The Rachel Cruze Show - Practical Ways to Reduce Your Financial Stress

Starting point is 00:00:05 Money stress doesn't just magically disappear if you have a bigger paycheck. It is about behavior that has to change. And the truth is that bad money habits exist at any income. But good money habits also exist with any income. Hey guys, welcome to this episode at the Rachel Cruz Show podcast. I'm so glad that you're here. So in this episode, we'll chat about a proven plan to reduce your financial stress. Then I'll talk through how you can make your money work for you and earn passive income. but first, I want to share why it's important to pay your mortgage off early and how you can get started. So take a listen. So for a lot of people owning a home is seen as like the ultimate goal, right? Like once you've reached that milestone, I mean, you've done it. You have lived your life. But what if I told you that even after you've accomplished this goal, there's actually more financial progress that you should be working toward? And I'm talking about paying your house off early. That's right. Goodbye.

Starting point is 00:01:06 mortgage. Now, lots of people see the mortgage is the final step, but it's important to remember that if you have a mortgage, debt is still technically in the mix, because mortgage is debt, but it's the one type of debt we won't yell at you for. And in order to truly be financially free is when you fully own your home outright. So today I'm sharing four simple ways to reach that next milestone. But first, I want to talk about the why behind paying off your mortgage early, because, let's be honest, a lot of people, you know, they get their 30-year fixed-rate mortgage, and they just say, all right, in 30 years, it'll be paid off. And in fact, debt.org reports 90% of homeowners choose a 30-year mortgage when they want to buy a home.

Starting point is 00:01:49 And I don't know about you, but I definitely don't find comfort in that stat necessarily of what debt.org has to say. Because while homeownership is a great way to build wealth, it needs to be part of your financial blueprints. You can actually lose money if you don't do it wisely. And FYI, I have an entire video explaining this, and I'll link it for you below so you can check it out. Okay, so now let's get back to the why behind paying off your mortgage and why that should be a goal. Because when you look at the math side of it, you are paying so much an interest. There's a lot of interest that you are paying. And again, if you choose the 30 year and actually leave it out for a 30 year,

Starting point is 00:02:29 I'll show you the math. But it's so much, you guys. There's so much interest that is being paid out on the 30-year versus the 15. So when you actually attack it not just in 15 years, but even less time than that because you're making it a priority, you free up your house payment. And how much money would you have if you didn't even have a house payment? What could you give? What could you save for? What could you spend? It's an amazing thing when you think that you don't owe anyone anything. And that entire house, then all the equity in that house is part of your net worth. You own it outright, which is incredible. Now, before I tell you how you can pay your mortgage off early, let's make sure that you have your money in a really solid place.

Starting point is 00:03:07 Because trust me, owning a home before you're ready can really bring a lot of harm to you when it comes to building wealth and just your overall stress level. Because for a lot of people, you know, they still have tons of consumer debt. They don't have money saved. And they go in and buy a house. And then they realize how expensive home ownership is. And then they realize, oh, my gosh, we don't have the money to upkeep. And if something big happens, especially, like the heating and air goes out or something like

Starting point is 00:03:31 that, you want money saved to be able to help with those things. And especially when you don't have any other debts, you have so much more of your income that can be used as a padding and emergency fund when it comes to homeownership. So again, being in a place where you are, you're debt-free, again, you have an emergency fund. You own a home and you're investing in, you know, for retirement, kids college, all of that. Like, that is a great place to be. So if you have a mortgage and all your other bases are covered, again, you're out of debt and you have a fully funded emergency fund and a good town payment. Here's how you can start paying off your home faster. Number one, make extra room in your budget.

Starting point is 00:04:07 So before you do any of the next three things I'm going to talk about, you want to create some space in your budget. So maybe you lower your grocery spending by 50 bucks a month. Or maybe, you know, you stop going out to eat, maybe one month a year and put that extra money towards savings. Maybe you look at your subscriptions, all 12 of them. And you say there's three here that we don't use. we're going to cancel them, and we're going to take that extra cash that we would be paying in those subscriptions, and we're going to put it in our housing budget. And you really do.

Starting point is 00:04:34 You commit to saying, okay, we're going to do a couple of things just to tighten up the budget and get some margin there. So whatever that looks like for you, again, these little tweaks, they really do add up. And then once you figure out how much margin you have and that extra money that you can throw towards your mortgage, then we're in a really good spot to be looking ahead. And number two, once you have that margin, then I would encourage you to refinance from a 30 year to a 15-year mortgage. Now, you want to make sure the rates are good because some of you have an excellent rate for a 30-year, and it would be insane to do it because the interest rates

Starting point is 00:05:07 again are so high to go to a 15-year. But once things kind of settle out, really do look at this, you guys, because putting yourself in a 15-year mortgage mathematically is going to force you into a shorter window when it comes to paying off your mortgage. But also, there's this idea that, okay, you know, we're going to have a slightly higher monthly payment, but we're going to have a lower interest rate, which is great. And again, it forces you in this time window. And when you're on a plan and you have these kind of strict parameters around you, you end up paying your mortgage off faster than 15 years. And number three is to make extra payments when you can. So if you've ever felt stuck in that paycheck to paycheck cycle, this step can be really daunting. But again, we have the

Starting point is 00:05:46 idea that, okay, we're going to find some margin in our budget and then set a goal to make one extra payment a year. So if your mortgage is $1,500 a month, that means you're going to save $1,000, $25 a month or $29 a week for you to be able to save up an extra payment by the end of the year. And once you've achieved that goal, try making an extra payment every quarter and then every other month and then so on. And remember, you're going to be putting those extra payments towards the principal portion of your loan, aka the money that you owe on the actual value of your home, so you're not just throwing it at the interest. Number four is to downsize if you need to. So the harsh truth is in the real estate industry is that sometimes that people are sold houses,

Starting point is 00:06:25 that they really just can't afford. And if your current mortgage is costing you way more than 25% of your take-home pay, you want to think about downsizing. Because having a lower monthly payment on your house can be such a game changer when it comes to having more margin in your budget to tackle your other financial goals faster. Because if half of your paycheck is going to your mortgage, again, you only have 50% of it to use to invest and save for kids college and do all these other things that you want to do. So when you do this, you guys, I'm telling you in the moment, feel like, oh, I feel like we're just kind of like throwing our money into this like big black hole, but your future self will thank you, I promise. And owning a home is a huge accomplishment,

Starting point is 00:07:06 but it isn't the end of your financial goal list. So today I want to challenge you to take one small step towards paying off your home early. And that really can start with your budget, which if you have not used every dollar, you need to. Because using the every dollar budgeting app, it is incredible, you guys. It is the easiest, fastest way for you to to be intentional with your money, to be intentional with your income, to know where your money's going, and to really achieve your money goals. So go to every dollar.com to start your first budget. Okay, it's possible you guys to pay off your house early. There's some ways to do it. I know, again, it's going to take some intentionality. But this is a huge step forward when you

Starting point is 00:07:44 actually say, okay, I'm not going to just stick to 30 years. It's going to take me 30 years to be off my house. If you kind of condense that and actually have a goal and a plan, it's incredible what you can do with your money. It is so powerful. Have you ever talked to a friend or a relative about their financial stress? And you know for a fact that they make more money than you do. Well, that's because money stress doesn't just magically disappear if you have a bigger paycheck. It is about behavior that has to change. And the truth is that bad money habits exist at any income. But good money habits also exist with any income. So today I'm going to share with you how to reduce your financial stress by 38% with the most proven money habit that exists. Believe it or not, if you stay to the

Starting point is 00:08:36 ends, you will leave feeling less stressed and more in control of your money than you do right now. So stay tuned and see for yourself. All right, the first reason I wanted to cover this topic is because a recent study Ramsey Solutions did. Actually, if you read the book Babysups Millionaires, you know that a few years ago, we surveyed over 10,000 millionaires to find out how the average American is earning mediocre salaries, but achieving this level of wealth. But Ramsey's most recent survey was actually a comparison study. So we were using data for the Baby Steps Millionaires Research, and we decided to compare it to two groups of people, people who follow the seven baby steps and also just the general U.S. population. And we found major behavioral

Starting point is 00:09:22 and emotional differences between the two who managed their money, what we'd like to say, the Ramsey way, and those who handle their money the normal way. So here's a high level view of those results. The general population is three times more likely to find it difficult to pay their bills than people who are following the baby steps. And that's anyone at any level of the baby steps, not just those who've made its baby step seven. And one non-money perk that we found is that people who followed the baby steps are less likely than the general population to lose sleep, cry, or have an anxiety attack due to money struggles. But my favorite stat that we found is that 90% of people working the baby steps said that

Starting point is 00:10:04 they believe they can overcome their money challenges, while only 59% of the general population said the same. So there is a lot more to these numbers that we can throw out and look at, but I want you to get the picture. The big difference in people who handle their money, what we say, the Ramsey Way or the seven baby steps, is that they have a plan. people who have goals and are making an intentional effort to reach them, just one step at a time, will succeed in the end. And they feel like they have these boundaries and they have a plan around

Starting point is 00:10:34 them, which is incredible. Now, let's talk about what your plan should look like so that when you're done with listening to this, you have less money stress than you did when you press play. So the first step towards less financial stress is using a monthly budget. Yep, I say it on here all the time, but it's true. Again, the idea of having a plan around your money gives you less stress, and a budget does exactly that. And if you've never done one before, here are two things I recommend. Number one, download the every dollar app. You're going to be able to really walk through and learn how to do a zero-based budget on that. And number two, look at your expenses from last month in order to say, okay, here's what I make in all these areas of your life. So when you're filling out

Starting point is 00:11:16 the every dollar budget, you can look back on last month and plug some of those numbers in. But remember, the numbers you're plugging in from last month were numbers from you not doing a budget. So they may kind of tighten up a little bit, but that's okay. Because people who do a budget for the first time say they feel like they got a raise. Because you don't realize how much money you're spending extra. So there is power and intentionality around telling your money where to go, which is what a budget is. So the next thing that you can do to become less financially stressed is to use that budget you just created and start following the seven baby steps. So the seven baby steps, it is a plan for you to walk.

Starting point is 00:11:50 through to gain control of your money to get out of debt, to have savings, invest in retirement, all the things. So baby step one is a starter emergency fund of $1,000. Baby step two is paying off all of your debt but your mortgage. So again, that's your credit cards, student loans, everything. And you're going to pay off the smallest one first and then work your way up regardless of interest rate. Baby step three is to bump up that starter emergency fund to three to six months of expenses. Now that you've made it there, you're going to do four, five, and six together. Okay, so baby step four is fund 15% of your income into retirement. Baby step five is the safe for kids college. And baby step six, then is to pay off the house early.

Starting point is 00:12:28 You're going to do all that. And then baby step seven, the last is just to continue to invest, build wealth, and be extremely generous. Okay, so now that you're budgeting and you're following the baby steps, the third thing that you can do to become less financially stressed is to live and give like no one else. So yes, I want you to have the money and the money. And the margin that you need in order to provide for yourself and your loved ones. But I also want you to get to a place where it's not about the dollar amount, but it's really about the mindset shift that allows you to achieve financial peace at any income level. And eventually, out of that state of peace flows generosity. And the way you get to that peaceful, open-handed state most likely is a plan

Starting point is 00:13:09 and sticking to it. So yes, I want you to budget in giving. The research is there and people who have specific goals and are intentional at working towards them, they make progress and they feel an ease about their money. Their finances that may not be fully across the finish line yet, but they have a direction at which they're running, and that is so powerful. So find out which babysat that you're on and sign up for Financial Peace University at ramsysolutions.com. And you guys, there's just extra steps you can take to really get this momentum going when it comes to your money. And I will say it unashamedly that I really believe we are some of the best people in the country to help walk you through when it comes to your money. We have helped millions of people get in control, get out of debt, have savings.

Starting point is 00:13:54 I mean, they're doing this stuff, you guys. So we want to walk beside you. So Financial Peace University, every dollar. These are tools that you need to have alongside your money journey to help you because they're there for you. And we're so excited about it. Okay. let's talk about passive income for a second because it is all the chatter that I hear on social media and all the things in the financial world that really blows my mind though is the fact that this is

Starting point is 00:14:26 possible for you. And the idea that interest is a really beautiful thing, not when you pay interest, but when you earn interest. And once you know that there are specific places that you can keep your money where it can grow completely on its own, your wealth, building power increases. So let's go over different kinds of accounts from lowest to highest interest rate that can help you earn free money. But I have to warn you, you can't just skip to the end of this video and just say, okay, I'm just going to invest in account number six and I'm going to be rich overnight and it's going to be fantastic. There is a method to the madness, but I promise I will walk you through every step of the process. So first, let's start with the most basic, regular run in the mill

Starting point is 00:15:11 savings accounts. So this is definitely not the most strategic financial play, but this is, you know, the right temporary starting point. So when you are saving for the first time, your goal was to save a small emergency funds. And I'm talking about $1,000. Again, your starter emergency fund before you start paying off debts and before you get a fully funded emergency fund of three to six months of expenses. So when you're doing that, again, some of you will put it just in a regular savings account at the bank. But this account, it will not earn you a lot of money, you guys. I mean, a few bucks a year because it has a really, really low interest rates, but it's really secure. And again, it's not one that I really recommend, but you'll earn like 0.08% or something.

Starting point is 00:15:56 Which brings me to the second kind of account that helps you earn passive income, and that is a high yield savings account. So this is one that I really do like. This is where I like for you to put your emergency fund, because, again, when you have a high-yield, yield savings account, you're going to earn more interest. So interest rates right now are anywhere from 4 to 6%, which is amazing. And they stay secure while, again, allowing you to earn a significant amount of money through interest just by letting your money sit there. So for example, let's say you deposit your emergency fund of $16,000 in a high yield savings account and the interest rate is 4.5%. Well, after one year, you'll have an extra $720 in that account. And from there, instead of letting your

Starting point is 00:16:38 $16,000 accumulate interest, you now are going to let $16,720 accumulate interest, which is great. And gradually, it just builds from there. But that is nothing compared to the compound interest that is available to you through investing. So the third type of account that will earn you passive income is a mutual fund. And we've officially made it to the investing stage, which is fantastic, because you start earning interest off of the top, which is fantastic. So basically it's the same kind of principle that we talked about with a high-yield savings account, but this is at a much faster and aggressive pace because you're going to earn more interest in a mutual fund. Mutual funds are professionally managed investments that allow investors to pool their money together.

Starting point is 00:17:23 So there'll be a team of professionals that picks which stocks or bonds or investment options will be included inside of the fund. And as you can probably already tell, this is where it starts to get a little bit more technical. So I really recommend working with a pro when you are investing because they live and breathe the stuff and they will know the best way to guide you through the investment process. So I'll leave a link so you can connect with a smart vester pro in your area if you're ready for this step. Now, the fourth type of account that will earn you money is an IRA. So an IRA stands for an individual retirement account that lets you invest in retirement with special tax advantages. So again, you have traditional IRAs and you also have Roth IRAs.

Starting point is 00:18:02 And I love Roth IRAs because Roth IRAs grow tax-free because you put money into the Roth IRA after you've paid taxes. So you pay taxes on your income you use after-tax money to fund the Roth IRA. And within that, your money grows tax-free and the growth on that. So what is invested within the Roth IRA usually are probably great mutual funds that we talked about earlier. But this is a great place to put your money when you're looking into retirement. And the fifth type of accounts that will earn you free money is a 401K. And typically this option is available through your work and benefits at your work, or maybe it's a 403B if you work for the government or you're a teacher or work within a hospital or a nonprofit.

Starting point is 00:18:41 It allows employees the benefit of having retirement savings taken out of their paychecks before taxes. So as you can see, there are a lot of numbers at play here, so I would highly recommend looking at an investment calculator. You can find one on ramsiesolutions.com. You can start plugging in these numbers, and usually with a 401k, your employer will do a match so they'll match up to 4% or 5% and that is free money. You match with them and it's fantastic. So it's a great option about your money. And again, within your 401k are different investments like mutual funds.

Starting point is 00:19:15 The sixth type of account that earns you passive income is an index fund. So an index fund is a type of mutual fund that mirrors a financial market index like the S&P 500 or even Vanguard. So Vanguard has so many options when it comes to index funds. Those index funds, they include. the S&P 500, which is the 500 top companies that are publicly traded. So you can actually watch what's going on with the economy if you're watching the S&P 500. And for these kind of index funds, again, it's a great measuring stick to know how the stock market is doing, how the economy is doing. And it allows you to invest your own money.

Starting point is 00:19:50 So Vanguard, you can just do this on your own, have a Vanguard account, and they just put your money in index funds and let it go, which is great. So if you want to do some investing yourself, you can do it that way. But I wouldn't use this necessarily. for retirement, I would really want you to focus first and foremost on your Roth IRA and 401K for investing and let that start picking up speed. And then if you want to go above and beyond that, you can look into something like this. So the world of interest, you guys, it's maybe a little intimidating when you're looking at all the investing and all the terms. But remember, this is a step-by-step journey. Ask questions along the way. Have someone by your side to help you.

Starting point is 00:20:26 Again, having an investment professional is so, so helpful. And even if you're starting at step, and you're saving up for that first emergency fund and you're looking at that short-term savings, you're doing something. You are doing something that is getting you in the right direction. And the beautiful thing is, again, this is places that you can just park your money and let it grow. Now, when you hear passive income, some people think real estate and all of that, which is great. I love real estate. If you're going to do real estate investing, just know it's a big gig. Like, this isn't just passive income that you get. You actually have renters and you're dealing with issues. and like it is a thing.

Starting point is 00:21:02 And so I want you to start small when it comes to that. Do all cash when it comes to real estate investing and take your time. But when we're talking about passive income, investing is a great way to look at this. Park your money overnight. It grows.

Starting point is 00:21:15 If you just let it sit there and it's awesome. Passive income is great. Interest is wonderful when you're earning it and not paying it out in debt and that's where I want you to be. All right, you guys, if you love this show, make sure to leave a review

Starting point is 00:21:28 so we can hear your feedback. It really helps us out a lot. and while you're at it, make sure to subscribe to this podcast and share it with your friends and your family who want to reduce their financial stress and make their money work for them. Well, thank you guys so much for listening to this episode. And remember to take control of your money and create a life you love.

The Rachel Cruze Show - Practical Ways to Reduce Your Financial Stress

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