The Rachel Cruze Show - How to Build Wealth That Will Change Your Family Tree

Episode Date: March 25, 2024

💵 Sign up for EveryDollar today. Create a free budget!  Show Description  Does leaving your kids money help or hurt them in the long run? Do ancient wealth-building habits still apply today? And how do you know what kind of money advice actually works? I’m sharing my thoughts on all of this and more. Next Steps 📕 Grab a copy of my kids book I’m Glad for What I Have: https://store.ramseysolutions.com/youth/children/im-glad-for-what-i-have-by-rachel-cruze/?gad_source=1&gclid=Cj0KCQjwwMqvBhCtARIsAIXsZpaQJTMavJXLa5OguBhnEKV4epQHwAO0i7SEPMgqLCl89uWmoHXMGeIaAoHxEALw_wcB 🎥 Check out my episode on setting your kids up for financial freedom: https://www.youtube.com/watch?v=WObMxA2Y6M0 🤔 Watch my video about millionaires who aren’t leaving their kids any money: [SP1]  ✅ Create a monthly budget with EveryDollar: https://www.ramseysolutions.com/ramseyplus/everydollar 💸 Find out how to make wise financial choices for your family with Financial Peace University: https://www.ramseysolutions.com/ramseyplus/financial-peace?gad_source=1&gclid=Cj0KCQjwwMqvBhCtARIsAIXsZpac5u3WZEBuuZ3zif2e6SMxfiXDeE-CNWgP_PdU_YZaL3COBE-J5SsaArhiEALw_wcB   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

Just because money advice has gone viral on the internet doesn't mean it's smart. Just because a company offers a special promotion doesn't mean it promotes your financial growth. It's that actually is more harmful than helpful. Welcome to this episode of the Rachel Cruise Show podcast. I'm so glad that you're here. So in this episode, we'll chat about five ancient wealth building habits that still work today. Then I'll talk through four money gimmicks. that will cost you and your family.

But first, I want to talk about why millionaires aren't leaving their kids money when they die. Take a listen. So sometimes on this channel, we talk about food. You know, we talk about grocery store savings, affordable meals, but I'm pretty sure talking about the Food Network star guy theory, this is a first. And there was a recent article on People magazine,

and they reported that he isn't planning on leaving his kids any money when he dies. And since he just signed it estimated $100 million deal with the Food Network. This got people talking. Some people think it's selfish of him to do this. Others think that it's fair to encourage your kids to forge their own paths. And as someone who literally grew up in the world of personal finance and now teaches and talks about money, I kind of want to, yeah, give you my thoughts on this. Because realistically, what does more damage in the long term, leaving your kids an inheritance or leaving them with

nothing and forcing them to work it out on their own? I don't know. Let's talk about it. So, First, let's hear Guy out, okay? Because when he's saying that he doesn't want to leave his kids' money, why? Well, according to the article, he said, I've told them the same thing my dad told me. My dad says, when I die, you can expect that I'm going to die broke and you're going to have to pay for the funeral. So it sounds like he leans more on the tough side of love, if you know what I mean.

And he also says that he expects his sons to get at least two graduate degrees. One of them is currently working on a law degree. The other one is pursuing an MBA. And Guy isn't the only high-earning celebrity who's not planning on passing down his money to his kids. The NBA star Shaq, as we all know. He said he wants to help his kids thrive within reason. So Shaq's six kids have to present their dad with a fully formed a business plan to prove that he should invest his money before he gives them anything. And Bill Gates, another great example.

If you're a 90s kid like me, you always remember Bill Gates being the richest guy in the world. and a lot of people talk about how much he gives back. As of January of 2024, he's estimated of giving away $9 billion in his foundation. So overall, he's giving a lot of money, obviously, that's, you know, his kids won't see. They won't see that, but he's got billions. So some reports say that they're not going to give their kids anything,

but the principle of the matter is the same. So clearly there are a lot of wealthy entrepreneurs out there who are standing firm and intentionally deciding not to, to give their kids a free pass. What is the right answer? Well, here at Ramsey, we are a biblically based company, and so we do talk a lot about giving back and what that looks like to change your family tree.

And in Proverbs 1322, it says, a good man leaves an inheritance to his children's children. Now, of course, that verse can be more than just money in your bank account, right? I mean, I think leaving an inheritance of a spiritual walk, an inheritance of character, inheritance of wisdom or compassion or discipline, Like all of these things you want to pass down generationally.

And this works in reverse, too, that you get generational traits like selfishness or greed or laziness, right? And so you can see, like, what am I teaching my kids and what are they learning as the norm in life? But at Ramsey, our primary motivation, again, is getting people to a place where they're debt-free. They have a say over their income. They're able to build wealth and they're able to be extremely generous. Now, because usually, you know, this is all about the behavior transformation. it's not always the dollar amount. So this idea that you live like no one else,

you sacrifice, you get out of debt, you save up an emergency fund, so that way you can live and give like no one else. And having the margin in your budget to pay it forward and bless others with your money, it's just a really powerful part of winning with money. And again, giving is one of the most fun things that you can do with money.

The joy that comes when you give. And this could be to an organization or a charity you love, maybe your local church, maybe a family that needs it or a person. Whatever happens there, the joy is tremendous. So when we talk about that, where do our kids come into play? Because if you don't know, I have three little ones, Amelia, Caroline, and Charles.

They're eight, six, and four right now, and they're still years away from going out into the world and handling money on their own. But we do want to set them up for success. And so when I look at what my parents have done financially and, you know, the character traits that they've passed on to us, the opportunities that we've been given, You know, there's different things there that I think are really important and I think are such a gift if I, as the second generation, can steward those well. And I look at my kids and I'm like, oh, man, one thing they will not have is seeing the sacrifice that their parents, me and Winston, went through.

I mean, there's some sacrifice there, but like my parents filed bankruptcy, right? So, like, as a kid, like, there was lots of sacrifice that I was experiencing. And my kids will never know that drastic of a change in their life. So the norm and the baseline that Winston and I have to set, we have to be really intentional with of like, hey, this is what life looks like. And we live on a budget. We live below our means. Like, we do this plan that we talk about on the show all the time. And so letting the norm be the baseline of giving and saving and then spending, whatever it is, letting them learn that money comes from work and working and all of that, you know, is huge. It is so, so huge. So when you

think about the actual tactical side, though, of money being passed down generation to generation, Personally, I don't see it as a completely, like, wrong thing in the world, right? I don't think I'm on this extreme side of, like, don't give your kids a penny. But I do think if you just provide every single thing for them, there's a part of their dignity that is never formed because they always have this level of a handout. So what can you do in a balance to say, hey, we want to help jumpstart our kids. And I know families now that they're not waiting to die to give their kids everything, right? because if you do think about it, it is an interesting thought.

There's a book called Die with Zero. But it's basically this idea that it's like, yeah, spend it all because what are we here for? Like, enjoy your money while you're here. Because if you just save it all, this person was saying in the book, and then you pass it to your kids, let's say you live till you're 85 and maybe your kids are 60. Well, they've already established their whole life, right, at that point. So they don't always technically need that money.

So then what are they going to do? have it in account for 20, 30 years and then passes down to their kids, you know, 30 years later. So it's kind of this point of like, what are we doing all this for, right? And I get that. There is a level that I'm like, okay, I can see why someone says that. So almost my hope for my kids is like, are there things I can do that still gives them dignity, still gives them the ability to get up and go to work and learn how to manage their money and work for what they want, but also gives them a jump start in life, right?

If you can start them out with a great mutual fund and they can use some of that money maybe for a down payment on a house or even the crazy thought of like, what if you paid for your kids' first house, right? And instead of a mortgage payment, they invest it. And instead of that, instead of it going to the bank, they invest it for their future. Like, I don't know, these different ways that you can get creative and think big of what could I do for my kids to set them up well, but it still gives them dignity. And it's an interesting conversation to have because I don't think anyone has the exact right

answer, but I'm always about balance in life. So this extreme side of like, give them everything. or give them nothing. I'm like, huh, what's like that medium, you know, range there, that balance where, yeah, we can actually bless our kids and help them start off on a really great foot. That's such an advantage. I mean, that's wonderful. But also that they have the ability to make decisions on their own and they have to work and

they have to have the dignity of paying, you know, paying the cable bill and the light bill or whatever it is. So there's somewhere in that balance that I think is really key. But leaving an inheritance to your children's children, the inheritance is more than just money. So teaching them contentment, teaching them that, you know, having stuff is not wrong, but it's not going to fulfill you the way you think it will. You will be a rat in the rest of your life if you just keep accumulating more stuff,

thinking that's going to make you happy, right? So we want to pass an inheritance of that wisdom. We want to pass an inheritance of contentment and all these other parts of life to them as well. So it's an interesting subject to talk about, and I know some people are very opinionated on it, but I think it's interesting. So, again, it's a personal choice. And again, it's all about balance because too much of a good thing. it can be harmful, and if it's a lot really fast and they don't know how to handle it,

that can be really scary. So you want your heart in a place where you have a lot of wisdom that you're using and a lot of generosity. The giving aspect of giving to others who need it, I think is huge to model for your kids, regardless of where you are financially. Ask yourself, what will realistically be helpful for your kids and make sure, again, you're pouring into the character side of them as well. And again, this idea that stuff is not wrong, it's not bad, but it does not fulfill us the way we think it will. Okay, do you remember the Roman Empire trend from last year? Well, if you had not heard of it, it's really funny.

It basically blew up the Internet. Because women all across the country would ask the men in their lives how much they think about the Roman Empire on the regular, right? On a regular basis, how often they think about it. And I don't know about you, but I haven't thought about it since, like, the ninth grade. And it's always fascinating when, again, you bring back years, hundreds of years ago, thousands of years ago up until today and what a lot of women in their life found is that their men would think about it like two times a day or something. So it became this really funny trends.

But again, going back to like the ancient times in life, there were things that they did that were a little cray-cray, and some things they did that were like, you know what? That's actually ancient wisdom. Like that is something that we can use even today. So we're going to look at five wealth building strategies that were popular in ancient times. And specifically, in ancient Babylon. Yes, stay with me. Because I'm going to go through this list and share my honest opinions about whether these financial habits are still good today. And stick around because at the end, I'm going to share my number one ancient money habits that didn't make the list. All right, the first wealth building habits from ancient Babylon is to fatten your purse by saving

at least 10% of your income. It's kind of a weird way to say it. But it was the idea again that you make saving a priority. And I agree with that. In fact, I believe that it's really the first step you should do when it comes to taking control of your money. Even before you pay off debt or invest in retirement, saving should be your number one. But instead of a percentage, I would also just recommend shooting for a dollar amount. So a $1,000 emergency fund is where I would start. And again, that's not supposed to be your long-term savings plan, but it's a buffer that will get you through most emergencies while you're paying off debt. And then once you're out of debt, everything but the mortgage, then you can bump up that starter emergency fund to three to six months of expenses.

Then if you want to set aside 10% for savings as a goal, then go for it. And hopefully as your income increases, so your ability to save more and more. But saving can only go so far. So let's see what ancient habit number two has to say. The second ancient Babylonian habit is make thy gold multiply. I love this one. Sounds great. Sure, I love my gold multiply, aka.

invest your money, and I'm on board with this piece of advice too. But I think some other fundamental things need to be in place first. Again, get that emergency fund of $1,000, pay off all of your debt, and then have a three to six month of emergency fund set aside. Then what you've done, all of those things, then start saving for retirement. You want to invest 15% of your income into retirement. So these will be things like your 401k or a Roth IRA. But again, looking into retirement investing is huge. but retirement isn't the only way to invest, which brings me to the ancient money lesson number three. Make thy dwelling a profitable investment. In 2024, we call this investing in real estate. So I agree investing in a home is a solid next step. But this also can be something that you do simultaneously while investing in retirement.

So both of these investment strategies are a great way to build your net worth, a great way to get yourself in where you're building wealth. So again, investing in retirement. And if you have a house, you're paying it down, any extra money you have to be able to pay down your mortgage. Now, there are a few things that I do not recommend investing in, things like cryptocurrency, really fancy cars that you get a car payment for, designer clothes and shoes. Again, the idea that these are not investments, these are just purchases. If you do them, do them with cash. But also, when you think, okay, I could be just buying a bunch of crap, or I could like compound interest work, and it's an amazing thing when your home's value grows or compound interest

in the market and it grows, it's a beautiful, beautiful thing. But having a ton of wealth means nothing if you ignore the next money habits. So the fourth ancient wealth building habit is to make the chronicle a record of wealth. So to me, it's basically a fancy way of saying track your spending. So if you have been following me any amount of time, you know, I agree with this, because doing a budget, is so key, no matter what stage of life you're in when it comes to wealth building, this is one of the things that you can do is to do a budget, but then intentionally track your expenses. But if you become a pro at creating margin and your spending, that progress ultimately has nowhere to go unless you build the fifth wealth building habit. Now, the fifth ancient wealth building

habit says to ensure a future for thy family. And that means leaving a financial legacy for generations to come. And I also agree with this. You know, in Proverbs, in the Bible, it says a good man leaves an inheritance to his children's children. But I think this is such a beautiful financial goal that requires intentionality and it requires balance. So again, we want our kids, me and my husband, we want our kids to develop a life where they are content. They understand what hard work means, but overall, setting them up for success by passing on a legacy of stability and generosity is a great motivation for building wealth. of these ancient wealth building habits are great, but in my opinion, there's one that ancient

Babylon completely overlooked. And my number one ancient money habit comes from scripture, and that's to practice generosity. So I know it might sound cheesy or even impractical to some people, but as I learn about building wealth and as I start to see what my money can do to impact, not just my family, but also others, it is huge, you guys. Now obviously, you know, there's some order here. If you have debts or you don't have savings yet or you're trying to pay rent, all of that, like, I get it. Like, there's some stress points. But if you can give a little until you can give a lot, that starts to change your heart and starts to change your habits. And it's really transformative. And it definitely puts you in a beautiful place, a beautiful posture towards wealth building

when you are a generous person. And again, it puts money in its rightful place by creating a healthy separation that it's not your complete identity. That is one of the true keys of building wealth. So to start implementing some of these ancient wealth-building habits, go to every dollar.com and start your first budget. It is so helpful to track your spending and your progress in real time, you guys. So I don't know, the Romans, the Babylonians, there's some stuff we can learn, you know, some helpful things here. So, again, it's amazing thousands of years ago.

We're like, okay, there's some things there that we can still remember and take today. Right now for you and your family. All right, you guys, I've got some breaking news. Just because money advice has gone viral on the internet doesn't mean it's smart. Just because a company offers a special promotion doesn't mean it promotes your financial growth. Lately, I've seen a few videos that have become popular on social media with financial parenting advice that actually is more harmful than helpful. I mean, I've seen some promote credit cards, specifically geared towards kids, and it's a little

concerning. So here's how to avoid four money gimmicks that will end up costing you and your family. And if you know me, number four is a total plot twist for me. So stick around to the end. All right, first, let's kick it off in the toy aisle or the toy section of your Amazon app. But your price, say popular children's toy brand is offering a special credit card that earns 1% cashback and 2% if you choose to deposit your earnings into a 529 account. For anyone that doesn't know, a 529 plan functions like a Roth IRA, except the funds are used for educational purposes instead of retirement. So that means you can withdraw your earnings tax free when it's time to pay for college tuition or textbooks or other higher educational expenses.

So I highly recommend a 529 plan because I think it's a really smart way to save for your kids' college. Now, I want you to do that after you've saved up an emergency fund, you've gotten out of debt, and you're funding 15% of your income into retirement. then you want to start looking to pay for your kids' college. And again, I have no problem with a 529 plan itself. But when credit cards start creeping into the mix, that's where I get a little bit skeptical. And living with debt, it is a slippery slope

that can lead to huge money problems. But apparently people are going nuts for this new card promoted by a company that has nothing to do with personal finance. So it offers cash back at 1 to 2%. But you guys, even if you're pro-dead or pro-credit cards, that's really not much to get excited about. because let's say you spent $250 or $3,000 a year, that means you're only walking away with $30 to $60 extra.

I mean, no, no, we're not going to do that. So listen, don't buy into the myth. If you just buy more, you're going to save more. In this case, it's simply an effective mood just to keep it simple, okay? So forcing yourself to live in the chaos and the crunch of looking at numbers and then spend, spend, to get this little reward back for points or cash back, it's really not worth the risk. And research shows that you are way more likely to spend more with a credit card over a debit card or cash.

So again, call me old fashion. But spending less and saving more is still a perfectly fine option. And when it comes to your kid's future, you'd rather be safe than sorry. The second viral gimmick has to do with potential of ruining your kid's financial future. And that is Gerber life insurance. So basically, it is whole life insurance for your baby. which is not necessary because actually whole life is never a wise choice, rather you're a baby or a grown-up.

That's why we always recommend term life insurance. But it's only necessary when you have someone else dependent upon your income. That's when you need life insurance. So here's a quick look between the two. So whole life insurance, again, it's for your whole life. And there's an investing option in there that really gets a bad rate of return. And then when you die, they keep part of it. I mean, like the whole product is just,

It's not great where you could do a way less expensive option of term life. You have it for a term. And then you can actually use an investment for investing and not using it within life insurance. Now, listen, I fully understand the hearts behind wanting to protect your kids and provide for your kids. But spending cash on whole life insurance for your baby is not a great use of your money. Instead, invest for their future, right? Like we were talking about earlier in a 529 account. Or maybe you do a match fund that you put some money.

aside and they can save up for their car when they turn 16 or, you know, whatever it is, there's other ways to help your kids versus getting them whole life insurance, which is a rip-off product. So if you want your kids to be prepared financially, there are other ways to achieve that goal. And I'm actually have a video that explains exactly what this is. So I'll put a link down below so you can check that out. All right, the third gimmicky way to harm your family financially is to open up a credit card in your kid's name. So once again, I respect the desire to be clever and let the system work for you, but illegally stealing your child's identity and creating a credit score for them before they know how to walk is not the best, you know, graduation gift

that you can give to them one day. And some people might try to play this game and they end up racking up debt. And again, their kid comes of age, goes into the real world, pulls their credit report, and their parents have been using their name and a credit card. All maybe with good intention, sometimes not, sometimes yes. Don't do that. Stay away from that. So instead, teach them how to handle money. Teach them where money comes from. Teach them how to give, how to save, how to spend. You know, maybe get them a financial peace university course for graduation, like whatever it is. Do it through the means of being wise with money. Don't do it from illegally opening up a credit card and using their identity to do it, thinking you're going to build their credit.

All right, like I said, the fourth gimmick might surprise you because typically I'm all about investing in real estate, along with investing in the stock market, investing in a home. is one of the most powerful ways to build wealth, earn passive income, and continue to grow your net worth. But these are all goals meant for adults, not kids. And despite what a clever dad says on TikTok and what they're telling you to do, do not buy a house in your kid's name instead of investing money for their college. So I've seen so many videos where parents are convinced that this is a smart move, but that can be a huge financial burden to dump on your college a kid. And what good is a house that, by the way, won't even be paid off by the time they're 18, probably,

if you don't have the cash to cover their tuition. So then they're stuck with double the debt, a mortgage and a student loan. So instead, if you have the means to set some money aside, just do it in a 529 account. And I really think that it is the best way, because when you're investing in you, it is a great ROI in life, right? If your child goes and gets a degree in something, that they're learning a lot, they're able to use those skills out in the real world, a beautiful thing. That is a gift. And then to graduate debt-free and to start their life is amazing. To find step-by-step advice on how to change your family tree, when it comes to money, go to Ramsey Solutions.com and sign up for Financial Peace University today. Because you will be

amazed at what you can accomplish financially when you're working together as a family. So don't fall for those gimmicks, you guys. It's easy to get wrapped into a 60-second Instagram reel. Think, I have the future planned. I get it. Do some research, you guys. If it seems too good to be true, it probably is. Well, if you love this show, make sure to leave a review so we can hear your feedback. It helps us out so much. And while you're at it, make sure to subscribe to this podcast and share it with all of your friends and family to set them up for success. So thanks again, you guys, so much for listening. And remember, to take control of your money and create a life you love.