The Rachel Cruze Show - Be Smart With Your Money (and Enjoy Your Life)

Episode Date: April 22, 2024

💵 Sign up for EveryDollar today. Create a free budget!    Show Description  It’s time to get realistic about your money. From the cost of happy living to budgeting secrets to choosing the right financial goals for your stage of life—here are practical steps you can take to build wealth and live a life of financial peace along the way.   In This Episode ·      What It Actually Costs to Live Happily in America ·      5 Lessons From 15 Years of Budgeting ·      How to Set Financial Goals at Any Income Level Next Steps ·      🏡 Find out which Baby Step you’re on: https://www.ramseysolutions.com/get-started/gs/app/assessment   ·      👛 Shop the Rachel Cruze Wallet: https://store.ramseysolutions.com/money/budgeting-tools/rachel-cruze-wallet-camel/   ·      🏧 Watch me critique someone’s budget: https://www.youtube.com/watch?v=ADH1inzM1Fc   ·      📉 Plan or track your progress with Ramsey’s Investment Calculator: https://www.ramseysolutions.com/retirement/investment-calculator   ·      📲 Connect with a SmartVestor Pro: https://www.ramseysolutions.com/retirement/dave-ramsey-smartvestor?campaign_name=SV_PaidSearch&gad_source=1&gclid=Cj0KCQjwztOwBhD7ARIsAPDKnkAqZ48eXBf2_Np4awFIESNJLFW7sznuHp4FQnnz5Xci2hV40oQ8ZCwaAkytEALw_wcB   Offers From Today's Sponsors 🏥 Learn more about Christian Healthcare Ministries.   Listen to More From Ramsey Network 🎙️ The Ramsey Show   🧠 The Dr. John Delony Show 🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💸 The Ramsey Show Highlights Learn more about your ad choices. Visit megaphone.fm/adchoices

We all know that the internet is full of hot takes and random advice, and it's tough to know who to trust. I can confidently say that I've seen majority of people win using the same tried and true financial advice. Hey guys, welcome to this episode of the Rachel Cruise Show podcast. I'm so glad that you're here. So in this episode, we'll chat about the most valuable lessons I have learned about budgeting. Then I'll talk through how to decipher and tackle your financial goals. But first, let's talk about if money can really buy your happiness. Take a listen. Well, hey, you guys, a recent survey found that on average, Americans need to make $105,000

per year in order to be happy. And I'll be honest, I was a little bit shocked. I was like, all right, okay. One thing I love about my job is that I get to talk to people each week on the Ramsey show who are making progress financially. And there's not a lot of them that are earning six figures. but this study might be on to something because the question is, can money really buy happiness?

So today, let's take a look at what it costs to live happily in the U.S. and beyond. And at the end of this episode, I'll be responding to a list of things that people claim actually buy them happiness. So I'll have you stick around, see if you agree. All right, first and foremost, can you guess which country has the highest salary threshold on Earth, a.k.a. which country requires the most amount of money in order to be happy? Well, my mind immediately went to America, honestly. But it's actually Iran. On average, Iranian people claim that they need to earn $239,700 in order to live happily. That's almost a quarter of a million dollars a year. Now, on the other end of the spectrum, the lowest salary threshold was just $8,6,000.

$658 in Sierra Leone. So clearly, depending on where you're located, the resources, the cultural norms that you're in, I mean, there's very obvious reasons for this. So if you are a Vol fan, you're going to love this next stat. Because according to this survey, Knoxville, Tennessee is the U.S. city with the lowest salary expectations in terms of happiness. That is where Winston is from. Oh, my gosh.

So people in Knoxville say that they need to make $88,000. to live happily. And that's still, you know, pretty high by some comparisons. But you know what? I mean, the balls. I lived there, you guys, all through college. And I moved after graduation. Four years of Rachel. Maybe that's why I'm just so content, you know? Just the old Knoxville rubbing off on me. I'm just kidding. But listen, there is no one's surprise that the U.S. city with the highest cost of happiness happens to be in California. And apparently in Santa Bar, residents that need to make almost $163,000 a year to feel fulfilled. And honestly, that's not as high as I probably would have guessed, because I feel like Southern California, it's bougie and it's

very expensive. But now let's put some of those numbers to the tests and talk about the four walls and the expenses that everyone needs to have to be able to maintain life. So if you're not familiar with the four walls, this is what they are. Food, shelter, utilities, and transportation. These are things you have to have. here's what that looks like. The average salary in Knoxville is $50,000, so almost $100,000 lower than the national average. The average home price is $320,000. The median housing costs per month is $975. Groceries, transportation, and utility costs combined are about 20% below the national average. And Santa Barbara on the other end of the spectrum, obviously much higher. Typical home costs around $1.5 million, which is

351% more expensive than the national average and a 108% more expensive than the average California home, which costs around $733,000. So renting a two-bedroom unit in Santa Barbara costs you about $3,280 per month. Now let's just pretend this person has a roommate. You know, you cut that in half, and that's basically what some of my Nashville friends are paying for rent these days. All right, enough with all the numbers. Let's get to the real question. Can money buy happiness? You know, like we already discussed the four walls, there are certain things that humans need to have in order to feel comfortable, to feel safe, to feel provided for, and being able to afford these necessary things definitely plays a part in regulating your

emotions and things like happiness. But the other side of the spectrum is, again, where you always just want more, need more, buy more, and you just keep at it. And no matter how much money you have, emotions are always temporary. And happiness, it doesn't stay. possible all the time. So according to science, there comes a point where making more money literally cannot make you any happier. So with that in mind, let's talk about what needs to be true for you financially in order to thrive in any part of the world, making any level of income. So when it comes to taking control of your money, of course, I love the baby steps where you're able to save up an emergency fund, pay off debt, have a fully funded emergency fund,

start funding retirement, kids' college, paying your house off early, building wealth and being generous, like all of that gets you in control. You know, even a budget month to month where you're tracking your spending, you're being very intentional with where your income's going. That is so key, okay? So that is part, I think, of that foundation of getting you to a place where you feel in control. All right, now let's have a little bit of fun. We've pulled some people on social and asked them to share small expenses that genuinely bring them joy and are always worth the money. So I'll respond. to a few of these, and if you have one in mind that I don't cover, drop the answer in the comments because we want to hear. All right, here's what people said. Name brand toothpaste.

Sonic Diet Cokes, Lanage Lip Bomb, which I have that. It's like a lip mask. It is fantastic. Getting my hair blown out once a week, and I would choose this over manicures and pedicures. If it's in the budget, it makes my life easier. Spotify Premium. This was the number one answer submitted, which I think is so fascinating. High-quality ink pins. Okay, I get that. There's something about a good pin. Friday afternoon gas station visits with the kids.

They each have $5 to spend, and it brings them so much joy. That's fun. Boogie coffee creamer, parchment paper pre-cut sheets. Okay. Volcano candles and shelled pistachios. Buy back your time. So good. Okay, like I always say, money is a tool.

Money just makes you more of what you already are. Money is there to create a life that you love. So, can money buy you things in your life that makes it easier or temporary joy, but that doesn't necessarily fulfill you long term when it comes to your emotions or your relationships or your spirituality? I would agree with all of that. Plus, if you're consistently using money as a Band-Aid, then you miss all of the character transformation that happens when you build wealth the right

way. So if the phrase living paycheck to paycheck hits home for you. you right now. I really would encourage you to check out every dollar. This is where you can set up a monthly budget and really get in control of your money. And it's really the best first step to take to have financial peace, which is always better than just temporary happiness, right? You can buy something real quick and like, it'll be great. But this long-term sustaining motion with your money, you have to be in control, you guys. And that's where you have to put some good habits in place, like following the baby steps, doing a monthly budget. All of this will give you that foundation.

that those little fun perks here or there are great, but won't sustain you long term. So I want this to be a marathon for you with your money and not a sprint. What is one thing that you would say you're an expert in? So for some of my friends, you know, it's cooking or Winston, it's real estate, or he loves like the yard and gardening and all that. For me, I'm going to say it's budgeting. For 15 years now, I have used a monthly budget and taught people how to track their spending so that they can reach their financial goals.

So today I'm sharing with you the five most valuable lessons that I've learned from budgeting. And stick around for number five, because it's probably the most unexpected piece of advice, but it's by far the most effective. So the first lesson that I've learned might be the most obvious if you've heard me talk on the show, but that is tracking your spending. So listen, I was not the most high-tech person,

and back when I started budgeting, there wasn't a lot of options except for Excel and a sheet of paper. And that's what Winston I use. We literally used a sheet of paper. But now tracking your spending, it's so much more glamorous. So listen, it is important to remember that a budget isn't something you just create at the beginning of the month and you never look at it again. You have to take it a step further and actually track each and every expense and where it's going.

So the goal is for you to know your spending tendencies on a deeper level. And this is going to allow you to justify and feel confident about purchases that you actually need. and also eliminate unnecessary purchases so that your money can be put to better use. So if this feels like a tedious, detail-oriented task, it might at the beginning, and that's normal. It's okay. It's going to take a little bit of time and effort and compromise in the beginning, especially if you're doing this with your spouse, if someone else is involved in your budget. But I can promise you this. Once you get in the habit and you start tracking your spending, your discipline increases, communication and your marriage increases, and eventually your margin

increases so you can start tackling more of your money goals that are important to you. So like I said, tracking your spending is insanely easy now with the every dollar app. So every dollar premium, it attaches to your bank account, and you go through, and every day I open it, and there's like a little bubble that pops up, and it's like four transactions. You click on it, you drag and drop it to the category that's necessary, and then you see how much money is left in the category, and it just helps you keep track of what's going on. The second lesson that I learned after 15 years of budgeting has to do with a very specific category, and that is the miscellaneous category. So there are so many different theories on

the internet when it comes to budgeting, you know, what you need to do here or percentages or what categories should be there, and I mean, all of this. But I can just tell you, there is an absolute must-have category, and that is the miscellaneous category. And just because I love zero-based budgeting, okay, giving every dollar a name, doesn't mean that I want you to have zero dollars in your bank account, okay? So it's not like you're getting down to zero in your bank account, but it's this idea that you are able to track where your money's going. But as we all know, life happens and stuff is going to come up. And if it doesn't fit into a category, you're like, oh, God, what do I do? That's where the miscellaneous category comes in.

So I recommend taking at least 5% of your take-home pay and categorizing a miscellaneous category for that because it's random, unexpected expenses. So whether, again, you're having to get a babysitter last minute or you have a friend's baby shower and you're getting a gift and you need a little bit more cushion for it than you realize that's where the miscellaneous category comes in. And the great thing about budgeting in general is that budgeting gives you permission to spend. So you don't have this guilt or frantic credit card charge last minute that you're going to be thinking about. You just put in the miscellaneous category and keep on moving. The third thing that I've learned about budgeting is that your budget is going to be different every single month. So my family's expenses in December

are not the same as my family's expenses in February. And this is another great thing about budgeting in the Every Dollar app is because it's so easy to adjust things on the fly that need to be modified. So for example, you know, in this month, all of our kids' summer camp fees were due. And I was like, oh my gosh, and I don't know if this is where you live. Everyone does it. like January and February. I'm like, I don't know what's going on in June. Oh my gosh. But there we are, signing up for camps. You know, or maybe you have a month and there's so many birthdays maybe in your family or your kids keep getting invited to birthday parties and it's their best friends. So they got to go. So you got to get a gift. Like whatever it is, every month is going to

look different. And so you want to be able to pivot for different seasons. So in the Every Dollar app, it duplicates month to month. So Winston and I, majority of our expenses are consistent month to month. But then at the very bottom, there will always be probably six to seven categories that we add and change because of the seasonality of where our family's at. All right, the fourth lesson that I've learned after a decade and a half of budgeting is arguably the most powerful game changer when it comes to the momentum of your progress. And this is something that sounds arbitrary, but it's really important when it comes to building wealth. And that is working towards a specific financial goal. So budgeting can only go

so far if you don't have intentionality and purpose behind it. But how do you know what you should be working towards? So a lot of it boils down to the baby steps. So again, if you're saving up that $1,000 emergency fund, you're going to take your budget and you're going to see where can I cut areas. How much income do I need to add to get my goal of getting that $1,000? Or you're paying off debt the same way. Where can we cut? Extra money is going to be going towards the debt. You're using your budget as a tool to help you hit those financial goals. So if you tackle, you know, the those specific things throughout the baby steps in an order you're making progress. And now for the fifth and final lesson that I learned,

and probably maybe the weirdest pieces of advice, but I think it's key. Because I believe in this tip so much that I made a specific product for handling this habit. And that is lesson five. Cash out the budget categories that you tend to overspend in. So especially if you are new to budgeting, okay? This is really key. That means you're going to take categories in your budget,

that you tend to overspend. So a lot of people, that's food, maybe that's clothes. That could be your miscellaneous category that we talked about earlier. Whatever it is, make sure to cash those out, and then you want to divide them into different categories. So you can even take an envelope if you want and, like, write restaurants on it. Or you could use my personal favorite, the Rachel Cruz Wallets, because I made it directly for this whole thing, because I'm like, I want you to be able to carry cash around,

be intentional with these categories, and for it to be cute. So I think the envelope system is great. And again, if you are early on in budgeting, this is one of the best things that you can do because it keeps you accountable. When you only have cash, studies show you think twice about spending, you actually end up spending less, and you know where your money's going. And it may be, you know, at times it's going to take some extra effort. It may not be very convenient. And listen, we love Apple Pay. But just try it for a season and see what happens to actually watch your money leave. It's really powerful. Do you ever feel confused about the goals that you should be working towards financially? Or maybe having money goals has never even crossed your mind. Well, either way, we all know that the Internet is full of hot takes and random advice, and it's tough to know who to trust. After over a decade in the personal finance industry, I can confidently say that I've seen majority of people win using the same tried and true financial advice.

So no matter your income level, debt, level, marital status, savings progress. These steps work for everyone. So today, I'm walking you through the proven plan so that you can figure out exactly where to start and stick around till the end because I'll share my number one non-negotiable money goal that everyone should be working towards no matter their status. So first, let me just address the elephant in the room. Is it really that big of a deal that we should always be working towards a financial goal? I'm going to say, in my opinion, yes. I think that there is so much power in working towards something.

So money aside, just the integrity and the strength of character that you build, when you push yourself and lean into discomfort is priceless. And from a financial standpoint, there is so much data out there that proves being intentional with your money, no matter what level you're on financially, is the secret to gaining momentum in your wealth-building journey. So again, you guys, being intentional with your money, your money, it is so, so key. Now, there will be seasons that you're more intense, some seasons not, but always having that forward progress, I think is so important. And so like I said, there are seven steps, we call them the Ramsey Baby Steps, that allow you to take full control over

your money, you're building wealth, goals, achieving financial peace, all of it. So these are steps that actually my dad, Dave Ramsey, created, and realizing that walking people through, not just a set of principles, because principles are important, but actual steps where you can see progress is really, really key to winning with money because so much of money is behavior change. And when you know that you're doing something and checking something off the list of like, I did step one, I did step two, there's something in us that keeps us moving forward in that. Now, let's go through those steps in order so that you can figure out exactly where you fall. So step one is to save a $1,000 emergency fund. So again, starter emergency fund. This is not your

forever emergency fund, but it's to get you started. Now, some people complain that $1,000 isn't enough. And at times it's not. So that means you will have to pause your other financial goals at times when you're paying off debt, especially to save up more money, to bump up that emergency fund if you need it. But that's what's key, is that it should kind of drive you to be paying off debt, because that's step number two. But if you try to pay off debt without an emergency fund, then you'll end up going back in debt if something happens. And then also some people want a bigger emergency fund, and it takes you longer to be building up cash for an emergency fund while you're still paying out all this debt and all this interest. So it's easier just to get a quick start

on debt and free up that income because that's where you're going to see progress. So again, starter emergency fund. Step one is $1,000. Step two is paying off all of your debt but your mortgage. So this is going to include student loans, credit card debt, car payments, personal loans. Anything that is revolved around debt except for your mortgage is in this process. So you're going to list out all of your debt, smallest to largest, regardless of the interest rate, pay minimum payments on everything, and attack the smallest one first. Once that's paid off, you're going to be able to take the payments that you're paying on that, roll it over to the second smallest debt.

So it keeps freeing up, again, these payments, and you're able to build momentum and it creates a snowball effect. Okay, once that is all done, then you can move on step three, and you're going to bump up that starter emergency fund to three to six months of expenses. And you can do this in a high-yield savings account, But the idea here is you don't want to invest this account. You want to be able to get to it if you need it. So if a job loss happens, medical emergency, you have a lot of money saved in the bank just for emergencies. Okay, this is, I think, a big accomplishment. Once you get past Baby Step 3, you are completely debt-free but your house and you have money saved in the bank. Already, that is a massive financial milestone that I think you really do feel in so much of your life.

You feel so much peace. And again, it is so necessary to keep going, right? We don't want to slow down. But in those three steps, you guys, it is full intensity, full intensity. And then once you complete those three steps, the next steps, again, we say you can take your foot off the gas a little bit, and it's more okay. We're still going to work towards some things, but you don't have to be that intense. So step four is to say 15% of your income and two retirement.

So there's different ways you can do this, but always remember this. match beats Roth beats traditional. So let's say you have 15% of your income and your company matches 5%. You'll take part of that 15%, 5% of it, put it into your 401k. That means you have 10% left. Then I would go and fund a Roth IRA. If you max it out with 10% that's left and you have 2% left, then go back to your 401k and you can fund that. But those are two great options, a 401k or a 403B, and a Roth IRA. So be looking into those, because, again, I think it's key. And if you want to check out our investment calculator at RamseySolutions.com,

plug in some numbers and just see what compound interest does. It's a beautiful thing. All right, step five, is it safe for your kids' college? And so if you have kids, again, this is something that you can start doing and working towards because so many students have to take out student loans. And if you're a parent, that is a gift. It is not a requirement, but a gift to be able to help your kids. when it comes to college. So putting money in a 529 account, I think is great, or an ESA,

an educational savings account. But you can sit down with a smart vester pro when it comes to your retirement and kids college and really map it out. And so, again, being able to set your kids up, I think it's such a gift when it comes to their education. All right, step six is paying the house off early. So what you're going to see is you're going to be doing retirement, kids, college, and anything else you have extra just be throwing at the house. So you'll do four, five, at the same time. And this is one of those things that, man, you just keep moving at it. But when you're paying off your house and you pay off your house early at Step 6, it is one of the most underrated things that you can do to increase your net worth and find a lot of peace.

And on average, we have found that people working the baby steps pay off their homes in just over 11 years. So if you have completed all five steps, and usually that takes around two, three, four years to do. The rest of it, people are paying off their houses. So could you imagine not having a mortgage for 30 years, but for seven, eight, nine, ten, eleven years? It's amazing. Absolutely amazing. So being able to take advantage of that, paying your house off, it's an incredible thing. And then once that's done, all that's left is baby step seven to build wealth and give. So giving is part of your entire financial journey, regardless of where you are. I always say give a until you can give a lot. But at Baby Step 7, that's when you get to increase and you get to be

extremely generous because all you're doing is funding investments and enjoying life and giving money away. And that's what you have left to do. And it's just wonderful. So no matter how many people tell you on the Internet that your financial goals are dependent on your age, on your income, your geographic location, the truth is it really has to start with you deciding to make progress. Now, do those things factor in? Absolutely. But this idea that you have the ability to take control of your money is huge. So use the baby steps, you guys. It is a proven plan to be able to get control of your money, get out of debt, save for the future and all of it. So it's easier said than done. You're the one that actually has to make the progress, but you can do it. We see people every single day that are deciding, I'm going to take control of my money because that's what I believe is so important and that you can do it. Financial goals, regardless of where you are is so key. Be working towards something, that intentionality. Oh, it's so important.

All right, if you love this show, make sure to leave a review because your feedback and helps us out so much. And while you're at it, make sure to subscribe to the podcast, share it with your friends, with your family, and help them know how to live within a budget. All right, you guys, thanks for listening. And remember to take control of your money

and create a life you love.