Dec 27, 2023
Some people have it easy, until they make things difficult for themselves through destructive behavior — such as 27-year-old Rachel.
She makes good income by working just five hours a day but is still drowning in debt and spends lavishly on eating out because, as she says, “it saves me so much time” by not cooking.
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“That’s the stupidest thing I’ve ever heard,” responded Caleb Hammer, a personal finance YouTuber who has seen his fair share of dumbfounded financial decisions on his show “Financial Audit.”
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Rachel’s situation was highlighted on an episode early this year and shows how high-income professionals with relatively easy jobs can still find themselves in trouble through bad spending habits and uncontrolled debt.
This spiritual coach needs a financial coach
Generating income isn’t Rachel’s key issue. She’s a bonafide entrepreneur who has managed to create a successful business in just a few years.
Rachel started working as a spiritual coach in 2020. Her work involves in-person and online coaching and workshops. Essentially, she doles out life advice for a living. It’s not a time-consuming profession — Rachel claims it takes just five hours a day — but it’s certainly lucrative. She claims to be earning $6,500 a month on average.
Ramping up a business to roughly $78,000 in annual gross revenue is commendable. Unfortunately, Rachel also got her first credit card two years ago and has been on a spending binge while growing her business. Simply put, she’s experienced lifestyle creep and is now struggling to keep up with her debt.
Hammer dove into her finances and found that she regularly uses nearly maxed-out cards and spends more than she pays back monthly.
She also has a $29,000 car loan. The payments are roughly $534 a month. By Hammer’s estimates, Rachel spends roughly one-third of her take-home pay on minimum payments for all her debt and barely has any money left over after paying her “stupid expensive rent.”
Rachel isn’t alone: 48.7% of Americans earning over $100,000 a year said they were still living paycheck to paycheck, according to a survey by PYMNTS and LendingClub. The rising cost of living coupled with a tendency to spend more than they earn has put many Americans on a financial cliff edge.
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Options for getting out of debt
Based on Hammer’s calculations, Rachel requires around $4,000 to meet her basic living expenses and unavoidable costs. Assuming she makes $6,500 on average every month, she could use what’s left over ($2,500) toward her nearly maxed-out credit cards and pay down her debt.
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To do this, she needs to severely cut back on shopping and shop for groceries instead of eating out.
“After about six months of no joy in your life … you have no more credit card debt. Incredible!” Hammer exclaimed.
He believes another four months on this budget should help her accumulate $10,000 to buy a cheap car and sell her existing car to eliminate the auto loan.
These steps should put Rachel in a much stronger financial position in less than a year.
However, aggressively cutting back on spending isn’t her only option.
Rachel is fortunate enough to have room for more work. Since she spends just five hours a day as a spiritual coach, she could increase her income by working part-time or even full-time elsewhere or performing a side hustle. This would allow her to pay off her debt more quickly.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
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