What Your Habits Say About You

Summary

Podcast Summary: The Ramsey Show Highlights – "What Your Habits Say About You"

Release Date: January 1, 2025
Host: Ramsey Network

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Introduction

In the episode titled "What Your Habits Say About You," the Ramsey Network delves into the contrasting financial behaviors that distinguish the wealthy, the average, and the broke. The hosts explore how daily habits and financial decisions can significantly impact one's financial health and long-term wealth accumulation. Through an engaging dialogue, they provide insightful analysis backed by studies and real-life examples, aiming to help listeners identify and adjust their financial habits accordingly.

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1. Habits of the Broke

The conversation begins by identifying the detrimental financial practices commonly observed among individuals struggling financially. These habits often lead to a vicious cycle of debt and financial instability.

• High-Interest Loans:

  • Payday Loans: Described as prevalent in lower-income areas, payday loans often resemble outdated establishments like old Pizza Huts. With interest rates averaging around 400%, they trap individuals in a cycle of debt.

    “These interest rates, when you actually do the math, are astronomical.” [00:02]

  • Title Loans: These require individuals to use their car as collateral. The high-interest rates and short repayment terms make title loans another form of financial bondage.

  • Cash Advances: Similar to payday loans, cash advances are short-term loans with exorbitant interest rates, further exacerbating debt issues.

• Rent-to-Own Schemes:

  • While seemingly appealing as a way to make payments towards ownership, rent-to-own agreements often come with hidden fees and exploit individuals with poor credit.

    “It preys on people who have poor credit and can't come up with the money.” [01:37]

• Lottery Dependence:

  • The lottery is characterized as a "tax on the poor," where individuals with limited financial means spend money in hopes of a life-changing win. This false hope diverts funds from more productive financial strategies.

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2. Habits of the Average

Transitioning to the average financial behavior, the hosts highlight practices that, while not as harmful as those of the broke, still hinder significant wealth accumulation.

• Chasing Credit Card Rewards:

  • Many average earners expend substantial effort chasing credit card points and rewards, often without redeeming them effectively.

    “23% of people didn't even redeem their rewards in the last 12 months.” [02:27]

  • The gamification of rewards creates a false sense of winning, encouraging unnecessary spending.

• Purchasing New Cars:

  • Buying new vehicles is often justified by perceived reliability and safety. However, this habit overlooks the steep depreciation of new cars, which lose about 60% of their value in the first five years.

    “You've already taken the hit on depreciation.” [02:40]

  • Leasing is criticized as it equates to expensive renting, with consumers prepaying for depreciation costs.

• Home Equity Lines of Credit (HELOCs):

  • HELOCs are marketed as flexible credit options, but they can become burdensome, especially with variable interest rates, putting homes and families at risk.

    “You're putting your home at risk and your family at risk by doing this.” [03:13]

• Student Loans:

  • The hosts express skepticism about the return on investment for higher education, emphasizing that student loans are difficult to discharge, even through bankruptcy.

    “Student loans are not discharged by declaring bankruptcy.” [04:08]

• Whole Life Insurance as an Investment:

  • While marketed as a wealth-building tool, whole life insurance is criticized for being an expensive investment vehicle compared to term life insurance and traditional investment options.

    “Think about how dumb that sounds that you're using your insurance as an investment tool.” [04:14]

• Buy Now, Pay Later Schemes:

  • These schemes manipulate consumers into making purchases by breaking down costs into seemingly manageable installments, which can mask the true financial burden.

    “They divided it out over a year and said, well listen, it's just 36 cents a night.” [05:32]

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3. Habits of the Wealthy

In stark contrast, the hosts outline the disciplined financial practices that wealthy individuals consistently follow to build and maintain their wealth.

• Avoiding Interest Payments:

  • Wealthy people prioritize paying off debts and avoid paying interest whenever possible. Instead, they focus on earning interest by investing in assets like real estate and mutual funds.

    “Wealthy people earn it. That's what they're doing.” [05:56]

• Investing in Assets, Not Liabilities:

  • Instead of purchasing depreciating assets, the wealthy invest in appreciating assets that generate income and increase in value over time.

• Purchasing Used Cars:

  • Even with the financial capacity to buy new cars, wealthy individuals prefer used vehicles to avoid depreciation losses.

    “Most millionaires are driving Hondas and Toyotas.” [06:13]

• Paying Off Mortgages Early:

  • Contrary to popular belief, wealthy individuals aim to eliminate their mortgage debt swiftly, typically within 10.2 years, to free up capital for further investments.

    “Following the baby steps we teach, pay off mortgage early.” [06:27]

• Investing for the Future:

  • A significant majority of millionaires actively invest in retirement accounts like 401(k)s and beyond, understanding the importance of long-term investment growth.

    “8 out of 10 millionaires studied invested in their company's 401k.” [06:55]

  • They commit to consistent, long-term investment strategies rather than succumbing to short-term financial gratification.

• Intentional Financial Planning:

  • Wealthy individuals are highly intentional with their financial decisions, focusing on solving for peace and security rather than immediate desires.

    “They are thinking about tomorrow... If you solve for peace, not for credit card points...” [07:56]

  • Their financial goals are driven by deeper motivations, such as ensuring family security and achieving financial independence, rather than mere accumulation of wealth.

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4. Key Insights and Conclusions

The episode underscores the pivotal role that financial habits play in determining one's economic status. By comparing and contrasting the behaviors of the broke, the average, and the wealthy, the hosts provide a clear roadmap for financial improvement.

• Awareness and Self-Assessment:

  • Listeners are encouraged to assess their financial habits through tools like the "Get Started Assessment" to determine their financial standing and areas for improvement.

• Intentionality Over Impulsiveness:

  • Success in building wealth is attributed to intentional, well-thought-out financial strategies rather than impulsive spending or chasing short-term rewards.

• Long-Term Vision:

  • Emphasizing long-term investment and debt elimination can lead to sustained financial growth and security.

• Purpose-Driven Wealth:

  • Wealth accumulation should be purpose-driven, aimed at achieving peace of mind and security, rather than for its own sake or social status.

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Notable Quotes:

• On Desperation and Financial Prey:

  “If you are constantly waking up on a treadmill of I got to get through this afternoon... There's plenty of people out there that are ready to prey on you.” – Speaker B [01:54]

• On Wealthy People's Intentions:

  “Wealthy people solve for different problems... You're gonna have peace... they're thinking about tomorrow.” – Speaker B [07:56]

• On Financial Worth and Purpose:

  “What are you worth? It's a number. Instead of saying, why?... they're solving for peace, not just living without worry.” – Speaker B [09:03]

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Conclusion

"What Your Habits Say About You" serves as a comprehensive guide for listeners to evaluate and refine their financial behaviors. By highlighting the stark differences between the financial habits of the broke, the average, and the wealthy, the episode provides actionable insights for achieving financial stability and wealth. Emphasizing intentionality, long-term planning, and purpose-driven decisions, the Ramsey Network equips its audience with the knowledge to transform their financial lives.

For those interested in assessing their financial habits further, the hosts recommend taking the free "Get Started Assessment," available in the show notes and description.

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Brought to you by Why Refi. Refinance your defaulted private student loans today at yrefi.com.

Transcript

[A]

Brought to you by why refi refinance your defaulted private student loans [e-mail] Ramsey. You know, John, over the years we talk a lot about habits of the wealthy. Dave's always said, you want to be wealthy, do what wealthy people do. You want to be broke, do what broke people do. That's normal. So I thought it'd be fun to go through some of the actual habits so that people can identify where they're at, whether or not they feel broke or feel wealthy. If you do these habits, you probably fall into these categories. You ready for this? So here's what broke people do. Payday loans, we see these in zip codes with lower incomes. You see these payday, they look like old Pizza huts a lot of the time. This title max and payday loans, these are some of the worst. The interest rates, when you actually do the math, are astronomical. And it keeps people in a cycle of debt with these short term, crazy high loans. And interest rates average 400%. So it keeps them chained. Title loans is another one. We mentioned that high interest loans that require your car as collateral because you have the title of the car buy here, pay here, car lots. You've seen the we tote the note, that's never a good sign. Cash advance, that's another short term high interest loan against expected income. Are you seeing a theme here? Rent to own. So again, they go, well, I'll at least be paying towards something. But most of these have crazy hidden fees. And it might sound like a good idea, but it preys on people who have poor credit and can't come up with the money. And then finally, the lottery. This is known as a tax on the poor. It's a regressive tax. And if you look at who's playing the lottery, it's not people making $100,000. It's people who can barely afford to cover the bills and they're hoping with false hope this is going to be their ticket out.

[B]

So it sounds like here it's. It's a. Like what you just described. If I was to like put a theme over it, it is desperate. I got to get through today.

[A]

It's desperation.

[B]

Just got to get through this afternoon. Yeah, right. And if you are constantly waking up on a treadmill of I got to get through this afternoon, I got through this afternoon. There's plenty of people out there that are ready to prey on you.

[A]

Yeah. But here's the deal. Most people fall into this next category, which is average, okay, normal. And here's what average people do they chase credit card rewards? How many times have we gotten this call? Well, I really. You are spending so many brain calories chasing these rewards, and the companies love it that you think you're winning, that you think you're gaming the system. Recent survey shows 23% of people didn't even redeem their rewards in the last 12 months. And there's a reason they went away from cash back now it's, well, you're going to have a bajillion points. What are those points worth? It's like a Chuck E. Cheese. You have all these tickets. I can't even buy you a, you know, one of those little sticky hands.

[B]

That's ridiculous. The number of things I've bought for Christmas for people online. I get so many emails back. It's like you've now got 5 points with whatever shoes and 5x the point, like what? I don't even know what.

[A]

That it's all been gamified.

[B]

I don't know what, what you're talking about.

[A]

Yep, the next one on the list. This is what average people do. They buy new cars and they go, well, John, it's gonna, it's gonna last longer. It's safer. It's more reliable for my family. Just admit it's for your ego. Yeah, just admit that used cars are less expensive. You've already taken the hit on depreciation. You let someone else do it. We know new cars dropped 60% in value in the first five years. We know the average new car payment is now over $700 a month. And if you're leasing a car because you think it's somehow smarter, you're the dummy here. You're just renting very expensively and you're prepaying all of that depreciation.

[B]

You're pre. You're, you're dealership's depreciation for them on the vehicle they just bought.

[A]

But, John, I don't have to do anything they like. Includes the insurance and. Okay, keep telling yourself that, buddy. Next up on the list is HELOCs. We've seen a big rise in HELOCs over the last few years because people have all this home equity and they get marketed to and they say, hey, this is basically a credit card attached to the value of your home. You're not actually borrowing money. You're borrowing it from yourself. John, it's a great plan. And what are the calls we get? Hey, we're stuck because we have the HELOC on top of the mortgage and it's killing us. And most of these locks have a variable interest rate and you're putting your home at risk and your family at risk by doing this. And of course the next one. This is part of the, you know, the American stew. Here we got the student loans to give a 17 or 18 year old hundreds of thousands of dollars for their business idea of getting this degree to passion marketplace passionate about. Oh my goodness, you're 18.

[B]

I was, I can't even see on the air what I was passionate about when I was 18. I'm just glad I didn't get $100,000 to pursue it.

[A]

We shouldn't. If it was a business, we'd all go at the bank. The bank would go, this is a terrible business idea. What are you going to do with a sociology degree? Socio stuff. Don't do this. There's no way out. Student loans are not discharged by declaring bankruptcy. So you can't even get out of this thing through bankruptcy. The next one that we get a lot of, and this is a very middle class move, is buying whole life insurance. And it's some dude from college who's like, hey, did you know this is what the wealthy do? They buy life insurance and they borrow against it and it's tax free. It's a, it's a wealth hack. I go, dude, this guy just scammed you into thinking that you should be investing through your insurance. Think about how dumb that sounds that you're using your insurance as an investment tool. It's super expensive and we know that term life is a fraction of the cost. And you can invest the difference and be way better off than giving someone fat commissions. Then finally, buy now, pay later. This is when we see average people do. I just saw this on a website, John. It said it was $140 for these PE for this pajama set. And then underneath it had the girl math of 36 cents per night. They divided it out over a year and said, well listen, it's just a, it's 36 cents a night and if you wear it every night, I mean that you're basically making money off of that. So like it's insane what they're doing with buy now, pay later with the marketing tactics.

[B]

I like this here. It says the average person asks not how much does that cost? They ask how much is going to cost me a month and can I make these, this pile of monthly payments? Can I, can I make that less than I make? And people feel like I'm spending less than I make, I'm living less than I like than I earn when their payments all add up to that. Not the total purchases.

[A]

That's right. Broke people ask how much down how much a month. Wealthy people just ask how much, how much? What is the out the door cost, what is the total? And if I can't afford it today in full, in cash, don't do it. That's a surefire way to be wealthy. So this is what wealthy people do. Number one, they don't pay interest. We've said this. Broke people pay interest. Wealthy people earn it. That's what they're doing. They're investing in assets through real estate, through mutual funds, whatever it is, and that's giving them money. Broke people buy things that go down in value and take their money through interest. And so that is a big thing. Their goal is to have assets, not liabilities. Another thing wealthy people do is they buy used cars, even those that have the money to buy a new car in cash and they could light that money on fire on the kitchen table and it wouldn't mess with their world. They still go, why would I, why would I take the hit on depreciation instead of someone else and buy a four year old car? Here's what our millionaire study found. Most millionaires are, are driving Hondas and Toyotas. Not crazy luxury cars, not Lamborghinis. Our millionaire theme hour backs this up. So we may as well have those hours sponsored by Toyota. So reach out, reach out. Next one, John, this is, this one won't shock you. They pay off their mortgage. A lot of people think, well, wealthy people know that you can invest the difference and become very wealthy. So they hang onto their mortgages for 30 years and then refinance for another. Nope, not what we found. They get rid of their mortgage on average 10.2 years, our millionaire study found. And so following the baby steps we teach pay off mortgage early. I don't care if the interest rate is 9% or 2%. Getting rid of that payment allows you to build more wealth. Which brings us to the last one. What do wealthy people do? They invest for the future. 8 out of 10 millionaires studied invested in their company's 401k. 3 out of 4 invested outside of the company plan. They know that investing over a long period of time instead of buying crap you don't need with money you don't have is the key to building wealth. That's it. It sounds simple, but it's so, it's so nuanced because you would think that wealthy people just do what they want and they're not really intentional. And that when you're broke, you have to be more intentional. We found the opposite.

[B]

Well, it's, it's like a. It's. I think the great lie in this country is one day you get to retire so you can quote, unquote, do nothing. And I think people consider wealth. I want to get enough money so I don't have to worry about it. And that's not how it works. And if I was to come up with a theme for the wealthy people, it is. They don't make other people rich and they solve for peace. And so they. A wealthy person. You always want to ask, like I, I want to be a billionaire by 40. And I always want to say, why? For what? So you can sleep at night? Okay. Give your body the opportunity to, to live in a home that nobody could take away from you. Then you're going to sleep, right? Then you're going to have peace. And so they pay off their mortgage. They invest. They know that come what may, I'm going to be okay. Then no one can take my house. Now. It's this idea. It's. They're thinking about tomorrow. Not just this afternoon, not this afternoon. But if you solve for peace, not for credit card points or not for the difference between my 2.9 and my Saul for. I'm telling you, man, there's a. You get wealthy for a reason. You don't get wealthy for the sake of wealthy. And I think our culture has missed that completely.

[A]

We have no why behind it.

[B]

We just judge ourselves. How much are you worth? It's a number. And the answer to that question is never a number. We always are like, okay, what are we worth? What are you worth? What are you worth? Instead of saying, why? And dude, I don't want. I don't care what my interest rate on my house is. I don't want anyone to be able to take my house away. So I'm gonna pay it off, right? And wealthy people solve for different problems.

[A]

That's a good lesson right there. And if you wanna see where you stack up, we have a free get started assessment you can check out. It's a quick quiz to see if you're on track. Go check out the quiz. It's in the show. Notes the description wherever you're listening and click on the title. Are you on track with the baby steps? Good stuff, John. Why refi Refinances delinquent private student loans for struggling borrowers. Learn [e-mail] Ramsey.