4 Things To Consider Doing If You Spend More Than Your Paycheck, According to Ramit Sethi
Written by
Catherine Collins
Edited by
Jenna Klaverweiden
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Ramit Sethi, the bestselling author of the book “I Will Teach You To Be Rich,” has a podcast by the same name with nearly 800,000 subscribers on YouTube. In an episode, he interviewed a couple who had a $3 million net worth but was still in debt because they spent more than they earned.
In the episode, the couple asked for help creating a financial plan. They earned over $200,000 a year and had a $3 million net worth, and their financial goals included wanting to afford retirement and pay for their son’s education.
Sethi partnered with a financial planning firm to give them four scenarios to consider regarding their retirement age, the amount of spending to cut and other compromises they could make in order to reach their goals.
Here’s some of the financial advice Sethi gave this couple who spends more than their paycheck.
Also see 17 simple ways to save 20% or more of your paycheck.
Cut Expenses
The couple thought Sethi would recommend that they start earning more money. However, he said that in their situation, what is most important is actually learning how to manage money and cut expenses. Sethi explained that at their current level of spending, if they earned more, they would just spend more.
So Sethi asked them to create a list of their current spending patterns. They wrote out things like spending $1,000 on eating out every month. Sethi explained that spending on eating out and unnecessary purchases was draining their budget and cash flow.
Sethi recommended that they cut or lower several expenses, including $450 worth of subscriptions. Additionally, he recommended that the couple each get a guilt-free spending allowance and guilt-free spending for the family.
Overspending, especially on things like subscriptions, is not uncommon. In fact, according to CNET, U.S. consumers are spending over $1,000 a year on subscription services, and 48% of respondents said they forgot to cancel a free trial of a subscription and ended up paying for it.
Reduce High-Interest Debt
The couple had a large cash savings, but they also had $30,000 in credit card debt. Sethi said that a couple with a high income and a net worth of $3 million should not have credit card debt.
Sethi recommended that they immediately pay off their credit card debt. By doing this, they could eliminate minimum spending on credit cards from their budget, which could help them meet their other goals.
According to recent LendingTree data, credit card balances have increased by $396 billion, or 51%, since the first quarter of 2021. And credit card debt can end up causing a lot of other financial issues, including a lower credit score and interest accrual, per Experian. Therefore, taking a look at credit card debt and working to pay it off is a good step to take, especially if you’re spending more than your paycheck.
Delay Retirement
One option the couple did not choose was to delay retirement. Sethi explained that they could keep their current spending rate, but they would have to retire closer to 10 years after they wanted to. By showing the couple that their current spending patterns were delaying their retirement, he demonstrated that their future success was up to the habits they develop now.
Delaying retirement is a valid option for many people, though. Sometimes, by adding one or two more years of work, people can ensure they have enough cash flow in retirement. In fact, according to a 2024 F&G Annuities & Life survey, 51% of pre-retirees over 50 and retired Americans were considering delaying retirement or going back to work.
This particular couple wanted to enjoy more time with their young son, not less, so they decided to cut back on their spending now instead of working for longer.
Embrace Calm
Ultimately, this couple felt like their life was chaotic. The chaos was part of the reason their spending was high. For example, going out to eat was easier than eating at home. Their work life and their child’s activities made them so busy that it created a scenario in which they paid a lot of money for convenience.
Sethi said that embracing calm should be a goal. If they want to cut back on work hours and spend more time as a family, creating a routine that is less stressful with less spending is a way to meet their goals and live a more fulfilled life.
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