The Rachel Cruze Show - How To Be More Intentional With Your Money, Starting Now!

Episode Date: February 26, 2024

Are you paying taxes you don’t owe? This week, I’ll walk you through the “hacks” and write-offs you’ll want to know about before you do your taxes. Plus, I’ll show you why a zero-based budget is the best kind for your money and how to avoid losing money when buying a home.    In this episode: ·      How to (Legally) Get Out of Paying Taxes ·      4 Budgeting Methods (and Which One Actually Works) ·      Hidden Ways Homeownership Can Lose You Money     Next Steps   ●     🎥 Watch my “Taxes Made Easy!” video. ●     ➡️ Don’t let tricky taxes overwhelm you—get a pro. ●     🎥 Watch my “Getting Started: How to Use EveryDollar” video. ●     💵 Try my favorite budgeting app, EveryDollar. ●     🎥 Watch my “How Much Home Can You Actually Afford?” video. ●     ➡️ Use our free Mortgage Calculator to figure out how much your monthly payment would be.     Offers From Today's Sponsors   ●     🏥 Learn more about Christian Healthcare Ministries.     Listen to more from Ramsey Network:   🎙️ The Ramsey Show   🧠 The Dr. John Delony Show 🍸 Smart Money Happy Hour 💡 The Rachel Cruze Show 💸 The Ramsey Show Highlights 💰 George Kamel 💼 The Ken Coleman Show 📈 EntreLeadership     Ramsey Solutions Privacy Policy   Learn more about your ad choices. Visit megaphone.fm/adchoices

Have you ever had decision fatigue or analysis paralysis? Well, it's how a lot of people feel when it comes to budgeting. There are almost too many budgeting strategies out there these days and having too many options actually can create less action. Hey 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 dive deep into the most popular budgeting methods and see which ones actually work. Then I'll go over how to avoid. avoid losing money when buying a home.

But first, I want to share how you can legally get out of paying taxes. Take a listen. I hate to be the bearer of some mediocre news here, but tax season is upon us. It's here. And before you submit all your paystubs and paperwork, you need to be confident that you've checked all the right boxes, and maybe even some that you're not aware of yet. So today I'm sharing how to actually get out of paying taxes. legally. But before we talk about how to avoid paying money that you don't owe, let's cover some

of the basics. So here are four things that everyone should prioritize as tax season approaches. And spoiler alert, number four is a hot take that you definitely want to stick around for. So number one is don't cut corners. So obviously, there's some hacks and write-offs and things you can do to submit yourself to saying, yeah, I don't have to pay all this money that I don't know. I can write it off, which is great. And we'll talk more about that later. But in general, Taxes are not something that you want to be careless about. So when your employer sends a giant folder in the mail that says tax documents enclosed, you want to keep those secure and around to make sure that, yeah, you have a good handle on them.

Or when you make a tax deductible donation from your church or maybe a local charity, keep that receipt and file it away. Because every little bit it adds up, you guys, and you'll be glad that you saved those breadcrums along the way. so when April comes around it, you can write them off. Number two, speaking of April, be on time. Yes, you never want to be the person who procrastinates your taxes, which is so easy to do.

And if you don't want to be completely out of options on tax day, make sure to be early. And this is one of those, like, adult things that you have to do. And you'll realize, oh my gosh, every year, this is part of my routine. So you kind of have to, like, suck it up. Be on time, do the adult thing. And personally, Winston and I, we like to have ours filed, in late February, early March, again, just to keep everything going.

So now this brings me to number three, which is work with a pro. So especially if you've had a big life change within the last year, like you're buying or moving houses, changing jobs, getting married or divorce, having a kid, or maybe you got like a big raise. Again, when you have somebody in your corner, that's a pro that does this day in and day out, it is so helpful. So I'm going to leave a link below so you can get connected with a trusted pro. and even if you haven't had anything major happen in the last year,

sometimes, again, it's nice to have somebody to guide you through the process and make sure you aren't overpaying. And smart tax is another great resource if you're looking just to do it yourself. And this is great software that you can trust. All right, my final tip before we reveal how you can legally avoid paying taxes, is to always shoot for net zero. So a lot of people feel like, oh my gosh, I want to get this massive refund. It's free money.

It feels so good to get a check in the mail from the IRS, later on in the year. But honestly, I'm on the other side of the coin. Ideally, you would owe nothing and you wouldn't get anything in a refund. Like you would find a net zero there. But personally, I would almost rather owe a little bit than get to a point that I'm getting a big check in the mail because that money, instead of you using it throughout the year to invest it or to give it or to do something with it, it's been sitting over in Washington, D.C., not making any interest doing nothing. So if you, again, have received a large tax refund, it is not free money. is your money that you were supposed to have in your paycheck.

So you may want to contact your HR department. Again, kind of look at your overall, what taxes are being taken out of your paycheck. And again, sit down with a pro if you want some help. Okay, since we've covered those basics, let's get to the good stuff. And here are some of the tax exemption opportunities that you want to be aware of. So if you're a small business owner or even part-time side hustle worker, keep your receipts, expenses like office-based utilities, company-sponsored work lunches, liability insurance, gas for business trips, supplies for your craft, what you're doing,

all of these could be submitted for reimbursement. And every government has its flaw. But one thing I appreciate about ours is that they value small businesses in this way. So the tax exemption opportunities for entrepreneurs are a great example of this. So take advantage of it. Another great tool is the 10 at 31 Exchange. So if you have invested in real estate beyond your personal home, there's a process for how you do this without getting crushed by capital gains taxes. And a lot of people use the verbiage, like, let's just 10-31 it, right? It's like, I'm going to sell this and get this. So basically what it does is it allows you to sell one property that, again, is in your

possession for your business or for an investment purpose. Sell that one and then go buy a new one, again, that you're using for the same purpose. It has to be a like-kind property. And the proceeds from the sale must be held in escrow by a third party and then use towards the new property, but as long as you're channeling the profits into your next investment, you're in the clear,

and you don't have to pay capital gains on it. So it's awesome. Now, there are some timeframes that you want to make sure that you have to identify the second property. You have to close within a certain amount of time. So make sure you do it all right, but it is a way that you don't pay taxes on that property.

And finally, there are literally dozens of random exemptions that you can apply for. So if you don't take the standard deduction, then you can move in and say, hey, are there things that I can actually deducting? and you actually conduct more than the standard deduction. So you could look at self-funded classroom supplies if you're a teacher, moving expenses, medical expenses, student loan interests, dependent care costs, disability tax credit, home office expenses.

I mean, there are so many things out there, you guys, that you can deduct. And like I recommended earlier, reach out to a pro, make sure to confirm all your exemptions that you're eligible for. And it never hurts to ask. And when you find out about new ways to save on taxes, start implementing those throughout the year. and visit ramsysolutions.com to get connected with a Ramsey trusted pro. Have you ever had decision fatigue or analysis paralysis?

Well, it's how a lot of people feel when it comes to budgeting. There are almost too many budgeting strategies out there these days, and having too many options actually can create less action. So today we're going to dive in to four of the most popular budgeting methods, and stick around to the end, because I will tell you which one I give my stamp of approval on. Well, the first type of budgeting has kind of just too many numbers for me. So this strategy requires you to break down your expenses into percentages and then distribute

your paycheck accordingly. So it's the 50, 30, 30, 20, 20, 20% of your budget goes to needs, 30% goes to wants, and 20% goes to savings. And, you know, I understand why people do this strategy. Again, it's called the 50, 30, 20 rule. Because in some cases, I'm like, okay, yeah, it gives you this, like, you know, idea, strategy of what to do with your money. But I really have two main issues with this. So the first is that it doesn't leave any room for paying off debt. You're going to have to figure out,

okay, what percentage has changed there in order to pay off debt. And that is one thing that I want you all to do very early on in your money journey is to be paying off all of your debt, including your student loans, consumer debt, all of it. And the second thing that it doesn't do is help grow you and move you towards the wealth building process. So if you're just putting 20% in savings on autopilot, regardless of where you are financially, then you're not growing it or shrinking it depending on where you are. Again, it's kind of this method that regardless of where you are financially, here are the numbers you have to go by, where I really do believe, like, where you are financially is where your numbers should be. So if you're getting out of debt, these numbers

are going to look a whole lot different. But if you're debt-free and you have an emergency fund, then you could be investing more. You can decide that, or if you've paid off your house even, I mean, like, it just, you want your money to work for you versus working for a simple formula. So that's why I don't care for the 50, 30, 20 rule. And the second type of budgeting might be even more confusing. And it only has one percentage in its name, but five percentages in the actual application. So it's called the 60% solution. And trust me, there's not really a good solution to this method.

So with this, you're supposed to combine your wants and your needs and spend 60% of your paycheck on those. And that leaves you 10% for retirement. 10% for long-term savings, 10% for short-term savings, and 10% for fun. But shouldn't we just include fun in the wants, right? So it's given you even more there, regardless of where you are. But all in all, again, it leaves a lot of margin for error because there is some blurry lines between your needs versus wants, too. So again, you're dividing up your savings in a bunch of different ways, and it just kind

gets confusing. Again, I don't like the set percentages. I like you deciding what to do with your money. If you're feeling like it's hard to prioritize that you're spending with all of those vague percentages, just wait until you hear about this third budgeting type. This one will have you thinking you're on board at first because it claims to prioritize savings. So this is the reverse budget. And it tells you to set aside money for savings and investing and then cover essential expenses

and debt and other non-essentials. And listen, I appreciate the savings up front. But again, the idea of leaving debt. pay off to the other parts of your budget, even after you have money saved, I don't necessarily agree with because I want you to get a $1,000 emergency fund, and that's going to be the thing that you really are focused towards, then everything else should be paused, and then all of your other money is going to paying off debts. Okay, we've made it finally to the fourth and final budget strategy, and I have a feeling that this method is one that probably give you some hope, and that is the

zero-based budgets, or at Ramsey, we like to call it the every dollar budget, and it keeps it really simple. So this method teaches you to subtract all of your expenses from your total monthly income where the outcome is zero. So zero-based budgeting does not mean you have zero dollars in your bank account. It just means that you're intentional with every dollar and where it's going. So it actually is very detailed in that sense. But it's amazing. Once you get into this routine and you master it, you have so much control over your money. And what this looks like for me is I use the budgeting app every dollar and I use it to track my spending in each category. So again, my income is up at the top, and I combine all of this with my husband, so we put our income at the top,

and then you go down the list. And so giving is first, if you're in a baby step where you're saving, whether for an emergency fund, your starter one, or your fully funded emergency fund, that will be at the top. And then besides that, you're going to go down to your four walls, which is food, shelter, utilities, and transportation. And then you're also going to be able to say, okay, under that, what are some essentials, maybe like insurance and child care, and there's some other things down there. And then within those as well, you're going to be paying, you're going to be paying on debt. And then maybe if you're debt free, you're going to be having some of that money that you're going to say, we're going to set this aside to invest later on in the month.

But you're able to just give every dollar a name and there's such power in that. So the main takeaway I want you to walk away with when it comes to the every dollar budget is that it helps you take the power back when it comes to your spending. So whether it's paying off debt efficiently or saving up specifically for things in the future, it puts you in the driver's seat. So again, it can feel maybe a little tedious at first because it is. is broken out so specifically for each category of your life, but you're doing what you're supposed to do with your income

and being intentional with it. So if you've never used the Every Dollar app, start today. You can download the free version and be on your way to zero-based budgeting within minutes. You can do this. Okay, fill in the blank with me. I know I've made it with money when I can buy... Now, obviously, there's not a magic shift

where you make a certain purchase and then realize, oh, I'm financially secure forever. But lately, I've heard a lot of people, especially my millennials out there, say that their ultimate financial goal is homeownership. While this isn't an end-all, be-all kind of thing, but investing in real estate is a fantastic goal to work towards because the beauty of buying a home is that 99% of the time that investment will appreciate over time and its value will grow. But there are always exceptions to this role, which is why I, I want to offer you a little gentle warning. You know, just pretend that I'm dressed in yellow and a little caution sign.

You know, I'm just like, listen, just a little caution here. So let's talk about how to avoid losing money when it comes to buying a home. But first, I want to make sure that we're all on the same page about when is the right time to actually save for and eventually purchase a home. So once you are out of debt and you have a fully funded emergency fund, three to six months of expenses, that's when you want to look at actually buying a home. and after that point, you're going to save up for your down payment, which is Baby Step 3B. And so you want to do this during that time because if you have tons of payments, if you have no money saved and you go and buy a home, it's going to cause so much stress in your life. So you want to be in a good spot financially, which may take some time.

But I'm telling you, people that enter homeownership with no debt and savings and a good down payment, it looks a whole lot different than people living paycheck to paycheck and they go buy a home. And before I explain how to avoid losing money from home ownership, I want to share a few reminders about saving for a down payment for those of you who might be in that stage right now. So once you are in step 3B, again, you're saving for that down payment, then I recommend setting a goal to save for your down payment in about two years. So if you're in a big city or a really competitive market, that may seem unrealistic. But the point is, I don't want you to spend 10 years

sitting here waiting for your to buy a house, like whether it's your expectations are too high or even the market, which I know is really expensive. But I want you to get into the game as soon as you can responsibly and let the market grow the value of your home over time, and then you can use that equity to go and upgrade homes later. So your first home may not be your dream home. Probably won't be. Number two, another thing to keep in mind is that your down payment fund should be in addition to your emergency funds. So don't use your emergency fund as your down payment. You want that separate, and then you're going to save for the down payment. And of course, number three, the amount you need to save for really depends on the market in your city, what

of home you're interested in buying. Even if you're single or married, dual income, kids or no kids. So in a perfect world, putting 20% down would be amazing because you can avoid PMI. Also, if you're a first-time buyer, then 5, 10%, I think is great. But just be aware, you will have a monthly PMI fee. Number four, your down payment amount should also depend on how high of a monthly payment you can handle in your budget. So ideally, all of your housing costs will be no more than 25% of your take-home pay. And by this, this point, you know after doing the math, like what kind of home you could afford. And the truth is, most people eventually make it to home ownership one way or the other, okay? So again, it may not be

your dream home. Maybe it's a town home for a season. But what many people don't consider is how much money they're going to lose by not going into the home buying process when they're ready, because they're waiting on the markets. But here's the deal. If you financially are ready, go ahead and get in. The secret to making sure that you're not losing money when it comes to real estate is choosing a 15-year mortgage versus a 30-year. And some people are like, this is crazy. So listen, you're an adult. You can do what you want, but you want to look at the math

because some people say, well, I'll do a 30-year, but act like it's a 15-year. And that doesn't always happen. And 30-year is obviously the most common choice, but 15 years puts you in a pattern of getting out of debt faster. So let's just look at the numbers, though. Let's say you buy your first home for $300,000. You save $30,000, closing costs are in your down payment,

so you're going to put 10% down. Now, you owe $270,000 on your home, which is paid for by the bank and they give you the mortgage. So right now, interest rates are 6 to 7%. So over the course of 30 years, if you don't refinance and you keep that percentage, then you would have paid $614,372 on a $2,000 loan. So over half of that $600,000 would be just an interest, aka you're giving the bank almost $350,000 above the sale price of your home. On the other hand, if you did a 15-year, then you'd pay $423,258 total on the original $270,000 loan,

meaning that you'd get $190,000 back and your 15 years sooner debt-free, which is amazing. So you could spend significantly more money if you stretch out the mortgage in the timeline of your home. And that is how you can actually lose money in homeownership. Now, some of you, again, are thinking, well, shoot, I have a 30-year mortgage. I didn't realize I was wasting that much money. Listen, take a breath. You're okay. First and foremost, interest rates, they are constantly fluctuating, and we are in an election

year. So listen, if you don't have a great interest rate, if you got up in the high, you know, the 6, 7%, and rates drop, then you can always refinance. Okay, so remember that. Also, if it's not a good time to refinance, then set a goal to make a goal to make a make one extra payment every quarter and make sure that you only make that payment towards the principal, not the interest on your loan. But slowly and surely over time, it shaves off a lot of time off your loan when you do that. And remember, it's never too late to turn your money habits around.

Everybody has made financial mistakes in the past, but you can keep learning and growing and do what's better for you and your money. And if you've been thinking about buying a home, but you're not quite sure about your budget, then check out the mortgage calculator at Ramsey Solutions So again, you guys, the 15 year, it is the goal. Shoot for it, do it. And those of you doing the babysat actually pay off your home in seven years on average, which is unbelievable. So get that house paid off. Keep building wealth. So if you've loved this episode, make sure to leave a review. We'd love to hear your feedback. It is so helpful. And while you're at it, subscribe to this podcast and share it with all your friends and family to set them up for financial success.

Thanks again, you guys for listening. And remember to take control of your money and create a life you love.