‘You’re both basically making minimum wage’: Self-employed couple have 2 kids, $4.5K in savings, $175K in debt and worry they’ll retire broke, but refuse to get 9-5 jobs. Ramit Sethi responds
Working for yourself isn’t for the faint of heart. Instead of a steady salary, business owners and freelancers have to deal with complex taxes, uncertain cash flows and tight profit margins.
These challenges appear to be squeezing Callie and Travis, who are self-employed and married with two young kids. While discussing their finances on a recent episode of Ramit Sethi’s podcast, the 30-somethings were shocked to discover that after business expenses they’re “both basically making minimum wage.”
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Their situation reflects the unique difficulties faced by entrepreneurs across the country in the current economy.
Businesses are struggling
Callie works as a freelance photographer and earned $80,000 in gross revenue last year. Travis’ finances, however, are a “mystery” she said. “I’ve never really known what Travis makes.”
Travis admits it’s difficult to keep track of his finances. He owns a housekeeping and property management business with many contractors and employees but hasn’t hired a bookkeeper to keep records straight. He pays himself $2,500 on a monthly basis from the business, but isn’t sure about estimated profits. Sethi calculated that the couple make around $130,000 combined a year.
The decision to avoid a bookkeeper isn’t unusual. Thirty-four percent of small business owners personally manage their bookkeeping, according to a 2021 survey by Quickbooks Live Bookkeeping. But it appears Travis isn't doing it properly himself either and exposes his business to various risks this way. However, the couple’s financial issues are much deeper.
Unfortunately, the current environment isn't ideal for small businesses, as rising interest rates and cash flow issues add pressure. In February, 213 small businesses filed for chapter 11 bankruptcy in the U.S., a 78% jump the same period last year, according to data from Epiq cited by The Wall Street Journal.
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Lack of communication exacerbates issues
Travis’ unwillingness to discuss finances is putting a strain on his relationship with Callie. He recently purchased accessories for his van for $4,500. This was put on a 15-month buy-now-pay-later plan with Affirm, without Callie’s consent.
Most people avoid talking about money, which is considered a taboo subject. However, 46% of Americans don’t discuss finances even with their partner or spouse, according to a survey by Empower.
“When I talk about money or something that makes him uncomfortable, his eyes just glaze over ... he’s gone to another dimension,” Callie admitted, calling financial conversations “hard."
The couple run their businesses independently but have agreed to contribute an equal amount into a joint account to pay the household's bills. However, Callie said she pays for some of the children's expenses herself.
Without appropriate conversations, Callie and Travis are putting their joint-finances at risk.
No retirement in sight
Together, the couple has $300,000 in assets, $4,500 in savings and $175,000 in debt, which implies a net worth of $129,500. They admit that they have no investments and no additional cash to meet unexpected expenses, but Travis owns a boat that Sethi found out about later in the conversation.
In 2022, nearly half of all American households had no savings in retirement accounts, according to the Federal Reserve's Survey of Consumer Finances (SCF).
Unfortunately, Travis and Callie have different perspectives on their situation. Callie said she’s motivated to secure her retirement after seeing her parents struggle in their senior years. “We’re losing sight of the future, and that’s what scares me,” she says. While Travis does not "think about the long-term.”
Meanwhile, their running joke is that they’ll spend their senior years working at Home Depot.
For Ramit Sethi, that’s unacceptable. “You need to invest. Because the only way to build wealth is through investments,” he advised.
Based on his guidance, the couple managed to make significant changes to their personal finances. Travis had said he would raise prices at his business by 30%. In a follow-up conversation, Callie said Travis is more open about money conversations. The couple now contribute $1000 a month to Roth IRA accounts.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
