Can I Actually Build Wealth Making $42,000 A Year?

Summary

Summary of "Can I Actually Build Wealth Making $42,000 A Year?"
The Ramsey Show Highlights
Hosted by: Ramsey Network
Release Date: December 11, 2024

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Introduction

In the episode titled "Can I Actually Build Wealth Making $42,000 A Year?" from The Ramsey Show Highlights, the Ramsey Network addresses a listener's concern about achieving financial stability and homeownership on an annual income of $42,000. The discussion delves into debt management, budgeting strategies, income growth potential, and foundational financial principles, all within a concise timeframe of under ten minutes.

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1. Listener's Financial Situation and Inquiry (00:06 - 01:09)

Listener B initiates the conversation by expressing her aspirations and concerns:

• Income and Occupation: She earns approximately $42,000 annually before taxes, working full-time in a children's ministry.
• Goals: She seeks to understand if homeownership and eventual retirement are attainable within her financial framework.
• Debt Status: B mentions having $7,000 in debt, which she is actively working to eliminate, with a projection to be debt-free by June or July. Additionally, she has successfully paid off $12,000 earlier in the year.

Notable Quote:

B (00:06): "Can I reasonably consider home ownership in my future?... I make about $42,000 a year before taxes... can I retire, well, someday and have home ownership as part of my future?"

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2. Assessing Debt and Financial Progress (01:09 - 02:33)

Advisor C acknowledges B's progress in debt reduction:

• Debt Elimination Plan: Commends her efforts in paying down debt and emphasizes the importance of ongoing financial decisions.
• Baby Steps Approach: Highlights the significance of following structured financial steps to build wealth.
• Income Consideration: Points out that the speed of financial progress is closely tied to income levels and potential earnings growth.

Notable Quote:

C (01:10): "You're just walking the baby steps through, which anybody can do. The speed in which this happens is going to be directly reflected by your salary."

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3. Housing Affordability and Budgeting Strategies (02:33 - 03:44)

Advisor C and Advisor A delve into the feasibility of homeownership:

• Housing Market Insight: B is considering homes priced between $80,000 and $120,000 in a small town near Cleveland, Ohio.
• Affordability Assessment: C suggests utilizing a home mortgage calculator to determine what she can genuinely afford, while A reinforces that her income level makes these housing options attainable.
• Additional Income: B mentions having a second job that adds 12 to 14 hours per week, contributing to her overall financial picture.

Notable Quotes:

C (01:46): "And what I would do is we've got a really great home mortgage calculator... put real numbers to these question marks."

A (02:39): "It's very doable on your income."

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4. Future Income Potential and Career Growth (03:44 - 05:43)

Advisor A emphasizes the improbability of remaining stagnant financially and encourages B to consider growth opportunities:

• Income Growth Expectations: A argues that it's highly unlikely for B's income to remain unchanged over 15 years, suggesting that career progression or side hustles could lead to income increases.
• Realistic Outlook: While appreciating B's dedication to ministry, A points out that without exploring avenues for financial growth, retaining the same income level may limit wealth-building potential.
• Encouragement for Advancement: Suggests that gaining expertise and seeking additional opportunities can enhance B's financial standing.

Notable Quotes:

A (03:35): "The probability that 15 years from today... you're doing this exact same thing, making this exact same income is zero."

A (04:45): "If you stay this track exact."

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5. Foundational Financial Principles and Investments (05:43 - 06:40)

Advisor A and Advisor C discuss essential financial principles rooted in biblical teachings:

• Debt Avoidance: Staying out of debt is paramount.
• Saving and Budgeting: Encourages saving money and living on a written financial plan.
• Investment Strategies: Recommends investing a portion of income into a Roth IRA to build substantial retirement funds.
• Lifestyle Considerations: Emphasizes a modest lifestyle as a pathway to financial security, aligning spending with personal values.

Notable Quotes:

A (05:50): "If you do that and start investing a portion of your income into a good Roth IRA, you could have a serious amount of money at retirement."

C (05:43): "You're just committing to a more modest lifestyle at the end of the day. And there's nothing wrong with that."

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6. Conclusion and Motivational Insights (06:40 - End)

The episode wraps up with motivational affirmations:

• Contentment and Godliness: A reiterates the value of being content with one's financial situation while pursuing godly living.
• Actionable Steps: Encourages listeners to create a free budget using the EveryDollar app to take control of their finances.

Notable Quotes:

A (06:40): "Godliness with contentment is great gain."

A (06:40): "Create your free every dollar budget today. The simplest way to budget for your life."

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Key Takeaways:

• Debt Management: Prioritize eliminating existing debt to lay a solid financial foundation.
• Budgeting: Implement structured budgeting to track and manage expenses effectively.
• Income Growth: Seek opportunities for income enhancement through career advancement or side jobs.
• Affordable Housing: Assess and plan for homeownership within the scope of your financial capabilities.
• Investing for Retirement: Start investing early, even modest amounts, to secure a comfortable retirement.

Conclusion

The episode offers a hopeful perspective for individuals earning $42,000 annually, demonstrating that with disciplined financial management, strategic planning, and a commitment to growth, building wealth and achieving homeownership are attainable goals. The advisors blend practical financial advice with motivational support, encouraging listeners to take actionable steps toward financial independence.

Transcript

[A]

Brought to you by the EveryDollar app. Start budgeting for free today.

[B]

I have a question, and it is, can I. Can I reasonably consider home ownership in my future? At my salary point, it is. I make about $42,000 a year before taxes. I work full time in ministry. I love what I do. And my question is, can I retire, well, someday and have home ownership as part of my Future?

[A]

How likely?

[B]

35.

[A]

Okay. All right, cool.

[C]

I think that it's possible. I think that right now you make 42,000, but I can't imagine that your salary will never go up. So I think that there's an opportunity there, but it is going to depend on the decisions you make today. So my first question would be, do you have debt? Tell me a little bit more about your snapshot here.

[B]

Okay, so I do have a little bit of debt. I have about 7,000. I'm working on paying it off. According to my figures, I'll probably be debt free by June or July.

[C]

Okay.

[B]

I've paid off about 12,000 to date so far this year.

[A]

Good for you.

[C]

Very good. Okay. And so after that, you're just walking the baby steps through, which anybody can do. The speed in which this happens is going to be directly reflected by your salary. So I'm not going to say that it doesn't matter. And there's something to that. And then the other part of this is, okay, are we choosing an affordable place to live? You're in Cleveland, Ohio. I mean, what's it cost for you to buy something for. Are you single?

[B]

I am single, yes. And I don't live quite in Cleveland. I live in a small town. I've seen quite a few houses recently for between 80 and 120,000.

[C]

Okay.

[B]

It would be kind of what I was looking at.

[A]

It's very doable on your income.

[C]

And what I would do is we've got a really great home mortgage calculator. It's like, how much home can I afford? And so if I were in your shoes, I'd be trying to put real numbers to these question marks. And I'd say, okay, first things first. Yeah. How long is it going to take me to pay off this 7,000 then? How long is it going to take me to save three to six months of expenses then? And a lot of those equations, if I were you, Rachel, I would reverse engineer them and say, okay, for three to six months of expenses. Let's say I need $10,000. If I do the math on what I'm making now, it's going to Take me X amount of time and then you get to decide, is that time frame okay with me? Because if it's not okay with me, what do I need to do to make that go faster? And even though you're in ministry, I gotta believe that you've got time on your hands to add to your, your income by doing a side hustle. Right?

[B]

I do have a second job. I work about 12 to 14 hours a week in a second job.

[C]

Okay.

[A]

Okay. Hey, what is, what is your ministry? What do you do?

[B]

I work in a children's ministry. We are basically a discipleship program for kids.

[A]

Good, Very good. That's about as worthy a thing as I can think a human can do. Way to go. Proud of you.

[B]

Thank you.

[A]

So here's the thing. The probability that 15 years from today, you're 50 years old and you're doing this exact same thing, making this exact same income is zero. There's no chance, okay, you will either be making some more, you might still be there doing this, but you'll be making some more. But even the probability of that. Just saying, okay, I'm going to be making 52,000, 15 years from now doing the exact same thing. And I'm a 50 year old single lady doing children's ministry at that point. That's fairly low. I mean, you're pretty much Mother Teresa if you're doing that. Okay, you just got the one thing and you stuck with it all the way through. Right. And that's not a bad thing. Mother Teresa's obviously had a good gig. Right. So, you know, that's fine if you go that direction, but it's just not the normal path for a typical person in America. And so what oftentimes happens is that you find other ways to serve children and you scale it and your income goes up and your expertise and your experience becomes more valuable in the marketplace. It might involve a move, it might involve some kind of life change in your situation, I don't know. But typically what happens is that people progress through their life, right? And that includes their income and sometimes it means some stair stepping on their careers and those types of things. So I think that's really your future. I just don't know what, I don't know how to describe it exactly, but I think we can all agree the probability of you being 50 and making exactly the same money, doing exactly the same thing is very low.

[B]

And even if I do, there's a slight increase every year. I do know that much.

[A]

Yeah, but I'm just saying, even that's a slight increase. It's not 42. So the average household income is 78,000 in America. That's household. And that includes a whole lot of dinks, double income, no kids. Okay. So that's calculated into that. So your income is slightly below the average today. And that's not a sin. There's nothing wrong with that. And that doesn't mean you can't do the stuff we just talked about. But you just kind of. Kind of keep that. That's my deal. And then you're in ministry. And the stuff that we teach is biblical principles of finance, which is stay out of debt, save money, live on a written plan. Those are all from the Bible. Live on less than you make. Those are all from the Bible. And if you do that and start investing a portion of your income into a good Roth ira, you could have a serious amount of money at retirement and not have a substantial change in income.

[C]

That's right.

[A]

If you stayed this track. Exact.

[C]

Yeah. You're just committing to a more modest lifestyle at the end of the day. And there's nothing wrong with that. That's your value that you get to choose.

[A]

Yeah. Don't call me. You can't call me and say I was forced to buy a new car.

[C]

Right.

[A]

You can't call me and say I, I was, I was so tired and fatigued from ministry that I, I took a year off and went to Europe. You can't call me and do that. That's not. No, you don't have these options. You don't have the money to do that. So you're in a steady thing and you're going to be a steady person. That. But I like your $80,000, $100,000 house idea. It fits the numbers you're giving me. You're not, you're not being a princess in this, a negative princess in this discussion. So I don't hear that coming from you, but you don't have those options.

[C]

Yeah. You're driving a used Camry for the foreseeable future.

[A]

Exactly. Exactly. And that's not a bad thing.

[C]

It's not a bad thing. I think that those are the choices that we make when we decide, you know, where our passions are going to take us in life, career wise.

[A]

So godliness with contentment is great gain. Create your free every dollar budget today. The simplest way to budget for your life.