The Rachel Cruze Show - How to Become Financially Smarter Than the Average American

Episode Date: August 26, 2024

💵 Start your free budget today. Download the EveryDollar app! Anyone else feel like life’s been expensive lately? While we can’t control inflation, we can change our relationship with money. Find out the simple steps you can take to make the most of your income and get ahead with money. In this episode: ·      Proven Ways to Stop Living Paycheck to Paycheck ·      Why People Are Skipping Meals (And It’s Not a Diet!) ·      How Do You Compare Financially to the Average American? Next Steps: ·      🛒 Save time and money weekly with the Grocery Savings Guide. ·      📗 Read our article “How Much Should I Have in Savings?” ·      💰 Find out what’s possible with the Investment Calculator! ·      🏠 Make a plan with the Mortgage Payoff Calculator. ·      👩‍🎓 Pay off your loans faster with the Student Loan Payoff Calculator. ·      💰 Get ready for retirement with the Retirement Calculator.   The Sponsors: ·      🔒 Remove your personal information from the web and get 20% off your DeleteMe plan. ·      🏥 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 Ramsey Show Highlights 🧠 The Dr. John Delony Show 💰 George Kamel 💼 The Ken Coleman Show 📈 EntreLeadership   Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

whatever that why is that you think I want to get in control of this part of my life, have your mindset around that because that's going to help propel you again, step by step. And in the times where it's hard and the sacrifice is deep, knowing your why is so crucial. Hey guys, welcome to this episode of the Rachel Cruz Show podcast. I'm so glad that you're here. So in this episode, we're going to be talking about why one-fourth of Americans have admitted to skipping meals. Then we'll discuss why over half of Americans are struggling in their finances today. But first, I want to chat about proven ways to stop living paycheck to paycheck. Take a listen. So no matter what the latest stats are saying when it comes to inflation or the housing market, one thing that has always been

true is that too many people are living paycheck to paycheck. And this has always been the case. Ever since I've been in this world for 15 years of personal finance, it's always a high percentage of people. And here's the deal. At all income levels, all all ages, we see that this can be true because people can stretch their income so far to basically exactly what they need, and then there's no margin left over, which tells me for sure it's not always about the money that's the problem. Sometimes it's about the person handling the money, because building wealth has always been about behavior more than a specific dollar amount. So, today I want to share exactly what I mean by all of this. And here are nine steps to stop living

paycheck to paycheck and finally achieve some peace around your money. And stick around because number nine is more mental than tactical. And it may be something that you've never considered before. So make sure you hear that one out. All right, let's get going. So step one to stop living paycheck to paycheck is to get on a budget. Now, if you've been following me at all, you know this is always in my top, you know, tips always with stuff because this is the thing, you guys. The budget is the thing that is going to help you have a plan for your money. I think it's one of the biggest mistakes people make is they're not intentional with their money. They're not sure exactly where every single dollar is going.

And then when it's up happening is you just end up spending without realizing where or what you're spending on, and then naturally that paycheck-to-paycheck lifestyle can continue. But when you can plan out where things are going, where your money is going, then you can cut back on different areas intentionally to create that margin and stop living paycheck-to-paycheck. So if you have not made a budget with every dollar, make sure to do that. You can go to every dollar.com slash Rachel and make sure to create your first budget if you haven't already because this is going to help you again get out of that cycle. All right, step two is to take care of your four walls. So these are the four most important things that you have to have in our world. We talk about needs versus wants and a lot of our wants have kind of drifted into our needs.

So do you really want to take this apart and focus on what you need in life and put that at the top of your budget? But again, these are your four walls. It's food, shelter, utilities, and transportation. So those are the four things that you have to have to survive to at least have this foundation under you to know, okay, everything, my house isn't going to be taken away, or it's not that I'm behind on rent, or my lights are getting cut off. Like, all of that stuff puts you in a really bad tailspin. So again, making sure your food, shelter, utilities, and transportation are covered first and foremost. And then on your budget, it's everything else. All right, step three to stop living paycheck to paycheck, is to cut extra expenses. So if you have things in your life,

again, this could be some wants that have kind of like merged with needs, really, you know, take those apart and say, okay, what are things that I don't have to have to survive? These are streaming services, membership, subscriptions, eating out, shopping, going on Amazon on the Amazon app. Like these kind of things sometimes, it's like we just end up spending money because it's just there. And when you trim all that back, even if it's, you know, $2, $300 a month, That's significant, you guys. It really is. So cutting back things that you don't need is going to help you.

Step four is to start an emergency fund. It is so easy to live paycheck to paycheck because if something happens, and if you have any margin, you just dip right into that and you just build no savings. So having savings is huge. So your emergency fund is really your safety net between you and life. So if you are finding margin in your budget, this is the first thing I want you to do is I want you to get a $1,000 emergency fund. having cash in the bank and letting you be your emergency fund is so massive when it comes to cutting the cycle.

And then once you have that and you pay off debt, then you can bump that up to three to six months of expenses saved in the bank. Step five is to ditch debt. That's right. Get it out of here, you guys. I mean, if you cut out a card payment that's $600 a month, you know, you pay off your student loans. That could be $300 a month. Like you start to add up some of these payments. And if that's money back in your pocket, I mean, that could be $1,000 easily in just payments that you're paying out. So getting out of debt is really huge. But how I want you to do that is by the debt snowball. And this is where you're going to list out all of your debts, smallest to largest, regardless of the interest rate, pay minimum payments on everything,

and attack that smallest debt first. Then once that's paid off, all the money you're putting towards that over to your second smallest debt. And you keep moving up, moving up, moving up until you're debt-free. And we find people doing the debt snowball method, get out of debt in 18 to 24 months on average, which seems insane because there can be so much debt. But listen, if you cut out everything in your budget, you take an extra job, like you create some serious sacrifice for a short amount of time. It's amazing what can happen with all that momentum. And then once you don't have payments,

you have margin. And that paycheck to paycheck living really does stop. All right, step six is to increase your income. So I just mentioned this when it comes to getting out of debt. And that could be taking on a side hustle, like whatever you have to do again to create some of that extra income is big. But I think what's really key is you want to get to a place where you don't feel like you have two side hustles and your main job just to survive on your basic living expenses. So being able to look at your actual career and like the job that you have and saying, hey, am I getting paid market value? Maybe there's another opportunity with a different company that would pay me more. You know, some of these questions start asking yourself because you can get a large bump in salary. And again,

don't just chase the money constantly, but make sure you're getting paid for what you're worth. Step seven is to live below your means. So you have to be in a habit of living below your income. Because if you don't and you continue to live at your income or right above it, then you're never going to get out of that paycheck to paycheck cycle. It's going to be this constant, like we are spending what we have versus saying, hey, this is what we're making, and we're not going to spend 10% of it, 8% of it, like whatever it is. Like find even a percent It's just to say, let's try to save this amount and live below it. And when you start doing that and that becomes a habit as your income increases, that will continue to be your lifestyles.

You're able to say, well, up our lifestyle a little bit, but we're always going to live below our means. And that's going to give you so much peace. Step eight is to save up for big purchases. I mean, this could be anything from, I don't know, a TV or a refrigerator to a car. Like, things that just cost a more substantial amount of money, a lot of people are used to just going into debt for it. It's like, yeah, I mean, of course you would. That's what you do. Who has a couple of thousand dollars just laying around?

But when that's your mindset, and again, you go back into debt and you start using your income to pay payments, that is money that is not working for you. And so getting in the habit of saying, okay, I'm probably going to delay some gratification for this big purchase and actually save up for it and create a seeking fund even. And your budget, have a line item that says, I don't know, new refrigerator or whatever it is. And it's like, okay, let's save up, you know, a couple hundred bucks a month, towards this because we're going to need to replace it in five months or whatever. You know, you can do the math, but just to realize that you can look ahead and actually plan out for some of

these purchases, and it may mean that you're going to purchase it later than you really want to, but again, it's giving you the power of using cash instead of getting back into that payment cycle, which is just terrible. All right, now that I mentioned earlier, this final step of not living paycheck to paycheck is a little different than the others because it's not like a concrete action that you can do. it's not like, oh, go and open up your every dollar budget and do this task. Instead, I want you to remember what I said at the beginning of this episode. Behavior is the most important factor. And one behavior that you absolutely have to put into practice along with managing your money is managing your mindset, because this is what will propel you forward as you work the baby steps.

And this will also bring you back to the whole reason why you decided to pursue your money goals in the first place. So step nine is to remember your why. When you want to be wise with your money and you say, okay, I want to get in control of this area of my life, there's usually a reason why. And it may be stress and anxiety. It may be, oh my gosh, you know, I just got married. Or maybe it's we had our first kid. Or maybe it's, gosh, I'm just tired of working this job.

And I feel like I have to because I have to pay bills. Like whatever that why is that you think I want to get in control of this part of my life, have your mindset around that because that's going to help propel you. Again, step by step, and in the times where it's hard and the sacrifice is deep, knowing your why is so crucial. So according to a recent study, 80% of Americans say that they have felt a noticeable increase in grocery costs in the recent years. In 80%, it's a pretty big number, and I totally get why so many people are feeling this way because it is more expensive, and we've been seeing major increases to essential costs for a while now. A Fox Business article recently reported that over a quarter of Americans are admitting to skipping meals in order to combat high grocery and food costs. You guys, that is a drastic response, right,

to completely skip a meal. But also, this is a very real issue that we're all dealing with when it comes to spending money on just basic necessities. So today, I want to take a deeper look into this trend. Let's look at the numbers, look at the why. And most importantly, I'm going to offer some alternative options if you are in this point of feeling this amount of pain. And before we get into some practical tips, let's first look at where this problem has led us. So one third of Americans, 32%, to be exact, say that they are spending more than 60% of their monthly income on essential expenses. And this is stuff like bills, rent, and groceries. Because of this, 53% of Americans find themselves in another unique predicament saying that they

earn too much money to qualify for government assistance, like food stamps or welfare, but don't have enough to afford basic necessities for themselves. And if you're someone who has noticed the shrinking middle class in the recent years, this is probably because all of this sounds very familiar. And all too often, this is how the cycle of debt starts. When real people are stuck with no margin and nothing to fall back on, they feel like they have nothing else to turn to. But that's never the actual truth. So I really do want to dive in when it looks like, hey, I am earning money. I want you to know that you have options. So next, let's talk about what this actually looks like, because the first thing I want you to do is create a budget. And I cannot stress this enough.

And you hear me talk about a budget all the time. But it's just true. This is an important place to start because this is a plan that says, hey, this is where my income's going. And it's going to actually light up some of your problem areas as well when you start to see and look at percentages thinking, oh my gosh, maybe we have too much house. Gosh, maybe we are going out to eat way too much. It may actually reveal some of the problems, which is a great thing because that's going to help with the solution of where to cut back. Because again, without a budget, you have no idea where your money's going. You don't have guidelines or guardrails. And then you're able to focus and determine on, hey, where are my priorities in life? So where are the things that have to be

covered, and that is food, which is the whole point of this video, right? You want to make sure that you have food, shelter, and make sure rent and your mortgage is taken care of, utilities, keeping your lights and water on, and transportation, making sure you have your car insurance paid, gas in the car, or if you use public transit, make sure you have enough money to cover that. So all of these things, again, are really, really key. And then I want you to look at other areas of your budget that maybe you can adjust, because remember, if you cut things out, nothing is permanent. This is not going to be your lifestyle forever and ever. So maybe it's a season that you say, hey, we're going to cut out streaming services. We're going cut out subscriptions.

We're going to cut out going out to eat. Like, we're going to cut out these places in our budget so that we're able to have margin when it comes to our money. Now, listen, you can't control a lot in life. Let's just be honest. You can't control inflation or mortgage rates, but you can control your spending. And you are able to say, hey, what can I do? I mean, even like, you know, looking at your housing situation. I just mentioned this, and this could be a big drastic one, but if you are spending 40% of your income, 50% of your income on rent or your mortgage, at this point, you probably have too much house because when all of that is being eaten up, you only have, you know, 60, 50% left to cover everything else in your life. And so looking again

at either drastic cuts like your housing or looking at, you know, maybe streaming services, like I mentioned earlier, or subscriptions, you know, whatever that looks like, or even, I would say, look at, you know, what your kids are doing. Is there extracurricular activities? And maybe they're doing three of them. And you're like, hey, we're going to maybe cut, you know, one or two of these out. Like, whatever it is, you have to get creative, but creating that margin is so key. So when it comes to cutting back on food, I don't want you to cut out meals, okay? Maybe this is things like drawing boundaries around maybe grocery shopping, right? So meat, for instance, is going to be expensive. And yes, having protein in your diet is really key. But maybe for a week, you're like,

We're not going to do meat in our pasta sauce. We're just going to do marineria and noodles, and that's going to be our dinner. You know, whatever that looks like, there's small ways and small cuts that you can do. Even low-cost family meals, like planning ahead and just saying, okay, we're going to do taco night, grilled cheeses one night, you know, soups and salads one night. We're going to do breakfast for dinner one night. Like finding cheap meals. And again, your nutrition, I understand is important. Yes and amen.

But also, cutting out a meal is not always worth the nutrition part of this, right? So maybe it's not shopping organic for a season. Maybe it's shopping, you know, not at the organic grocery store. Like whatever it is that you need to do to make sure that you have three meals is what is so key. And there are ways to cook meals that are cost effective, but that does take some planning and intentionality. Now, there's a lot of this stuff around food that I think is really important. And if you've never used my grocery savings guide, make sure to do that. So I will leave a link to make it really easy for you to check out.

Now, the fifth thing I want you to do to get strategic is about where you shop for your groceries. Looking at where you shop is really, really key. And while you're shopping, ask some of the employees about daily deals going on so you can get the most bang for your buck. All right, you guys, I know this is a really challenging time. And again, I feel like inflation has just been talked about so often. And since COVID, really, I just feel like prices continue just to rise. And we just feel this high cost of living. And so what I want you to do, though, is to be able to feel in control because, again, there's stuff

that we can't control, but we can control our spending. And when it comes to our four walls and making sure things that we actually need are covered. So I recently came across some data about the average Americans financial status. Now, don't get me wrong. I don't like comparison culture. But on some level, awareness about what's going on in the state of personal finance for other people out there could be really helpful to you. So how about we just take a moment and do a little financial wellness checkup together?

And I'll share some up-to-date stats. Think about the average level of debts that people have, the average salary, all of that, and it'll give you a chance to see how you measure up against the rest of America when it comes to money. And maybe this will be an encouragement to you because you may need to be reminded that, hey, I am making good progress with my money. You know, you got to say that every now and then. or maybe you might say, oh, okay, I need a little bit more motivation here to get in control of my money and do this plan. But whatever the case is, do not worry because at the end, I'm going to share some practical tips to get you moving in the right direction.

And remember, the averages that I'm sharing with you represents the middle point of all the data taken. Remember, average is different than median that is different, right? like we go back to our elementary school days that we can remember. So also know that your numbers, you know, could be higher, could be lower. Regardless, do not beat yourself up. You know, again, you're not going to get me yelling at you or something. So I don't want you to feel discouraged. Again, this is just to kind of see, hey, where do I measure up against the average state in America?

So let's just try to keep an open mind and look at these numbers as rough guidelines, not hard rules, because we are all on different financial journeys and at different places. okay. So let's start with salary. So the average annual salary in the U.S. is $61,900. And remember, your income is your most powerful wealth building tool. So think about kind of just where you fall, you know, above average, below average, around average. And do you feel like you're at a place where you're able to use your income to build wealth? And what I mean by that is that you say, yeah, okay, here's my income. Here's what I'm paid every month. And are you able to live below your means? Are you able to have some margin to maybe pay off debt or maybe you're debt free and all that

income is yours and you get to decide, hey, how am I going to save it or invest it or give it or spend it? So again, your salary is a really big part of this equation because your income is going to help you build wealth. Next is debt levels. So now that we have an idea of how much the average person makes, let's look at debts. personal debt in the U.S. is at an all-time high of $17.5 trillion, trillion with a T. And on average, each adult has $66,772 in debt. And this includes everything from credit cards, student loans. So take a second, let that sink in, kind of compare where you're at. And again, the average debt in America you're going to see is all these different buckets of debt. Okay. And so I do want you to think that, hey, maybe you've been on this journey for a while. Some of you that have been following my

channel or my podcast or you've been following the Ramsey Way for a bit, you are out of debt. And maybe you have your fully funded emergency fund. And you're like, okay, yeah, this is feeling good. So just knowing your average is really helpful. So when you look at each specific debt, this is what gets interesting. So credit card debts, the average person carries $6,5001 in credit cards. eight out of 10 adults in America have at least one credit card. And you guys, this is a slippery slope. This is a thing that, you know, I feel like this is the one area I'm like, can't have your credit cards? And everyone's like, I'm going to keep one or I'm going to use my for my points. So listen, I get, there's a game out there to be played. And people are like, yeah,

I get free hotels. I get free flights. I get to travel. You know, cash back. Like, whatever it is, the game that they play, I get it. Okay, I hear people say it. And I get it. But only to a point because everyone's like, well, I pay it off every month. So it's fine. But what we're seeing over and over again is that that's been people's mindset, but yet they're not paying it off every month, which means they are paying interest, okay? And interest is so high on credit cards. It's like up to like 22.6% APR. Like it is wild. So you are paying interest on top of this, which is how banks make money. So remember that. Banks are making money off of fees and interest. And so while you feel like you're playing an airline game,

you're actually making the banks rich. So getting rid of credit cards, in my opinion, just the way to go. All right, car loans. So around 35% of households have a car loan, and they each owe, on average, $36,357. And when you look at monthly payments, the average for a new car is $738. The average for a used car is $532. I mean, a new car, y'all, I mean, almost $750. $750. Like, that's a lot of money. And when you're living paycheck to paycheck, that will change your life. That changes your budget if you have an extra $750. And so this is where the conversation with the car has to come into play. And a lot of people in this world of personal finance, you know, I'll read different books or listen to other people in podcasts or interviews because I'm always just curious what people think. And it is funny. The number one thing we can all agree with. Because sometimes we can disagree with credit cards or student loans or mortgages or, you know, investment real estate or whatever. The one thing, that is consistent.

across the board of majority of people out there teaching about personal finance is that the car loan is a rip-off to the average American. It just is. You are borrowing money, paying interest on something that's going down and value just because it's a car. And listen, a crappy car, a $5, $6,000 car can get you to the same place you got to go as a $60,000 car, right? Now, I understand it is nice. And if you have the money and you want a great car, that's what you choose to spend your money on, Fantastic. But don't go into debt for it because on a mathematical basis, it does not make sense. It doesn't in a car. So say no to the car loan. If you cannot pay your car off in 18 to 24 months, I want you to get rid of your car. If your car loan is more than half of your annual income, you have too much car. Okay. So these are times that you're going to have to sell your car.

If you're underwater, you may have to take out a small loan to get out of the car payment. But listen, all of that is worth it. If you, you know, get a loan for the difference and maybe a couple thousand dollars more to buy another car, and then start there. I mean, I would rather have a $8,000 loan than a $38,000 loan, right? So there is something powerful about not having that car payment and for that $750 to be yours and not the banks. All right, the next piece of debt that is very common is the mortgage. And this is a big one because this does take up a big bulk of people's monthly expenses. And in fact, the mortgage accounts for 70% of all American debt. The average mortgage in the U.S. is $145,833 with a monthly payment of $2,06.

So just ask yourself, hey, how does my mortgage fit with these numbers? It's a really great question. And the price of home since 2021, 2021, I mean, it's just skyrocketed. And it has pretty much stayed there. It has not gone back down. And so it is frustrating for first-time homebuyers for sure because stuff is just so expensive. But you guys, this is a part of your finances. is you want to be really wise.

So if you have the money and you're in a good position where you're like, yeah, I have, you know, 5, 20% to put down, 5% to put down. You know, your mortgage is around, you know, 25% of your take-home pay. You're able to do it in a wise way. Go ahead and get into the markets. But if you're not there, it may take you a little bit longer to do that. But those parameters really allow your mortgage, your house, your rent, even,

to be a blessing, not a curse. But there's going to be some hard decisions to make within that. And it's so frustrating, I know. So student loans, did you know that student loans are the fastest growing debt in America? So according to recent data, the average borrower owes $38,290 in student loans. And it's not just about the money, but many young adults say because of the weight of student loans that they are not making basic financial life decisions, things like investing in retirement, buying a home, or even getting married.

So if you have looming student loans and you have not paid, them off, you are not alone, but also, I want you to get motivated to pay them off. Because again, this is one piece of debt that can just hang around for years and years and years. So getting out of this and paying it off is so key. All right, let's look at savings and investing. And so this is really planning for the future. And since this number is the average American overall and doesn't consider a few different factors, instead of just giving you all the stats for this, I'm not going to I want to approach it a little differently because how much you have in savings really revolves around your current situation. So I want you to get a good idea of what this should be. So I'm going to link an

article in the description to kind of give you some guidelines and walk you through some questions because this is a really personalized estimates because it's going to be a percentage of what you make or three to six months of expenses that should be saved and that kind of thing. So it's really going to be dependent upon you on what you should be doing. Now, if we're investing, it's hard to compare averages on something that grows significantly through your lifetime. But if you're interested in estimating how much progress you could make down the road, make sure to check out Ramsey's investment calculator. It will give you a great idea on where you're headed. And so savings and investing again, this has to be a part of your financial plan. And it is going to help you.

I mean, it really is. There's something there when you have cushion in life. It is just gives you peace. It does. All right. So I know that's a lot of info. Hope you're doing okay. hope that you're looking at your own numbers. You're not feeling overwhelmed, though. But I really want to walk you through some actionable steps to help you get out of debt and start to build wealth. So again, the baby steps is what we always talk about. So you want to start our emergency fund of $1,000. Next, you want to get out of debt by paying off your smallest debt to your largest debt. Then you're going to save up three to six months of expenses in an emergency funds. And once you do all of that, then you're going to say, hey, I'm going to really work on

investing 15% of my income into retirement and kids college, paying the house off early, and all of it. So these things are really going to help you get into a place financially that is going to be above and beyond what the average American is doing because, again, you're being intentional with your money. All right, you guys. So comparing yourself, I always find it's kind of fascinating when it comes actually hard data. So I hope it was helpful. And again, regardless of where you are, just know that you can always improve where you are financially by being intentional and having a plan. So listen, if you love this show, make sure to leave a review because your feedback is so helpful. And subscribe if you can, share this episode with friends and family. All of that

helps get the word out. And thank you guys so much for listening. I so appreciate having you here. And remember to take control of your money and create a life you love.