The Rachel Cruze Show - Easy Ways to Build Wealth and Keep It

Episode Date: February 5, 2024

The idea that wealthy people always live in mega-mansions and wear $500 jeans is a myth. Being successful with money is as simple as having the right mindset and following a few basic principles. I’ll share more about it in this episode. Plus, you’ll hear three investing mistakes to avoid and small things you can do right now to double your money (the first one might surprise you!).    What you get in this episode: ·      Investing Traps That Could Actually Lose You Money ·      5 Easy Ways to Build Generational Wealth ·      How to Double Your Money (Here’s What It Takes)   Helpful Resources:  ·     Discover your earning potential with the Ramsey Solutions Investment Calculator. ·      Watch my How to Create a Budget From Scratch video, then start budgeting for free with EveryDollar. ·      Navigate the ups and downs of the market with an investment pro in your area. ·      Learn more about Christian Healthcare Ministries. 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: https://www.ramseysolutions.com/company/policies/privacy-policy Learn more about your ad choices. Visit megaphone.fm/adchoices

What if I told you that there's some small things you can do right now to set yourself up for a moment in the future when you look at your investments and realize that you have double what you used to? You can use patience and wise choices, and it may not be overnight, but you will thank me one day. Hey guys, welcome to this episode of the Rachel Crewe Show podcast. I'm so glad that you're here. So in this episode, we're going to talk about how to make wise choices and use patience to double your money. Then I'll go over how to change your family tree and build generational wealth. But first, I want to share how you can invest wisely and

prevent losing money. So take a listen. Investing is a proven way to build wealth and for you to be equipped for your future. And that seems pretty clear and simple, right? Well, after a decade in this financial world, I still get called all the time on The Ramsey Show where people think that they're the exception. People are constantly wondering if this specific investing tactic that they've heard about, through maybe the grapevine or from social media will outsmart the stock market and make them richer, much easier and faster than everyone else. They're like, Rich, I have this thing and it's really going to work. You know, there's a time and place to teach on the really small nuances when it comes to investing, but it's also important, you guys, to steer clear of some of the

common investing mistakes. So first, I want to go over some investing basics and then warn you about three common ways that investing can actually make you lose money. So make sure to stick around so you don't fall for these common investing traps. So first, let's talk about why investing should be a priority and what needs to be true in order for you to get started. So before you start investing for the future, I always want you to have a solid financial foundation. So I want you to start off having a $1,000 emergency fund and then start getting yourself out of debt.

And once you're completely debt-free but your house, then I want you to bump up that starter emergency fund of $1,000, up to three to six months of expenses. So once all that's done, if you can just imagine having no payments, having money saves in the bank, and now you can start saving for the future. That's where I want you to be. So once you get to that fourth step, I recommend investing 15% of your total take-home pay into good growth stock mutual funds through retirement. So things like your 401k at work or your 403B or your Roth IRA,

doing these things is really important. So first, remember that your 401k and even your Roth IRA, these are just accounts, okay? These are accounts that you can open up. So you're 401k at work, you can open it up at work. And you can put money in that account. But then you have to invest the money that is in that account. That's important.

And when you look to invest, you want to really spread your money around. So mutual funds are 90 to 200 stocks. So instead of buying a single stock and just Apple, mutual funds, you're buying 90 to 200 of those stocks. And then we even break them up. into four categories of mutual funds. So growth, growth and income, aggressive growth, and international. So these four buckets are things you want to look at. So you're really diversified in these plans. And it's really key. So also remember this formula. Match beats Roth,

beats traditional. So you're going to match up to your company's match. So say they match you 5%. Okay. So you're going to go up to 5% of your own money and your company's going to match that. Then you're going to take the rest of your 15% that we talked about, which is now down to 10%, because 5% went to your 401K, the rest of your 10% goes into your Roth IRA. And if you max it out and still have percentages left over, then go back to your 401K. So when you get into the nitty-grady of that,

that's kind of the basics when it comes to investing. But make sure to check out a SmartFestor Pro to really help you look over all of your investing with retirement and everything to make sure that everything seems correct. Now, let's go over three investing fails that you really want to avoid so you don't lose money. The first one, maybe some of you,

this is never a thing. For some of you, it might be. And that is investing in startups. So this is a tricky one because if you're part of a community or part of people that are like always have a new idea and they're always trying something and they're doing this or some friends are doing this over here and they want some of your money

and they're like, hey, do you have some of this? I mean, they go on and on. But listen, I'm always very cautious when it feels like, oh, this idea is going to be it. And this thing, so maybe someone's convinced you is like the thing that's going to change your whole life because it's going to work, it's going to work, it's going to work. So listen, if you at all are interested in doing this,

I want to make sure, first and foremost, that you have invested in things that have a proven track record, not like the startup, but things like your 401K, your Roth that we just talked about, and that you're out of place, probably in Baby Step 7, where you have financial cushion that if you put money in something like this, that if it burns to the ground,

which a lot of startups do, that you're okay, that you're not. in bankruptcy or anything, okay? So making sure that there's a lot of margin that you have to be able to put some of your money in something like this. So these things can be very exciting. You know, you think about Shark Tank and all these ideas that are happening all over the place. So, yeah, I mean, I think sometimes if you're in a place and you like the idea and you trust the, you know, the business strategy and all of it that you do, sure, but be very, very aware that there's a really big risk when you do this. The second investing strategy that you need to avoid

if you don't want to lose money is personal. So this one is going to require you to draw some boundaries and possibly disappoint some people in your life. But it's kind of like parenting. Sometimes saying no to your kids is in their best interest, and you have to do it because you love them. And this investing trap is very similar. There could be some tough love,

which is crucial when it comes to money, which is why you should never loan or invest money on behalf of a family member. So let's say Uncle Jim comes to you, and he's like, listen, I got a cupcake business that's going to take off. And I need some of your money. I need $500. Will you loan me money so that I can start this business because I know it's going to work?

So your options, you have three options. One, you loan them the money. And from now on, Uncle Jim will be in debt to you. And every time you see Uncle Jim do things, like go to Europe with his family, you're thinking, Uncle Jim, thank you. You may owe me some money, right? The whole relationship changes when you do that. Or number two, you politely say no and explain maybe that, you know, you take your finances

very seriously and, you know, you're not going to loan money to people and you're using every dollar you have to invest and to save and to do other things and you don't have it right now. Or the third is to give him the money instead of loaning it. So if you're in a place where you live and give like no one else and you really feel like you want to help someone, again, maybe not Uncle Jim opening the cupcake shop, but in some other terms and you say, you know, I have zero expectations that this is going to be paid back. This is a true gift and you want to do it. Then you can move forward and freedom. So again, boundaries are really important when it comes to this stuff. And it is awkward. Maybe it's, you know, you have a parent who

need your help and you're trying to decide, am I going to bless them or am I going to enable them? Parents fill this way so events with their kids, you know, grown kids. It's like, are you able to help them? and is that enabling them or blessing them? And so, you know, even when we talk about kids college, this is one thing that we say, hey, parents paying for your kids college, it's not required. You are not a bad parent if you don't do this. Because at that point, they're 18.

They're adults. Now, part of the baby steps is helping them pay for college because that is a huge gift. If you're able to, then that's fantastic. But again, it's a gift. It's a gift. And your child needs to recognize that. So, again, all of this can be very complicated

because drawing boundaries can be really tough. but I also think that it's really important to make sure that you have taken care of yourself first before you go and outpour multiple gifts to other people. And so it's really key to get this all in order because, man, it can be really messy. Now, some of you may be thinking, Rachel, I'm in the clear so far. Good. I'm not going to be investing in a startup. I'm not going to blur lines by loaning my family members' money. Well, don't get too confident.

The third way you could lose money by investing. isn't who, what, or how, but it's when. And we've all heard that timing is everything and patience is a virtue. But you know how important these principles are when it comes to investing, you guys. This is huge. Because, yes, investing isn't something that pays off immediately, and it's something that you can just start and stop whenever you want. There's a reason investing in the stock market is proven and reliable because of compound interest,

but that takes time, which is why the third one, that you can actually lose money to investing is by taking your money out too quickly. And the best way to have success with investing, especially when it comes to retirement, is to work the baby steps as quickly as possible. Get out of debt, get that emergency fund and start investing 15% of your income into retirement. And stay loyal to that habit from here on. I mean, this is something that you do over time. And then once you get to baby step seven, you can even increase your contributions if you want. So remember, you're playing the long game here. so don't pull out a massive chunk of your money

because you want to buy a lakehouse or maybe because the market's dipped and you're freaking out. Just remember, slow and steady wins the race. And if you're curious about how you're doing in this race, you're really going to want to hear about the next tool. So go to ramsysolutions.com and type in investment calculator. And here you can plug in your numbers

and track your progress based on where you currently are and hopefully in the future. You can see how your contributions are going to look. I have a question for you. When you hear the words, generational wealth, what do you think of? Because some of you might assume generational wealth only has to deal with the royals and the British royal family. And some of you may be really familiar with it. Some of you, again, it's like this distant word out there. But trust me, whether you are single,

you're starting a family, you have grandkids. Changing your family tree is something that you can and should prioritize. And today I want to talk about why. So first, what is generational wealth? Well, Generational wealth includes all of a person's assets. So this could be investments, real estate, cash in the bank, all of that. Anything that has financial value in full are your assets. And assets are usually passed down from one generation to the next when someone dies, which means generational wealth is one of the financial topics that's really relevant to every single person. Even if you don't have kids yet or you're planning to have kids, you are someone's kid.

which means you may inherit something from your parents or extended family when they pass, and this has the power to impact you financially. So if you are a parent, I know you can relate to that feeling of wanting to provide for your family. You want to make sure that your kids are thriving and not just on what you give them, but also what you teach them, right? Even more important than just passing on financial gifts to your kids is blessing them with wisdom and discernment and generosity and gratitude. and these are all character traits that ultimately influence the way we handle money.

So let's talk about how to channel these skills in the right direction. Because the first thing you want to do is to get rid of debt and build an emergency fund. So if you're going to be passing on things to your children, if you have no debt in the picture, you guys, nothing is owed. Obviously, your kids are going to get more passed down to them. So I want you to start off with a $1,000 emergency fund. then I want you to pay off everything but your house, and then bump up that starter emergency fund

to three to six months of expenses. And that's your fully funded emergency fund. Once you do that, then you're going to start investing into retirement. You're going to invest 15% of your income into retirement. So this is going to be things like your Roth IRA or 401k at work and start actually investing in retirement and start building some wealth.

And again, this could be obviously for you to use at retirements, but even if you don't use it all, then this will be something that we passed on to, your kids. Next is to save for your kids college and prioritize teaching them about money. So once you fund 15% of your income into retirement, then start saving for your kids college because it is a gift. If you are able to help your kids pay for college, it is not a requirement as a parent. So do not hear me say that. But it is a gift. And so we do put it in the seven baby steps because if your kids can graduate not having student loan debts, then they are starting off

financially on a solid foundation versus in the whole financially. And so that's That's a gift to get them started on the right track in life. And the fourth step toward generational wealth is to pay off your house early. So once you pay off your house, you have a massive asset there. Now, you don't want to put your kids' names on the deed of the house or anything like that. You know, you're going to look into estate planning, which we're going to talk about here in a second. But there are things that you can do with an irrevocable trust and put your kid's name on it

and let them be the beneficiaries of the house. And so there's different things that you can do there. Some people can help you with that, but be able to look to say, gosh, if I have this asset, if it paid for house, what a gift that is to yourself in the moment, but also for down the line. But remember, generational wealth doesn't stop with your decisions in your lifetime. It's about setting your loved ones up to benefit from your financial legacy later on. And this is the ultimate way to be outrageously generous.

All right. Last but not least, let's talk logistics for passing on financial wisdom after you're gone. So one thing you want to do is make sure that you make a will. Everyone over the age of 18 needs a will. This is a legal document that explains where all of your assets go when you die. So this is your car, your house, your savings, everything. And if you don't have a will and you don't know where to start, go to ramsysolutions.com slash retirement slash will. And we will help you walk through that process.

Next is to set up an estate plan. So making a will is part of estate planning. But if you have a net worth of more than a million dollars, then you want to consult an estate planner to make sure you have all of your ducks in the row because there can be so much confusion when it comes to actually giving the next generation money or when you die, you know, the death tax. And like there's all this stuff that happens.

You want to make sure, again, look with your house, for an example. People make the mistake of putting their kids' names on their house while they're living. And that means if the kid sells that house later on, they have to pay taxes on the growth of that house. So like, it's very complicated. Again, it can kind of get in the weeds,

but having someone that's dedicated to really walk through to make sure you're doing this well is really important. And the third thing you want to do is create a legacy drawer. So it sounds a little cheesy. But it's honestly one of the best gifts you can give your family. This can be just a drawer, a filing cabinet drawer, anything, anywhere in your house that has all of your legal documents that we're talking about here. So this is your will, your estate plans, your financial account information, your funeral instructions, tax returns, account passwords, a copy of your monthly budget even, maybe some, you know, personalized letters that you're going to have of what to do if something were to happen. However you can make that process easier on the front end for your friends and family,

it is such a gift because we don't want to talk about like death and all of it. It's really sad. But honestly, if something were to happen, making sure that your family is well taken care of, not just on the financial aspect, but even the details when it comes to your life is such a gift. So listen, building generational wealth, passing that on is part of changing your family tree.

And you want to make sure your kids have the character to carry it, but you also want to make sure that you're doing things that are going to be passed on generationally because that is such a gift and such a blessing. to your family. All right, let's talk about how underrated patience is when it comes to your money. So not to sound like your Sunday school teacher here, but patience is a huge part when it comes to winning financially. So just try this with me. I want you to think of five really wealthy people in your head right now. Like, just real quick, go. All right, you're probably thinking like Bill Gates,

Kim Kardashian, Jeff Bezos, Taylor Swift, you know, those kind of success stories you guys are like extreme and drastic and amazing, but in reality, people like that and those stories and all that, it's kind of the exception. So it might seem like they've doubled their money overnight, but building wealth usually takes a lot of time, a lot of patience, no matter who you are. And an overnight millionaire or even billionaire status, it should never be the ultimate goal. So I talk to people on the Ramsey show all the time who wake up one day in their 50s or 60s, and they realize, oh, my gosh, I have nothing saved for retirement. And they go into a panic.

And I totally get it because it could be tempting to really put off some wise financial decisions, you know, for tomorrow, which ends up being years from now. Because you have immediate needs in your life that you think I need to get to these first, and I'll just think about that later. But what if I told you that there's some small things you can do right now to set yourself up for a moment in the future

when you look at your investments and realize that you have double what you used to? So let's talk about how you can use patience and wise choices to double your money. And it may not be overnight, but trust me, you will thank me one day. So the first step to doubling your money may surprise you, but technically this is more about an investment in your habits. But this is a crucial first step because if you don't do this, any assets that you have acquired could be canceled out immediately.

And yes, paying off debt is your number one priority when it comes to doubling your finances. So listen, paying off debt is so crucial because when your income comes in and then it goes back out 18 different directions, it's hard to have margin to do things you want to do with your money, like spend, give, save. So before you go and buy your first house or even before you invest, look at paying off your debt and getting in the positive when it comes to your finances before you move forward. And just as a side note, when it comes to your cars, you guys pay cash for them, do not go into debt for them because they lose value so quickly. And so many people think, this is a great investment. I'm going to buy this really nice car. No, it's a depreciating asset. Okay,

so let's just face it what the reality is. So pay cash for your cars and that's going to help you when it comes to your net worth. The second thing that you need to do in order to double your finances is to invest in your savings. So before you can start investing in a house or the stock market, you need an emergency fund of three to six months of expenses. So this is really key. This your cushion between you and life. So if something happens in your life, you know, a medical emergency or a job loss, you're not having to go to your 401k to cash out money early. You're actually using your own money in the bank. Now, cashing out your 401k is an option. Going into debt is another option that people do because they don't have any money saved.

So again, having this savings account, this emergency fund really keeps you with a lot of peace between you and things that are going to happen in life. And a lot of people have different opinions on if you should get an emergency fund first or if you start investing first. But listen, after doing this for decades here at Remsey Solutions, we've all seen that you do so much better when you have no debt, you have savings in the bank, and then you can look to save for your future. Because the third way to double your money is to start saving to buy a house. So when it comes to investing, too many people forget that property ownership is a huge part of your net worth. And after you've paid off your debt and you have your emergency fund,

then you want to start saving for a house because a house is a great asset to have in your portfolio and who you are as a person when it comes to your money. Because over time, there's been some dips, okay, but over time, real estate goes up. And it's a great place to put some of your net worth is there in your home. And so when it comes to buying your home, you want to save up a down payment. If you're a first-time home buyer, it can be as low as 5%. But if you get up to 20%, you can avoid PMI, which means you will save lots of money that way. So that's when it comes. comes to your down payment. Now, our overall formula is that you want, again, a good down payment. You want your mortgage payments to be no more than 25% of your take home pay on a 15-year fixed rate.

And you guys, that's what we find to be the best formula for you when it comes to buying a house, so that your house is a blessing, not a curse. Okay, so again, once you have no debt, you have an emergency fund in place. Then another step when it comes to doubling your money is to start investing in retirement. And I always tell people to invest 15% of your income into retirement. So whether you're 22 and you're just starting out on your first job, or maybe you're well into adulthood, you want to go and save for the future. And investing is a great place to do that.

Now, there are a couple ways you can invest in order to reach that 15% of your income. This could be into your 401K, a Roth IRA. Go through these steps, you guys, and put this money in. I mean, things like your 401K or 403B or your Roth IRA are great places to invest over time. You put it away, and it is kind of hard because you'll fund it, and you'll forget about it. And you mentally, you try to just like, I'm not going to worry about it. I'm not going to worry about it.

And then when you're 60, you know, 65 years old, you're like, oh, now's the time. Now I can actually use the money I save for all these years. So it takes a lot of delayed gratification, but it's worth it. Now that we've covered the basics of when and how to invest, let's talk about when you can expect to double your finances. So remember, your goal should never just be, I want to become a millionaire. Because, listen, you're going to get to that and you're like, okay, is that it? Like you want bigger goals than that, not just like this number you're reaching for, because it's human nature to always want more and more and more. But if the number of all the

zeros at the end of your account is the only thing motivating you, it's never going to be enough. And peace when it comes to your money, that should be the ultimate goal. To be content, to change your family tree, to build a life you love, to give generously. Like, those are big goals that you really want to obtain. And again, having millionaire status and like letting be a cool thing, you know, in your life? Sure, that's great. But all your problems don't go away if you reach that. So just know that ahead of time. Okay, now after that disclaimer, if you're still curious about the data, on average, people who work the baby steps will reach millionaire status in about 18 years. And this is possible through having no debt, having a paid off house,

that's actively growing in value and investing in retirement. By 12 years, most people working the baby steps have paid off their house. And in just six years, their net worth reaches one million. when you combine everything together. For example, let's just say you reach $1 million and just retirement assets by the time you're 55 years old. And if you work another 10 years, a retirement at 65 with just 7% return, your $1 million would grow to $2 million without contributing any additional money, not to mention whatever your home is worth, which is amazing. And that, my friends, is how you double your finances. It is consistency, it is wise investing, and it is time.

And if you're looking for a perfect tool to kickstart even more progress, make sure to check out every dollar. You can download it for free and start handling your money with intentionality. You'll be amazed at the progress that you can make by this time next year. So you guys, we are rooting for you. You can do this, doubling your money. It is possible. It is realistic.

But time is everything. All right, you guys, thanks so much for listening to this episode. And if you love the show, make sure to leave a review so we can hear your feed. and helps us out so much. And while you're at it, make sure to subscribe and share this with all your friends because we want them to grow when it comes to their money and learning about investing in all the tips that we talk about on this show. So thanks again for listening. And remember to take control of your money and create a life you love.