This couple earns $185K but is on track to retire on just $12K a year. The fix comes down to 6 clear-cut changes worth $1.7M

“It’s heavy, it’s like a burden that you carry around,” Matthew tells Ramit Sethi on an episode of I Will Teach You To Be Rich.

At this rate, they’ll be retiring on just $12,000 a year, by Sethi’s calculations.

“I don’t see how we will sustain our relationship and family long-term without a major shift,” Rebecca told Sethi. “It’s feeling hopeless to me a lot of the time.”

When people feel hopeless, they often give up, said Sethi.

But he sees a way out, if Matthew and Rebecca make six changes that could help them build a retirement nest egg of $1.7 million.

Big changes equal big savings

The biggest change will happen if they’re able to go from investing $100 a month to investing $2,050 a month.

And that starts with Matthew closing down his law firm and getting a stable job, which Sethi believes is “the single best thing that you could do for this family.” In his line of work, a 9-5 job could net Matthew a consistent monthly salary of $15,000.

Once their youngest child is in school full time, Rebecca can also increase her workload, going from $2,350 a month back up toward $4,000 or more per month.

But Sethi also points to other areas where they’re spending way more than they need to.

For example, one of their sons is in private school, at a cost of $800 a month. And while Rebecca says it’s “not in his best interest” to go to public school, Sethi counters with: “I mean, is it in his best interest to have parents who fight about money every two days?”

He’d also like them to reduce their monthly church donation from $550 to $200 — and use the difference to help pay down their debt. (Or, volunteer instead of writing a check every month.)

He also recommends cutting their miscellaneous spending from $1,574 down to about $500 per month, which includes everything from eating out to random Amazon purchases.

And, finally, he tells them to kill the kids’ Roth IRA contributions. Since Matthew and Rebecca are both self-employed, they thought this could help their kids with college or their own retirement. But, as Sethi puts it, “not in this world.”

Stacking all of those changes frees up $2,050 a month. And, if they invest that money, they’d end up with a nest egg of about $1.7 million at retirement, according to Sethi. That works out to a comfortable retirement income of $70,000 a year plus Social Security (which would bump it to about $100,000 a year).

Creating a budget

Following a budget may seem limiting (Matthew and Rebecca thought Sethi was joking when he said they can’t go on vacation for 10 years — he wasn’t). But it can be an eye-opening exercise.

To start, figure out how much you bring in each month. In some cases, this might be easy — say, if you get a regular paycheck every two weeks. If you’re self-employed, work in the gig economy or work multiple part-time jobs, your take-home pay may vary from month to month, but you can average it out over the previous six or 12 months.

Then, calculate your fixed expenses: your mortgage or rent payment, utility bills, insurance premiums and transportation costs, as well as any debt payments including student loans. You can also include savings (say, 10% of your take-home pay) as a fixed expense.

Also consider your discretionary expenses, such as takeout, entertainment, shopping and travel. You might be spending way more than you realize on things like weekday morning lattes, so once you see the cold, hard numbers, it might be easier to cut back.

Add up your fixed and discretionary expenses, and subtract that number from your monthly income (after accounting for taxes). Obviously, you don’t want this number to be negative — that means you’re spending more than you’re earning.