The Rachel Cruze Show - Making Money Isn’t Enough—Learn How to Manage It

Episode Date: November 6, 2023

Having a large salary doesn’t mean you’re building wealth, and earning a smaller income doesn’t mean you can’t manage it well. Anyone can win with money if they have the right tools—here’s what to do. What You Get in This Episode: ·     Making $330,000 and Still Broke? (My Reaction) ·     This Habit Is Keeping You Broke ·     How to Find $2,500 in Your Budget   Helpful Resources: ·    Try BetterHelp today! ·    Check out Christian Healthcare Ministries. ·    Start budgeting for free with 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 and Better Help.   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

Making and managing money are two totally different things. You could be making a salary of $50, $60, $70,000 a year and be in better shape than someone who's making $330,000 a year. The best thing that you can do is get in the habit of following a monthly budget. Hey guys, welcome to this episode of the Rachel Crew Show podcast. I'm so glad that you're here. So in today's episode, we're going to talk about how making money isn't the key to building wealth, but how you manage it is.

So I'll go over my five money managing tips that will help you build wealth in the future. But first, let's walk through a call that I took on the Ramsey show recently. That is a true example of this. Take a listen. So about a month ago, Dr. John Deloney and I took a call on the Ramsey show that, well, it was pretty surprising. And again, it wasn't as surprising because we hear the same situation come up over and over again. So you've probably heard me talk about lifestyle creep.

been comparison culture, and these are just two examples, you guys, of a larger problem that we're seeing where people who are making $100,000, $200,000, even $300,000, still feel like they're living paycheck to paycheck. Now, of course, there are certain seasons that are more economically challenging than others, but I am a firm believer that everyone has the ability to take control of their money and make intentional changes that allow them to spend with freedom and peace rather than a place of scarcity. So this couple is a great example of what this looks like in action. So I'm going to revisit this call with you guys today. Give some reactions when I think back because it was just, it was a lot.

So let's check out this call. My wife and I have quite a bit of debt. And so I was wondering how we should start working through that. You have about 150 in car loans and about 280 in student loan. Okay, pause that. Well, I'm about to say it, which is funny because I'm reacting to myself. so I'm probably subconsciously already thinking, but I'm thinking on camera too.

Already, though, $150,000 in car loans, you guys. So just let that sink in for a second. 115 in car loans? 150 in car loans. Okay. Yeah, about 75 on each. Okay. And pause, and I'm thinking right there,

holy crap, dude. I probably should just send that live. That was just going through my head. Okay, we'll keep going. It's been about 280 in student loans. We have quite a bit in home equity. So I was curious, is that something that would be on the table to sell our house and just basically wipe it all out in one fell swoop? Or should we work our way through that?

Yeah, that's a good question. Okay, so pause. So it is a good question because we do get this a lot. We have people that ask us, hey, should I just sell my house and take care of this debt? And again, later in the call, we may talk about this more. But listen, you guys, money problems are never just money problems. It's you problems. It's me problems. It's us that are dealing with it. And if we don't make changes, nothing in our money is going to change. People think, well, if I just had more money, I would be fine. I'm like, no, you would be

handling your money just like you are now, but with more, which means bigger mistakes possibly, right? So you want to be able to say, okay, this is my issue. So just knocking out debt in one fail swoop, you know, not that we're mad at that necessarily, but just know, that doesn't get to the root of the issue. The issue, because you have money problems. And for this guy, is because of the choices they made. And they need to know those choices were not correct. So we need to go back on those choices, feel that sacrifice to feel that change

so that when they start making, actually being able to keep their income, which is a lot, you'll see here in a second. Then they're actually going to be able to do great things with it because they've changed themselves, right? So that's a really key part. We get this question a lot. Should I just sell my house?

Sometimes it is the right move for people, but just know, when you pay off debt in one fail swoop, you're not changing who you are, and that's a big issue. Okay, we'll keep going. Do you guys make a year? A net combined about 3.30. Okay. And for the home, how much do you owe on it? How much is left on the mortgage? About 385.

Okay. And how much would it sell for? Probably near 8. Okay. And why do you have $150,000 in cars? I guess you make $3.30. So I guess that works. What kind of cars do you'll drive? The BMW is one of them. Yeah. And another one is a newer truck. Yeah, I mean, I would expect nice cars.

Yeah, if you're making $3.30. Well, for, yeah, $150,000. Hopefully you're not saying a Honda Civic. I would, I would like assume a B. I mean, I would assume like something. It makes that cool noise. Okay. So, Adam, do you guys have any money in savings? Do you have any cash? Yeah, we do. How much you have? All right. Right now, we have about 10. We're waiting on.

About 30,000 to come in. And what is it? What do you mean waiting on? What does that mean? For an invoice. Oh, okay. Okay. So that'll be $30,000 cash to you. Correct.

Okay, so pause, you guys. $10,000 saved. It's all they have saved. Making $330,000 a year. Now, I know they're about to get $30,000, but that's just some, you know, money coming in from work. That's not them actually taking money out of their budget and putting it aside intentionally.

That's tough. Like, that's a behavior habit problem, as you can see. So crazy. Okay, we'll keep on. How old are you guys, Adam? I'm 41 and my wife is 32. Okay. Do you guys have kids? Yes, one. One kid, okay.

Before Rachel says that, you're the richest broke guy I've talked to in a while. Does that ring true? I guess. You make way too much money to be this broke. I agree with you 100%. Yeah. Okay. So I need you to realize, because here's the deal.

Yeah, you could sell your home, take $400,000, dollars wipe this all clean but adam and his wife are going to keep on living their life the way they have there's going to be no change in this process and mathematically you don't need to sell your house you guys just need to get your crap together and you would also sell your house to pay off two depreciating assets yeah doesn't make any sense man yeah no no no so i would i would stay put in the home and you guys adam i'm like i there's something about you all at this point that i'm like I want you to feel a level of sacrifice. So with this debt, I mean, because you have $2.80 in student loans, you can't afford these cars,

Adam. So I'm selling them. I mean, I'm going to get rid of them. Use some of this $10,000 to buy, you know, or wait for the $30 grand to come in, spend $15 grand on two cars. And again, they're not going to be BMWs in a nice truck. Like, you're going to have a lifestyle shock factor to you all. But I think you kind of need it, Adam.

You guys make a lot of money. you have a lot of debts and something has to change. Your formula is not working. Would you agree? I agree 100%. Yeah. So I mean, I think that's kind of been the realization. Yeah.

Okay, so we'll pause there. So what's wild you guys is when you get into, you know, a lifestyle like Adam and his wife, and you get into your routine and you get into what is normal and you just kind of keep living how you've always been living, you almost get numb to it to a degree because it's all you know. But even though you're numb to it and it's all you know, it still isn't working. And that's when you have to pause and be like, I have to shock this. Like, I have to do something so drastically, radically different to get a totally different result.

Kind of the apathy of just sitting there, you're going to just keep on hanging on to that debt. Like, that's a lot of debt. 280 in student loans, right? So that doesn't just go away. They have to be so focused on it and they're not. It's kind of just been kind of gliding. So if you feel like, oh my gosh, I've just kind of been stuck in this norm and you need to do something radically different. Do it. Make that change. Make that change. Okay, we'll keep going.

You know, you're 41, and I know we can't go back in time. There's a part of me wish that you were 25, because I'd be like, clean this up and you're like going to go. So at 41, it's even that much more urgent to be like, Adam, you guys make insane money. Like, you could do really well. But if you keep living like this, you're not going to. Like, you work too hard and you've worked too hard to have nothing, to have 280 in student loan debt and $150,000 in cars. Like, like, I would, I wouldn't want to make 3.30 and that be my life, right? So, like, there has to be something that majorly changes. So if I woke up in your shoes, Adam, I would sit down and I would say, all right, we're in Phoenix. We make 380. How do we live on 75 grand next year? Like, let's just

challenge. And that's still a really great salary. There's a lot of people that wish they made $75,000. Like, what if we just took majority of our income, sold the cars, paid off the debt? I mean, all this could be turned around in a year, Adam, and you still have your house with your equity. Yeah, I agree. And personally, I've been looking at ways to maybe even increase our income. You can't. I just think y'all freaking need to cut your lifestyle. You can't be just like hanging out and going on vacation all the time. It's just also just for a minute. For a year, for a year. That's all you got to do. I wouldn't up your income. You guys have an amazing income. I think it's your lifestyle. If we look at this, Rachel, that's uncomfortable. It was that 18 months, you go from making 330 and

owing three to 400,000 to owing nobody anything. And he has 30 grand coming in, too. Remember that. Half a million dollars in equity in your house. Like, you flip things around so fast. So fast. You all could be in a completely different month. You're a millionaire in 48 months.

Like, the whole thing rolls over. But you just got to say number again. You just got to do it. You just got to do it. Gotcha. All right. I'm kind of quasi familiar with your guys' baby steps and whatnot. Okay, so.

This is going to make you real uncomfortable, man. That's going to be... So, well, what it is, Adam. I mean, like, honestly, I would... And the baby steps is this. I'm like, I would, it's a $1,000 emergency fund. So you, so you freed up, in our math right now, you freed up nine grands from the 10 grand that you have.

Let's say the 30 comes in. You got 39 grand to use, okay? You sell your cars. I wonder how much, I wonder if you Kelly Blue booked them what you would do, because you're going to lose money on them. You're going to owe some money, probably on it. Get some beaters. And then with your income again, I'm like, golly, and yeah, in 12 months at them,

you're paying off your debt smallest, to, largest, but I would get rid of the cars. And so the only debt you have left is that 280 in the student loans. And you guys start just throwing everything at it. Everything. And yeah, and working extra, I mean, I kind of was like, no, you don't need your income up. Yeah, sure. Work actually. Like, do whatever you guys can to get out of the 280 as fast as possible. But if I were y'all, if I woke up in your shoes, the first place I'm cutting is lifestyle, which is the most painful and not and the most not fun, right? You've been, you've been going out to eat, going on vacations with friends. I mean, I can only imagine your lifestyle. And I bet it's great. And so. fun, but nothing. Oh, we have. And I'm not going to deny that at all. I mean, we weren't so hard to get to that point in life. Yeah. And then my wife graduated. And then we're like, well, we're here. Let's enjoy it. And now we're like. And that's normal, Adam. Yeah, you're not crazy. Yeah, that is normal. That's all of us. But also your results are normal. And normal is broke. Right. So you're waking up to the fact like, oh my gosh, we're just like everybody else. Let's pause us real quick before we in. So we said it earlier in the

but just to go back to you guys. In a situation like this, I'm like how quickly the turnaround can happen. And then how much quicker because they have such a large income comes back to them, where they get to invest more, say, I mean, like, it's just this crazy compounding effect where right now they're stagnant with a lot of debt and they're barely, I mean, they have no money saved. I mean, it's just like this like, we're just spending everything. And that can continue to be their life where they still wake up with so much debt,

even so much income, but so much debt. where if you just take a season, sacrifice it, pay off the debt, all that income is yours. And then that's so much income that it's going to keep building on itself, which is wonderful. And they're going to earn and become wealthy that much faster because of that. So it's like taking your income, throwing it towards crap or throwing it towards a great future, right? And the decision is theirs. But man, this one was like so huge because I'm like, y'all could do so much, so much. Okay, we'll finish the call.

But we literally don't have a, I mean, we don't have much of a net worth, even though we make $330,000 a year, you know? So it's that really simple mindset. But Adam, yeah, stay on the line. And I'm going to give you Total Money Makeover. It's one of our bestselling books when it comes to just the baby steps. You can read it in a night. It's a really easy read. But walk through this process with your wife.

Because, again, I'm so encouraged by your numbers. You guys could have an insane life that's all yours and not tied to the bank anymore. But you guys have to make that decision. Thanks for the call. All right, you guys. I would just encourage you that if you find yourself an end. any level of position like he is now. I mean, make the change, y'all. Make the change. All right. It may sound kind of cheesy, but the process really is where the magic happens.

So again, it's easy to kind of just slap a band-aid on your situation and choose like the get-rich quick move. But listen, that's never going to actually transform your life and who you are. You have to work these steps and adjust the root problem, which is your behavior and my behavior. So remember, making and managing money are two totally different things. you could be making a salary of $50, $60,000, $70,000 a year and be in better shape because someone who's making $330,000 a year. So whether you're making a six-figure salary or an average salary, the best thing that you can do is get in the habit of following a monthly budget.

I recommend every dollar. It is my favorite budgeting app. It is wonderful. So today I'm going to talk about the sneaky habit that's keeping you broke. A survey last year found that 30% of Americans who make $250,000 or more are living paycheck to paycheck. Now, I know that may sound ridiculous to you, and you're not alone, and you're not the crazy one. Only 7% of Americans make $250,000 or more. So the other 93% are thinking, man, if I made $250,000 per year, that would literally solve all my problems. And a lot of people

are wondering how it's even possible to be making that much money and still feel stressed about money. But this isn't completely shocking to me because I've seen firsthand that making money, and managing money are two totally different things. You can be really good at your job, make a great salary, and still have no clue how to manage the money that you have. Now, that's something to be ashamed of. Nobody is born knowing exactly how to handle their money. And debt is so common because managing money,

well, it's a discipline. It takes practice. But with a plan, I really believe that anyone can win with money regardless of your salary. And after teaching about money for over a decade, there are five money management skills that I think every everyone needs to master. The first step is budgeting. Yep, you knew I was going to say it, and I said it, budgeting, but it is the foundation of financial success. It's not there to limit you, but it is there to free you up. It gives you the freedom to spend money. It gives you

the freedom in the short term and the long term when it comes to your income. And it's like a built-in accountability for you. I mean, you're able to look at it and say, okay, am I staying within the range I said I was going to? It's a plan, you guys. It's a plan, you guys. That's what it is. It is so easy to go through life. Get a paycheck, kind of spend it, say, you know, kind of figure it out and keep going and just living that life where you could be doing so much more with your income if you actually had a plan.

So the budget is huge. All right, the second skill is living without debt. So debt from the past robs you in the present. So it is important to stop taking on more debt and start paying it off as soon as possible. And so what happens is you are looking in a rearview mirror when you live with debt. you're paying for things that you've already bought, food, you've already eaten, clothes, you've already worn, vacations you've already taken, and you are living your life like this. And something mentally is different when you live your life like this versus looking forward

and looking in the present, paying for things as you go, or even saving up and paying for things in the future. So I would encourage you to start paying off debt as soon as possible. And this means living without debt. So no more credit cards, no more car payments or student loans. the only thing you can finance that we won't yell at you for is taking you out a mortgage on your home. And that's okay because most people don't have the cash to go ahead and buy a house outright. And it's an investment because it's an appreciating asset.

So that's the one type of debt I will not yell at you for. So after you start working your way out of debt and you start saving up for a home, maybe you even start saving up for your emergency fund, but there are things that you can do in life when you don't have debt. When you don't have payments, your income comes back to you. a lot of people think, how am I going to save this month? Or what about retirement? And they're looking ahead thinking, how am I going to do this?

Well, think about if you had no card payment, credit card debt, student loan debt, think about all that extra income that's freed up. It could be going towards you and your future. All right. The third, money management skill is goal-based savings. So the first goal I want you to save up for is an emergency fund of $1,000. Then, once you are out of debt, you're going to bump up that emergency fund, three to six months of expenses.

So an emergency fund really gives you cushion in life to be prepared for the things that you don't prepare for, right? I mean, stuff happens all the time. And once an emergency happens, you're able to take money out of your emergency fund and pay for it instead of going deeper in debt. So once that emergency fund is in place, then you can also create additional sinking funds for future purchases by slowly setting aside money every single month for that purchase. So maybe it's a car you're saving going to save maybe a few hundred dollars every single month towards that car. So in a year from now, when you replace your car, you have all the money saved. It's all there. You can use it and buy the car. So managing your money with practical goals in mind is really key to this. And usually goals

require saving. So you're able to look in the future and say, hey, let's be intentional with our money. Look in the future and decide whether it's an emergency fund, the sinking funds, or maybe the next thing we're about to talk about. But you're really looking to see where can we put our income to build wealth. So that brings us to the fourth skill, which is investing. So I recommend investing 15% of your income into retirement. So that's your, at 401K, that's your Roth IRA. Anything with retirement and being in that habit of putting money away for it is really, really important. And I understand that it can feel like a black hole, especially if you're younger, you're putting money away and you're like, oh my gosh, am I ever going to see it? Yes,

you will. Listen, and you're putting money aside because when you get to be that age, I'm telling you, or at least I know for me, I'm going to be a lot more bougier at 65 years old. Sixty-year-old Rachel's going to be bougie. She's going to be able to travel the world, enjoy her life, and it's going to be great. So right now I'm just telling myself, yep, 65-year-old Rachel. And then some people are like, well, what if, you know, if something happens to you, you never get to enjoy that money? Well, then it's passed on to your kids or, well, you know, your family tree has changed at that point, right?

So saving for the future is really wise because you don't want to get to that age and have nothing and having to keep working a job that you hate, having to depend on the government. I mean, all of that is not a great plan. So put the control back on you. And I'll say this. Once you've learned about compound interest and how it can grow your money over time, trust me, you're going to want to get to this quickly. So I want you out of debts.

I want you to have an emergency fund to three to six months of expenses and then start saving to invest. All right. Finally, the fifth money management skill is to stick to the plan. So with anything, it's easy to get off track. But listen, these small habits that you're forming right now, these daily behavior changes that you're experiencing, this is going to give you progress. So when you start feeling that momentum, use that as fuel for more progress. So when it comes to your money again, working towards your goals, working on a plan is so big.

And the baby steps, you guys, I'm telling you, this is a big deal. This is a really big deal. And stick to that plan. It is the fastest way to get from point A to point B when it comes to getting out of debt and building wealth. So remember, there is really a massive difference in making money and managing money. If you have more money to spend, trust me, you'll find a way to spend it unless you have great money habits in place. But I promise you, implementing these five skills will help change the game for you. So start with step one, try out a monthly budget with our budgeting app every dollar.

It is a perfect tool. It is wonderful when it comes to budgeting and getting you in the habit for it. Smart money habits. I think one of the biggest myths out there is that if I just had more money, I would give. And I would argue, I think it's more of a heart issue than a math issue. And it's easier to think, oh, well, if I just made, you know, an extra $500 a month, I would give that. Or I could give more.

I could give, actually. When in truth, lifestyle creep, our way of being, you end up just spending up to that line. So when you practice giving, even if it's a little bit, it's who you are as a person. And so that's where the focus is. Now, because money's never just about money. Money is so much a part of who we are. And who we are through this journey is just as important as the numbers that we see on the screen.

So while it feels like you're going backwards because you're giving money away where it could be helping you progress financially, you're going to find more joy in your life when you are giving, when you live your life with an open hand. And that has to be created even when things feel like they're tight. When things are created, even in the sacrifice, that becomes a part of who you are. So as you graduate out of getting out of debt, as you graduate of having your emergency fund and you start funding retirement, and you actually start seeing progress with your money, who you are is still going to be a giver because you're going to be giving all along the way. I know I get pushed back a lot in the comments about this.

And here's the deal of you guys, you're an adult. You do what you want. I'm here to tell you about the ways that I have found that winning with money and how it works. So I'm going to share those with you. And part of that is giving, I believe, because again, it affects the whole person. But you're an adult. And if you think, I don't want to do that, then you don't have to do that. But as a person, I'm telling you you will find more joy and who you are.

That character piece is so crucial. So that's why I always put giving at the top. I say give a little until you can give a lot. So I'd be giving something, is what I would say. So you guys, again, there is a big difference between managing and making money. Yeah, it's huge. And again, you can really look at understanding, okay, here are some really basic skills to put into practice.

And you guys, I'm telling you, they're tried and true. So make sure to do that. All right, if you have enjoyed this podcast, if you will do me a huge favor and leave a review, it is really helpful for us. Subscribe to the podcast, share it with a friend, spread the word. because we want everyone to learn how to take control of their money. Because as you know, like every show, we always say it, to take control of your money and create a life you love.