The Rachel Cruze Show - Make Your Money Work Smarter, Not Harder

Episode Date: April 1, 2024

💵 Sign up for EveryDollar today - Create a free Budget!    Show Description  It’s no secret that everyone’s financial situation is different. But there are three money topics that relate to almost everyone on the planet: taxes, income and housing. Learn how to instantly make smarter money decisions in your everyday life.   In This Episode ·     I Explain the Tax System in Under 10 Minutes ·     My Most Hated Financial Advice: Side Hustles ·     Renting vs. Buying Next Steps 🧠 Need help with your taxes? https://www.ramseysolutions.com/taxes/tax-services 😳 Want to hear more financial hot takes? https://www.youtube.com/watch?v=wSsZt04NIJU 🚙 Need a cheap, reliable car? https://www.youtube.com/watch?v=2xFFsnW913M    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

I have seen a lot of debate on the internet recently about renting versus buying. Whether it's a home, a car, or even clothes, and furniture, it seems that everyone has a very strong opinion about this topic. Welcome to this episode of the Rachel Crew Show podcast. I'm so glad that you're here. So in this episode, we'll chat about another one of my most hated pieces of financial advice. A hint. It can actually be a great way to earn some extra.

income. Then I'll talk about the pros and cons of renting versus buying in all aspects of life. But first, let's dig into the American tax system in just under 10 minutes. Take a listen. It's April, which means it's officially tax season. And unfortunately, April fools does not apply for taxes. And for a lot of people paying taxes comes with a lot of uncertainty, even though we know it's coming the same time every single year, but there's still this element of unexpectedness to it, right? It's just like, oh my gosh. But you know, from exemptions to write-offs to percentages, there's a lot that can change year to year. So today I'm telling you exactly what to expect and stick around till the end because we'll go over all the nitty-gritty details,

and I'm sharing my number one tax season tip with you guys. So stay tuned. All right, let's start off with eligibility. So you only need to file your taxes if you're eligible. And whether you're eligible for filing a tax return depends on four factors. age. Are you above or below 65? Income. Are you earning the minimum gross income? Filing status. Are you filing as single, head of household, married filing jointly, married filing separately or widow or widower? And dependent status. Can someone claim you as a dependent or do you have dependents to claim? So once you've determined your eligibility and filing status, it's time to gather up all the tax documents and not to sound like a tax. total nerd, but I kind of like this part. Even if you don't understand every detail of the process,

it's rewarding to organize your paperwork, give it to a pro or a tax filing service that you trust, and to check that part off your to-do list just feels really efficient and great. And by the way, if you need to get connected with a pro in your area or you're looking for an easy-to-use online tool, check out Ramsey Solutions.com slash tax to find all the resources that you need. All right, here is a list of documents that the average working adult is required. to submit. So your W-2, which is issued by companies to their employees on payroll. A 1099 issued by companies to contractors or non-payroll workers, mortgage interest statements, investment income statements, and charitable contribution statements and receipts. If you've had a major life change in the last

year, you are required to submit an 8822 form if you've changed your address, like if you've moved, an SS5 form, if you changed your name, a W-4 form to adjust tax withholdings based on your new household income. And finally, if you are a small business owner or a freelance worker, you also may need a 1099K. It shows payments that you received electronically, so like Venmo or PayPal, a 1099 NEC. It shows how much money you made as an independent contractor. A 1099 MISC, which stands for miscellaneous, and it catches any leftover money. that you've made on other ventures. Now that you have all your paperwork,

it's time to choose between the standard deduction and itemizing. So tax deductions or write-offs, lower the amount of income that is eligible to be taxed. Okay, so it takes your income and it shrinks your income, so you're taxed on less of your income. So the standard deduction for 2023 tax year and the taxes at your file in 2024 is $14,600 for individuals

and $29,200 for married couples. filing jointly. So if your individual deductions add up to more of that throughout the year, then you're better itemizing. If not, you can save yourself the hassle of digging through old filing cabinets for receipts and all of this, and you can just take the standard deduction. So some common write-off opportunities that you may apply for are charitable donations. So you can actually write off if you've given your income to nonprofits. So we'll be looking into that. Student loan interest, traditional IRA contributions, classroom expenses, if you work in education, home office expenses or other self-purchased business expenses if you're an entrepreneur

or run your own side hustle. Okay, so those are tax deductions. Now there's also tax credits, and that's another way to lower the amount that you pay in taxes, but they work a little different. So tax credits subtract the amount of taxes that you owe, so then rather than lowering your overall taxable income, like write-offs do. So three common tax credits that people take are medical or dental expenses that exceed the adjustable gross income limits. The child tax credits for 2023, you can receive up to $2,000 per child under 17. And the dependent care credit, so you can receive up to $3,000 per dependent if you have to pay to take care of a child or an elderly parent who can't care for themselves. So the details of the tax filing process, again, are a little tedious, but it's important to

be vigilance. If there's just one thing that I want you to take away from today's episode, it's at the end of the day, you always want your money in your pocket. So if you're receiving a giant tax return every single year, it is time to reach out to your employer and adjust the percentage that they're withholding from your paycheck. Getting money back after tax season, it isn't this cute little bonus or like this free money. It's so exciting.

This was your money all along that was sitting in D.C. Not doing anything, where you could have been using that money to pay off debt or to use on a summer vacation or to invest it and actually make money. I mean, you could have used that money throughout the year, and instead it was just sitting over there completely interest-free. And believe it or not, there's still more to learn about filing taxes,

which is why I recommend if you have a complicated tax situation, work with a pro. There's a reason that people go to school for multiple years and to make it their entire job to help businesses and individuals with their taxes every single year. A pro is always going to know more than you and I do because we are not the overall experts, right? But they're here to make sure that we are giving the right amount of money to the government

and keeping the right amount of money in our bank accounts. So happy tax season, you guys. It's one of those adulting things that, man, we sometimes hate, but it's what we got to do. So being a personal finance expert is great because I get to work with people when it comes to their money. But also being a finance expert is challenging because I get to work with people and their money. And I absolutely love teaching people on how to win with their money. And I'm really passionate about helping people, you know, get to this place financially where they want to be as soon as possible.

But that definitely comes with some heated criticism from the internet. So today I'm back with another piece of financial advice that people love to hate. And that is side hustles. So I've heard it all. But after a decade in this industry talking with literally thousands and thousands of families, I am here to tell you that increasing your income, is one of the most powerful things that you can do to reach your financial goals. And I'll address the haters, answer some questions, and even give you some creative ideas when it comes to having a side hustle, again, that you can use to make progress when it comes to your money.

So first, let's answer a few questions. This person asks, Rachel, my husband works full time and I'm a stay-at-home mom three days a week. As you know, keeping kids is exhausting. How am I supposed to add an extra income stream? on the days that I'm home. So that's a fair question, and I totally get that feeling. And I want to start off by saying that you can actually do something from home. So, for example, take 30 minutes while your kids are napping and clean out a closet or a section of the garage. And before you freak out,

I'm not saying that you have to use all of that nap time, because trust me, I know how valuable that time is for your sanity. But if you can just take a small portion of some extra time and find one or two things that you can sell on Facebook Marketplace, I bet you could score a few extra bucks doing that just for a week or two. So don't downplay the fact that you have so much possibility even just there in your house. And don't get down on the fact that you can't do it. Focus on the things that are possible that you can do right now just to add anything. Any extra money is better than no money. The next question is, I've seen you add an extra $1,000 to people's budgets as a way to get their income up in every dollar. And I think that's ridiculous.

There is no way that a part-time job can earn that much per month. I hear the concern behind this question, so let's just break it down. Let's say you work a full 40 hours a week and nine to five job Monday through Friday. Just two days a week, let's say you get off at five o'clock, take a quick break for dinner, and then you go drive Uber or Lyft from six to nine. On average, drivers are reporting to make around $15 to $30 an hour after maintenance expenses are taken out and tips are added in. So let's just play it safe and say they're making $18 an hour. Well, that adds up to $432 a month just by working an extra three hours two nights a week. Then let's say you grab a retail job on the weekends. You work an eight-hour shift every Saturday and then two Sundays per month, making $14 an hour.

That's $672 per month plus commission. So combined together, you're a week. you're bringing in more than $1,100 per month before taxes and retail bonuses. And maybe you don't need the extra $1,000 a month, but maybe you need an extra $500 a month. That would be a game changer. The point is, figure out what your needs are and then take action to get yourself closer to that goal. So far, we've crunched a few numbers in the budget and looked at some examples of side hustles, but there is more where that came from.

So here are 11 plus side hustles that anyone can do that you may not have considered before. Tudor kids. If you are really smart when it comes to math or English, people are looking for tutors. And again, you may not know everything, but if you are good at a certain level, right, you can help some elementary school, middle school, or even high school students when it comes to coaching them through math or English or whatever they need. So even just make a flyer, post it on social media, let people know that you're doing tutoring sessions. And you can charge per hour. And if you get a handful of clients, you'll be making some good money. Also, teach music lessons. Man, people are looking for someone to teach their kid piano. My friend Jade Warshaw and her husband did music lessons for years while they were paying off six-figure debt. So any skill you have can transfer to other people.

So be thinking about that. Also, think about babysitting, dog sitting, house sitting. Time is money. And that is why you're getting paid to take care of other people's things. So when you're babysitting or a pet sitting or house sitting, offer up your time and that is cash to you. A transcriptionist. So if you don't have transportation to get you an in-person job or you're an introvert or maybe you just want a solo side gig, grab your electronic device and start typing.

There are tons of sites online that will pay you by the hour to transcribe audio into subtitles. Just take a quick typing test and you'll be on the payroll. Thrift and resell items. So we talked about this earlier, but find things in your life you can sell. There's someone on my team who has a friend and she goes to Goodwill. every single day with her two kids and brings in an extra $1,500 a month just by reselling brand name items. I mean, y'all, that is just crazy. Isn't that amazing? So think creatively. Also, clean houses, detail cars. If you are an enneagram one, you love a good detail, you love a good

task. This is for you. You can earn easy money by doing this. You just need some supplies, again, some maybe some tools up front, but man, people will pay for this. Also, start a home organization business. If you are type A, again, this is a great thing. People are looking to have things organized. And you just need a couple of clients. You don't need a ton of people. Just have some people you can go in. And again, it's like kind of that home edit style, Marie Condo style. And it just feels great. You can have a flat rate to organize closets or pantries or playrooms. And it's amazing. People will do it. And then start posting some before and after pictures on your Instagram. Just kind of get that going. You can do it. Turn your hobby into a free gig. So whether you're hairstyling, makeup, photography, party planning, cooking lessons, custom sewing, bartending, DJing, whatever you're good at, someone out there will pay for it.

So don't forget, word of mouth is one of the best ways to advertise. Tell people you know that this is what you're doing. And after you get a few clients, they're going to start talking about you. So it's perfect. But the most important thing to remember is that side hustles that you're earning extra cash, which means you want to be intentional with where that is going. So a lot of people do side hustles to the point, again, to get out of debt or maybe fund their fully funded emergency fund. But for a season, this is a time to work extra and get your monthly budget. I recommend going to every dollar.com, register today, download the app, and really practice getting intentional with your money. So I would, in a perfect world, have you get a side hustle again

for these big financial goals. But if it's in order to have a baseline with just your lifestyle and where you're at, that's going to get tiring. So again, ideally, your main salary will take care of your needs and some of your wants. But if you're getting out of debt or you're building up that emergency fund or you're really trying to attack maybe paying off your house and you want to get a side hustle to bring in that extra money to help with that, this is a great way to go. I have seen a lot of debate on the internet recently about renting versus buying.

So whether it's a home, a car, or even clothes, and furniture, it seems that everyone has a very strong opinion about this topic. And this is definitely something that I get questions about. People want to know my stance on whether it's a smart financial decision to rent. So today I'm going to set the record straight. When is it a good time to rent? What are the pros and cons of buying versus renting? And I'm not just talking about real estate. So stick around to the end to hear my number one favorite and least favorite reasons to rent. There are obviously some money principles that I have a very firm stance on, but sometimes it depends on the financial season that you're in. So first, let's talk about the question that's on everyone's mind, housing.

And this may come as a surprise to you, but I actually think renting a house and buying a house both can be very solid options. If you're considering buying a house, four things need to be true with your money. I want you debt-free, have a fully funded emergency fund of three to six months of expenses. You have enough cash saved for the down payment, so anywhere from $4.4.4. five to 20% is ideal, and that your mortgage is no more than 25% of your take-home pay. So once you have all your ducks in a row, it's time to weigh the other pros and cons. So, for example, here are some pros of buying instead of renting. Well, you actually own your home.

The money that you're putting towards housing every month is ultimately going back in your pocket as your home's value and net worth increase. And you can cash in on your investment. If you buy a home for $350,000 and decide to sell it five years later, with an average 5% annual increase, it will be worth around $447,000. So that gives you almost $100,000 of free money for your next house or financial goal. It also comes with some tax advantages. Many costs of owning a home are tax deductible, like property taxes and mortgage interests.

You have privacy and freedom to renovate, which gives you the ability to truly make it. your own house, and you determine your housing costs. So rent costs go up significantly year to year, which can be a major burden on the budgets. On the other hand, here are some pros of renting a home. More flexibility. It's more difficult to travel and relocate when you own a home. So when you're in a season where you're not ready to settle down, renting might be the best. Less maintenance and expenses. You know, when the HVAC goes out, you don't have to pay thousands of dollars to get a new one. you have to save up cash for a down payment and closing costs. If you have more important priorities with your money,

like paying off debt or getting an emergency fund, a home purchase might need to wait for a little bit. And it's cheaper short term. So, with the exception of popular cities, it's typically cheaper to pay rent than to pay a mortgage. Plus, renting insurance is always cheaper than homeowner's insurance. All right, next, let's talk about another popular renting trend,

vehicles, which is leasing versus buying, is just as much of a debate as it is with the housing market of renting or buying. The only difference is I have a pretty strong opinion with this one, because honestly, I can see why it might be tempting to lease a car. A lower monthly payment for a brand-new car sounds great if you're on a tight budget, but leasing a car is never financially a wise move, and here are some reasons. Unlike homes, cars are a depreciating asset. Any money you're throwing towards that payment isn't actually benefiting you in the long run. There are strict mileage limits. If you go over that limit, then you're charged a flat rate for every extra mile that you drive,

which drastically limits travel options and work commutes and other things like that. Your payments never ends. I'm not a fan of regular car payments either. But at least with those, they eventually end and you own your vehicle. With leasing, you're stuck paying until you return the car. And companies can hike up interest rates and you have no idea how much of that is going towards the payment of the car versus how much you're actually putting away when it comes to the interest payment because they don't disclose that. And dealerships can penalize you for wear and tear,

but you have limited clarity on what those expectations are. They can take one look at your vehicle and determine that you have to pay extra fees because of some vague, fine print in the clause that you are unaware of. Now, these are just a couple of the major downfalls when it comes to leasing a car. And trust me, it is just a money trap. I wouldn't do it. But transportation is a basic need. So here, Here is what I would do instead. I would pay cash for a car. It may not be a great car, but I would get to this point where I don't have car payments. So if you have a car payment and your car loan is 50% or more of your total income, you have too much car.

So again, a lot of people are underwater with their cars right now. So you may, if you sell that, you have to take out a smaller loan for the difference. But I'll get to this point where I don't have car payments because, oh, I hate car payments. You're paying interest on something that's going down in value. So paying for a car in cash, I know that may seem like a crazy idea, but you can get a crappy car for cheap, you guys. So I made a list of $10,000 under $10,000. So I will put a link for it below.

Okay, we've covered housing. We've covered cars. Let's talk about the number one best and the number one worst things to rent. Let's start with the best. If I had to choose, renting an outfit for a special occasion is a solid reason to rent instead of buy. Whether it's a tux for your friend's wedding, or maybe you need a formal gown when it comes, you know, maybe your kids are going to prom or you're going to a nice event. When you go and rent, you know, those pieces of clothing, it's amazing because they're done

after that. Like, it's so great. Instead of spending $500 on a nice, you know, dress for your work Christmas party, you can pay $75, have a great one, wear it one time, and then, you know, let it send off into the mail and it's gone. So I always find that this, is a great place to rents, and it's something I've done in the past, rent the runway, and I think it's great. Because again, if you're going to have a big statement dress, you're probably not going to want to wear it over and over and over, it's fun to kind of pick and choose different ones. All right, the number one, worst thing that you can rent, if you have any guesses, now's the time, because in my opinion, it's furniture. I bet there are some of you that didn't know that this was an option,

but it is an option, not a good option, but a lot of people will lean on this option if they need to furnish a home fast and don't have the cash to pay for everything up front or even, you know, go take out 90 days same as cash to the furniture store. They're rent to own places. And again, this is a alternative that people use because, again, they don't have a great credit score or the cash to be able to buy furniture. But let me tell you, just say no. Instead, ask some friends, you know, talk to family members, co-workers, get some old furniture if you need to redo it, or have a blank house for a while. That's fine. That is better than rent. I mean, my husband Winston and I, when we moved into our first home, I mean, there were rooms that were unfurnished for months, let alone years, because we didn't have the money to pay for the furniture. So we were like, you know what? We're going to just get what we need for now, and then we will furnish as we go. But there is a reason people practically give away their restoration hardware cloud couches on Facebook marketplace because furniture loses value faster than cars and it's never going to be a wise investment to rents. Because also,

there are fees, you know, sometimes interest added into this stuff, like, just stay away from that. Because at the end of the day, your goal is to own what you have. All right, you guys, I hope that that was all so helpful again, renting or behind, going to depend on your situation. But hopefully some of those lists helped you out when it comes to your life and your money. All right, I hope you guys love this episode. Thanks so much for listening. And if you love the show, make sure to leave a review. Your feedback 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 who want to be smarter with their money. All right, thanks again, you guys, for listening.

And remember to take control of your money and create a life you love.