The Rachel Cruze Show - Best Budget Practices (No Matter Your Salary)

Episode Date: September 11, 2023

I say it all the time: You need to have a budget! But how do you know your budget is getting you where you want to go with your money goals? In this episode, I share how I budget each month, how you can figure out your net worth, and why the six-figure salary everybody wants isn’t what it used to be. What you get in this episode:  ·      How I manage my money each month ·      How to quickly calculate your net worth ·      Why six figures isn't what it used to be Helpful Resources:  ·      Christian Healthcare Ministries  ·      EveryDollar ·      Net Worth Calculator Sponsors pay the producer of this show, The Lampo Group, LLC, advertising fees for mentioning their services or products during programming. Advertising fees are not based upon or otherwise tied to any product sale or business transacted between any consumer or sponsor. The following sponsors have paid for the programming you are viewing: Christian Healthcare Ministries. Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy  Learn more about your ad choices. Visit megaphone.fm/adchoices

The six-figure salary. Is it enough? Is it not enough? If we don't know how to handle it, then it's going to screw us up anyways, right? Ultimately, I want you to feel empowered to take control of your money no matter what salary you're bringing in. Hey guys, welcome to this episode of the Rachel Crewe Show podcast. I am so glad that you're here. Doing this podcast is one of my favorite things. So I actually want to hear from you guys. Okay, so if you have an idea of content you want to hear about subjects you want me to talk about, will you please leave those in the review? It will help us so much, and I want to give you what you want. Okay, today's episode, though, we're going to talk about the best budgeting practices no matter your salary.

I read an article recently about what America's ideal salary is to feel financially secure. And let's just say, I have some thoughts I would love to share with you on that. Then let's talk about how to determine your net worth. But first, let's talk about how much. my husband, Winston, and I manage our budget and things that we've learned over the years. Take a listen. So these are very intentional money habits that I've practiced over time and I've seen it work with others. So I'm confident that they will work for you too.

All right. First and most importantly, maintaining a monthly budget is something that I do every single month. Now, my husband, Winston, and I, we look at our budget really throughout the week and then for sure before the month begins. and then we start intentionally planning out how we're going to spend our income. So not only do we plan together, but we also communicate with each other, again, throughout the month as we track our spending. So we plan and track and talk to each other pretty constantly as the month goes on to make sure that we are on the same page. Now, in the beginning, this looks really different. So, for example, if you're just starting to budget and track your spending with your spouse,

it might take a little bit longer to actually sit down, look at everything, put no. members down. And again, that discussion may be longer at first. And if you're single, I'll warn you, it may take you a few months of trial and error before you really get into a rhythm. But whatever your situation is, think about putting some helpful parameters around this process. So for instance, if you have little kids that love to scream like mine all day long, maybe you wait till they go to bed before you start talking about money. Or maybe if you need, like, that push to really get through it, like reward yourself with like, a movie and a glass of wine at the end and say, okay, for the next hour, let's hash these details.

Then we're going to stop this at 8 o'clock and start a movie, right? Whatever you have to do to get through the process, especially if you're first starting out, do it. And if you've never gotten on the same page with your spouse when it comes to money, just know, it takes some time. And there's a groove and some habits you kind of get in the rhythm of, but I promise it's going to be worth it. And before long, hopefully, you know, you'll be like me and Winston.

And the other day, you just shouted through the kitchen because he wanted to order some nice stakes. And he was like, just take it out of the date night line item of our budget. And I was like, got it. So that's how we, that's how we talk about money now. But again, that's after 14 years of doing this. But we constantly are like, hey, FYI here, a text here. And we're constantly in the groove of what is going on with our money. And that's the great thing about using the budgeting app every dollar. This is one that we use. And it is so great because you can have joint sign on. I have my login information, and he just uses that login information on his phone,

and it syncs up, and we know exactly where everything's going. We track all of our expenses, so we see how much is left in each category. It is so, so helpful when it comes to looking at your budget. So make sure to check out every dollar. If you don't have it, it's incredible. All right, the second part of my personal finance system is giving. So I love generosity so much. And I really believe it should be part of everyone's financial plan,

regardless of where you are. Now, if this isn't something that you've thought about in the past, again, this is not to embarrass you or shame you. But I wanted you to know that giving is not a habit that a lot of people have. And I think a lot of Americans feel like, gosh, I'm living paycheck to paycheck and I don't have the margin to give. So I would encourage you to make this a priority when it comes to your budget, like the very top, like make it one of the first categories. Because not only does giving help you have just more gratitude for what you have, but I really do believe there's a level of you reap what you so, meaning when you live with an open hand,

there is something about knowing that you're not just fully in control of every single little thing and you're just living life for you. But when you're able to help people and find the joy in that selfless mentality of giving your money, it does something to you. There is a joy that comes in that doesn't come from anything you can buy. So I always help people to give a little until you can give a lot. And so we started out giving 10% of our income, which we do every single month for a

tithe to our church. And then we also have a couple other places that we give. Some places we donate, you know, twice a year. Sometimes it's monthly, depending on what we're giving to. But giving has become a rhythm in our life. And I would encourage you to do the same because it's just, it's an incredible thing, not only to help people, but just to have this level of peace and joy that giving really does bring. Right. The third part of my personal finance system is saving and investing. So these things usually go hand in hands. But one thing that we started doing is just setting money aside that we plan to invest each month and then taking the full year's amount and investing it into the market within the first three months of the new year. So meaning we tried to max out our

retirement at the beginning of the year. So it has the full calendar year for growth. Now, I know not everyone is going to be in a situation where they can do that by any means. We are on Baby Step 7. We've been doing this for 14 years, you guys. So we don't have debt. We've paid off our house. All of that is taken care of and we have savings. So again, we kind of have that margin, that flexibility to be able to do this, which is really helpful. And I know not everyone is at that place, so do not worry, but that's just something that we do. And we also work with an investment professional, which is so, so helpful. So I really highly recommend that you guys do that as well. And you can check out our Ramsey trusted

smart investor pros. And they are a great investing resource for you. So go to ramsysysolutions.com trusted to get connected today. Now, as far as savings goes, we have saved our six-month. Honestly, it's kind of more like nine months, just because I want some extra patting in there for our emergency fund. And we have that in a high-yield savings account. And then we started another sinking fund. So we have put money aside every single month in just savings that we know that we're

going to use either for vacations or when Christmas comes around, that we can pull from that. Just anything big that is going on, we put in the sinking fund. And in fact, we've grown it, gosh, for almost four or five years. And we're actually planning to put in a pool next year. But we're looking at that sinking fund knowing, okay, this is where a big chunk of that money is going to come from. But we also have to make sure everything else in our life is accounted for. So I love sinking funds.

And again, we just have one big one for me and Winston. But for some people, they love having individual sinking funds. And I'm thinking about my friend, George Camel. He does it this way, him and his wife, Whitney, where he has like a car replace. and a vacation. He has multiple funds that are sinking funds per category where, again, Winston I kind of just lump everything in. So whatever works for you, I think you do what's best for you, but that is another place, again, to have savings. And both of those accounts for us, again, are in a high-yield savings account. And with interest being higher right now, not only on debt,

but also in savings, it's been a great place to park money and actually our money-making money, which is very nice too. All right, the fourth and last part of my personal finance system is automated payments. So keep in mind, less is more when it comes to payments that are automatically coming out of your account every single month. So we kind of keep it at a minimum for the most part because we want to feel the money that we're choosing to spend. And when you actually spend it, even when it comes out of your checking account, oh, you really feel it. We're like, oh my gosh, I have to make this transaction. It hurts a little bit.

But there are certain expenses that are. are going to come out every single month, regardless of whether what we choose, again, mostly our needs. So it's really helpful to do this. And there's usually a small discount that applies or a processing fee that gets waived when you participate in automatic payments for basic utilities. So things like water, electricity, gas, internet, your mortgage, or HOA payments, all of that can be automated. So be strategic about when the best time of those automatic payments come out of your checking account because you need to think about when you get paid. So if you get paid once a month at the beginning of the month, then I recommend scheduling those payments

as close to payday as you can so that you can see a realistic view of how much money is left for the rest of the month for you to use. If you get paid twice a month, maybe you tackle your rent or your mortgage with the first paycheck, and then all the smaller fees happen with the second paycheck hits. Now, most companies will allow you to decide when you make payments every single month, so it never hurts to ask, so ask them. And every dollar, the budgeting app I was telling you about every dollar premium has a feature called Paycheck Planning. And this is an incredible feature that helps with this because you can actually put in when you get paid, when payments are due of these automatic payments, and you're able to see okay, how much money is getting

taken out per paycheck. Am I going to have enough money for that week's groceries? So it helps you plan on everything, and it is fantastic. But for the debt that you're tackling with the debt snowball method, don't automate this. You want to be able to throw any and all extra money at it as you're paying off that debt, you want to feel that momentum. So whatever kind of feels daunting to you about handling money, I promise getting a budget is the first step. So if you are someone who's actively trying to take control of your money and build wealth, you probably still have days where you feel just financially lost.

So when it comes to your money, one of the best ways to measure your progress and know exactly where you stand is to keep track of your net worth. So although the term net worth sounds really fantastic. It's actually something that every single person has. You, me, Taylor Swift, all of us. We have a net worth. But a lot of people don't realize that this is the case. Or maybe you're familiar with the idea of net worth,

but you never actually put together the pieces to calculate yours. So today, I want to walk you through exactly what net worth is and why it matters and how you can determine yours. But first, let's start with the basics. What is net worth? So a person's net worth is what they own minus what they owe. So what they own, this could be a home. This could be cars.

This could be investments. All of that is what you own. And then minus what you owe. So your debt. So this is credit card debt. This is possibly a mortgage, car payments, all of that. So being aware of what you own minus what you owe gives you your net worth. And it's important, I think, to understand this.

because it helps you keep track of how well you're doing financially. Sometimes in our world, it can feel like, man, we're doing great because we have all this stuff, but not everyone calculates behind the scenes what's really going on and how much the bank technically owns versus what you own. And my goal for you throughout the Ramsey baby steps is to get out of debt, be investing in your future, pay off your house, and really be in control of your money. So Winston and I, you know, we calculate this every now and again, We don't obsess over it, but again, it's good to see, hey, you know, what is our home worth now?

Or if we do X, Y, and Z with our savings, what is that going to do? So just the overall picture is really great. But obviously, I want to stress that your net worth is not your self-worth, okay, or who you are. And that can happen a lot in our world, that if you're doing really well financially, then all of a sudden you're like this amazing, great person. But that's not always the case. So your value is not dependent upon what is in your bank account or what your net worth is. Your character and who you are as a person is so separate than that.

And that's honestly way more important than your money. But your money can be a really stressful part. So when you start to actually have more net worth, meaning you're lowering your debt and you're upping your assets, it can bring a level of less stress and a little bit more peace. But in terms of building wealth and preparing for your future, yeah, your net worth does hold some weight. And I'll be honest, too, it changes all the time.

Changes all the time. So if you're in a position where debt is stealing from your net worth or causing you to even have a negative net worth, then you need to be working towards getting out of debt. And that should be your goal over time is to be debt-free. So in general, you do this by budgeting, by bringing in more income, by living on less than you made, by sacrificing your lifestyle, all of that.

Now, for a step-by-step guide on how you do all of this really wisely, and checking out the seven baby steps and financial peace university at ramsysolutions.com. So make sure to check all those things out because they are going to guide you on how to get your net worth up, up, up. But for now, I'm going to play a little math teacher, you know, for you for a second, because I want to show you how to use an investment calculator to determine your current net worth. So your goal is to identify your assets and your liabilities. These are two big parts of the equation. So your assets, again, are things that you own or even cash that you have, whether it's in savings or a checking account.

This can be your retirement account or other investments like your 401K or 403B, Roth IRAs. This is real estate, maybe the current value of your home or if you have rental properties, vehicles. So think about your cars or if you have a boat or a mobile home, think about belongings in your house like jewelry, art, or collector's items. then you want to look at your liabilities. So this is outstanding debts and payments. Any money that you owe. So credit cards, student loans, mortgages, car loans, medical bills. All right, now that you've got a list of your assets and liabilities,

your three steps away from determining your net worth. So I'm going to use our net worth calculator on ramsysolutions.com and plug in some hypothetical numbers as we go. So step one is to add up your list of assets. Again, anything that you own. So let's say your home is valued at $210,000. You have 401k with $60,000. Your car is worth $15,000.

You have $7,000 in a savings account. You have $2,000 in your checking account. Well, all that adds up to $294,000 total in assets. Then step two is to add in your list of liabilities, so everything that you owe. So credit card debt totaling $12,000, student loan debt at $35,000, your mortgage balance, is at $175,000, a car loan of $10,000, and medical bills with $1,000. So that means your liabilities add up to $233,000. Now, step three is to subtract your liabilities from your assets.

So $294,000 minus $23,000 is a net worth of $61,000. So now that you have your net worth, let's talk about what to do with it. So first, it can just be helpful. to reflect and ask yourself, okay, how does that feel? What do I think about that? And then you may start thinking of questions like, okay, am I saving enough for retirement? Do you have money in your savings account to cover an emergency? What debts do you need to tackle and pay off? So if you're not thrilled with some of these answers to those questions, that's okay. Listen, it's never too late to turn things around. You just have to find a new way to make progress and really get to work.

So for example, if you have debt, use the debt snowball method. This is where you pay off all of your debts smallest to largest, regardless of the interest rate, pay minimum payments on everything, and pay off that smallest debt first. And this is really one of the first things you want to do. I always tell people to get a $1,000 emergency fund and then start paying off your debts. And then once you've gotten rid of all of your debt except for your house, then you want to start looking at other places to put your money. So this may be, you know, investing 15% of your income into retirement, paying for kids' college,

and then throwing extra money to get your house paid off. So just imagine if you have a full emergency fund of three to six months of expenses, you're investing in the future and no house payment. It's an incredible place to be. And at that point, really, it's smooth sailing and building wealth is that, you guys. But it is a marathon. It is not a sprint. So after you've eliminated debt, save for emergencies, and started investing, then it's

time to really look at retirement. And you may be wondering, okay, how much money should I be shooting for after retirement? Well, Ramsey Solutions.com has a free retirement tool that will project how much money you need to be saving and investing to reach your retirement goals. And remember, Financial Peace University is the number one tool for getting people out of debt into better money habits so that they can grow their net worth. So make sure to check out those resources, you guys, because it will help you when it comes to this entire conversation. We're having about your net worth. Today I want to talk about the six-figure salary. And is it enough? Is it not enough? So a recent study found that fewer than one and three people said that they were

completely financially secure. Now, feeling financially secure and being financially secure are two different things. And with comparison culture these days, I'm wondering if they're better off than they actually think they are. Ultimately, I want you to feel empowered to take control. of your money, no matter what salary you're bringing in. And as far as inflation and wages go, we might actually be better off than you think. So let's take a closer look at this. Like I mentioned, less than one and three Americans said that they feel financially secure. And they also said that earning a salary of $233,000 is what they would need in order to really get a sense of security. Now, that's a lot of money. And I do understand, too, at one point,

that our dollar is not going as far as it used to, absolutely. But that's a lot of money, you guys, to feel financially secure. And I've just been doing this job a really long time. And I know people that make way less than that, but they've gotten themselves in a position financially where they feel secure without that high of an income. Okay? So I want to just debunk that right now,

that it is possible to feel financially secure and not have to make that. Now, do we all want more income? Sure, absolutely. but if we don't know how to handle it, then it's going to screw us up anyways, right? Now, when I saw that number, my mind went immediately to the comparison culture. And it might sound really simple,

but comparison is such a powerful force. And it can completely throw you off track when you're trying to handle your money wisely and practice gratitude and all of it. Because just think about it. I mean, your ability to see outrageous lifestyles all over the world just from scrolling on your phone.

And maybe not even outrageous, but just the average mom out there and what she's doing and what her kitchen looks like or what car they're driving. I mean, it's just insane that we have the ability to see anyone at any time doing anything. I mean, for most of history, this has never been a thing. And this is probably why consumer debt

has just reached a trillion dollars in the U.S., you guys. This is a big problem. So, again, you can open up Instagram and you're looking at your aunt in Kentucky and what she's doing. And before long, you're looking at an influencer who lives in L.A. whose clothes and shoes, you would never need in your real life. Let's be honest. That's how I feel sometimes.

So what's the first takeaway that I want you to keep in mind? Is that comparison culture is real. And it's something that we have to actively fight against if we want to have a realistic view of feeling financially secure. So no matter where you are in your financial journey, I promise you, it's not as bad as you think it is or as bad as social media may make you think that it is. The second thing I want to point out that is similar to comparison culture, but a little different, and that is lifestyle creep.

So let's say that you've never been really intentional with your money because you never felt like you had to be. Now, this could be because you've always just made wise choices or always had what you needed, or it could be because you've never fully understood the consequences of things like credit card debt and car payments. If you've always been able to keep yourself afloat, but you also never felt like you had true freedom in your spending, you might be a victim of lifestyle creep. And maybe over time, as you advanced in your career, gradually made a little bit more money. When you did that, maybe you also were like, okay, you know, I'm in different stages of life. Maybe you're getting married, you have kids, you're buying a house, all of these things that you feel like you need to do with

your money just start to absolutely creep in. And then you may be a lot. And then you may look back at your first job and think, oh my gosh, what? Wait, all I made was $35,000 a year? How do I still feel like today I'm living paycheck to paycheck? So if that sounds like you, it might be time for a little bit of tough love. And I'm going to tell you that you're going to need a budget. Yep. You need a plan to live on less than you make. Because if you keep making more money as you advance in your job, but you keep spending at that same rate, it's constantly going to feel like you're living paycheck to paycheck. And if money still feels tight after all these years, then it's a habit problem. It's not a money problem. And building wealth really is more about shifting your mindset than it is

about math. And if you never adjust your behavior, you're not attacking the root issue. So I'm not oversimplifying anything here. It's just the truth. And it's been proven over and over again. So here's what you can do to finally have a breakthrough and fix the vicious cycle. and that is start a spending detox. Okay, this isn't going to be forever, but I would challenge you to do this for a month. So take a look at your spending last month and make a list of all your non-negotiable needs.

So you want to start with what I call your four walls, which is food, shelter, transportation, and utilities. And this may mean cutting out all the wants that you have. That could be five streaming services. Maybe it's skipping your facial appointments or pressing pause on your gym membership. So one way to instantly find marks. margin in your budget is to cut takeout, cut out restaurants, and eat at home for a month.

You would be shocked the hundreds of dollars that you will save if you just cook at home. So whatever it looks like for you, again, it can be a challenge to yourself, but you need to understand that you can survive with half the stuff that you're used to buying. Then at the end of the month, you could look up and be like, oh, wow, okay, I really thought I needed those things, but some of that stuff I don't even miss. And then from there, you can slowly start introducing back in some spending, but you're doing it on a budget and a plan. So this is going to help you start fresh, adjust some old habits and getting rid of some those random expenses that you don't need that is stealing your margin.

I'm promise all of this will add up. Now, if you're interested in the big picture update on our state of money in our world, I have some good news for you. Inflation is down 3%. And in April, the average hourly wages were up 4.4%, 4.4% from 2022. So there's some progress happening. Now don't get me wrong. I know the economy definitely affects our money. Inflation, debt, unemployment, wages, all of that. They're very real. But you have to realize that none of those things have the power over your money like you do.

No government or president is going to bail you out of your financial struggles. So you have to start making a choice. And listen, I see average people every single day who are taking control of their money. And they are building real wealth with a third of that $233,000 dream salary. Okay, these are people, everyday people that are like, you know what, I get to change my discipline, I get to change my habits, and they do it, you guys, and they see the progress. So listen, if you need a place to start, I recommend downloading every dollar, our budgeting app. Every dollar premium is incredible because what it does is it helps you with your spending, tracking your spending and knowing where your income's going and actually having a plan for your money.

And also check out our baby steps. The seven baby steps is our proven plan to help you get control of your money out of debt with an emergency fund investing for retirement, everything that you need to build wealth. And listen, you guys, you can do this. So even if you're bringing in a million dollars a year, but you never address the core issues, your bad habits are going to carry over into that world. So make sure that you understand that your habits are a really big deal. So you guys, I'm telling you, lifestyle creep, comparison, all of that plays so much in to how we handle our money, not just our salary. All right, thank you so much for listening to this episode. I hope you found it so helpful in things that you can use in your everyday life. And again,

like I said at the beginning of the episode, if you'll leave a review, it is so helpful. And I want to hear the subjects you want to hear more of on this show. So post those we will be reading. And again, you guys, thanks so much. And remember to take control of your money and create a life you love.