The Rachel Cruze Show - Lessons From Growing Up Bankrupt (and Other Money Mess-Ups)

Episode Date: March 6, 2023

Moving forward financially comes down to avoiding sneaky traps and learning from our mistakes. That’s why, in this episode, I start by sharing what I learned growing up in a bankrupt home. We then look at how living in California and New York can become a money pit. And we talk through high-profile tax fraud cases—and how you can stay legal.    In this episode: ·     Lessons From Growing Up Bankrupt ·     Why Wealthy People Are Fleeing California and New York ·     Shocking Tax Fraud Cases (and How to Steer Clear)   Helpful Resources: Christian Healthcare Ministries EveryDollar                                                 Sponsors pay the producer of this show, The Lampo Group, LLC, advertising fees for mentioning their services or products during programming. Advertising fees are not based upon or otherwise tied to any product sale or business transacted between any consumer or sponsor. The following sponsors have paid for the programming you are viewing: Christian Healthcare Ministries.   Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

Here's the deal. Your kids are going to make mistakes when it comes to money. So thanks mom and dad for not being legalistic. And so learning some of those mistakes under their roof where they're less expensive mistakes so that when I went on my own, I already had made mistakes, but they weren't fatal. Hey guys, welcome to this episode of the Rachel Crewe Show podcast. I'm so glad that you're here. So in this episode, we're talking about lessons to learn from money messups. I'll go over why people are fleeing states like California and New York. Then I'll go over some of the most shocking tax fraud cases and what you can learn from them. But first, let's talk about five things I'm grateful for that I learned about money growing up. Take a listen. I want to share with you guys some of the things that I learned about money from my story. So growing up, we didn't grow up with a ton because my parents filed bankruptcy actually the year I was born. So I was born in April and they filed in September. So my early, early memories, which of course, we don't really have memories, like when we're two, three years old, you know,

were really rough for my parents. And then as I started getting memories, you know, I don't know how old you are what, four, five, six, seven, they were kind of coming out of it, but it was still a long journey. And so having those memories and seeing what the bankruptcy taught them through my entire childhood was really key. So, well, I hope that none of you guys will have to go through bankruptcy or really deep financial hardship because it is really difficult. I can tell you, though, I was so thankful for what they taught me because of what they experienced.

So maybe some of you that are going through a hard time. And if you have kids or people around you that you love, this is some encouragement that your influence has a lot on the people around you, even if you're going through a really hard time. So here are a couple of things that I learned. One was the only way to have money is to work for it. this came at a very young age. So we always laugh because as Ramsey kids, we were never given an allowance.

We were always on commission. So you work, you get paid. If you don't work, you don't get paid. And that was a correlation that I have known, honestly, since I can remember. And so even later in life, like, you know, whether it was a teenager or in college and stuff, like that was always a deep-rooted idea in my,

my head that if I want money, and especially when I become an adult and I'm working like, that's how I get money. So there was never this moment of, oh my gosh, this is how the world works. It was always from the beginning. And the commission system, you know, some people kind of hate on it. Some people love it. But I like it because, again, it correlates that money comes from work. Now, there were some chores we did around the house just because we were part of the family. So things like the kitchen, like we had to do dishes and bring our plates to the sink, help mom, all of that. and that was just being part of the family. But there were these moments that were really teachable to say,

hey, if you do this, we'll pay you a dollar or whatever it was. And it was huge because when you earn money as a kid, and that's the money you have, you give it differently, you save it differently, you spend it differently, all of it. So I was a huge proponent of the commission system, and we do that with our kids now. We're not as formal, I should say. We probably should be, like the Ramsey kids.

Like we had chore charts, and everything. So my girls, they're seven and five, and then Charles is three, so he doesn't really count when it comes to the commission system. But we'll kind of like do it spontaneously. We're like, okay, if you go, both of you clean up the playroom, because it's a disaster, we'll give you a dollar. Or if you help me go and unload groceries, you know, that's a dollar, whatever it is. So we kind of do it ad hoc, but still, they get it. Like they are starting to see, oh my gosh, this is how we can make money because we can take this money and do things with it. And so I love doing that. So,

early on in life. So that was one thing that I was thankful for. Another thing that I learned was that money isn't going to fix all your problems. Now, I will say, yes, it is nice to have money. There's a sense of security, you know, when you have money in the bank, all of that. But mom and dad were never at this point where they had this attitude of like, if we just had more money, our life would be better. If we just had more, everything would be better. They've really showed, they may not have felt it inside. I don't know, but the way that they showed contentment was very, very real. They never complains about our situation. Like, they always made things fun and enjoyable. And as a kid, especially, like, you don't know the difference, right? So, like, we never went on vacation as kids.

We'd go camping. That was the vacation. And it was like, that's just what you did. You didn't think twice about it as a kid. And so I was thankful for parents that didn't sit there and complain about their situation, that they kind of just embraced it with. And it was. And so, I was thankful for parents that they kind of just embraced it with us. And I'm really thankful for that. Another thing that I learned early on that I am so thankful for is that it's okay to be a spender. Yes. Some people think the Ramsey family was obsessed with money and all we did was talk about money and you like had to have a gross stock mutual fund by the age of seven or like all this crazy stuff that like it was like we were so strict and you had to do this and this and this and you had to be a saver and like all this stuff. But I am a

natural spender and they saw that early on. And they never shamed. And they never shamed. to be for it. It was just like, yeah, you're a spender, Rachel. It's great. You're going to have to learn to save in life, but it's not a bad thing. And I love that too because my dad, many people don't realize this, he's a natural spender. So he, my mom is more of the saver. So I don't know if I just related to him on that level, but like it was never a bad thing if you had money to go and spend it. It was like, yeah, that's okay. You want to be able to give some and save some as well, but it wasn't like, yeah, you're a bad person. Because I feel like in the money world, spenders kind of get the bad rap.

Like it's like, oh, all the good ones and the wise ones, they're all savers. They delay gratification all of the time. They are mature. Like, they're like up on this pedestal where us spenders are like, okay, sorry, my knee jerk gets to spend money. I'm sorry, that's just what's in my heart. Am I this terrible person?

And thankfully, I grew up in a house where no, it was not shamed or condemned. I obviously have to learn other skill sets, but you can be a spender and still win with money, which I'm thankful for. Okay, so kind of in the same, line as I learned it was okay to be a spender, my parents also let us make mistakes with money. Yes, they were not overly controlling when it comes to money. I do hear some parents today,

and they're like, you know, my kids, I have to tell them, I'm like, well, before you buy this, and it's all rigid and strict and all this. Or like, if it's not a good investment to spend your money on, you shouldn't buy it, even as a kid. But man, they've really led us. Like when it came to our spending envelope, because we had three envelopes, give, save, and spend, they kind of let the spending one be the be where we learned our lessons, whether it was like a slinky that I bought and it broke like three hours later, or I spent it all at wet seal for some gaucho pants, you know, something like that. I mean, I would just go and spend.

And they never like, I would probably complain about it, you know, if something broke or it was cheap and it fell apart and they'd be like, okay, let's talk about that, you know. But it was never this, no, you can't, you can't. And so the fact that it wasn't so legalistic gave such freedom because here's the deal. Your kids are going to make mistakes when it comes to money, right? That is going to happen. You're going to make mistakes when it comes to money.

We all do. And so learning some of those mistakes under their roof where they're less expensive mistakes, inexpensive mistakes, and kind of walking through that process was so helpful so that when I went on my own, I already had made mistakes, but they weren't fatal. so I knew how that felt so I could avoid some of them as an adult versus them being so controlling and the first time I ever make a mistake,

you know, it's a $10,000 mistake or something crazy. So, so thankful for that. So thanks mom, dad, for not being legalistic. And the last lesson that I learned was when my parents were actually doing well. You know, they, like, struggled, of course, at the beginning. And then, you know, as the business and stuff became more successful, they started doing better financially.

They did not increase their lifestyle. much. So yes, I will say as the Ramsey family, our trips got a lot better. Mom and Dad were great travelers, so we did. We traveled a lot. We didn't camp as much. But really, that's the only thing I can think on that they kind of, quote unquote, splurged, where they could have afforded for us to, you know, have a bunch of, like, designer bags as girls or, like, I don't know, go get, like, our nails done all the time. I don't know, just have a bigger, more fabulous lifestyle, as people would say. But they didn't. Like, they didn't. Like, they did. did not increase our lifestyle. Like, I thought we were still poor for a long time. And I look back

now, I'm like, man, that was so smart. Not just for our kids, but I think even for them, as they earned more, they were still budgeting. Mom still cooked at home a lot. They were giving more outrageously. I didn't know that until later. They brought us on in a little bit of that. But as adults now, they were telling us a lot about what was going on when we were in high school. So, like, there were things that they did kind of behind the scenes that we didn't realize. But when it, when it kind of came to that idea of just accumulating more stuff because they had the money, they just didn't do that. So it really did teach me that it's okay to have nice stuff, but don't let your nice stuff have you. And it can have you if you go into debt for it,

but also can have you if you think your identity, your joy, that all of this is going to be different and better because you have more stuff. And it's just not the truth. Again, stuff isn't bad, but it does not create this level of joy and satisfaction that we believe that it does. So those were some of the kind of the big picture things that I learned growing up. And obviously they taught us to avoid debt, to give generously, how to invest, like those tactical, practical things to do with money. But there are these overarching, I guess, kind of like philosophies that weren't even said, but it's the way they lived it out that I look back, that I'm so thankful for those foundational blocks.

Now, I know not everyone had that childhood, and mom and dad were not perfect, okay, when it came to parenting and all of that. they were great. But I can't see that as such a gift. And even if you didn't have that, and even if you were like, gosh, I didn't learn all this stuff until I was in my 30s or 40s or 20s,

you can still start where you are today. You can still start to say, hey, I'm going to tactically be wise with my money and budget and avoid debt and give and invest and do all these things. But also, I'm going to learn kind of that more bigger approach of your attitude and emotions towards money

because those are important as well. All right, you guys, I hope you enjoyed that. Hopefully it was encouraging to you and just make sure to share this with a friend who maybe is thinking about money a lot or talking about money a lot because hopefully this will give them some encouragement as well.

Now, today we're going to be looking at a trend that you've probably heard about over the last few years. Maybe you've personally experienced. And it's people that are moving out of states like California and New York. Listen, I'm not going to hate it. on California and New York, this episode may feel like it, but I'm just reporting facts,

okay? Reporting facts of what's going on, because it's a really hot topic right now. So I'm here to help you. So again, regardless of how you feel about it, it is happening. This is happening. And a lot of it has to do because of money. Yep. So let's dive in to figure out the reasons behind this mass exodus. Okay, so where do we start? We can't say that it all has to do as a result of COVID, but I will say that accelerated things, that's when we started seeing everything pick up very quickly. And again, suddenly all these cities and states that attracted people were under COVID restrictions.

Companies were then allowing their employees to work from home, which means they could work anywhere remotely. And people wanted to be closer to their families. So in particular, adults under 35, making at least $100,000 per year, started looking for more affordable places to live. That's right, where the cost of living was less than California and New York. Because here's a little fun fact. I thought this was really interesting.

Now, 80% of millennials live within a 100-mile radius of where they grew up. Isn't that interesting? Because everyone kind of like scatters. I feel like slowly they started coming back home. So obviously, it feels like a lot of people are fleeing California. And studies are showing this. And I will say, even in my own experience, everyone knew that I meet here in Nashville is from California. And so one of the common reasons that we see is because of the tax rates.

So California has some of the highest tax rates in the country, a top marginal income tax of 13.3%, a state sales tax of 7.25%. And not to mention the burden of corporate taxes plus high taxes on necessities like gas. So again, when you are making money and especially people that can work remotely, they're just thinking, okay, where maybe can I not have an income tax? Or maybe where is the sales tax less? Or all these taxes that were happening, where can I move where that is less so I have more money in my pocket.

So that is what we're seeing. And then, of course, there's other reasons that people are leaving the state, you know, whether it's, again, the high cost of living, the housing prices, politics, wildfires. I don't know. There are other reasons that people are leaving. But again, as we're seeing in studies coming out, that more and more it is about the money, the money, the money. So meanwhile, over the last couple of years, over 20 states reduced individual income taxes,

and 13 states reduced corporate income tax rates, which if other states like that are lowering, again, if people see the California tax rate, it's starting to not look great for California in that sense. And also New York has seen a lot of residents leave for less expensive places to live and warmer weather. Particularly reports show that not only the wealthy, but also families, retirees, and business owners are leaving New York because they pay some of the highest income taxes in the nation. So in other states, New York residents can find more affordable cost of living. Again, even more room and square footage. And that's what I keep hearing from neighbors and people moving down from New York and California. They're like, oh my gosh, we can get this

house for this much, right? I mean, you just get more space. It just is what it is. And of course, there's other reasons, again, that people are leaving, whether it's, you know, schools or people that are unemployed or underemployed. There's high competition, like, again, lots of reasons. But New York saw a net loss of 75,000 families last year. So it's very interesting. Now, there are other states that we're seeing people are leaving as well, and that's New Jersey, Massachusetts, Indiana, Pennsylvania, and Illinois. So Chicago, again, people are moving. Okay, so two of the places that we are seeing people go the most to is Florida and Texas.

That's right. So these states do not have income tax. Instead, they have a high sales tax and high property taxes as well to maybe kind of make up the difference. But again, combined, they are still saving more money than the taxes in New York and California. specifically. And not to mention these places, again, affordable cost of living and pretty decent weather year round, which if you're escaping the cold, it's kind of nice. Some other states that people are moving to include South Carolina, Tennessee, Delaware, and Nevada. So I knew it was a trend,

again, from my own personal experience, just talking to people, being like, man, everyone, it's kind of the joke, like everyone's from California. Even our pastor on Sundays, like, we'll make a joke. like everyone that's moved to your new families, everyone from California. Like, it just has become a joke. But it's real. Like, it really is. People are coming because I think, you know, they're looking at their money. And again, maybe looking at other factors as well we named in this video.

But the more affordable cost of living is just huge for families in any way that you can find margin or you can breathe and maybe have a, I don't know, this more peaceful feeling is great. Now, don't get mad at me all of you in California and New York because you're awesome. them too, and you're doing great. You are doing great. But we were just seeing high numbers, so I thought, man, let's talk about it. What is going on? But I will warn all of you that just because you move to a state that has no income tax, you know, or maybe it has cheaper places to live, that's not going to fix all of your financial problems. Okay, your bad money habits are coming with you if you don't fix those. It is you moving. So don't think, oh, I'm going to go and move to this

other stay and everything's going to be better. Now, mathematically, does it help? Sure. It does, but you're going to find ways to spend that money if you're not careful. So don't bring your bad money habits if you move. Create new ones to help you live a more sustainable life. All right, make sure to share this with a friend who maybe is talking about moving. You may find this interesting. Today, we are going to talk about some of the most shocking tax fraud cases in history. That's right.

Now, if you're kind of vaguely familiar with what tax fraud is, the IRS defines tax fraud as an individual or business willfully and intentionally falsifying information on a tax return to limit the amount they owe. So basically, it just means that you're trying to get out of your tax bill by being dishonest and lying. And so think of, you know, claiming false deductions, claiming personal expenses as business expenses, using a false Social Security number, or not reporting income, and simply avoiding. the payment all together, which would not be good. So let's take a peek into some of the noteworthy cases of tax fraud in recent years and what we can learn from them.

And I will say, just as a Rachel commentary before we get into this list, that I do want to believe that people are good-hearted. Now, some of the people on this list may have intentionally done this, but also I think that there are celebrities and people out there that, like, hand their finances over to someone else, and those people over there are supposed to handle it, and those people over there don't. and then they were like, oh my gosh, what's happening? I didn't know.

So again, here's the list of the cases factually. But Rachel likes to believe everyone has a really good heart and no one meant to do this. But some of them probably did, let's be honest. Okay, so first up, we got Richard Hatch, the winner of the very first season of Survivor. So I covered old Richard on a recent episode of Smart Money Happy Hour because it was all about reality TV.

And you guys, this one's interesting. Okay, he was the very first winner of Survivor. And if you remember Survivor, this was like the first big reality game show kind of thing. Like, I remember watching this whole season because Tina, the runner-up, was from Knoxville, Tennessee.

We were all cheering for Tina. But Richard won, and he won a million dollars, but Richard failed to pay his taxes on his $1 million prize. So he went from ultimate survivor to federal convict, serving prison time, and owing 300,000.

and taxes. Richard, come on. Yeah, we gotta do better. Hopefully he has done better since then. It's been decades, but it's tough. All right, next up, Lowe-Wain, the Grammy Award winning rapper has actually had numerous tax liens

against some for more than $12 million. But this is a great story because it ends well, and in 2019, Lowell Wayne finally settled all of his outstanding 10, tax debt. So great. So, so, great. So, yeah. The IRS can come on and put a lien on your assets, like a lien on your house and all that to make sure that they get paid because the IRS will come after you if you don't pay them as little Wayne experienced. And while we're talking about the musical artists that have shaped pop culture, there's a couple more that have unfortunately not been great

at paying taxes. So Nellie, it's getting hot in her. Oh, Nellie. It's getting hot in her. In 2016, the IRS put a tax lien on Nellie because he owed $2.4 million of back taxes from 2013. And more recently, our girl Shakira was accused from the Spanish government of not paying her income taxes between 2012 and 2014, owing the government $14 million. And the jury is still out on her case, but if convicted, she could face up to eight years in prison. And when I hear Shakira, I just have to believe, like, someone's supposed to be doing her taxes. I believe Shakira would have paid her taxes. I just believe that deep in my heart. I'm still a fan, Shakira.

Still a fan. All right, another fan favorite of guilty tax fraud is Nicholas Cage. So the IRS charged Nicholas Cage for more than $14 million of unpaid taxes, which Cage attributed to his management team. See, you guys? And then he ended up suing his money manager. See, in a case, you didn't know. That's the issue, though. You can't just give your money

and assume people are taking care of it. You have to be on top of you guys. Nicholas Cage and you, all of us together. We have to be on top of it. But in 2012, Cage paid off the balance of his tax bill. So don't worry, you guys. He is still a national treasure.

But I will give him kudos, though. He worked really hard to pay that off. We were just talking before this episode started filming to go and look up all the Nick Cage movies and he did a bunch. random ones to pay off his debt. So hard work. I applaud that.

And lastly, we've got to end with the couple that has been the spotlight most recently for tax evasion, and that is Todd and Julie Crisley. So they were indicted on 12 counts of tax evasion, bank and wire fraud, and conspiracy in 2019. And Todd Crisley actually ended up receiving a 12-year sentence, and his wife was sentenced to seven years. So it's so sad, not good. But, man, the IRS, you guys, we got to stand top of it.

I think that is the key to all of this. So if you want to avoid the mess that some of these people have been in, well, you need to be very aware of what's going on. But what's interesting is, according to the IRS, individual taxpayers do 75% of the cheating that happens. And it's mostly middle-income earners. It's not always the wealthy, the famous, the celebrities. And you can probably guess that,

cash-intensive businesses and service industry workers are some of the worst offenders because it is so easy for them to under-report their income. In fact, the IRS claims that waiters and waitresses under-report their cash tips by over 80%. So you want to make sure that you accurately report your income, which involves keeping track of it all year. And if you're self-employed and you're a taxpayer doing that, then make sure to steer clear of any phony business-related deductions because you can be caught. and if you are caught, you can get hit with a 75% civil fine or worse, a criminal investigation.

Not good, you guys. This is big stuff, but I don't want you to freak out because the IRS, they know that taxes are complicated and more than likely you're going to make a mistake. And some of those mistakes, if they find them, they waive them, but some might earn you a smaller 20% penalty. So you want to make sure that your taxes are done right. And again, having people to help you is really important, but unlike possibly some of the people on this list,

you can't just hand your money over blindly and expect someone to do it. Like, you need a BN, watching, learning, and knowing what's going on. So I would recommend Ramsey's Smart Tax for people who have simple returns, make sure to check that out. But if you have a more complicated tax situation,

then hire someone. We have endorsed local providers for people all over the country that can sit down and help you with your taxes. So click the link in the description to learn more. Now, I know taxes can feel very intimidating. but trust me with the right help, you can do this. You've got this. Oh, man, taxes, though, the IRS is rough sometimes. It is rough. So make sure to share this with a friend who maybe

has been talking about their taxes. Oh, you guys, California and New York, I love you. I love you. But you got high taxes. It is what it is, right? Well, thank you guys so much for listening to this episode of the show. If you have not subscribed to the podcast, make sure to do that. And you guys, will you please leave a review. It is so helpful for people that are searching podcasts, and it even helps with the algorithm of where Apple puts the podcast. So it is very helpful. Any great review would be very much appreciated.

All right, you guys, remember to take control of your money and create a life you love.