The Rachel Cruze Show - Habits That Boost Your Wealth-Building Progress

Episode Date: June 17, 2024

💵 Sign up for EveryDollar today. Create a free budget! This week, I'm talking about what to do once you’ve saved your first $1,000, revealing the hidden truth behind 0% interest deals, and exploring successful investing routines. I weigh in on some popular financial advice, offer smart steps for saving, and share habits that help grow your wealth. In This Episode: ·      5 Things to Do After Saving $1000 ·      What’s the Catch With 0% Interest? ·      My Annual Investment Routine Next Steps ·      🎥 Watch my video on 25 fast ways to save $1,000. ·      🚗 Check out my video on five cars to never waste your money. ·     💵 Go to my video revealing six legit ways to earn passive income. ·      💸 Learn to win with money by enrolling in Financial Peace University.   ·     💰 Navigate your investments with expert guidance from SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of SmartVestor Pros. Offers From Today's Sponsors ·      🏥 Learn more about Christian Healthcare Ministries. ·      🧩 Use code Rachel20 for 20% off your TruPlay annual subscription Listen to More From Ramsey Network 🍸 Smart Money Happy Hour 🎙️ The Ramsey Show   🧠  The Dr. John Delony Show 💸  The Ramsey Show Highlights 💰 George Kamel 💼 The Ken Coleman Show 📈 EntreLeadership    Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

So one of the toughest but truest lessons in life is that when something seems too good to be true, it usually is. The old zero percent interest trick. This one is a marketing scam that should be avoided at all costs. You 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 discuss zero percent interest and if it's truly too good to be true. Then we'll chat about investing and what my annual investment return. is, but first, I want to talk about five things to do after you save $1,000. Take a listen. So there's a video going around the internet right now.

That's all about what to do after you save your first $1,000. Well, that immediately grabbed my attention for two reasons. First of all, because people typically disagree with me when I say that $1,000 is a really good savings goal, where you should start. And again, I was surprised that somebody else was using that $1,000 number. So I thought, well, that's great. And second is because I wanted to see if I agreed with his advice. So today, I'm going to be reacting to the five things that this creator said to do after you hit your $1,000 savings goal. Plus, I'll be sharing my personal savings philosophy so that you can make sure that you are right on track.

So stick around to the end. So you can hear my number one tip to actually making saving money fun because it can be fun, you guys. All right, the first thing that this creator says to do after you've saved your first $1,000 is to invest. invest money in your education, specifically books. So he says if you want an MBA-level education without paying for an MBA, you should read 25 books about business and money topics. First, read five books on money management and investing, then read five books on how to start a business, next read five books on how to scale a business, then read five books on how to manage people in business, and finally read five books either about or buy your favorite entrepreneurs. And he even gives a shout out to the total money makeover when recommending his top three favorite personal finance

books. So love that. Okay, so here's my thoughts. I was like, okay, you know, what does this look like for somebody? Right? The average person, I think one of the things that we say a lot is investing in yourself and actually understanding how this stuff works, the knowledge part of all of this is really important. But overall, personal finance, it's 80% behavior. It's only 20% head knowledge. So the head knowledge, yes, is important. You have to know what to do. But your behavior through it is even more important. But I'm all about reading books. Now, I usually read fiction books about murders and all that kind of stuff, which is what I love. But the nonfiction books and learning about this stuff, I think is really great. And we do find that a lot of people, leaders, people that are

winning out in life, they are readers. They really do. They retain this information. And there's so many great thought leaders out there, you guys, in these spaces that are so, smart, they're so wise, so you are. You're getting, like he said, an MBA degree, which I think is a really great term to use to compare, because in a way, when you're out in the real world, it's huge. Now, does everybody want to start their own business? Does everyone wanting to do that? No. So that's where I probably would disagree in a sense where I'm like, you don't have to go start your own business to win with money long term. Now, if you do have that in you and you want to be an entrepreneur and you're like, oh yeah, you know, I kind of want to start something and

do something big and I have dreams and I have goals, then you're maybe bent that way, which is awesome. them and great, so go for it. I mean, learn and grow it, and that's great. But some people, that's not their gifting. And so that's okay if that's not you. But I do like the idea of reading and learning new things in this world when it comes to money, finance business. I think it's really smart. So part of me is like, yeah, that's great. But when it comes to like actual education, like if you're looking ahead to say, hey, if I do want to save for education, you know, look to see the ROI on yours. I talk to a lot of people on the Ramsey show and they call in and they went to go get an MBA or get a master's, but then their income is the same

as if they didn't, and it doesn't really matter, right? So really focus in if you are looking for actual higher education to see the ROI. And then we do want to say for our kids college, that'll be later on past, you know, paying off debt and emergency fund, which we'll talk about in a little bit. But it's not that I don't agree at all with his, you know, philosophy. I kind of like it. It's great. But also, no, your behavior is a big part of it. It's not just the head knowledge. All right, the second thing that he recommends doing after you saved your $1,000 is to upgrade your goals and think bigger. So whatever your next financial goal is, he says go one step further. So you should start to consider that achieving greater goals is possible and that you can increase your chances of achieving those things if you actually start to believe it.

Now, on the other hand, if you stop dreaming at whatever level, you know, your friends are at or your family is and like the potential that they've reached, if you just kind of say that that's your baseline, you may be limiting your potential. I mean, I would agree with that. I think it's great. And I think for a lot of what we teach here about getting out of debt and having an emergency fund in place for a lot of people, those are big goals. Those feel unreachable for a lot. So I would say, yeah, I mean, constantly be thinking through,

hey, what are my dreams, what are my goals? Because some of those is the fuel behind how the reality of your money actually plays out. And that's why I love the baby steps. Because, you know, if paying off debt feels insane for you, it feels like, oh, my gosh, this is impossible. then look at other people who have done it. That's why I love us even being on YouTube, is that you can go through these debt-free screams

and you can actually say, okay, other people have done this. So you know that it's not impossible. Because if everyone around you hasn't done that, you may start to think it is impossible, but it's actually not. So those big goals, find people that have done it. So, yeah, I love his advice on that.

I think that's great. All right, the third thing that he suggests is to level up your investment game. He says money has three functions. It can be spent, saved, or invested. And he says, wealthy people earn money, to invest it rather than squandering it all on unnecessary spending that make you appear rich without actually ever building wealth. So living below your means, it's a discipline that allows

you to create margin and invest your money long term. Now, I love this. I mean, I completely agree. I mean, this is, you know, I'm not against buying stuff and enjoying your life by any means, but there is this long-term perspective that a lot of wealthy people have and they take their income and actually let it work for them and invest it and actually have their money be making money while they sleep, right? I mean, in that sense, and I think that's really important. And so when he says that, I think it's great. I think I would do a couple of things after your $1,000 before investing. We'll talk about that. But overall, it's just this different mindset shift that you care more about, hey, how can I get to this place of my money making money, right, and investing versus feeling like,

oh, I'm living paycheck to paycheck and in this rat race of just trying to keep up with everyone else. So I love that. All right, the fourth thing that he recommends is to use money to buy back your time. He points out that in order to grow your money and build wealth, you have to have money in the first place. So in order to bring in more money, you need to make your time worth something. So cancel things that are eating up your time, like Netflix and binging stuff, and instead use it to earn more money with that time so that it's not wasted. And if you do this for six months, then you're going to be able to see something on the other side of that, which is just incredible. Okay. Yeah, I mean, I get that. I think that that's great. And especially if there's

these goals that you're wanting to hit, you know, whether it's getting out of debt, getting an emergency fund in place, we talk about that a lot as getting a side hustle, getting some extra income in. I do think that it's realistic, though, you know, for some people, depending on your season of life, like, or where you are financially, be like, okay, I kind of just want to breathe her. I don't want to be working, you know, 80 hours a week. But some people are in a season of sacrifice, So that idea of taking that free time and actually putting it towards making money, especially if you're trying to hit these goals, I think it's great. All right, the fifth thing he says to do after you saved $1,000 is to upgrade your cash flow.

He talks about making the switch from traditional investment methods that earn money over time, like retirement accounts, to more instant investment strategies that earn you cash quicker. He says that some of his investments are in real estate, some are in stocks, some are in businesses that he owns. And regardless, he recommends taking what he recommends. whatever cash is earned from those investments and investing it back into something that will grow your money's value rather than spending it on material things. Yeah, I mean, I think that this is a more of a complex way of looking at this, but I do agree with him. I mean, I think even diversifying

outside of your retirement accounts, like he says, I think good mutual funds, I went and do single stock investing and investing in other businesses. I think is smart. I think you'd have to have a lot of margin to be able to do that. And depending on where you are financially, that may not be an option for you, but I get what he's saying. And, you know, when we talk about real estate investing, that's it. You take the rents that you get from a paid-for property and over time, build that up to go and buy another property, right? So you actually are using your money to go and grow your assets and grow your net worth, essentially. But I'm such a spender to you all. So there's a part of me that's like, if you're at that point and you're out of debt and an emergency fund

and retirement's taken care of, you know, there is a part of you can, you live like no one else, later you can live and give like no one else. So there is some fun in this and enjoy life too. That's what I would say. All right. Now for my personal savings philosophy, there are definitely aspects of a strategy again that I agree with. And also some things that, you know, they could be a little bit more nuanced and how we agree on it. But overall, here's a short and simple version of what I recommend after you save $1,000. Once that's done, then all your other money, any other savings that you have that's not retirement, any extra money that you have, I want you to throw it towards your debt.

may be taking your lifestyle and cutting it, that may be earning extra money, whatever it is, I want you to pay off your debt smallest to largest. And then once all that is paid off, but your house, then upgrade that $1,000 emergency fund to three to six months of expenses saved in the bank. This can be in a high-yield savings account, a money market account. But the idea here is that you have no payments and you have a fully funded emergency fund. And then you can start investing. So invest 15% of your income into retirement, kind of the boring things that he was talking about earlier, but your 401K, your Roth, all of that. You won't see that money until you're 59.5 or whenever you retire.

But again, the idea that you are saving for the future. And then save for kids college, we talked about that earlier. And then any extra money you have, throw it at the house. And once your house is paid off, that frees up a mortgage payment, which is amazing. So then you're able to invest more. All right, here's my number one tip, though, when it comes to making savings fun. That is sinking funds. Okay, sinking funds, this is where you save a little bit of money every single month

so that when the time comes for when you need the money for the big purchase or the experience, whatever you're saving for, the money's all there. So if you're needing to replace your car, let's say you set up a sinking fund, maybe you start saving $50, $100 in your paycheck, you know, a little bit on the side. So, you know, in three to five years from now, you're looking to be like, oh my gosh, you know, $3,000, $6,000, $12,000 that I can put towards a new car, which is awesome. So when it gets to that point, you have the money and it makes car shopping that much more fun. Or maybe it's a trip to Europe. Maybe you save $100,000. $150 per month between now and next summer, then you've saved almost $2,000, which is great.

So again, when you are saving for things, that's the fun of it, is to know that you're going to actually have the money when the time comes and you're saving for fun things. So that's important, too. Now, for some of you, rating 25 books like our friends suggested might sound exciting, but some of you would, you know, like to take a crash course when it comes to your personal finance. So if that's you, I highly recommend Financial Peace University. This is our nine lesson money course that literally teaches everything that you need to know when it comes to money and building wealth. So money, it is a powerful tool to help you build a life that brings joy and brings financial peace. And I know that this doesn't sound glamorous all the time, but it really is

those small things that you do today to set you up for the future that you want. So one of the toughest but truest lessons in life is that when something seems too good to be true, it usually is. A classic financial example of this is the old zero percent interest trick. Yep, seeing the words zero percent APR can feel like a sigh of relief when you're making a big purchase that you know you don't actually have the funds to cover, but trust me, this one is a marketing scam that should be avoided at all costs. So today, let's talk about all the things. What's the catch with zero percent interest? Why is it too good to be true? How can it hurt you in the long run? and what should you do instead of shopping for cars or other big ticket items?

Plus, if you stick around to the end, I'll share the one home improvement horror story about zero percent interest that will forever be stuck in my mind. So stay tuned for that. First, let's make sure we're all on the same page about what zero percent interest actually is. So 0% APR or 0% annual percentage rate is a loan that doesn't charge interest, either for the entirety of the loan or just a certain period of time. So let's be clear. Zero interest doesn't mean free.

Similar to Buy Now Pay Later deals, zero interest loans are just another marketing tactic that car dealerships or furniture stores use to get people to consider buying whatever expensive item they don't currently have the cash for. And like all sales or limited time-only deals that can seem harmless and even helpful at first. And then you snap back into reality and remember that borrowing a large sum of money for something that you don't, have enough cash to purchase, put you in debt and at risk for months or even years down the road. But sadly, debt has been so normalized in our culture that it's not uncommon for people to live most of their lives, paying off car loans and credit card minimum payments and

student loans every single month. So let's say the idea of debt doesn't scare you and you're not opposed to low-interest financing. So how does zero percent APR actually work? Well, typically when you take out a loan on a car, you have to pay back the amount that you borrowed plus interest for however long it takes you to pay off that debt. With zero interest loans, you only have to pay back the original amount on the car. But that doesn't always necessarily mean that you're saving money. Car dealerships offer this as a way to drive up sales on slow selling models or to clear out less popular inventory and make room for new inventory. And since they're not making money off of you when it comes to interest, they typically will drive up the overall out-the-door price.

So instead of saving money, you are paying for a higher price of the car that they're just trying to get rid of. And instead of being financed through a bank or a credit union, zero-interest car loans are set up through the vehicle manufacturer itself, which means you get zero say in a term to the loan, which actually can be a little strict and even sneaky at times. So if you slip up on just one monthly payment, you'll get hit with a new, extremely high interest rates plus other fees and penalties that you never saw coming. And if this is starting to sound a little not too good to be true, you're exactly right. And to sum it up, there are four

reasons not to fall for zero percent interest trick. You ready? Higher price up front. Number two, expensive extras that you're more likely to fall for an impulse by. Number three, strict repayment terms that leave no margin for error. And number four, risk of interest rate changing or increasing overtime. Now, at this point, you might be thinking, well, if it's 0% APR loans, if they're a bad idea, how am I supposed to afford a car or a couch that I need? Well, before we get into that horror story that I mentioned earlier, it's time for a reality check and a little bit of a pep talk from your good old friend, Rachel. Yep. My answer may sound oversimplified, but trust me, it is the best when it comes to your money. Instead of relying on debt to fund every aspect of

your life and constantly trying to keep up with a million minimum payments and pay for things that you are wanting and you're like, oh gosh, my income's going everywhere. Pay for things that you need in cash. Yeah, I can hear some of you be like, wait, what? That's insane. But listen, whether it comes to cars or furniture, pay for them in cash, which means it may not be great furniture.

It may not be a great car at first, but that's okay. What you can do is actually save a little bit of money every single month and work your way towards something that you're buying a big purchase with cash. Now, it's not glamorous, it's not instant gratification, but I can say with full confidence that this method will bring you more peace and more control over your money versus surrendering your income to the stressful cycle of constant debt payments. And to put it in realistic terms for you, let's just run a few numbers. Let's say you save $726 per month, which is the average car payments. So instead of having a car payment, you save that. You would have $17,000.

$424 in cash in just two years. So that's enough to buy yourself a reliable use car. It's great. And imagine if the car that you're driving now was worth $5,000, then put that together. You keep stepping up in car. So this is what's great about it, is you're able to say, hey, I'm actually going to take that savings. And instead of paying a bank or the car manufacturer, I'm going to pay myself. But like I've mentioned already, the 0% interest trick doesn't just apply to car purchases. I've seen, this with outdoor equipment, furniture outlets, hardware stores, and other home warehouses. And even though Home Depot has some great annual sales on appliances, they really screwed one of you guys over recently. Somebody told me the story through social media that I will never forget,

because this is the perfect example of how zero percent interest deals will come back and get you. So this lady on Instagram, she messaged me and was talking about how they had a Home Depot credit card that they forgot about, and then when they went and pulled their credit, they saw it. and it was at the time, I think, a zero percent interest, whole scam thing, and now they had to pay interest at 30 percent. The rate was 30 percent interest, you guys. So she was like, never again, never again. So repeat after me, you guys. Simple over sneaky. If it seems too good to be true, it's probably because it is. But I also know that it can seem daunting to save up cash for a big purchase, right, like a car. And so, listen, if you're looking for more margin,

one of the best things you can do is budget for your money. Have a plan for your money and tell your income where to go, and that way you can actually take some things maybe out of your expenses throughout the month to be able to save for things like a car. So go to every dollar.com slash Rachel and create a budget completely free today, mapping all of this out in real time to really see what you're working with. So obviously there are some negative effects of the Internet, but one of my favorite things about social media right now is our,

obsession with routines. So morning routines and skincare routines and cleaning routines and even money-related routines have started to become part of this fad. You know, I see cash stuffing, aka the envelope system, and loud budgeting, aka every dollar and actually budgeting. And so I love all these fats. They're so great. And today I'm sharing my annual investing routine. I'll explain my tried and true philosophy for investing, and I'll share my secrets when it comes to maximizing your investment potential. These are actual things that my husband, Winston, and I do every month, every quarter, and every year to make sure that we're investing wisely for our family's future. And stay tuned toward the end because I'm going to be sharing one of the things that changed my

investment plan. Spoiler alerts. If you're on or approaching Baby Step 7, you'll want to stick around for this. But first, I want to make sure that we clear a few things up when it comes to investing, a little investing one-on-one, if you will. If you are new to personal finance or you're unfamiliar with the concept of investing, these are just a couple of basics so that we all can get on the same page. So what is investing?

Well, investing is a strategic way of saving your money so that it grows over time. And the way that it's able to do that and to grow is through something called compound interest. And this is where your money makes money. Usually it's in the market, and you're able to say, okay, it's going to make a 10% return.

Well, the next year, your money doesn't make money on just what you put in, it makes money on what you put in and the 10% return you had the year before. So it keeps compounding and compounding, which means the earlier you start investing, the better off you're going to be, especially when it comes to things like retirement. So after a decade of seeing money growing and expanding on itself, you could see hundreds of thousands of dollars, even millions, added to your net worth, which is incredible. And again, it's all because you continued to contribute consistently and let your money grow over time. So why is this an important part of wealth building?

Well, because no one wants to get to the end of their careers in their early 60s and realize that they have no financial cushion to carry them through the next phase of life. And if you're a millennial like me, we're all secretly pretending that we could say in 2013 forever. But the reality is, is that, listen, life keeps going, right? And your job eventually will end and your going to retire. So a little bit of planning is in order to make sure that you enjoy the last 20 and 30 years of your life. So what does it look like for the average working American? Well, it is best to invest 15% of your income into retirement accounts. These can be things like your 401k or 403B or a Roth IRA. Many companies have benefit packages that include a company match.

So if you're able to contribute a certain percentage of your paycheck, your employer will actually match that contribution, which is incredible. Now, if this opportunity is not available to you, look into a Roth IRA because you're able to have full control over that. You can max it out, and it's great. So I always say to go up to the match, if they have a match, and then go to a Roth. So those are what you want to do. Match beats Roth beats traditional. It's kind of the formula that we use. So when should you start investing in retirement? Well, I recommend investing in retirement after you've paid off all of your debt but your mortgage, and you have three to six months of expenses saved in the bank.

And remember, this is what's key about investing is that a lot of people are like, oh, my gosh, why I've lost so much time because of those other things. So, yeah, you may lose a couple of years, but for a lot of people, when they're investing, they're only investing, you know, three, four percent, maybe up to six percent, because they have all their other income that they have to use

to have some savings over here or to pay off, you know, a car loan, or they have a personal loan, and their money is scattered. So what you do is pause investing, get that taken care of, paying off your debt and getting a fully funded emergency fund, and then press play. And that way you can do 15% of your income into retirement. Okay, now that we've covered the basics, let's get into my investing routine. Well, first and foremost, every January we sit down with our smart investor pro and we look at everything.

We look at the year before. We look at what's coming up. But sitting down with the investment professional, you guys, has been so helpful for us because he's been able to direct us and us, and I see things, even change some stuff throughout the years. And again, they live in this world day in and day out. So that is really key. So that's what we do every January. Now, Winston, I, we have been doing the baby steps, you guys, for 15 years, okay?

So we are on Baby Step 7. And so what we do throughout the year is we save a little bits, you know, throughout the year. And every single month we save. And so when it comes to January, we try to go ahead and max out our retirement. So up to, you know, a Roth IRA. I think the max is $7,000 or $8,000 this year. So we go ahead and try to max out both of ours. We do that in January.

That way it has the full year of growth. And when it comes to our 401K, if we have the money to do it, and, again, it's our goal that we do. We go ahead and put all of our money in that and go ahead and max that out. And so that's what we want to do, and that's what we've worked towards. Now, we weren't able to do that early on, which is totally fine. But since we've been able to take our income and save a lot of it throughout the year

for things that we want and need, but retirement is one of those things that we do have a priority in our life and in our budget for. So when that January hits, that is what we try to do. If we have to spread it throughout, you know, February and March, we'll do that, but we try to do as much again at the beginning of the year as possible. We do have separate retirement accounts. I have my own Roth IRA. Winston has his Roth IRA.

I have a 401K. He has a 401K. I have an HSA, and he has an HSA. And so, again, we work on that. So when we talk about combining your accounts, that is one area you don't mine because you can make so much progress when it comes to investing. So those are things that we've done consistently. And again, it's something that it can kind of feel like a black hole. I'm not going to lie, because it is a lot of money that you feel like you're just like putting in these

accounts. But here's what I know, and here's why I think it's important even every January to go and look at all the numbers, is to be able to see the growth and not be freaked out about what the market's doing. Because I think for some people, they get freaked out by a news story that the market has dipped and they want to go and pull their money out, and they pull it out at the worst possible time. And so really focusing in on not every single day looking at your investments, and I wouldn't even say every single month. But once a year, I think it's good to get this full picture, because again, retirement investing for us, it is so future thinking. We're not worried about what's going on this week, next week, even next year, right? Because the market is going to do

this. So, again, it puts us in perspective to be able to say we're going to make decisions on the long-term basis versus the short-term. Now let's talk. about one thing that we've recently started doing with our investing that's especially helpful for those of you that might be on baby step seven and this is something called a backdoor Roth. So this is an option for high earners. So a backdoor Roth allows you to avoid Roth IRA income limits when you are converting your non-deductible traditional IRA contributions to a Roth IRA. So again, that Roth IRA, it has a limit of what you can put in. There's also an income limit. So if you make $161,000 as a single or $240,000 as a married couple filing jointly,

you do not qualify for a Roth IRA. That's why you can do a backdoor Roth. So in really simple terms, really simple terms, again, get with a financial pro to do this. But you basically open up a traditional IRA and then through the back door, you can sign that and then you sign a Roth and they just convert it over. So it's completely legal and it works, which is great. They may not have that option forever, ever, amen. so take advantage of it while you can. However, it's not the best option if you fall into one of these

categories. If your income doesn't exceed the limits of a regular Roth IRA, go ahead and you just open that. Also, if you need to withdraw your Roth IRA within five years of opening it, or you have multiple traditional IRAs because when you actually roll it over to a Roth, you have to pay taxes, and when you fall under the pro-rate of rules and all of it, it may make it extra challenging, it may not be worth it financially. So again, this is why you want to sit down with an investment professional to look at all of the details. Okay, I know this was a lot. An investing can be tricky, it can be a tedious game. That's why it's really important to start as soon as you can, though, to understand all of this and actually start implementing it. So again, this is why I recommend

sitting down with a pro. You can click the link below to get connected with a professional today to start working towards your investment goals because having somebody in your corner, you guys, It is so key. So I hope you hearing my routine helped you out. Well, thanks so much for listening to this episode. And if you love this show, make sure to leave a review. Your feedback helps us out a lot. And subscribe to the podcast.

Share it with your friends and your family because it is so important to get this message out. So thanks again, you guys, for listening. And remember to take control of your money and create a life you love.