The Rachel Cruze Show - The 7 Stages of Wealth Building (Where Do You Fall?)

Episode Date: December 27, 2024

💵 Start your free budget today. Download the EveryDollar app.     Wealth building is a journey. Let’s talk about the seven stages of wealth building that consistently take people from broke to millionaire so you can see exactly where you’re at and what’s next.     Next Steps:   🎥 Watch my video to find out How I Would Budget $7,000 a Month.    💸 Learn how to build wealth with Financial Peace University.     Connect With Our Sponsors:   🏥 Learn more about Christian Healthcare Ministries.  🔒 Get 20% off when you join DeleteMe.    Listen to More From Ramsey Network:  🍸 Smart Money Happy Hour  🎙️ The Ramsey Show    💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  💰 George Kamel  💼 The Ken Coleman Show  📈 EntreLeadership    Ramsey Solutions Privacy Policy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Well, hey, you guys. So when it comes to winning with money and building wealth, it is a journey. And a lot of us don't get there overnight. So today I'm going to talk about the seven stages of wealth building that I consistently see people that are struggling with their money going from struggling to a lot of peace and control and ultimately building wealth. And as we go through each of these steps, you can actually see where you are in your wealth building journey. But first, do you. me a favor and hit that subscribe button to stay up to day on all the money content that you need in your life. All right, the first stage of wealth building is really at ground level. So the very first thing you're going to do is make sure you have $1,000 in the bank. And this is your starter emergency funds. And why you want to start there is because for some people, maybe they have $1,000, but for 40% of Americans that can't cover a $400 emergency in cash, this is a great place

to start. And in fact, Ramsey Solutions research found that only about half of Americans have $1,000 in savings. So one-third of Americans don't have any savings at all. So again, we see all these stats knowing that even for $1,000 for a lot of people, is a really big win. And so you want to have that first step be attainable, and you want that first step to have a level of importance. That's really crucial because if things come up throughout the next couple of steps, you can always go back to that emergency fund, take money out. if something were to happen, so you don't go deeper in debt. Now, I want you to remember the key word here is starter.

So the starter emergency funds. You're going to build it up later when we get to Baby Step 3, but for now, Baby Step 1 is a $1,000 emergency fund. Baby Step 2, you're going to start getting out of debt. So you're going to list out all of your debts, smallest to largest, regardless of the interest rate, pay minimum payments on everything, and pay off that smallest debt first.

And what's really powerful about this is you're, again, getting some quick wins. So that $1,000 emergency fund, that's your first check. You feel good. You're doing something. You've made a goal. You accomplished it. And then when you pay off that first smallest debt in Baby Step 2, it does something to your confidence. It reminds you that you can make progress with your money.

Now, once that is paid off, you're going to take all the payments you're paying on that smallest debt, roll it over to the second smallest debt. And once that's paid off, you have freed up the middle on payments of the first, the smallest debt and the second smallest debt, all of that rolls the third smallest debt. So it just keeps compounding and you're able to get out of debt that much faster. And when you're debt-free, it's amazing because your income is all yours. Then you get to decide what to do with it. You get to decide if you want to give it, save it, spend it, invest it, you have power again.

Versus when you have all of these payments from, you know, car loans and student loans and personal loans and heli locks and all of these payments going out, your income, then is working for other people and other banks and not yourself. So getting out of debt is really, really crucial. Now, Financial Peace University, FPU, is an amazing tool to help you through this process. And a lot of people on Babysept 2 go through FPU because it is our nine lesson course that helps you understand how to handle your money. And specifically, how to be debt-free and how to live debt-free. Because when you don't have any consumer debt in your life, then you get to move on. to Baby Step 3. And that is where you're going to take your starter emergency fund of $1,000

and bump it up to three to six months of expenses. And so what is great about this part is you have no payments and you have three to six months of expenses saved in the bank. So when things come up, then you are able to cover so many of lives unexpected issues that are thrown at you with that fully funded emergency fund. And this can be from anything from a medical scare to a job loss. And when you get to this point, you find a lot of peace because you don't have payments and you have a lot of money saved, which is so great. And once that is complete, you're going to move on to Baby Steps 4, 5, and 6. And you're going to do these together. All right, Babysept 4 is funding 15% of your income into retirement.

So this is going to look like Roth IRAs, 401Ks, 403B. So just take 15% of your income and you want to put it in retirement accounts. Now, what's great about these specific retirement accounts is they have to be. have tax advantages to them because things like the Roth IRA and if you have a Roth 401k, then you are able to take money out when you get to 59 and a half years old and the growth on that account is not taxed, which is huge, you guys. So again, when it comes to investing, remember, match beats Roth beats traditional. So if you have a 401k at work or a 403B and your employer matches, go ahead and go up to their match, then take the rest of your money over to a Roth IRA and

max it out. And if you do max it out and you still have 15% of your income left, go back to your 401k or 403B and put more money in. But that 15% going to those tax advantage accounts, like retirement accounts, is so huge and so great. So when you're doing that, if you have kids, you also want to do some investing for them. So when it comes to their college and education, you want to start saving for them. So opening up a 529 account or an ESA, which is an educational savings account, are great places to start. because when you are able, if you are able at this step, to help your kids go to college at any financial level, that is such a gift.

Because so many college students take out debt, they go through college, and then they start off their financial lives in a hole that they're having to climb out of. And again, we just see this whole world of education that people just feel emotionally detached in a sense because people pick out-of-state schools or private schools, and they go to expensive institutions when they don't have the money, and so they're deeper and deeper in the financial hole. So if you don't have money saved and your kids are looking to go to college anytime soon, you know, things like a gap year is great to save up in cash flow their college after that, even though I'm going to a community college for a year or two.

So there's ways to still get an education and be wise about it. But if you have young kids, again, being able to save for their college early on is really huge. And these are investments. So that means that they are going to grow over time, which again is a great place to put your money. Now, after you do that, so you have 15% of your income going to retirement, if you have kids, you put a little bit in some college funds. If you have any extra margin, then we recommend throwing it at your mortgage. So getting your house paid off is Baby Step 6, and this is the big one, okay? This takes on average people that are doing this plan, on average nine years.

Now, the average American has a monthly mortgage of almost $1,775. dollars. So if you could imagine that being freed up, which is usually the most expensive line item in people's budget is their housing, whether it's rent or a mortgage, it's incredible to think that you could take that money and give it, invest it, spend it. I mean, it frees up so much and you just own your house free and clear. And when you don't have debts and you don't have a bank telling you what to do with your income, again, you have more options and you have more freedom. But like we said at the beginning of this, this is a journey. Okay. It takes a while. And again, on average, just that one step is nine years.

So you want to enjoy your life during this time, but any extra money you can throw at your mortgage is incredible. Even if you throw an extra payment a year, you can pay your house off four years earlier. So if you were on a 30-year mortgage, then you pay it off in 26 years, right? And if you think about it, you keep making those kind of extra payments

and you get it down so quickly, which is what we want for you. And then once your house is paid off, then you move on the baby step seven. and that is where you build wealth and continue to be extremely generous. So this is a process and a system to put into place. But again, I love this idea because there are steps, there are guidelines, and you can actually follow something tactically when it comes to your money.

Because if you want to reach your goals, having a system in place that helps you do that is really, really important. Okay, so as we've laid out all these steps, it's good for you to pinpoint kind of where you're at and maybe what the next step for you can be. because, again, forward progress is always important when it comes to your money. And this allows you to focus on one goal at a time, which, again, I love because I want you to see progress with your money. So if you want to get started with this, one of the best things that you can do in all of these steps is to budget. That's because budgeting is going to help you

tell your money what to do. So these steps are important, but the budget is the tactical tool that you're going to use every single month to actually get the extra income to throw at the dead. It's actually going to show you, hey, here's margin here. So you're going to use that to fund your baby step one, maybe for that thousand dollars. So whatever it looks like, budgeting is so, so crucial. So I'll put a link to our every dollar budget down below so you can check that out. And if you're new to budgeting, or you want to see how I do it myself, then make sure to watch the next video where I show you how I would budget a $7,000 income per month. or click the link on the show notes if you are listening on podcasts.

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