:20] Amy: We'll be living with them. Isn't that supposed to be the joke instead? I know.
[00:21:25] John: That's a good point though.
[00:21:26] Ramit: Maybe aside from the jokes, we can look at where the money's going. And then finally we have guilt-free spending, which is negative 70%. So obviously that doesn't work. In fact, there's some numbers on here that just point blank do not work mathematically. One of them is that you are missing $4,190 a month.
[00:21:46] That means you're overspending, obviously. And if we go back up to your income, it indicates, Amy-- I believe this is you. Your net income is negative $1,000. How can that be?
[00:21:58] John: So she gets the $2,400 a month and then makes a payment to the CRA for 3,600, let's say. So that's where the--
[00:22:07] Ramit: Once a year?
[00:22:09] John: Once a month.
[00:22:09] Amy: Every month.
[00:22:09] John: Every month.
[00:22:11] Amy: If you look at the negative, that we're in the negative over 4,000 every month, it's because I have to send the CRA 3,736.
[00:22:20] Ramit: That's not because of your income, right, Amy?
[00:22:22] Amy: Yes, it is. That's my income tax debt.
[00:22:25] John: That was a previous year. So it's last year's total income tax debt that we weren't able to pay. And that's the same thing on my end that's accumulated. So she's also got a number that we're paying off as well.
[00:22:38] Ramit: I see. Okay. Got it. Let me tell you how I would recognize that differently here. I think this is a good key, important point. So what you did was you basically skipped a skip. You're probably making $1,000 a month here on your net ballpark. What you just saw is your fixed cost drop down to 126%.
[00:22:59] Okay, that's good. But your debt payments are actually higher. They're probably $2,000 higher. So instead of this, I'll add it. 5,888. And now your debt payments are up to 151%, roughly in the same genre but it is more properly represented here. Do you see what I did?
[00:23:22] John: Mm-hmm. Yeah.
[00:23:23] Amy: Yeah.
[00:23:24] Ramit: It doesn't substantively change anything, but it's important to understand nobody really is taking home less than $0 if they're working it. We got to understand the basic stuff correctly. So fixed costs are at 151% approximately. Debt payments are more than 50% of take-home pay, way over. They're $5,888 versus $8,000 of take-home pay. I would describe that as unsustainable.
[Narration]
[00:24:01] Ramit: Let me just be direct. When over 50% of your take-home pay goes to debt, it is a massive red alert. I ran the actual percentage of what their debt payments are compared to their take home pay, and it's an astonishing 73.6%. That's it. Game over. You cannot build any kind of financial future, much less a Rich Life when nearly three quarters of your income is gone the moment it hits your account.
[00:24:29] And within the debt, we still have layers and layers of debt. We have business debt, personal tax debt. They mentioned a car loan. I suspect there's even more. This is a major clue that tells me they've built a financial system that guarantees they're going to stay broke. It doesn't matter how hard they work. They have structurally set themselves up to fail, and no amount of hustling will ever change that.
[00:24:53] It's like building a freaking house out of Popsicle sticks and then putting your house right next to a fire factory where all things do is just light on fire every single night. What do you think's going to happen? It doesn't matter how many sticks you use for your house, it's going to burn down every single night. Now they've already mentioned a few of the debts they're carrying. I think it's time to get specific. Listen now as I ask them to break it all down.
[Interview]
[00:25:17] Ramit: Amy, can you explain the $768,181 in debt? What is underneath those numbers?
[00:25:24] Amy: Our mortgage at $514,000. Our credit card debt at 7,000. John's income tax debt at 53,500. My income tax debt at 43,680, and our car loan debt at roughly 50,000.
[00:25:53] Ramit: All right. Fine. $7,000 of credit card debt. What's that for?
[00:25:56] Amy: That's what's been filling in the gaps.
[00:25:58] Ramit: All right. And a car loan of $50,000. What's that? Wow. Amy looks very scared right now. Go ahead, Amy. You should be.
[00:26:09] Amy: I know how you feel about this truck.
[00:26:10] Ramit: What did you get?
[00:26:13] Amy: Okay, this does require a bit of a backstory.
[00:26:16] Ramit: Not really. What kind of car?
[00:26:17] Amy: Tesla Model Y 2023.
[00:26:19] Ramit: [Bleep]. That's even worse than I thought.
[00:26:21] Amy: I'm the one who applied for the approval of even being able to get a car loan. And I was under the assumption we were in good financial standing. This is a part of that financial infidelity. At no point during any of this conversation that we were looking at getting a new vehicle for the first time in our lives did the information come up that we had this debt sitting there.
[00:26:45] I thought we were good. There is also a government initiative program where you get money for buying an electric vehicle. So we actually didn't pay anything out of pocket to get it. And yes, in hindsight, once I found out about everything, I was humiliated. I was humiliated that we're driving around a [Bleep] Tesla with this much debt sitting in our back pocket. It was definitely a huge part of my anger because I would not ever have made that call.
[00:27:15] Ramit: Yeah. All jokes aside, I understand what you're saying. And I have to ask John, as Amy was going through this diligence process of finding the car and-- that's an expensive car. Why didn't you say anything?
[00:27:28] John: Because at the time, I was paying the CRA, and they were happy. I was making regular payments. And I thought that's just how it was going to continue.
[00:27:39] Ramit: All right. So you thought it would be okay, John. You had the plan, then you were paying, and then things got worse?
[00:27:49] John: So the collections officers, they changed so frequently. So the next one I got was starting to lay the hammer down and he said, "No, you need to come up with all the money right away." Which was not going to happen. So I had to meet halfway and up the payments. And so that's where my personal income started to dwindle and the payments increased over there. So that's when [Bleep] hit the fan.
[00:28:10] Ramit: Okay, so you said, "Okay, I'm getting a lot of pressure from the government to pay more. I'm going to cut my own income to the household." It's okay because Amy, she's covering it. That worked for a while and then it got even harder. She had to step in and help with the business rent and a business employee, and that's when things started to, it sounds like, spiral. Am I reading that correctly?
[00:28:35] John: Yeah. I was in the process of getting larger jobs and more of them. So the outlook looked promising. It was like a carrot being dangled in front of me. It was like, okay, it is going to get better. It's going to get better. It's going to get better, is what I was seeing on the business side of it.
[00:28:55] Ramit: John, how good are you at managing risk?
[00:28:59] John: I'd like to think I'm pretty good at it, but I can't control timelines on projects.
[00:29:11] Ramit: Yeah. Amy, what do you think?
[00:29:16] Amy: I think that he is an internal optimist, and that is a side of that that I really admire and love about him, but that is also why we are where we are.
[00:29:27] Ramit: Okay. If you shut the business down today, what happens to the tax? Is it still owed?
[00:29:33] John: Yeah.
[00:29:34] Ramit: And what's the bankruptcy laws in Canada?
[00:29:38] John: We have to pay off the source deductions before we can file bankruptcy or a consumer proposal.
[00:29:46] Ramit: How much is that?
[00:29:48] John: The source deductions is 180,000 right now.
[00:29:53] Ramit: Let's say you paid that off somehow. Would you be able to declare bankruptcy?
[00:29:58] Amy: It does look like once the source deductions are paid off, that banks and the consumer proposal, other options would become available, like consolidation-- debt options. So we would be able to at least look into those before we had to assess for bankruptcy.
[00:30:16] Ramit: So it sounds like maybe, but not for sure.
[00:30:19] Amy: Yeah.
[00:30:20] John: Yeah.
[00:30:21] Ramit: All right. What do you guys think the solution is here?
[00:30:29] John: We thought the solution was to sell the house and use the leftover to pay off as much of the debt as we could. I think we calculated there's still going to be some left, depending on where we ended up in a house situation.
[00:30:46] We looked at buying somewhere across the province. So we actually explored that quite a bit to sell the house. We thought about refinancing the house, so I got to work and put in a rental suite downstairs to increase the value of the house so that we could get it appraised for a higher amount.
[00:31:05] Somewhere around 850 is what we were shooting for, and that difference of about 300,000 would be significant. I think we could only refinance 80% of the difference. So it's not an actual 300,000, but 80% of 300,000.
[00:31:27] Amy: But we couldn't go that route.
[00:31:31] John: Right. No, wait, why couldn't we go that route again?
[00:31:37] Amy: Because our lender with the mortgage had policies in place.
[00:31:41] John: At the time, yes.
[00:31:42] Amy: At time of that. You are not allowed to use the equity in your home to pay off CRA debt.
[00:31:48] John: That's right. Specifically CRA. They would not lend us money. Same with banks, have the same thing. We'll not lend you money if it's to go towards a government debt.
[00:31:58] Ramit: What if you just sold the house?
[00:32:00] Amy: We looked to see what we could sell the house for, where else we could move. And ultimately we decided to try to hold onto the house to see if we could Airbnb or rent out the basement suite, have any supplemental income, as well as just an ounce of happiness.
[00:32:19] We really love the community that we're in. It's a small community. I'm involved with the school here. There was that piece of it as well. And all of our family is where we live, and the only option for us if we sold, was to move away. We wouldn't be able to afford to stay here at all. It wasn't going to be an option. And we would lose every single piece of our village. So that was a factor that we had to consider as well.
[00:32:44] Ramit: So you thought about the first option about building something first floor. Didn't work. You thought about selling. Based on your decision, that didn't work.
[00:32:53] Amy: Mm-hmm.
[00:32:54] Ramit: Where are you today? What's the solution?
[00:32:57] Amy: The solution thus far is that I am taking courses to become a nail technician and open a nail studio with the space downstairs. Looked at the projections around income in our area. It's not an oversaturated market out here, and I would be able to make between 4,000 or $5,000 a month, which would be significantly more than a rental suite. Airbnb is becoming non-option in our area. They're really trying to [Inaudible] that completely.
[00:33:27] Ramit: You're going to start a nail technician business. Okay. And John?
[00:33:33] John: I am trying to come up with ways to boost my income as well. I don't want to do the same thing I did with the business and pull every dollar out of it and then [Bleep] the business over again. So I am trying to tread carefully with the projects I have right now and use that money wisely in the business and pay what we need on our household. But I'm looking at possibly boosting my take home soon.
[00:34:03] Ramit: Do you currently make a gross monthly income of $10,440 a month? Net would be 7,000.
[00:34:13] John: After tax is 7,000 a month.
[00:34:19] Ramit: Okay, okay. How much does the business make in total?
[00:34:22] John: Like revenues?
[00:34:26] Ramit: Yeah.
[00:34:27] John: It fluctuates so much. What the problem was is I was pulling every dollar. So in the past it's been 130. Some years it was 70.
[00:34:38] Amy: I believe 2023 or 2024 was literally $30,000 that you had made for the entire year, so it's very, very inconsistent.
[00:34:49] Ramit: So the business is not making enough to pull out $7,000 a month net. That's what I'm hearing.
[00:34:58] John: So far, since I've made changes and I have laid off staff, there's more money left over at the end of the month. So I'm now able to pay myself that wage now, as of January. So this next calendar year, the profits are going to be much better for the business, and I'll be able to sustain 7,000 a month every month.
[00:35:21] Ramit: Okay.
[00:35:23] John: So long as I hit my sales number. That's the caveat there, and that's the tricky part with being in the industry of trades. It's feast and famine. We've probably heard about the trade war going on. We may or may not see some price increases and people not want to build anymore, in which case I am now vulnerable again.
[Narration]
[00:35:46] Ramit: You know, most people don't wake up in the morning like me and say, today is a risk management day. But you do manage risk every single day. You manage risk when you wear your seatbelt, when you lock your front door, when you take a vaccine. Unless you're an anti-vaxxer, in which case, get off my podcast. You manage risk when you set up automatic savings for a rainy day. Even though there may not be an emergency now, you know that one could come.
[00:36:13] Managing risk means planning for things that haven't happened yet. But John didn't do that. He kept on pouring money into a business that was already failing. He took on CRA debt. He cut his income without telling Amy. And when I asked him if he was good at managing risk, did you catch what he said? He said, yes.
[00:36:31] This is very common with dreamers. They will tell themselves, if I just try hard enough, it'll work out. They will often point at all the work they're doing, all the hustling, all the deals that are just about to close. I want to know where these patterns of money came from, so stay tuned as I dig deeper.
[Interview]
[00:36:49] Ramit: I want to understand more about how the two of you think about money. So Amy, when you were growing up, what do you remember your family saying about money?
[00:37:02] Amy: My situation is a little bit more complicated. I have multiple households I grew up in. My parents divorced when I was a baby, and more often than not, my mom was a single parent. She hated money. She didn't like talking about it. She didn't like that it existed. she said that. My dad said that about her.
[00:37:22] She was a single parent, working her [Bleep] off. But in hindsight, I was able to gather that she wasn't very good at handling her finances. And there was some months that our power got shut off. And I, as a kid, she very much kept that from me. It wasn't my burden to carry, but we lived in an old house.
[00:37:43] I just assumed that maybe the power cut out in the neighborhood. And I never knew. But we had to go to the laundromat. And there was some weeks where I would have to pick through and decide which of my dirty clothes I wanted to wash because we couldn't afford to wash all of them.
[00:38:01] Ramit: Mm-hmm.
[00:38:02] Amy: So that was that side with my mom. The other side at my dad's house was him and my stepmom, and he worked a very average government job, consistent paycheck, pension, all of those details. And he lived off credit cards. And generationally, his dad had never said no to him ever and ended up dying without a penny to his name.
[00:38:31] And my dad continued that mentality with himself, that if he ever wanted anything, he bought it, including cars to work on, motorcycles, whatever toy he wanted. Everything new and shiny and pretty. And yeah, last I'd heard it was over $90,000 in credit card debt with multiple different credit cards.
[00:38:51] Ramit: 90,000, 9-0.
[00:38:53] Amy: 9-0. Yeah.
[00:38:55] Ramit: What lessons do you think you brought from your childhood money messages to this relationship with John?
[00:39:02] Amy: I feel like it is a very chaotic mess. I moved out at 18, and I didn't save a penny ever. If I had 20 bucks in my account, I was stoked because I could still go get Starbucks. I worked hard, and I should have had money, and I never did. I spent it. All my bills were covered. My rent was always covered, but I just spent whatever I had.
[00:39:26] Ramit: What about today?
[00:39:28] Amy: Today, I am the worrier. I am always stressed and fearful and wondering how to make more money and how to make what we have go further, how to make our groceries last longer.
[00:39:45] Ramit: Is your financial life chaotic?
[00:39:49] Amy: Yeah. I feel like we're flying by the seat of our pants every single day. No matter how frequently we sit down and budget and spreadsheet, I feel like no matter what, at the end of the day, we're just flying blind.
[00:40:00] Ramit: Hmm. Okay. John, what do you remember your family saying about money when you were young?
[00:40:08] John: My parents asked us never to talk about our finances with other people because it was private.
[00:40:14] Ramit: You grew up in Canada?
[00:40:16] John: Yeah.
[00:40:16] Ramit: Did you grow up in like the equivalent of the Midwest of Canada?
[00:40:21] John: No, no, I wouldn't say that. No.
[00:40:23] Ramit: What the [Bleep]? All right. That's a very Midwestern thing.
[00:40:25] John: Is it?
[00:40:26] Ramit: Yeah. Like money is for adults and that's not for the children type of thing. Okay, go on.
[00:40:32] John: So what I mean is they would mention, we don't have money for that. We don't have money to do that. We're saving our money. This month we're a little-- cinch the belt was a term they used when they needed to save for a trip or--
[00:40:48] Ramit: Were you poot?
[00:40:48] John: That's what they made it seem like when we were growing up, that we were not well off. But I think that now that I am in a position that they were in, I think they did quite well. We went to Disneyland, went on ski trips. They drove [Bleep] cars, but that's because they didn't prioritize buying fancy cars.
[00:41:09] They bought a four-acre hobby farm, which nowadays is worth a lot of money because of the location. So they said those things growing up, and they said, keep it between us. So that's what I mean.
[00:41:23] Ramit: What happened as you got older?
[00:41:26] John: When I had a job, I was always living paycheck-to-paycheck, especially in my younger years because I was just out partying too much. But I had an apartment. I was paying rent. Wasn't prioritizing buying groceries. I was just blowing my money at a young age.
[00:41:43] Ramit: What did you tell yourself at this time, let's say-- what are we talking, early 20s?
[00:41:47] John: Yeah.
[00:41:48] Ramit: What did you tell yourself about money back then?
[00:41:52] John: I wanted to earn more of it. I wanted to be financially stable one day.
[00:41:59] Ramit: I don't believe that. I don't believe you told yourself in your 20s, I want to be financially stable. I simply don't believe that. No 20-year-old guy says that to himself, ever.
[00:42:09] John: I was looking at buying investment properties on the East Coast.
[00:42:12] Ramit: But that wasn't to be financially stable. What was it to be?
[00:42:17] John: Yeah, for passive income.
[00:42:19] Ramit: Exactly. What else did you tell yourself in your 20s when you were out partying, spending money? I'm not judging. I don't care. I spent a lot of money in my 20s too. But what did you tell yourself?
[00:42:32] John: I wasn't worried about the money I was spending because I was making pretty good money.
[00:42:37] Ramit: Mm-hmm. So if you log into your checking account and it was like, I don't know, 50 bucks or 100 bucks or something, what did you tell yourself?
[00:42:44] John: Save that until next payday.
[00:42:49] Ramit: Okay.
[00:42:51] John: In my mid-20s, I started saving money and actually taking my paychecks and dividing them into subaccounts to not be blowing my money all the time.
[00:43:03] Ramit: Where's the savings? It's 15 years later.
[00:43:07] John: Well, we bought this house.
[00:43:10] Ramit: Okay. This is very fascinating to me. A lot of people, they save very thoughtfully. They save for decades. And then they buy a house, and then they feel house poor. And I go, like I just said, "Where's your money? Where's the savings? It's been 15 years of savings. Show me where it is." And your answer was a little mopey. Well, I did buy this house.
[00:43:34] John: Yeah, I didn't finish actually. It wasn't 15 years of savings. I didn't say that.
[00:43:40] Ramit: Mid 20s. You're 40.
[00:43:42] John: Yeah. But I wasn't saving this whole time.
[00:43:45] Ramit: Okay, carry on.
[00:43:46] John: I spent it on items, like I bought myself a Jeep. Paid it off early,
[00:43:51] Ramit: Mm-hmm.
[00:43:53] John: Bought myself a bunch of equipment for my business.
[00:43:55] Ramit: Mm-hmm.
[00:43:59] John: That ate up a lot of money. I was having fun with it. I was doing what I wanted with it. Right now, I can't do what I want with money because it's not there.
[00:44:07] Ramit: It's there, but you just owe a lot of debt.
[00:44:11] John: Yeah.
[00:44:14] Ramit: It's like when your 5-year-old falls down. It's not that big of a deal. When a 40-year-old man falls down, it's a much bigger deal.
[00:44:22] Amy: I handle all of our finances, and I can see that there's no savings. I can see that there's no retirement plan. I can see if John gets hurt tomorrow on a job, we're [Bleep]. We don't have life insurance. We've got nothing. There is no cushion if we fall. We lose everything overnight.
[00:44:42] We lose his business, we lose the house, the car. We lose literally everything because there's nothing. I have tried to have these conversations, and not that I get a blank look from John, but I don't get this sense of believing that that could happen or believing that there's an urgency in these things.
[00:45:04] Ramit: John, do you agree with Amy that you're one injury away from major, major problems, including no life insurance?
[00:45:11] John: I honestly don't feel like there's any money for that. I feel we're so strapped for money that I am just trying to bring in as much as I can. So I'm focused on trying to earn as much as I can.
[00:45:24] Amy: But it's been years. It's not like it's only been in the last six months where things have been excessively tight. And I've had moments where it's been terrifying.
[00:45:35] Ramit: It's scary to hear when two partners don't see money the same way. And we're not talking about having five or $10,000 of debt. We're talking about having hundreds of thousands of dollars of debt with two kids, with no life insurance, with less than a month's worth of expenses in your savings account.
[00:46:00] Amy: Yeah.
[00:46:01] Ramit: This is a major problem. What's the future?
[00:46:08] John: At this trajectory, it's not looking good.
[00:46:10] Ramit: Be specific.
[00:46:12] John: We cannot hold onto this house. We can't have two cars. We could sell and hopefully pay off a large amount of money and rent. I don't know if we could afford to buy in a different city. But yeah, at this trajectory, we're sinking extremely fast.
[00:46:36] Ramit: That's not the worst case to me. That actually sounds perfectly fine to me. Oh, we sell a house and make hundreds of thousands of dollars and then go rent somewhere. Oh, boohoo. What do you mean? That sounds fine. I don't really consider that actually-- that's good case. John, what's bad case?
[00:46:58] John: I don't think jail time is in the cards, but what's worse? I guess bankruptcy would be worse. Credit takes a huge hit.
[00:47:10] Ramit: I think you just answered my question because that's not the worst case. Like I said, that's actually ideal. Worst case is your business gets knocked down tomorrow because of tariffs or whatever, or you get injured, or something happens to Amy's thing, and you all have one week's worth of money. And that's it.
[00:47:30] And now your house is going to get taken. Your kids can't go to school where they go to school. Who knows what's going to happen to a relationship under this kind of financial stress? That's bad. You guys don't talk about this a lot?
[00:47:48] Amy: I've tried. I have tried the tactics of scaring into action, I guess.
[00:47:58] Ramit: Does it work?
[00:47:59] Amy: No. We're here, so no.
[00:48:04] Ramit: It feels like you two are stuck.
[00:48:08] John: I actually felt like we talk about our situation or money quite often. Especially recently, we were talking about, like, we can't afford to do that. We shouldn't be spending money on that. We got to stop doing that. The long-term savings, yeah. Maybe we have a different vision of where we're at and what the plan is with that. I feel like we don't even have a dollar to put towards savings right now, or retirement.
[00:48:38] Ramit: Hold on. You use the word feelings a lot about money. I don't feel we have enough. Do you know?
[00:48:46] John: Yeah. So what I mean by that is we don't have the money for that. I don't see it. I don't see it.
[00:48:54] Ramit: Okay, okay. Fair. Fine. Amy looks skeptical, but this is beside the point. John, you're surprised that you and Amy don't see eye to eye on the acute severity of the problem. And you're saying like, "Hey, we have a plan, actually. I think we're on top of it day to day." Okay, fine. Maybe you are, maybe not.
[00:49:11] I take your word for it. But the day-to-day is not really what concerns me. My question is, what's the plan? When is the debt going to be paid off? How are you going to increase your savings so that if something happens to one of you, your children are protected?
[00:49:25] What would be your answers to those questions?
[00:49:28] Amy: Mine is--
[00:49:29] Ramit: Talking to John, please.
[00:49:31] John: No. See, that's where I feel like we're stuck. I don't see how we can come up with more money until we earn more money.
[Narration]
[00:49:40] Ramit: Let me say something I think a lot of people feel, but rarely say out loud. John is trying. He is showing up. He's having conversations. He's working hard. And in most areas of life, that counts for something. But when it comes to money, effort doesn't always matter. The world doesn't care how many hours you've worked if you're not driving actual results.
[00:50:03] Your credit card company's not going to give you a round of applause for updating a spreadsheet. The CRA doesn't care if you tried your best
