The Rachel Cruze Show - Clever Hacks to Help You Thrive Financially

Episode Date: June 10, 2024

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It is tough for Americans to retire. They're struggling to make ends meet, let alone think about retirement. But investing is one of the most powerful wealth-building habits that you can have. But sometimes it doesn't always come easy. But there's always hope. It's not impossible. Well, hey, you guys, welcome to this episode of the Rachel Crew Show podcast. I'm so glad that you're here.

So in this episode, we'll discuss why it's hard for Americans to retire. Then we'll chat about five proven ways to achieve financial security. But first, let's chat about where not to keep your savings. Take a listen. So, listen, even if you don't consider yourself to be super financially savvy, chances are you have a general understanding of what it means to save and invest. But I'll be the first to say that there's definitely some nuances that can make things a little bit complicated. So today, I want to talk to you about where not to keep your savings and not to be dramatic.

But if you're missing out on this opportunity, you could be missing. out on earning thousands of dollars worth of just passive income just by knowing which type of savings accounts are best when it comes to your money. And spoiler alert, it's not always a traditional bank. So stick around because you'll hear my advice on this and how it has shifted over the past couple of years. But before we get too far into the weeds, here is the basic high-level reminder on when and how much you should be saving for. So your first savings goal is going to be a $1,000 emergency fund. And then once you're completely out of debt, then you're going to you're going to fully funded emergency fund of three to six months of expenses.

And so once you've accomplished that, that's Baby Step 3 in our Baby Steps, then you're ready to store more savings in a really smart, safe place, and then shift your focus from the emergency fund to investing 15% of your income into retirement. Now, this doesn't mean that saving completely stops, but once you have three to six months of expenses tucked away, then you're in a good spot to save a little bit less and invest more. But saving and investing aren't totally unrelated, which brings me to the main point of what I want to talk about today.

High yield savings accounts. So if you're not familiar with a high yield savings account, it's a type of savings account offered by banks and credit unions with a higher interest rate than traditional savings accounts. So instead of letting your emergency fund sit in a regular savings account with almost a non-existent interest rate, you can choose to store it in a different place that will slowly and securely, grow your cash over time. And remember, when you owe money to the bank for something, you know, like a mortgage or car loan, interest feels like an enemy, right? It's extra that you have to pay on. But when you flip the script and you're the one that actually gives your money to the bank, then you actually earn interest, which is a really beautiful thing. So, for example, when you look at a traditional savings account, it might offer you an interest rate of 0.5 or even 0.25%. So, it is not great. I mean, I guess it's better than zero, but it basically can feel like zero.

But a high-yield savings account will usually offer you around 4 to 5% these days, which is a huge difference. But not all banks offer high-yield savings accounts. So here's how it would go about getting your money to the right place if your current bank doesn't have a high-yield savings option. Number one, look to see if you can find one with no minimum initial deposit, no minimum balance to maintain, and no penalties for withdrawing your money. Number two, look out for transfer times and withdrawal limits because transfer times means how long it's going to take you to access your money if you need it. So if you have an emergency, you want to be able to withdraw that money pretty immediately instead of waiting for like five business days to get your funds transferred,

which sometimes that can happen. And with a withdrawal limit, it can control how many times you take the money out over a period of time. So for example, some accounts only allow you to take money out six times a month. But if you're using it as an emergency fund, that shouldn't be an issue, because hopefully you don't have six emergencies in one month. Number three, make sure your high-yield savings account is through a bank that's FDIC insured, or if it's a credit union, NCUA insured. So this means your money's protected up to $250,000 per depositor per bank, per account ownership category.

And also, this bank may be online, too, you guys. That's where our high-yield savings account is. It's through L.I. Bank. It's not sponsored. But online banks are great options, so always remember that, too. What's really important there again, if the FDIC insurance, like that's a question we get a lot because usually money market accounts versus high-yield savings, this can differ on what's insured and what's not. But I think also the reality is if it gets to that point that the bank, like,

goes completely under. Then we're in like a 2008-type economy, which everything's going to be crazy then. But this also brings me to what I mentioned earlier, and my advice on this has shifted over the past couple of years because, as always, these principles, they say the same that we talk about here at Ramsey. I mean, they've been pretty much the same for 30 years. And so money market accounts was the thing that I usually push people towards when it came to their emergency funds or having some savings. And money market accounts are still great. But high yield savings accounts, they've really just upped their game over time.

And usually money market accounts, again, they can have some things that you're like, oh, man, that could be tough to get around where high yield savings accounts are usually more flexible over time. And depending on the account, it's easier to find one with a higher interest rate on a high yield versus a money market. But both are great savings options. They're very, very similar. Really the main benefit of a money market account is that they're easier to access because if you need your money out, you can get it. You're going to be able to have a checkbook or a debit card with it. You can get your money out really fast, which is really helpful where a high yield

savings account, you have to transfer it. And again, it could take a business day, some up to five business days. So just be aware of that. Now, if you're trying to decide between the two, ask yourself this question, how often do I need my money? Because if you're really using this as an emergency fund, or maybe you're using this as a savings account that you're going to spend, you know, in three years, then a high-yield savings account might be your best option. But if you're in a season that you're needing to take more money out,

more frequently, a money market account might be better for you. And the best way to find margin in your budget for building up savings really is sticking to a budget, you guys, because some of you may be thinking, oh my gosh, this sounds great, but I need savings. Well, one of the things to do is to know where your money's going. And so budgeting is so key for this. If you've not used our Every Dollar app

or gone to Everydollar.com, do this, you guys. You can create a budget completely free. And this is where you're able to track your expenses. You're able to see where your money's going. And you can actually have a plan and have goals around your money. Guys, good luck saving. So recently, Vox came out with a video

about why it's hard for Americans to retire. And of course, that immediately caught my attention because I could see how people think that. But as a financial expert, I talk to people every single day. again, they're struggling to make ends meet in the present day, let alone think about retirement. But also what I see is when it comes to people in their decisions with money, this is why it's so important to be wise with our money. Now, we all know that investing is one of the most

powerful wealth-building habits that you can have, but sometimes it doesn't always come easy. So today I want to talk through three reasons why it is tough for Americans to retire, according to this video. And I want to offer some solutions if you're someone who's trying to find margin to invest for retirement. And trust me, there's always hope, okay? Even though it's tough, it's not impossible. So stick around to the end because I'm going to reveal my number one investing tip and you don't want to miss it. Well, the first reason this video gives why it's so hard for Americans to retire right now is all about unequal access opportunities to investing. So they talk about the history of the 401k plan and the current Roth IRA system. And they argue that it's unfair for such a

large portion of U.S. workers to not have a company match option through their employer. Countries like New Zealand and Australia, Germany, Canada, and the United Kingdom have automatic enrollment for all citizens. Currently, U.S. employees only have that option if their employer offers that benefit. So that can be a bummer for sure, but I'd also say all of those economic systems are very different than the U.S. And so there is an idea that, you know, there's going to be external circumstances that you can't change. Again, government policy and investment opportunities from other countries. So unless you want to move to one of those countries, this is the option that we have. So yeah, you can actually choose where you work based on their benefits. So that could be something

you look into. But again, the way our system is set up, the way the economy is structured is just very different. So what does retirement opportunities look like here in the U.S. when it comes to investing? Well, a Roth IRA is a great option. You can also open up a mutual fund. or an index fund, like a Vanguard account, your money can grow in these accounts, just like a 401k when it comes to retirement options. But again, you may not get the same tax benefits, depending on what's going on here. So, again, your Roth IRA is a great option because it grows tax-free versus a traditional IRA. But if your company has a 401k and a match, go up to the match first and then go and fund your Roth. And then if you're looking for other ways to invest beyond that,

if you've maxed out your retirement, then yes. Things like just a good. standard growth stock mutual fund, index fund, a Vanguard account. All of those are options. But remember, the taxes on those are going to be different than retirement. Now, the second reason people are struggling to retire is personal responsibility. So a lot of people seem to be dragging their feet when it comes to the discipline of investing. And I get that too. Investing is one of these disciplines that it can be really hard to start. And again, the earlier you start, the better off you're going to be. And sometimes that's difficult for people depending on where they are financially. and it's also difficult to maintain consistency.

So again, when you're to the point that you're ready to invest, you need to just do it. And remember, when you're putting money into these accounts, then you actually have to use that money that's in the accounts to go and invest. That's why I always recommend sitting down with an investment professional. This is something that's really important when it comes to investing. But again, don't get all in your head, you guys. It can be so easy to do that, and you just are like, oh, my gosh, and you don't do anything. So when you're to the point where you're debt-free, you have a fully funded emergency fund,

jump in there and start investing. And if you need to find margin, make sure you have a budget that you're working with because that is one of the best ways to find money to pay off debt and to get an emergency fund so you can get to that investment part. And again, the earlier you start, the better off you're going to be because of compound interest. So get out of debt as fast as possible, get your savings and emergency fund as quick as possible. That way you're able to put 15% of your income into retirement. And then from there, you can put some money away for kids college, pay off your house early. and then at that point, especially when your mortgage is paid off, oh my gosh, then you're able to max out a lot when it comes to retirement, which is really exciting. But you have to have a plan. So that personal responsibility part of this, you guys, is really, really key. You have to believe that you can and actually walk out the plan. Now, the third reason that people are struggling to retire is a leakage, aka dipping into retirement savings early. You guys, do not do this. This is why we say to get an emergency fund first before you invest.

because, listen, it is tempting I get to say, oh, my gosh, I have all this money, and I can take all this money and, you know, be able to use it how I need to right now in the moment. But here's the deal. When you have money that you can get too quickly an emergency fund, then there's this idea that, okay, you kind of reevaluate maybe what the emergency is, you kind of think of options. There's something about having cash on hand that gives you more options. But when things are locked up in retirement, you feel like that's the only thing I can do, people make really, really bad decisions with this, okay? when you take money out early, not only can you be taxed on it, but depending on the investment, you're going to have fees, there's going to be an early withdrawal, I mean, like all of it. So it gets really, really complicated and bad for you because this is money that could be growing, which I think is so, so key. And again, retirement investing is one of these things that you want to do that you put your money in and you leave it. And you leave it and you just let it grow. Okay,

that is what is so, so key. And it's going to be less tangible to get to versus the emergency fund, which is fine. But when you leave your money in there and let it grow over time and it goes up and down with the market, you're going to earn a lot more. Compound interest is your friend. And you have so much potential for financial growth when your money's sitting in those accounts versus if you take it out and use it and spend it. And a lot of people argue that if you withdraw from your principal funds, it's not as bad because you're not going to have this, like, you know, big penalty and fees with it. But still, you guys, you're taking out the vehicle of what's going to build you wealth. Okay, so you have to think about, hey, mathematically, what am I doing

to this? So trust me on this one. All right. Now, for my number one investing tip, this is something my husband Winston and I've been doing for years, and it is so helpful. And that is to work with a professional. Sitting down with somebody that knows that world, you guys, because within your retirement accounts, they're going to be in different mutual funds. And there's all these options on what you can do. I mean, there's a lot there. And to have somebody that's in this industry and knows this stuff in and out that's going to help you grow your money, do that. Now, can you do it on your own just through index funds and Vanguard? Yeah, you can, totally. But looking at your overall financial picture and looking long term, having somebody that you

sit down with, even just once a year is so, so key. So do that, you guys. It's one of the smartest things you can do with your money long term. Get a pro in your corner. And along with that tip, I would say the best way to find more. margin when it comes to investing too. It's a budget. And we talk about this a lot, but seriously, tell your money what to do. And when you have a plan, you're going to feel like you got a raise. You're actually going to be able to do the things you want to do. If you say, yeah, we're at a place we want to invest and we want to invest, well, you put it down and you make a plan to do it. All right, you guys, good luck investing. Well, I think I've officially done it. I have figured out the

one thing that everyone on earth wants. Any guesses? Okay, I'm going to tell you, I really think that thing is financial security. Yep. Everyone wants to be at a place financially where they really feel secure and at peace. It's like the one thing. People want a lot. They want a lot, but that is one of the top. So what could you do in the morning if you did not dread all the things that you had to spend money on that day? What if you had savings and investing and a budget? What if you didn't know anyone anything? I mean, it sounds amazing. Well, today I want to talk to you about five proven ways is that you can actually achieve financial security. So whether you're drowning in debt or you're lost when it comes to investing,

no matter what your current financial status is, you can get to a place of financial peace and stability by doing these five things. Let's first define what financial security is. Because like I said, everyone can agree that it sounds great. But what does that mean? Well, if financial security is where you're able to afford your expenses each month while also investing in retirement and having money saved for unexpected emergencies and having some money just to spend. So to break it down for you, it's budgeting, saving, and investing.

Or if you want to think about it as a state of mind, it's having the confidence that you can stay afloat financially when unexpected things happen. So why is this important? Because the truth is, unexpected things are going to happen. And life is meant to be enjoyed, not being stressed out all the time. But how can you dream and plan for the things that you want out of life if you're constantly crippled by payments month to month and living paycheck to paycheck? Well, here are where the five steps come in. So the first step to achieve at financial security is to live on less than you make. So there are two aspects that go into this. One is more of a mindset, and then one is actually a habit that you need to build. So first, seek out that mindset.

of contentment. This is where you mentally stop fighting the comparison battle, you practice gratitude, you have peace with where you're at where you say, you know what, if I had to live on what I have right now, I'm going to be okay. My identity who I am is not ruffled by that. I'm going to be okay. Next, it's to use a monthly budget to track what you're spending and to be intentional about where your money's going so that you can actually start living on less than you make. And this is a really key part of budgeting. You know, you want to take your income for the month minus all of your expenses, including giving and saving, and that shit equals zero. But that saving part is key.

That means you have margin there, that you're not spending everything you make, or, more importantly, that you're not spending more than what you make. And one of the best ways to do that is to have an app on your phone that helps you budget, helps you track what you're spending, and that is every dollar, you guys. If you've not checked out every dollar, I'll put a link in the description, but seriously, it's one of the best things that you can do is to have your budget with you all the time. and we have our phones with us all the time. So that's great.

All right, the second step to achieving financial security is ditching your credit cards. This is one of the biggest arguments that I get. Everyone's like, Rachel, but I pay it off every month and I get all the rewards. Well, I won't deny that cashback in Airline Miles, sure, it's very tempting. But to earn those small perks,

you have to spend a lot of money. And along the way, you're going to be tempted to overspend more and not even realize it. But you're no in the back of your head subconsciously, well, I'll just buy some more, because I'll get some perks on the money. back end. And listen, nobody opens up a credit card planning to go thousands of dollars into debt. But the data shows us that millions of Americans are feeling stressed out by the debts that they

owe and that nothing can replace peace of mind that knows when you are cash flowing your life and using your money and not someone else's, there is a piece to that. And credit card companies, they are in the business of one thing, you guys, and that is to make money. That is to make money. They are in a big business to make money. So whether they're praying on you, or someone else who's less capable of keeping their head above water, they're going to win. So financial security is not playing the credit card game to afford a flight to Florida. It is to use your money and you be in control and have that autonomy. The third step to achieving financial security is an expansion of step two,

but that is paying off your debts. So the idea of living on less than you make and cutting up the credit cards, it's actually this idea that you are going to live a life debt-free, and you're going to pay off your debt. So no more card payments, no more student loans, no more credit card minimum payments, or high interest loans, all of it, you guys, is amazing. When you don't have debt,

what happens is you have your whole income to use for you instead of it going out eight different directions because debt steals your income from you. That's what it does. And so what you want to be able to do is to say, hey, I have autonomy and I am going to live a life that is debt-free. So getting out of debt is so key. So here's what I recommend.

List out all of your debts, smallest to largest, regardless of the interest rate, pay minimum payments on everything, pay off the smallest debt first. And that's what's key. And then once that's paid off, you roll everything over to the second smallest. And then once that's paid off, you've freed up two payments right there. That all goes on the third debt. And you're going to work extra. You're going to sell stuff.

And it's amazing when you actually walk through this process and people get out of debt completely, on average, average 18 to 24 months. So this is possible, you guys, but you may be thinking, how am I going to get extra money? I can barely make ends meet. Well, budgeting, like we talked about, having a plan, cutting things out is one. You want to look at your expenses. Think about gym membership, subscriptions, streaming services, takeout meals. I mean, all the things that we have in our life that we almost feel like our needs, take them out.

And then up your income, get a side hustle, take what you already are good at and see if you can make money doing that on the side. I mean, it's going to be some sacrifice, and it may sound intense. but here's the deal. Sacrifice like really fiercely for a short amount of time. Get all the payments done. Get all the debt out of your life. And then there is such freedom when you don't have those payments that is taking your paycheck. Now the fourth step to achieving financial security is to build up an emergency fund. So if you don't have a safety net when an emergency pops up, then you are going to be tempted to take it on a credit card, right? Our research here at Ramsey shows that 19% of people with credit cards keep them around just in case there's a

emergency. So I don't want the credit card to be your emergency fund. I want you to be your emergency fund. So what you want to do is get a $1,000 emergency fund. Then once all your debt but your house is paid off, you're going to bump that up to three to six months of expenses. And you can keep this in a money market account or a high-yield savings account. So next time something happens, like your refrigerator breaks or a family member needs medical care or your hot water heater breaks, Yeah, you have cash in the bank just to use. You're not depending on debt. You're using your life. So there's no stress, no drama. It's there. And the fifth step to achieve financial security is investing 15% of your income into retirement. So let's do some math really quick. Let's say you start investing 15% of a $55,000 salary into good mutual funds with an 11% return at the age of 30. You'll have over $3.3 million in retirement at 65. Or even if you start a little bit of $15,000 salary into good mutual funds with an $11,000 return at $13,000. Or even if you start a little bit of, later, you can build wealth successfully. You know, investing 15% of a $65,000 salary from 40 to 65 at 11% return is just over $1 million. So, of course, 15% is the starting point, but once

your house gets paid off, then you're able to have even more to invest, which is great. And remember, your income is going to go up over time, so that 15% will be more and more money over time. Now, where should you invest your money? Well, the best place to invest is to be looking at retirement, retirement first and foremost, so things like a 401k or Roth IRA. And with those accounts, you're going to put money in those accounts, and then you want to invest in actual mutual funds within those accounts. Now, I always recommend working with an investment professional to get you started on this progress, because it really is important to have a pro on your side, so they can help you out. And if you're interested in learning more about financial security, make sure to

check out Financial Peace University. This is an amazing course, you guys, to be able to get to the basics when it comes to your money. All right, you guys, good luck. You can do this. You can find financial peace, I promise. Now, if you love this show, make sure to leave a review so that we can hear your feedback. It helps us out so much. And while you're at it, subscribe to this podcast, share it with your friends and your family to get them financial savvy as well. Well, thanks you guys so much for listening. And remember to take control of your money and create a life you love.