Can They Actually Afford This? Ramit Sethi Runs the Numbers on Five Big Money Decisions
I Will Teach You To Be Rich
In this video, Ramit Sethi, author of I Will Teach You To Be Rich, works through five viewer questions that each come down to "Can I afford this?" Sethi argues that beneath that question is a deeper one: "Am I doing the right thing?" The numbers matter, but so does a person's identity around money and whether they feel allowed to spend. For each case, Sethi lays out the person's income, net worth, and monthly spending split, then gives a direct answer. The answers range from "yes, but plan for it" to a flat "no."
"Can I afford a $40,000 watch?"
Frank is 40, a single parent in New York who works as a solutions architect. By Sethi's description, Frank has built serious wealth but barely spends on himself. Beyond a home and a car, Frank has never bought anything expensive, and now wants to know when it's okay to splurge on a $40,000–$50,000 watch. Frank adds that the plan is to hand it down to their son. Sethi jokes about people feeling they need to justify a luxury purchase ("If you want to get a watch, just get the watch") and then turns to the numbers.
Frank's gross income is $261,312. Investments are $1.1 million, savings $53,000, and debt $629,000, for a net worth of $1.6 million. Take-home pay is about $14,900 a month:
- Fixed costs: $7,000 (49%). Sethi calls this low and impressive.
- Investments: $6,000 (43%). Sethi calls this very aggressive.
- Savings: $500 (5%). Sethi assumes this is low because a lot of savings has already been built up.
- Guilt-free spending: $705 (3%).
Sethi jokes that Frank clearly didn't buy a Ferrari. His verdict is that a $40,000–$50,000 watch is fine on this income and net worth. Frank is on track for more than $11 million in retirement. Sethi's point is that someone who reaches $11 million without ever buying the watch they wanted will probably never buy it at all. Buying it now is likely more meaningful than waiting 25 years.
So for Sethi, the question isn't whether Frank deserves the watch or can afford it. The issue is timing and structure. Frank invests 43% of take-home pay, while Sethi typically suggests 5–10% of net pay, with 10–20% being quite high. But Frank has only about $50,000 in cash while being a single parent in a high-cost city. Buying the watch today would wipe out most of that cushion, which Sethi calls "a big no-no," especially with a child.
His fix is to temporarily cut investing from about $6,500 to $3,500 a month, which frees $3,000 a month. The first priority for that money is finishing the emergency fund. Given Frank's situation, Sethi would personally hold 12 months of fixed costs in cash, roughly $88,000, which leaves a gap of about $35,000. At $3,000 a month, that gap closes in about a year. Before a major luxury purchase, Sethi wants everything else "dialed in and bulletproof."
After that, the same $3,000 a month goes into a dedicated sub-savings account named for the watch. A $40,000 watch would take about 13 months and a $50,000 watch about 17 months. Frank would pay cash without touching investments or the emergency fund. Sethi shares that he saved for his own wedding before meeting his wife and saved for his honeymoon in his 20s. He says those experiences felt better because he knew the work behind them. He expects Frank will appreciate the watch more after saving for a year or two. He frames this as what financial planning is supposed to look like: not "Can I buy this?" but "How do I set up my finances so I can spend confidently without taking on risk?"
"We're $50K in debt. Can we afford private school?"
Conrad (45) and Isabelle (39) are married with kids in Atlanta. They earn a high income and have a seven-figure net worth, but they discovered they had been overspending by $5,000 a month. That led to $50,000 in credit card debt. They stopped using the cards, moved the debt to a lower-APR card, and cut spending, which brought fixed costs down from 91% to 76% of take-home pay. Their question: should they save for private school or pay off the low-interest credit card debt? And should they redirect their kids' 529 money and vacation money toward the debt?
Sethi admits he had to "control my emotions" at the question. He says he tries to pause and dig deeper, because peculiar decisions often make more sense once you understand them. He first praises the couple's progress. Most couples don't catch this kind of problem until it's worse. He also sees how high earners loosen up on tracking and end up $5,000 a month over. But he says they are "not where you need to be yet."
Their gross income is $333,000. Assets are $1.2 million, investments $472,000, savings $30,000, and debt $658,000, for a net worth of $1,044,000. Take-home pay is $14,500 a month:
- Fixed costs: $11,000 (76%). Sethi says this is too high.
- Investments: $500 (3%). Too low.
- Savings: $1,000 (7%). Not bad.
- Guilt-free spending: $2,000 (14%).
Housing is $4,600, 17% of gross income, which Sethi calls great ("Don't move"). The problem is everything else. They pay $1,941 a month toward debt, but they also spend $984 on car payments, $900 on groceries and meal services, $580 on pool, lawn, and house cleaning, $205 on subscriptions, and $1,435 on miscellaneous. Sethi also flags $500 a month going into a 529 and another $500 going to vacations. He jokes that the kids can mow the lawn and that the family's new vacation is walking around the backyard: "This is how you live when you are in this much debt."
His recommendations:
- No private school next year. Sethi calls it extremely risky to add a huge expense to an already strained budget. The couple needs to rebuild healthy habits first.
- Cut fixed costs. Reduce the meal-services category by $100. Cut the pool, lawn, and cleaning services to free $580. Bring miscellaneous down to $300. Cut subscriptions in half. Sethi explains that in a healthy situation he budgets 15% of fixed costs for unplanned items like car repairs or late fees, but someone in debt can't afford that slack. These changes free $1,915 a month and bring fixed costs down to 63%.
- Redirect the 529 and vacation money to the debt. Sethi asks why so many parents set money aside for their kids while they themselves are "this close to a financial calamity," and invokes the airplane oxygen-mask rule. The kids have much more time than the parents do.
- Trim guilt-free spending from 14% to 10%.
Together, these changes raise the monthly credit card payment to over $5,300, and the debt is gone in ten months. Only then, Sethi says, should they revisit vacations, private school, and college savings.
"Can she afford to work part-time when we have kids?"
Julia (29) and Andrew (31) are a dual-income, no-kids couple in Morristown, New Jersey. They want the flexibility to start a family. They also say they care about health and fitness, including personal trainers and Pilates, and about decorating their home. Julia earns $40,000 more than Andrew but wants the option to go part-time once they have children. Sethi identifies high fixed costs as what's holding them back.
Their gross income is $187,000. Assets are $799,000, investments $284,000, savings $66,000, and debt $416,000 (the mortgage and car loans), for a net worth of $734,000. Take-home pay is $9,757 a month:
- Fixed costs: $6,800 (70%). Higher than Sethi wants.
- Investments: $1,000 (10%).
- Savings: $800 (8%).
- Guilt-free spending: $1,000 (10%).
Housing is $2,840, 18% of gross income. Sethi calls this excellent. The usual guideline is below 28%, which he says is nearly impossible in many cities now. Transportation is $1,245 a month, covering two car loans at 8% with $56,000 remaining. Debt payments are $521, groceries $500, subscriptions $229, and miscellaneous $888.
Sethi sees several levers if Julia goes part-time. They already have more than six months of expenses saved, so they could stop contributing to the emergency fund by the time kids arrive. Guilt-free spending could come down a couple hundred dollars. They're on track for $4.7 million in retirement, so they could temporarily lower investment contributions to offset Julia's lost income and raise them again later. He adds that an extra $400–$700 a month for a couple of years would help a lot with young children.
He also points out a mismatch. The couple says they care about Pilates, trainers, and decorating, but he sees no evidence of that in their spending. What he does see is almost $1,300 a month going to cars. His preferred option is to sell one or both cars. Replacing them wouldn't help much because used cars are expensive, but could they get by with one? He asks them to consider whether what they say their "rich life" is matches where their money actually goes.
The alternative is to make small cuts and accelerate the car loans. At the current $1,245 a month, the payoff takes about four years and seven months. Sethi's cuts:
- Reduce emergency-fund contributions from $800 to $500 (+$300).
- Cut miscellaneous from $888 to $200 (+$688).
- Trim subscriptions (+$100).
Together these free $1,088, raising car payments to $2,333 a month and paying off the loans in two years and three months, which is two years and four months sooner. Sethi acknowledges this won't replace Julia's part-time income loss. But combined with pausing emergency-fund contributions and temporarily reducing investments, it makes part-time work more realistic. His answer is "Yes," it's possible, but they need to calculate exactly how much her income would fall and decide how realistically they can cut expenses.
"Can I afford a new car?"
Uchenna is a 32-year-old software engineer in Seattle who started the job about five months ago. Uchenna wants a car "ASAP" and isn't sure how much to spend, or whether to finance a new car or buy a used one. Uchenna also gets company stock worth roughly $63,000 a year pretax, and plans to spend bonuses of an estimated $10,000–$15,000 on travel, mostly trips back to their home country.
Gross income is $148,500. Investments are zero, savings $40,000, and debt zero, for a net worth of $40,000. Take-home pay is $8,800 a month:
- Fixed costs: $3,498 (40%). Well below the recommended 50–60%.
- Investments: $3,300 (38%). Sethi assumes Uchenna is just starting, since the current balance is zero.
- Savings: $1,000 (11%).
- Guilt-free spending: $1,000 (11%).
At this investing pace, Sethi says Uchenna is on track for $5 million by 65, about $16,800 a month using the simplified 4% rule. The $40,000 in savings, built in only five months, is roughly 12 months of emergency savings. Sethi says Uchenna can stop funding the emergency fund and shift that money elsewhere. If anything, he'd push Uchenna to spend a bit more intentionally on things they love.
His short answer: Uchenna can easily afford a new car. He notes that people often spend months or years on questions that can be answered in 60 seconds. Adding $900 a month in car costs would put fixed costs at only 49%. Even $1,500 a month would keep them under 60%. He says leasing is possible but he generally doesn't recommend it. His main caution is that car costs include gas, maintenance, registration, parking, and tickets. If the total car line in the spending plan is $900, the actual payment should probably be more like $400–$500. The real question, he says, is whether a new car is part of Uchenna's rich life. Spending more on travel, meals, or clothes would be fine too.
"Can I afford a $3,500 apartment in Southern California?"
Grace is 46, a senior business development manager in the nonprofit sector, and a single parent of two in Southern California. Moving in with family to reduce costs isn't an option. Grace says the stress of tight finances causes constant tightness in their chest and is trying to move to the private sector to earn more. The question: what changes would make a two-bedroom apartment at about $3,500 a month affordable while keeping fixed costs within the recommended range?
Gross income is $111,000. Assets are $20,000, investments $236,000, savings $9,000, and debt zero, for a net worth of $266,000. Take-home pay is $5,940 a month:
- Fixed costs: $5,294 (89%).
- Investments: $847 (14%).
- Savings: $812 (14%).
- Guilt-free spending: −$1,013 (−17%).
"That's the ball game right there," Sethi says. He connects the chest tightness directly to spending 89% of take-home pay on fixed costs. Once investing and saving are added, Grace is spending about $1,000 more than they earn each month. At 89%, the only direction Sethi wants that number to go is down. Yet the question asks about raising the biggest line item: housing, currently $2,865. The car will be paid off in November 2026. Groceries are $800 and miscellaneous is $691.
Sethi acknowledges how hard the situation is: single parenting, nonprofit pay, and Southern California housing prices. He calls a $266,000 net worth with no debt very impressive. Still, he has concerns. The 14% investment rate is good, but $847 a month puts Grace on track for about $836,000 by 65, or around $2,800 a month under the 4% rule. He says that's not enough, even with Social Security added, because it cuts things too close. The emergency fund covers about two months, and he wants at least six.
His direct answer is that Grace cannot afford a $3,500 apartment. Rent at that level would push fixed costs to 104% of take-home pay, before counting moving costs, first month's rent, and other unexpected expenses. Grace would go into debt almost immediately. He lays out three paths:
- Increase income. To afford $3,500 rent with fixed costs at 60%, Grace would need about $5,834 a month net. Assuming 40% taxes, that means roughly $150,000 gross. Sethi notes that private-sector jobs for someone in Grace's role pay $130,000–$150,000, which he considers within reach. He calls this the highest-leverage change.
- Get tighter on spending. Cut miscellaneous from about $690 to $100, freeing $590 a month. Review the last 90 days of spending line by line to see where the money actually goes.
- Delay the move. Sethi calls Grace's finances "very fragile." Grace should spend the next 6–12 months raising income, controlling spending, and building a six-month emergency fund.
Sethi calls this a pivotal moment. Grace may well be able to afford a $3,500 apartment in the future, but stretching for it now would backfire.
Closing Thought
Sethi ends by noting that everyone in the video had reasons why their decision made sense. He says those reasons show how easy it is to build a financial life that becomes stressful, fragile, and much harder than it needs to be, even for smart, high-earning people.
Life gets a lot easier when you learn from other people's mistakes instead of making your own dumb mistakes. And that's what I'm going to try to help you with today. I get a lot of questions from people every single week about major money questions. Most people ask, can I afford this? Or am I making a big mistake? But I actually think that deep down there's a much deeper, more fascinating question that's coming up: am I doing the right thing?
It's about the numbers, yes. And today I'm going to tackle those numbers. But it's also about who are you? What is your identity around money? Are you even allowed to do this? And so today, watch me break down the numbers and give some very direct answers. Hopefully you can learn from it and make even better decisions with your own money. Let's get into it.
Can I afford a $40,000 watch? I know, I'm sorry a lot of you are getting mad, but this is a real question somebody asked me. Let's take a look. Frank is 40, a single parent living in New York. He works as a solutions architect. And the problem is that he's built serious wealth, but he barely spends on himself.
He asks, "I just hit 40, and I've never really bought myself anything expensive beyond a home and a car. And I want to know when it's okay to splurge on a big-ticket item, like a $40,000 to $50,000 watch. It's expensive, but I plan to hand it down to my son." Okay, why do you guys need to defend a luxury purchase? If you want to get a watch, just get the watch. Let's take a look at the numbers. Then we can decide.
All jokes aside, gross income: $261,312. It's a nice income. Investments: $1.1 million. Good. Savings: $53,000. Debt: $629,000. Total net worth: $1.6 million. He takes home $14,900, almost $15,000 a month. Let's see where that money is going.
Wow. This tells the story. Fixed costs: $7,000, or 49%. Very low. That's impressive. Investments: $6,000 a month, 43%. Very aggressive. Savings: $500, or 5%. I think that's because he's already filled up a whole bunch of savings. Guilt-free spending. What the—oh, what? Frank, I guess he didn't buy a Ferrari. Frank picked up an old clunker from the dump. That's the car that he bought. Guilt-free spending is $705 a month, or 3%.
I kind of know the answer to this, but let's just break it down. On your income and net worth, a $40,000 to $50,000 watch is actually okay. You have a $1.6 million net worth, you have over $1.1 million invested, and you are on track. Can anyone guess how much Frank is on track for in retirement? More than $11 million.
I just want to point something out. If you end up with $11 million in retirement and you never bought that watch that you had your eye on, you're not going to buy it. You're going to die never having bought that watch. So I actually think it's really important. We started off this segment by kind of joking around, like, who wants to buy a $40,000 watch? But actually, if you love it, if it is meaningful to you, and if we look at your numbers, you're going to have $11 million in retirement. That's hundreds of thousands of dollars in safe withdrawal income every single year. Probably be more meaningful to get that watch now than to wait 25 years. And you're still not going to get it then.
So in my opinion, this is not a question of whether you deserve the watch or you can afford it. The issue is timing and structure. Let's take a look at the numbers. Right now you are investing 43% of your take-home pay. That is a very high rate. For comparison, I typically suggest people invest 5 to 10%, or maybe 10 to 20% is pretty high for net pay. 43% is really high.
At the same time, you have about $50,000 in cash. You're a single parent and you live in a high-cost city. So if you bought that watch today, most of your savings would be gone. And that's a big no-no. That's a little margin for error, especially with kids. So we know we don't want to go into savings, draw all that money out to go buy a luxury purchase.
So the simple fix here: you can rebalance things. And good news, it's pretty easy to solve. If this is really important to you, you can invest less for a while. So for example, reducing your monthly investing from $6,500 a month to $3,500 a month, you would free up $3,000 a month.
Next, I want to point out your first priority, which is to finish your emergency fund. Given your situation, I would personally put 12 months of fixed costs in cash. That's roughly $88,000. So you're short by about $35,000. Again, if I'm thinking of buying a major luxury purchase like a $50,000 watch, I want everything else to be dialed in and bulletproof first. So if you took that $3,000 a month that you stopped investing for just a little while, you would close that gap in about a year.
Next priority: I would fund the watch purchase deliberately. I would keep the same approach, and I would now redirect that cash that you filled up the emergency fund with. I would take that $3,000 a month and I would put it towards a watch. In fact, I would create a sub-savings account called Rolex Watch, or whatever watch you're going to get. At $40,000, that watch would take you about 13 months. A $50,000 watch would take you about 17 months, and you would pay for that watch in cash. You would not have to withdraw from your investments or your emergency fund.
Now, I want to tell you something, because I have saved up for major purchases in my life. I started saving for my wedding before I even met my wife. I saved for my honeymoon when I was in my 20s. I saved for all these things, and I have to tell you, it actually felt even better to go on these trips, to go experience these things, because I knew how much work went into it. I think that if you just slow down a little bit, create this powerful vision of the watch you want, and save for roughly a year or two, you're going to appreciate that watch even more. Frank, when you get that watch, send me a picture of it. I want to take a look at it. Amazing work and congratulations on all of your success.
This is actually a good example of what financial planning is supposed to look like. Not, can I buy this? But rather, how do I set my finances up so I can spend confidently without putting myself in a financially risky position? And as your money gets more complex, these decisions can get harder to make on your own. That's where having expert guidance can make a massive difference. And it's where our partners at Facet can help.
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We're in $50,000 of debt. Can we afford private school? Conrad's 45. Isabelle's 39. They're married with kids, living in Atlanta, Georgia. The problem is, they earn a high income and have a seven-figure net worth. But years of overspending have left them with significant credit card debt. Now they're trying to fix the debt problem while juggling competing priorities.
They realized they were overspending by $5,000 a month, which led to $50,000 in credit card debt, and they stopped using the cards, cut their spending aggressively, bringing their fixed costs down from 91% to 76%. The question is, quote, "Should we save for private school or pay off low-interest credit card debt? Should we also be putting our kids' 529 and vacation money towards the debt?"
Hold on. I need to control my emotions here. Part of what I do here is to actually pause and go deeper, because sometimes people ask very peculiar questions and you're just like, what? But then you understand why. And suddenly people's peculiar decisions start to make a lot more sense.
So first I want to say to this couple, you should be proud of the progress that you have made so far. Most couples don't really catch these problems until it's worse. So while you were spending $5,000 more than you thought per month, which sounds astronomical, I can understand how it happens when you have a high income. You loosen up on how carefully you're tracking. What I especially appreciate is you stopped using the cards. You moved the debt to a lower-APR card, you made significant cuts. But now I need to be honest that you are not where you need to be yet.
Let's take a look at their numbers. Gross income: $333,000. Assets: $1.2 million. Investments: $472,000. Savings: $30,000. Debt: $658,000. For a total net worth of $1,044,000. They take home $14,500 per month. Let's take a look at where that money is going. Fixed costs: $11,000, or 76%. That's too high. Investments: $500, or 3%. That's too low. Savings at $1,000, or 7%. Not bad. Guilt-free spending: $2,000, or 14%.
Let's dig into the fixed costs, because 76% is too high. Housing is $4,600, or 17% of gross income. Great. Don't move. That's great. But the rest of the spending doesn't really work when you have $50,000 of credit card debt. So they're paying $1,941 a month towards debt, but they are spending heavily on $984 in car payments, groceries and meal services, $900, pool, lawn and house cleaner, $580, subscriptions at $205, and miscellaneous at $1,435.
Can we just pause right here? Because remember that vacation you all were talking about taking? Looks like the vacation is for your kid to get on that lawn mower and mow that lawn once a week. Get to work. That's what I did when I was a kid. Look at me. Turned out fine.
Let's look at your savings. What the—$500 a month into a 529. Another $500 towards vacations. No, no, not in my world. For now, your new vacation is holding hands with your family and walking around your backyard. Oh, look at this beautiful patch of grass. Yes, we've seen it 5,000 times. We're going to see it another 10,000 times. This is how you live when you are in this much debt.
Here's what I think you should do. First, I don't think you should do private school next year. It would be extremely risky. You're basically adding on a huge expense onto an already strained financial picture. Instead, you need to rebuild your healthy habits first. Eliminate the meal services. Reduce that category by $100 a month. Cut the pool, lawn, and house cleaning services. That's another $580 freed up.
Cut your miscellaneous expenses down dramatically to $300. Usually in a healthy financial situation, I assign 15% fixed costs for miscellaneous things that people do not count. These would be things like auto repair that they didn't plan for, some late fee, whatever, all kinds of stuff. The fact is, when you're in debt, you can't afford that. So you need to be dialed in and diligent on those expenses. Next, take those subscriptions. Cut them in half. Out of here. Subscriptions gone. Those changes, just the ones I mentioned, get you an extra $1,915 a month, which brings your fixed costs down to 63%.
Second priority: redirect extra money to credit card debt. You know that $500 you're putting in a 529? Not anymore. It's going straight towards credit card debt. Why are so many parents putting money aside for their kids when they themselves are this close to a financial calamity? Listen, you all know, airport, put the mask on, blah blah. Do it. Do it with yourself. Your kids have a lot more time. You have far less. $500 for vacations, you already know what I said about that. That goes to the credit card debt as well.
Next, reduce your guilt-free spending from 14% to 10%. With those changes, whoa, your monthly credit card payment increases to over $5,300, and the debt is gone in ten months. That's incredible. Once this debt is paid and you've rebuilt these disciplined habits, then you can revisit things like vacations, private school and college savings. But for now, that healthy foundation comes first.
Can she afford to work part-time when we have kids? Julia's 29, Andrew's 31. They're married DINKs. That's dual income, no kids, living in Morristown, New Jersey. The problem? They want financial flexibility to start a family. They want to focus on their health and fitness, including personal trainers and Pilates, and they want to decorate their home. Julia makes $40,000 more, but she wants the option to go part-time. The problem is that their high fixed costs are holding them back. So the question: can she afford to work part-time when we have kids?
Let's take a look at their numbers. Gross income: $187,000. Assets: $799,000. Investments: $284,000. Savings: $66,000. Debt: $416,000, which is the mortgage and car loans. Total net worth: $734,000. Their take-home pay every month is $9,757. Let's take a look at the breakdown. Fixed costs are $6,800, or 70%. That's higher than I want to see. Investments at $1,000, or 10%. Savings at $800, or 8%. Guilt-free spending at $1,000, or 10%.
We got to dig deeper into the fixed costs. Housing at $2,840, or 18% of gross income. That's excellent. Again, we typically like to see that number below 28%. But in expensive cities, in fact, in a lot of cities these days, it's almost impossible to hit that number. So 18% is great. Car payments and transportation are $1,245. They've got two car loans at 8%, remaining balance $56,000. Damn. Debt payments: $521. Groceries: $500. That's reasonable. Subscriptions: $229. Miscellaneous: $888.
The main question here is about Julia going part-time. And that's important, especially because she earns significantly more. So let's talk about that. If Julia goes part-time, you will likely stop adding money to your emergency fund. Now you have more than six months of expenses built up, so you're probably going to be ready to stop contributing there by the time you have kids. Guilt-free spending is already relatively low, but you could probably bring it down by a couple hundred dollars.
Also, if we look at how much you're on track to retire with, $4.7 million, which is great. If you reduce your investment contributions to offset Julia's income loss temporarily, you can always pick them back up later. And I got to say, having an extra $400 to $700 a month for a couple of years would be very helpful with young children.
Now, you tell me that you care about Pilates and trainers and decorating your home, but I actually do not see any evidence of that in your spending. What I do see is almost $1,300 a month going to car payments. Now, if we fix that, it would dramatically change things. So I see a couple of options.
Option one, which I personally recommend: can you sell one or even both cars? Replacing them is not really going to change much because these days used cars are pretty expensive. But could you just get by on one car? I want you to ask yourself these tough questions. We talk about health, we talk about fitness. We talk about going part-time. Right now, the evidence shows that we are spending a ton of money for our cars. Is there a mismatch in what we say our rich life is and where we are actually spending our money? If so, seems to me car is one big opportunity.
Option two: make small cuts to pay off the car loan two years and four months earlier. At your current rate, paying $1,245 a month, it will take you about four years, seven months to pay off the loans. But there are places you can cut to redirect money towards debt. For example, you could reduce your emergency fund contributions from $800 to $500, and you could redirect that $300. You could dial in your miscellaneous costs from $888 a month to $200 a month. You actually free up $688. That's a lot of money. And you could cut your subscriptions down by $100. If you do all of that, you free up an extra $1,088 to put towards debt, bringing your payments to $2,333 a month instead of $1,245. Now guess what?
That pays off the loans in two years and three months, which is two years and four months faster than your current timeline. Now, that's not going to replace all of Julia's income if she goes part time, but it will create a meaningful buffer. If you combine that with pausing your emergency fund contributions and temporarily reduce your investments, suddenly the idea of her going part time becomes a little bit more realistic and flexible.
So is it possible? Yes. What you would need to do is you would need to carefully run the numbers on how much her income would reduce by, and decide how realistic is it for us to cut back on these expenses. That's the decision you've got to make.
I find that people who have started on their personal finance journey sometimes do not know when they have done enough. They will constantly ask, what did I miss? I need to read ten more subreddits. What about this one obscure thing that might happen? And it doesn't feel good to constantly worry that you got something wrong.
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Can I afford a new car? Uchenna is a 32-year-old software engineer living in Seattle. The problem? I want to buy a car ASAP and I'm not sure how much to spend on a car, whether I should finance a new one or buy old. I just started working about five months ago. I have other things like stock that I get from my company, approximately $63,000 a year pretax. I plan to use my bonuses, which are estimated about $10,000 to $15,000, on travel, mostly back to my home country.
The question: can I afford a new car? Let's look at the numbers. Gross income, $148,500. Investments, zero. Savings, $40,000. Debt, zero. Net worth, $40,000. They take home $8,800 a month. Let's take a look at where the money is going.
Fixed costs are $3,498, or 40%. Excellent. That's well below the recommended 50 to 60%. Investments, $3,300 a month, or 38%. I'm assuming this person is just starting to invest because their current investments are zero. 38% is great. Savings, $1,000, or 11%. Nice. Guilt-free spending, $1,000, or 11%.
My initial thoughts are your investments are great. At this pace, you're on track to hit $5 million by age 65, which translates into about $16,800 a month of passive income using the simplified 4% rule.
Savings at $40,000 is strong, especially after only five months of working. That's basically 12 months of emergency savings. So in my opinion, you can stop saving for emergency fund and you can shift that money over to other areas. And actually, you've done a great job with heavy investment contributions. Guilt-free spending is at 11%. If anything, I'd push you to spend a little bit more intentionally on the things you love.
So my short answer, Uchenna, is if you want to buy a new car, you can easily afford to. In my experience, people will often spend months or years on a question that can be answered in 60 seconds. For example, if you add $900 a month to your car costs under fixed costs, those fixed costs are still only 49%. If you pay $1,500 for a car, remember your car includes gas and registration and parking and all that. You're still under 60%. You could theoretically lease a car, but in general, I don't recommend it.
So here's what I do want you to remember. The amount you spend is the total amount on your car, including gas, maintenance, license, registration, parking tickets. If the total amount in your CSP is $900, your car payment should probably be more like $400 or $500.
So the real question to ask: is a new car part of your rich life? Maybe you want to spend $2,500 or $5,000 a year on travel, or meals or clothes. That's also fine. The good news is you have flexibility, so it's up to you. Great job, and whatever you decide, send me a picture of it. I'd love to see it.
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Can I afford a $3,500 apartment in Southern California? Grace is a 46-year-old senior business development manager in the nonprofit sector. She lives in Southern California with her two kids.
The problem? She says, I'm a single parent of two children living in a high-rent area. Bringing down fixed costs by living with family is not an option. I constantly feel tightness in my chest due to the stress of how tight finances are. I'm trying to move to the private sector so I can make more money. What changes should I make so that I can afford a two-bedroom apartment, which runs about $3,500 a month in my area, and also be within the reference range for fixed costs?
Good question. Let's take a look at the numbers. Gross income, $111,000. Assets, $20,000. Investments, $236,000. Savings, $9,000. Debt, zero. Total net worth, $266,000. She takes home $5,940 per month. Let's take a look at where that money is going.
Whoa. Fixed costs, $5,294, or 89%. That's the ball game right there, folks. When she talks about feeling tightness in her chest, this is the exact reason why. When you are spending 89% of your take-home pay on fixed costs, that's it. You are effectively spending more than you make every single month. It's a really tough place to be.
Next up, investments, $847, or 14%. How is this possible? Because we're already over 100%. Savings, $812, or 14%. Oh, guilt-free spending, negative $1,013. Oh, so we could just make everything negative. When you put your numbers into the CSP, it obviously shows you, hey, you are spending more than you make every single month. In this case, she's spending $1,000 more per month than she makes. That's a problem. If you're at 89%, the only direction I want to see that number going is down.
What? Housing is currently $2,865. But she's asking me, can I afford a $3,500 apartment? No, you already can't afford your fixed costs. And then you went into your fixed costs, you pick the biggest line item, which is housing, and then you want to spend more. No, this is not the way to go.
Let's keep looking at fixed costs. Transportation, $497. Car is going to be paid off in November 2026. Groceries, $800. Miscellaneous, $691.
This is a really challenging situation, to be honest. Being a single parent, not easy. Being a single parent working at a nonprofit, not easy. Being a single parent working in a nonprofit in Southern California with its outrageous housing prices is extremely difficult. And I want to acknowledge that the fact that you've built a net worth of $266,000 with no debt is very impressive. But I have some serious questions about what your next moves with money will be.
So while the percentage of your investments at 14% is good, the absolute dollar amount, $847 a month, concerns me. You're on track to have about $836,000 by age 65. That's going to generate around $2,800 a month using the 4% rule. That's not enough. Of course, we want to add in things like Social Security, etc., but I don't want you to have to cut things that close.
And while your savings rate is high, we are working off of an income of $111,000 at age 46, in one of the most expensive areas in the country. That means you currently have two months of an emergency fund. That is not enough. I would like to see that number at six months at least. Next, we have guilt-free spending at negative 17%. This means you are spending more than you make every single month. And that's a huge red flag.
Grace, I'm going to be very direct right now. You cannot afford a $3,500 apartment. Your fixed costs are already at 89% of take-home pay. Increasing that rent to $3,500 would push that to 104%. And I'm not even talking about what it would cost to move and first month's rent down and all kinds of other unexpected expenses. This is not sustainable. It would put you into debt almost immediately.
So here's the trade-off. You want more space, but your financial system does not yet support it. So something else has to change. You have a few paths forward.
Number one, increase your income. To afford a $3,500 apartment and keep your fixed costs at 60%, your net monthly income would need to be $5,834, which means your gross income would need to be approximately $150,000. That's in Southern California. We're assuming 40% taxes. Your net would be about $90,000 a year. That's a big jump from $111,000 to $150,000. You mentioned that you're a senior manager in business development. A private sector job paying $130,000 to $150,000, that's within reach. Now, in my opinion, this is the highest leverage change that you could make.
Number two, get tighter on spending. Your fixed costs includes $690 for miscellaneous. That's too high. You need to cut that to $100 and be highly diligent about those expenses. That one change alone frees up $590 per month. I want you to go through the last 90 days of spending, and I want you to identify where that money is actually going down to the line item.
Number three, delay your move. Right now, your finances are very fragile. Taking on a more expensive apartment would simply drown you. Do not do this. Instead, use the next 6 to 12 months to increase your income, control your spending, and build a six-month emergency fund that gives you the stability to eventually be able to make a move without putting your entire financial life at risk.
This is a major, pivotal moment for you. It is possible that in the future, you will be able to afford a $3,500 apartment. Right now, you can't, and if you stretch too soon, it's going to backfire. So focus on your income, control the cost. Then when you have a solid foundation, then you can consider making your move. Good luck. Thanks for asking the question.
Everybody in this video had reasons for why their decision made sense, and you can see how easy it is to build a financial life that starts to feel stressful and fragile and way harder than it needs to be. If you want to understand the patterns that keeps smart, high-earning people stuck so you can get unstuck, watch this video next.
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