The Rachel Cruze Show - Wealth Building Habits That the 1% Swear By

Episode Date: July 29, 2024

💵 Start your free budget today. Download the EveryDollar app! This episode is all about smart money habits that help you build wealth. I’ll explore the concept of "stealth wealth," talk about the perks of sticking with your investments, and break down the 75/10/15 approach to budgeting. In This Episode: ·      What Is Stealth Wealth (and Do You Have It?) ·      3 Reasons to Ride Out the Investing Roller Coaster ·      Does the 75/10/15 Rule Actually Work? Next Steps ·      💰 Find out your investments’ earning potential! Use the Ramsey Investment Calculator to predict your future nest egg: https://ter.li/b0fs9c     Offer From Today's Sponsor ·      🏥 Learn more about Christian Healthcare Ministries.   Listen to More From Ramsey Network 🍸 Smart Money Happy Hour 🎙️ The Ramsey Show   🧠 The Dr. John Delony 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

So apparently, this is how the 1% handles their money, the 75, 10, 15 budgeting method. And listen, I don't want to stir the pot. But as somebody who's been on Baby Step 7 for years now, I will say, I disagree with parts of this plan. Hey, you guys, welcome to this episode of the Rachel Cruise Show podcast. I'm so glad that you're here. So in this episode, we'll chat about the importance of riding out the investment roller coaster. then we're going to discuss the trending budgeting strategy and if it actually works. But first, let's talk about a new trending term, Stealth, Wealth. And if you have it, take a listen.

So there is a popular term going around the internet lately, and it's something called Stealth Wealth. And social media, they love a good rhyming phrase, don't they? Okay, today I want to talk about what this term actually means, and is stealth wealth a good thing? and how do you know if you have it? And the last item on the list that I'm going to share happens to be the number one wealth building tip that I stand behind and you don't want to miss that. Okay, first, what does stealth wealth mean? Well, according to Google, is trying to keep your wealth under wraps by rejecting flashy indicators of affluence and trying blending in instead. Hmm. So it kind of sounds like quiet luxury. You know, we heard that term for a while. or when last year, you know, TikTok told everybody that money talks, but wealth whispers.

And I kind of love that because there is a truth to it, right? Like you kind of joke about like old money and new money and like if you're new to this, you're going to be flashier. But if it's just part of you, you're secure in it, you kind of go more, you know, under the radar. So this stealth wealth term, it's trending. So why should we care about it? Well, I talk about living below your means a lot. And stealth wealth is a really great example of this.

It's really choosing to value the parts of life that actually matter instead of just blowing your money on material things that aren't going to last. And when you spend less than you technically could in certain areas, you know, think about food or clothing, housing, cars, suddenly you have margin for bigger financial goals that are actually going to help you when it comes to investing and saving, even giving. Also, there's just something really great about people who just kind of seem humble, right? There's a level of humility with self-wealth because they're not trying to impress everybody. And we all love that, right? Those are our kind of favorite people in the world, people with humility. And I know you know someone that you were absolutely shocked to find out that they were really wealthy. And you're like, what? That? No way. They're so great. Like, I don't know, just never knew that about them. And that speaks volumes to their character, which is what we love, right? All right. Here are some habits of stealth wealth. Number one, their belongings are worn in and well loved. So no brand new. designer items all the time, like their expensive boots and belts and totes are really worn in, they're used, and they don't feel like, okay, I have to keep it in pristine condition, because let's be honest, they have money to replace it if it breaks, so they're just, they're using their stuff.

Number two, not talking about what you do for a living or how you made your money. So people who are actually doing well financially, they sometimes, you know, keep those details close to the chest because it's, again, it's one of these things that's, yeah, it's a part of their life, but it's not like the number one thing that they're obsessed with. Number three, dressing in nice under-the-radar brands and not flashy logos or patterns. So, you know, you think about like a Birken bag versus a Louis Vuitton. Louis, you got the pattern. People see the loud print.

They know versus a Birkin is like, you have to like kind of be, no, if you know, if you know, if you know, that kind of thing, you know. You know, you think about the juicy couture track suits back in the day. It's like people knew exactly what that was, right? It's very obvious versus somebody that's like, oh, yeah, I'll just wear an Oxford white shirt. without a logo, and I'm good to go. All right, number four, no attention-grabbing posts on social media. So, again, there's no reason to flaunt your awesome lifestyle on social media when you're actually experiencing success in real life.

There's not this need of validation to make sure everybody knows what it is and what I have and here's everything. They're more under the radar and they're comfortable with themselves. We like that. Number five, subtle generosity. So buying other people's dinners, helping out loved ones, you know, with big expenses and things that they're like, hey, you know, they're wise and probably have boundaries, not being taken advantage of, but they also are very generous.

And they're going to take care of those around them. They see people out at dinner. It's like, sure, we'll pick up their bill or we're going to tip the valet person, like, great. And it's just kind of this, you're going to take care of the people around you. It's really great. Number six, secure and confident oozes out of them. So they, like, have something about them where they're very secure. We've talked about this already. But again, there's something about them. There's an insecurity that is created with some people with money and their need for you to know, which again, can be all the flashy logos or posting on social media, every little thing they're doing to be validated. But again, this confidence oozes with stealth wealth. They're good. They're stealth.

Number seven, prioritize health. So prioritizing yourself, meaning taking better care of yourself. And financially successful people, they do that. They use their money to better themselves. So we see that a lot. Number eight, own real art or collected furniture. So instead of printed art from, you know, Target and a plastic poster frame, wealthy, people will have collectible pieces, you know, whether it's art or rugs or furniture or antiques, you know, professional photography that's custom matted and framed. You have a fairly heirloom, that's a piece of furniture. Like, they keep that kind of stuff and they value those kind of things. All right. Number nine, a small circle of trusted friends. So they're smart about who they surround themselves with, and they're very loyal

people. So good company is a hidden secret to success and have control over the influences that you surround yourself with. And people that, again, are very wealthy, and it's more that's stealth wealth, they have good friends. They have people around them that know them. But they're not worried about, you know, what everyone's thinking and being in the end crowd. They have their people. Number 10, they read a lot. Oh my gosh. This is so Rachel. I love this. So successful people financially or otherwise typically are very informed. They're cultured. They're well read. A lot of entrepreneurs, for instance, are very curious people. So we do find that successful people tend to read a lot, which I love. Now, what I choose to read is about murder and all those things. It's my books.

But usually nonfiction, we got to dive into every now and then, you know, so whether it's about money or spirituality or business or leadership, like getting some of those books are important as well. Number 11, they travel light and keep it simple. So just think of Steve Jobs, right? You kind of have these outfits that are pretty predictable, minimal living in a sense, that you're like, yeah, I don't need a bunch of stuff to make me happy. They kind of cut out the excess of things and they're very comfortable with what they have, kind of on a minimal scale, which we love. Number 12, they have regular cars or nice cars in a neutral color. And that's interesting. So this checks out, actually. Ramsey came to the same conclusion years ago when we did our national

study of millionaires, and most net worth millionaires drive out regular cars that they've owned for years. They prioritize putting their money in long-term proven investments rather than depreciating assets like a car. So usually, not always, but possibly the flashier, crazy. the car, you know, that's not stealth wealth and you do question. You know, the guy that's driving the 10-year-old Mercedes, he's just going along. He's great. He doesn't need the new flashy car. All right, now I want to share, though, the one habit of self-wealth that I really believe in.

And I love that this is on the list. Number 13. Wealthy people always follow an intentional spending plan, which is a budget, you guys. See? A budget is for everyone. Whether you're winning with money, losing with money, have a lot of debt. don't, wealthy, not. It's for everyone. And it's the easiest way to get control of your money. So if you need to check out a budget, make sure to check out our budgeting app Every Dollar. It is phenomenal. Seriously,

it is one of these things that you get in your life, you have control over your money, you do a budget, and it is so, so great. So to make sure to check that out, go to every dollar.com slash Rachel and build your first budget for free. So the common thread, though, with this list that I think is important is that when you're truly financially secure, you don't feel the need to announce everything to the world of what you're doing. And if you've ever heard the saying, confidence is quiet and securities are loud, can go for money too. And that's exactly what financial peace is, though. It is being at peace with your money. So you don't feel the need to compare and worry about your circumstances and making sure everyone knows everything, right? It's just this piece that you have with yourself and your

family. And it's a beautiful thing. Have you ever been tip? just not to take investing so seriously. Okay, listen, go with me for a second. Most of us can recognize that saving for retirement is very important, but if you're anything like me, investing 15% month after month, year after year, decade, can start to feel a little redundant. And I was just talking about this on Smart Money Happy Hour the other day because I was like, well, what if I just took a year off? You know, it would be that big of a deal. Come on. We're doing fine. We're doing fine. Okay, because here's the thing, is that you won't fully experience, though, the benefits of investing till later in life. And so sometimes it feels like you're just throwing

your money into a black hole and you're never going to see it again. But deep down, of course, we know we got to stay on track, okay? The consistency is what is really key when it comes to investing. And investing in retirement is the ultimate example of delayed gratification. But it is hard to commit to anything if you don't know the why behind it. So today, we're going to talk about three reasons why you should stay on the investment roller coaster ride. So there was a guy that called into the Ramsey show and he was asking if he could cash out his Roth IRA to pay off his loans. And his argument is that he wouldn't be taxed or penalized. And because of that, it felt like a reasonable thing to do, you know, to get yourself out of debt.

And honestly, I get the urge to want to pay off debt as quickly as possible because you don't want to live in this chaos and stress anymore. You know, you really want to handle it immediately. But it's so important to understand that the money that you set aside for retirement will only reach its maximum potential. for growth if you leave it untouched. And listen, I love to lean into the gray areas of life, but this one is kind of a black and white issue. You should never dip into retirement savings early, and there's really three main reasons for this. The first reason that you should never get off the investing roller coaster is because no one can predict the trajectory of the market. So don't let your amateur investor bros on the internet convince you to like play the game,

and you can hack the system and time the market. You're not so. You're not. supposed to constantly be checking every little movement of the market and pivot because of it. Most of investing, you guys, majority of it is for a long period of time. So you don't go and watch the news and just see, oh my gosh, well today it's this, tomorrow it's that. Oh my gosh, what are this, that? No, investing is for the long term. Slow and steady wins the race. Think about a crock pot versus a microwave. And the earlier you start this and the more consistent you are, the better off you're going to be. So don't let tiny trends or, you know, growth or loss day-to-day throw you off, okay? Just trust the process and recognize that your investments

need time to develop and grow. So whether you've had a 401k for years or you're a total beginner, one of the best tricks that I think is important when it comes to investing is working with a professional. Now, I will say if you sit down with your financial advisor and they're like, hey, this one fund over the last five years, it's not really doing great, but these over here. And maybe you change your strategy within it, which is fine, and that's great to do. But don't let just that day-to-day of what the market's doing throw you off and don't jump off the roller coaster. Stay on. All right.

The second reason to stay on the investment roller coaster is to avoid unnecessary taxes and penalties. So, first of all, investments aren't there to replace your everyday savings. We'll talk about that more in a little bit. But second, taking your money from your money. your investments specifically, whether it's a Roth or a 401k, specifically for retirement, will result in taxes and fees and penalties. So, for example, if you draw money from your 401K too early, there's a 10% penalty plus the taxes on whatever that you've taken out.

And the IRS usually withholds 20% automatically. Now, with a traditional IRA, if you withdraw that money before your 59.5, you get another 10% penalty plus federal and state income tax. on the amount that you've taken out. And just know, you guys, taking money out of things like a Roth IRA or a 401K, you are unplugging compound interest, which is not good. Okay, we do not want that. Now, if you need money, this is why you need an emergency fund.

This is where you have cash available to you sitting in a high-yield savings account, okay? You went three to six months of expenses, so when something comes up, you don't have to go and dip into your investments or your retirement, which, again, is going to take you off the train. you have cash to be able to do that. And again, you want to be able to stay on that investment train as long as possible. So that is why having money in an emergency fund is so key. All right.

The third reason to stay on the investment roller coaster is compound interest. We talked about this a little bit earlier. But you guys, this is the most powerful way mathematically to build wealth. Compound interest just means that your earnings compound over time. So let's run some numbers with the Ramsey investment calculator, shall we? Let's say you start investing $200 a month when you graduate college at 22, when you retire at 65. With an annual return of 10%, you would have over $1.7 million investments, even though you only contributed about $100,000 of your own money in those 43 years. That's $1.6 million of free money, you guys.

I mean, it's crazy. So what happens is you put your money in, so you're $200, you make 10% on that. Well, the next year, you put $200 more in, and you're not making interest on just what you put in. You're going to make it on the interest that you got the year before as well. So what happens, again, that compounding is what is so key. Or maybe you started a little bit later, and so now you're contributing a higher amount every month. So let's say that you invested $800 a month, starting from age 30 and all the way to 65. You're going to have over $3 million in those accounts.

And that means you only put in $336,000. I mean, it's crazy, you guys. The momentum is insane. And you basically, you know, if you get off that investment roller coaster, you interrupt that flow and that growth by cashing out money early. So don't stay in. Play the long game and just picture of like, oh my gosh, you're going to be so boozy at retirement and it's going to be great because you're going to have money to love that boozy lifestyle, which is wonderful. And investing really is a proof that slow and steady wins the race and the earlier you can start the better off you're going to be. I am a fan of investing. do it, you guys. It is like one of the best things that you can do with your money. Let your

interest work for you. So recently, I've seen a lot of chit chat on the internet about the budgeting strategy called 75, 10, 15 rule. So apparently, this is how the 1% handles their money. And the idea is that you save 10%, invest 15% and use the remaining 75% for any and all spending. And I've seen a lot of these videos claiming that this method is the ultimate answer, not just for people who have recently built wealth, but it's also those who are actively working towards their money goals. And listen, I don't want to stir the pot, but as somebody who's been on Baby Step 7 for years now, I'm debt-free, paid off house, saving, investing, giving, all of it, I will say I disagree with parts of this plan. Now, there's some aspects that I understand, and there are some, you know,

pretty major blind spots when it comes to this. So today I'm sharing. how I agree and disagree with the 75-10-15 budgeting method. Now, before we get into the weeds on this, let's make sure that we're all on the same page about what this budget strategy means. Like I said, the idea is that 10% of your take-home pay goes into savings. Every single month, regardless of anything. 15% gets invested into retirement, and then 75% is what's left over for spending. And looking at this philosophy in a simple way, I can really appreciate, that at least there's some points of an intentional plan, right? You're actually doing something proactively, which is great. And at the end of 2023, research found that 51% of Americans said that they

were having difficulty paying their bills. When that's the reality that we're working with, having a plan is huge. But the kind of plan that you want to choose is really crucial. So now I want to unpack a couple of the blind spots that I see with the 75-10-15 strategy. Number one, apparently it's supposed to work for all people at any income, but that's a huge issue, in my opinion, because some people are carrying around thousands of dollars of debt. They shouldn't be doing the same thing that people are doing with a million dollar net worth. So if you make $4,000 a month, that means $3,000 is fair game to spend on what you want. And there's a lack of structure there that's kind of concerning because let's say that you're trying to hold down a $1,500 car payment every month, which is a real thing? We're seeing that on the internet. That means that there's 1,500 left for rents or mortgage food, other costs throughout the month. And when your budget is that broad, it's a recipe for that paycheck-to-paycheck cycle because you don't have an intentional say on where your money's going. And before you know it, you got less than $100 left with half the month ahead of you.

Or let's say that you're working with a higher paycheck and your combined household income after taxes is $150,000. Well, in a month, you'll bring home around $12,500, so 75% of that is $9,400. Now, sure, if you have a big family and your household spending, you know, may come close to that amount, if you factor in mortgage and groceries, utilities, insurance, subscriptions, kids' school, and activities, and all of it. But if you don't have to spend $9,000 a month, why would you want that to be your goal? What if it was like, hey, there's no need to, like, gamify your monthly budget for aiming at 75% of that quota just because. And if you are spending that much, I would recommend getting more specifics with your expenses. So I always recommend the every

dollar budget. It's a budgeting app, and it's great because you do get a good grasp on these little expenses throughout the month, and you know where your money's going to in a very specific way. And again, spending is part of life. This is what you're going to do, but you want to be the one in a driver's seat. All right, blind spot number two. Instead of working with percentages, I always recommend working with priorities. Because percentages never change or adapt to your unique financial needs and your goals, which automatically can slow down your process. So instead, narrow your focus and choose the right goal for your situation.

Managing money according to priority instead will ensure that you're always moving on the right trajectory and you're doing that and not just staying stagnant with the same thing. Now, the first three baby steps are a really great example of this, because baby step one is you're prioritizing a $1,000 emergency fund. So regardless of anything, you're focusing on saving, okay? You're cutting out at any expenses you can. You're not investing. You really are looking at, hey, we've got to get this $1,000. And this is really important because if you don't have that money saved, it can derail your process.

You know, whether you, you know, have a flat tire, your kid needs stitches. So instead of aimlessly saving 10%, just because, you know, you don't have a flat tire, you know, you know, you know, you know, you know, you know, it's having a concrete goal will help you reach it faster. And then you're going to move on to Baby Step 2, which is paying off all of your debt. So student loans, car payments, credit cards, anything like that, you're going to attack everything but your mortgage. And then once you're debt-free, you will be amazed at how much margin that you have when you don't have all those payments. And then after that, you're going to prioritize a fully funded emergency fund of three to six months of expenses. And again, this allows you to have a more substantial cushion in life, which will give

you even more peace. And once you hit that goal, then you switch from defense to offense. And now this is where you can contribute 15% of your income into investing. And that's baby step four. So 15% of your income will go into retirement, which means that for a while when you're working on those first three goals, you're not investing. And some people are like, oh my gosh, Rachel, that's so terrible. But listen, you will catch up, I promise. Investing 15% of your income, you will be great. And I agree with this part of the percentage of the formula, 15%. When it comes to the 70, 10, 15 rule, that 15% of your money should go in to investing. And I love that, but I would do the first three baby steps before I invest. So be thinking about that again. Again, it's priorities. Remember that.

But once you are on baby step four, then you're good to go. Now, baby step four, five, and six can be tackled at the same time. And that's usually over a longer period of time in the first three baby steps. The first three baby steps you're going to do pretty quickly. I mean, I want you to get $1,000, like within 30 days. People are getting out of debt completely in 18 to 24 months, and then they're saving up that emergency fund. So again, it's going to take a couple of years, but you can knock that out. But long term, this is where you're going to be saving for retirement, kids college, and then paying the house off early, which is babysaps four, five, and six. So that's going to be a longer time period. But again, I love the idea of having a budget and knowing, hey, that I'm going to be stretching my

money out to all of these areas. But if you want to make the maximum amount of progress, just take it one step at a time in those first three baby steps, and then the other, the rest of them, you're going to do at the same time. So again, budgeting in general is great, you guys. It's great. But I love a zero-based budget. So make sure you're doing that. All right. I hope you guys got so much out of this show. Thank you so much for listening, as always. And I love to hear your feedback. So leave a review if you can. Subscribe, share the podcast with all of your friends who want to build. build good, wealthy habits when it comes to their money because we want financial peace,

a level of peace in all of us. So thanks again, you guys, for listening. And remember to take control of your money and create a life you love.