The Rachel Cruze Show - The Secrets to Staying Financially Stable in America Today

Episode Date: June 5, 2023

Some people blame all their financial troubles on the government, others get stuck in a shame cycle trying to cope with money stress. The truth is, lots of factors affect your money—some are in your control, and some are not. Here’s what you can do to make sure your future is financially stable. What You Get in this Episode:  How Credit Cards Keep You Broke 3 Mistakes That Sabotage Your Finances Do You Still Qualify as Middle Class in America?   Helpful Resources: Christian Healthcare Ministries Carly Jean Los Angeles With Code “Rachel” 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 Carly Jean Los Angeles.   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

There are a lot of smaller money habits that may not seem like a big deal, but they're actually making a huge impact to your progress over time. So I'm going to talk you through three specific things that if you're not doing already, you can start doing today to help you build wealth. Hey guys, welcome to this episode of the Rachel Crew Show podcast. I'm so glad that you're here. So in this episode, we're going to talk about the secrets to staying financially stable in America today. I'll go over how you know if you qualify as being in the middle, class in America. Then I'll go over three mistakes that sabotage your finances. But first, let's talk about how credit cards truly keep you broke. Take a listen. Today I'm reacting to a viral

video called Credit Cards, the business of enslaving poor people. As you can tell by the title, it already explores the really harsh reality behind the credit card industry. And with all the rewards and points and miles that they advertise to us constantly, I know it can be really tempting to sign up for one to get the deal. Because I mean, everyone's doing it, right? But what a lot of people to understand is how banks and credit card companies are able to pull this off by doing more harm to people than you may realize. So let's take a look at this video.

Charge cards and later credit cards tapped into the very essence of human nature and greed. By paying with a credit card, you disconnected yourself from the pleasure of buying to the pain of paying. It makes you emotionally feel like you're getting something for free when logically you know that isn't the case. You guys, right off the bat, this is such a great point, and I totally agree. This has been one of Ramsey's original teachings from the beginning. And personally, I never have or never will have a credit card because I have a debit card. I love my debit card. And I have to admit that when you actually have real money in your account, it feels different.

Like, you know, instead of just swiping a card that's coming from a bank's money you'll pay later on a credit card, it is your money coming out of your account. and then you can go even more extreme in that sense. And when you actually pay with cash, you feel it as well. And on average, people spend 10 to 12% more when they pay with a credit card than they do actual dollar bills. And this is why people still love Dave's OG envelope system in 2023. And so the reason why I created the Rachel Cruz wallet, because when you're trying to get out of debt or you're budgeting for the first time, doing the envelope system works.

You cash out categories in your budget that you're, you tend to overspend and you carry that cash around, divide it up into these categories. And when you spend money in a category, you take the cash out and spend it. And then when the money's gone, it's gone. So, listen, we've been saying this forever. The creator of this video has been saying it, and tons of data backs it up. You spend less when you don't spend on a credit card. All right, this next clip has a lot of the same language that we use here at Ramsey as well.

And it's describing the vicious cycle of credit card spending. It becomes hard to pay off credit cards and debt because of interest. Or you wouldn't want them to have an insanely high interest rates so that even if they only have a tiny bit of debts, they would still be caught in a vicious cycle for life, which would obviously trap poor people the easiest. And credit cards became the perfect vehicle for doing so. It allowed you to apply the same psychology

that traps people into giant loans like for a house, but with everyday purchases. I mean, look at it, it's just a piece of plastic. It's so innocent and pretty. It's just one purchase that I can't afford right now. I'll pay it off until they don't. And before they know it, they've racked up so much credit card debt

that they can barely afford to pay off just the interest every month. Yep. It's another thing companies do to push credit cards is, again, they're a business, they're great at marketing, so they know how to tap into your emotions. And if they can have your favorite actor or musician or athlete, use Chase, then there's a little part of you that wants to as well. Mm-hmm.

Jen Gardner, I love you, but I say, see what you're doing there. I see it. This video is about the dark side of credit cards. However, I'm actually a huge fan of them. I own five credit cards myself, and I have never paid a single cent in interest to credit card companies. So if you play your cards right,

you never buy what you can't afford, you always pay off your credit card every month, you can reap all the perks they give you for free without becoming a sucker. I have to disagree with this one. So the creator says that he owns five credit cards and has never paid interest, so he's able to avoid interest and payments and all that.

but listen, if you have the means to pay off your balance every month, just use a debit card. Because listen, people just get into this mindset with credit cards. Oh yeah, I'll pay it off every month. It's not a big deal. But it's happening and we talk to people every day, every day on the Ramsey show who are struggling with thousands of dollars in credit card debt. And they started out with that intention that I'll pay it off every month. But it's a slippery slope. And the irony is that the creator did such a good job explaining the history of the history. of credit card companies and their tactics,

that he literally proves in the video that this is not a new strategy. Interest always gets the ones who think that they're the exception. So trust me, it's just safer to steer clear credit cards altogether. Okay, this clip does a great job explaining how debt has become such a widespread problem and not by accident.

At the time, most states in the US had a lot of regulations that prevented credit card companies from raising interest rates. But then, one state budgets. South Dakota eliminates its cap on credit interest rates. The state had been cash strapped for decades, and charging more interest was their Hail Mary, their last-ditch effort to avoid drowning in bankruptcy. And it got even better for credit card companies. Just a few years later, the U.S. Supreme Court passes the Marquette decision, allowing banks that export their interest

rates to other states. This was incredibly important, because it meant that if a bank was based in South Dakota and had an interest rate of 25%, they could charge that same percentage all over the U.S. regardless of the interest rate laws in the other states. Effectively, the interest rate cap in other states became meaningless. Suddenly, all the banks wanted to move to South Dakota. And because they could charge a lot more interest, they started offering credit cards to everyone. College students, young adults, the unemployed, everyone gets a credit card.

Household debt increased in the late 80s, 90s, and early 2000s after the Supreme Court passed the bill to allow the interest rate laws in some states to apply to credit card users. and out-of-state banks started targeting college students and the unemployed. So they hired lawyers to sneak in loopholes into the fine print in hopes that new credit card owners would just be blindsided by all these hidden fees. So they use language like zero percent fees for the first year to get customers to rack up credit card debt with no consequences.

And then eventually the debt was more than just purchases that people could afford. It was also interest, not going to. good, you guys. It just kept building and building and building. All right, let's take a look at one more clip. So what kind of benefits do you enjoy these days? I think the most useful ones that I appreciate every day now is airline lounge access. So the platinum card, you get access to Delta Seidclubs and also Centurion Lounge. I think you went to the Centurion Lounge in London. Yeah, for me, I think it elevates that airport experience a lot more. So this person says the main reason he uses credit cards is to get into airport lounges. Oh, you guys.

Listen, I know you know that you're not special if you sit in a certain lounge. Now, are they nice when you get to go in and there's like free food and all that stuff? Yeah, sure, that's great. But to end up spending as much more that we proved on here, like 11 to 18% more, just to have that, is not worth it. So, again, there's such vagueness when it comes to airline points and miles. It can be really confusing. And majority of them, you have to spend thousands of dollars to get very little in return.

So like I've already said, the risk isn't worth it. And it's just worth saying, hey, I'm going to pay cash. I'm going to end up spending less and use that extra margin to go and save up and pay for an airline ticket. All right, you guys, there you have it. There's a lot of sketchy stuff that's happening in the credit card industry. And this is just scratching the surface. So I hope this video made the history and current reality a little clearer. And there are tricks that have been happening behind the scenes for decades.

So at the end of the day, banks and credit card companies are businesses. They are trying to profit, and they're bending pretty low to get something out of you. So, listen, even if you're on Baby Step 7, I still don't support going and interacting with an entire industry that is so corrupt and is profiting off people who don't know better. So listen, the simplicity of just cash for a debit card is a piece of mind knowing that you don't have a credit card bill to pay at the end of the month. and most people who use credit cards for airline perks, forget the rewards anyways, and statistically they end up spending 11 to 18% more. So it's just not worth it.

Today I want to talk to you about three money mistakes that can keep you broke. And once you decide to take control of your money, it can be hard to maintain gazelle intensity from the beginning all the way through. But listen, there are a lot of smaller money habits that may not seem like a big deal, but they're actually making a huge impact to your progress over time.

So I'm going to talk you through three specific things. things that if you're not doing already, you can start doing today to help you build wealth. Now, the first money mistake is investing in things that have no value. Okay, so this could be anything like collectible items or making an unwise stock purchase, buying a brand new car, or a designer bag before you have the money to do so. So when it comes to investing, think old school and foolproof, okay? You should only be investing in things that have a significant proven track record on the return of the investment over time. Now, George Campbell and I talked about this on an episode of Smart Money

Happy Hour, and apparently there are people who will spend up to $40,000 on limited edition Beanie Babies. Mm-hmm. Forty thousand dollars on Beanie Babies, you guys. Oh, my gosh. Now, even if you have disposable income and the listings like this exist on the internet, I'm just still not convinced that this is a wise way to spend your money or to invest your money. And more importantly, it's not safe or dependable in a system like this that you can trust in. It's really not. So there are luxury items like cars and fine art and designer bags. And these things you can do, but only once you reach baby step seven. And you have to be in that position to be able to buy these kinds of things. But to consider these things an investment while you're trying to

build wealth for the future is just not a great strategy. So remember, cars are a depreciating asset. A brand new car loses 10% of its value the moment you drive it off the lot. So until you're on Babysept 7 and a baby steps millionaire, it is not smart to invest a large portion of your income into a car. Instead, once you've paid off all of your debt and you've saved an emergency fund and invest 15% of your income into retirement, that is what we suggest. And you can look at good gross stock mutual funds. So do that. And if your company offers retirement benefits like a 401k match, that's great too. So these kind of methods, like a Roth IRA or 401K, they have been historically proven. There is a track record there. And if you consistently contribute to the stock market

and these investments, as soon as you can, you will be able to see a return on your investment by the time you are ready to retire. And it's also wise to work with a professional who can help guide you. So reach out to one of our smart investor pros to have an expert lead you through this process. All right, the second money mistake I see people make is, not tracking their spending. So you guys, you know, I'm all about a budget. Sometimes I feel like a broken record, because I say it all the time, but I am going to preach to you the benefits of it because not only is just making it important, but maintaining the budget is key. Even when you're on baby step seven, like my husband wants to nine, we still create a budget every single month

and track our expenses daily. Tracking your spending helps you be aware of what you're spending the most money on. So if you need to cut back, you can, or if you know you have a little bit extra here, you can spend in a margin, or if you need to know, hey, I need to pull some from savings. So let's figure out the budget for that. It helps you do all of that. And this also makes sure that there are no surprise expenses. So I can tell you, I hear so many people talk about Amazon charging them twice for the same transaction or a monthly subscription that they've been paying for for years and didn't even know. So when you're looking at your transactions, that is what is so key. And if you need help to know where to start, every dollar is the best budgeting

tool out there. It makes it so easy, and you can create your budget and link into your bank account so you can see every purchase and categorize it exactly how you want. I'll leave a link in the description if you're interested in looking into it. So start tracking your spending today, and I bet you'll be surprised what you find. All right, the third and final money mistake is listening to external pressures when it comes to your money. I wish I could tell you that peer pressure is just a part of middle school passed. But sadly, it can be tough to navigate as an adult, especially when you're working towards a really specific money goal. You know, your friends and family members are going to have opinions about your life, about your kids, about your marriage, about your money, all the things.

But not everyone in your life is walking the same path you are. So it's okay to say no to eating out multiple times week with your friends. It's okay to make different decisions around kid birthday parties or name brand clothes. You are allowed to pause on an inexpensive family vacation if that's what's best for you. But as long as you can communicate your boundaries clearly and stick to them with the people around you, that is key. And sure, it's great to get advice from a trusted mentor who's been in your shoes. But if you've chosen to be intentional with your money, not everybody in your community may feel the same way you do. And you don't have to take every single opinion into consideration. You can filter through stuff, you guys. So just keep

your eye on the prize and stay focused and follow through with the changes that you've decided to make. Your progress will speak for itself in no time. And if you want to learn more about how to push back against comparison culture and create healthy boundaries, I'll leave a link to my book, Love Your Life, Not Theirs. Today we're talking about upper, middle, and lower class, and where you fall based on your net worth. So people have been saying that the middle class is shrinking for a while now, and there's a lot of curiosity and even some fear around this shift. And it's not unusual to hear news outlets or financial corporations place you in a certain class based on your income. But today, we're actually going to look at how your net worth plays a role.

Your income is how much money you bring in from your job each year, but your net worth is actually how much money you have. So in other words, the money you own in assets minus the amount of money you owe in debts. So we're going to talk about what you can do to make sure that you're processing and moving forward with your money, regardless of where you're in debt. you fall in the comparison. So there was a recent article that shared research about the state of the middle class and why it's getting smaller of the last five decades. According to the study, it's because of an increase in the number of adults in the upper

income bracket. So it's gone from 14% to 21% between 1971 and 2021. And while both the lower and the upper classes have expanded, the middle class has either stayed the same or grown more slow. So by comparison to the other two brackets, it appears to be shrinking. The article explains a few reasons why the upper class has gotten larger in recent years. One reason is that adults above the age of 65 had made the most significant jump with their income levels. And this is due to the rising education levels, an increase in the labor force participation,

and the role of Social Security and investing in how that's played in reducing poverty levels in retirees. So that's really great to hear. I mean, a lot of people experience stress and worry around the unknown of retirements. But here at Ramsey, we always stress the importance of preparing for this stage of life by investing. And it's exciting to see that these kinds of money habits are actually working. Another reason for the growth of the upper class is that married adults have been bringing in more money for their households after they combine their finances. And this is another thing that we talk about a lot that once you get married, you want to combine your finances. So all this information is really interesting. It's fascinating, but what does that mean

for you and your money? Well, again, the upper middle and lower classes are usually determined on income level. So this definitely plays a huge part on what you can afford when it comes to your housing, how much you're investing, even your material possessions. But we also know that there are a lot of people who think that purchasing something really big on a credit card or even taking out loans to pay for a car and all of those things means that they can afford it because they can afford the payments, which you guys is not always the case. And you can be making significant income and you're not spending your money wisely at all or managing your money wisely and building wealth. You're just spending it. So there are a lot

of times that large income means that you just get approved for more debt is what ends up happening. and this can decrease your net worth over time. And a lot of people are functioning like this in the upper class, when in reality, they're not there yet. They're literally spending all of their money and deeply in debt. Statistics show that the top 20% of Americans are considered upper class with a median net worth of around $608,000. The next 20% are considered upper middle class

with a median net worth of $201,000. The median net worth of the next 20% is $104,000, which puts them in the true middle class. The next 20% or the working class has a median net worth of $43,000. And finally, the median net worth of the lower class is around $6,000. So this makes me think about the national study of millionaires that we conducted here at Ramsey in 2020, where we surveyed over 10,000 people with the net worth of over a minimum. million dollars. And a huge portion of these people had very average incomes, you guys, by society standards. They were teachers, engineers, accountants, managers. But when you look at their

net worth, their homeownership, their investments, their debt, they actually are worth more than your average upper class citizen when it comes to your income standards. So, again, people can be making way more money but have less net worth because they take on debt versus those we found with the millionaire study. Their incomes weren't crazy, but they may managed it so well. So remember, less than 9% of U.S. adults have a net worth of a million dollars. So if you are doing the baby steps and you're on your way to becoming a baby steps millionaire, then you're already ahead of the curve. And what matters is that you're moving forward. That this should be your main goal is forward progress. Progress can look a lot of different ways,

depending on your stage of life, depending on your financial journey, everything. And the Baby steps are really the best way to make sure that you are progressing forward. And the seven baby steps is a step-by-step way to take control of your money by saving for emergencies, paying off debt, budgeting, investing, and creating margin to be outrageously generous. So to figure out what steps are right for you and what steps you need to take to start the baby steps. Make sure to check out the seven baby steps at Ramsey Solutions.com. All right. So I know there were a lot of stats and figures in that, but I think it's always just interesting to know what's going on economically when it comes to each class and where you fall.

And again, how you can always make forward progress. Thank you guys so much for listening to this episode. If you love this podcast and find it helpful for your financial journey, will you please consider leaving a review? It is so helpful. Make sure to subscribe to the podcast as well. Thank you guys so much for listening. And as always, remember to take control of your money and create a life you love.