12 Ways To Fix Money Habits Making You Broke, According to Rachel Cruze

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Rachel Cruze is not here to shame anyone when it comes to their money habits. On the contrary, she is here to help and point out that no matter where you fall on the economic spectrum, people have certain tendencies that reflect their socioeconomic status. In one of her Youtube videos, Cruze broke down the 12 habits of broke, average and wealthy people. 

Do any of these sound like you? If so, take note — especially for the wealthy category — to see if there are some practices you should be incorporating into your fiscal habits to reach that next level with your money.

Habits of the Broke

Payday Loans

Cruze noted that those with lower incomes are susceptible to signing up for payday loans. These lenders, in Cruze’s words, “prey on people who are in a crisis financially” with short term high interest loans. Because the interest is so high, the vicious cycle of being able to repay the loan never comes to pass, keeping broke people broke and digging their money hole of debt even deeper.

Instead of jumping into a payday loan, budgeting your expenses and income on a weekly, monthly and annual basis will help you keep track of when money is coming in and going out.

The Lottery

According to Cruze, lottery tickets are marketed disproportionately in low-income areas and trick people into thinking they can win a lot of money instantly. Unfortunately, as Cruze highlighted, the odds of winning the lottery are one in 300 million or in other words, very unlikely.

Because the odds are so high of actually cashing in the grand prize, a smarter move would be to take the money you were going to spend on a lottery ticket and add that amount to a savings account for future use.

Cash Advance

Short-term loans on expected income might appear to be a simple way to get some cash ahead of a paycheck. In reality, Cruze explained that much like payday loans, the interest is so high that the ability to pay back the money becomes a goal that borrows never obtain.

Life can throw financial curveballs at us and we never know when we might need some fast cash, which is why it is important to maintain an emergency fund for a fiscally rainy day.

Rent To Own

Are you looking to buy a couch or refrigerator, you don’t have the money to buy, but you could rent it until you pay it off? Cruze advised against this type of financing strategy because it typically comes with a lot of hidden fees and the price typically exceeds what your purchase is worth by the time it is fully acquired by you.

The idea of owning a home is a bit old fashioned in Ramit Sethi’s opinion and he has a few ideas about why you shouldn’t rent to own, but has a whole YouTube video on why you should not own a house at all.

Habits of the Average

Airline Miles

Cruze called airline miles the “credit card game,” with lots of average income Americans believing they are earning points for travel while racking up lots of charges to get there. The truth, per Cruze, is that you end up spending more with a credit card than if you simply paid upfront with cash that you already have.

Cut up the credit card and create a splurge savings account that you can contribute a portion of every paycheck to that can be spent on fun things, such as airline tickets for a vacation.

Car Loans

This particularly applies to new cars Cruze described, adding that leasing is an equally bad idea. This is due to the fact that a car goes down in value so when you spend money to pay interest on a car loan, you are basically putting it towards a depreciating asset that will not grow your wealth in any way.

Financial guru Dave Ramsey pointed out in a blog post that it’s always the better choice to buy a used car instead of a new one in terms of saving money. Skip the car loan and find a previously driven vehicle that fits your needs and budget.

HELOCs

Otherwise known as “Home Equity Lines Of Credit,” where you borrow on the future value of your home or tapping into equity in your house. Sounds like a solid plan until you factor in that you are only adding more debt to your mortgage.

HELOCs can be tricky to navigate, so consider an alternative route with a lower interest rate such as a cash-out refinance program or a “bridge” loan to cover the cost in between selling your current home and buying a new one.

Buy Now, Pay Later

Cruze observed that this seems harmless: after all, you want to purchase something and have some time to pay it off, so what’s the risk? A buy now, pay later offer tends to give people the impression they have more money to spend than they actually do and drives up debt, which typically goes on credit cards and compounds the amount you owe very quickly.

There’s a simple solution to this dilemma: if you cannot afford it now, save up to pay for it later. You can work a side gig or find an extra income stream to help speed up the process of getting the money you need to buy what you want.

Habits of the Wealthy

Living Below Your Means

Just because you have the money does not mean you need to spend it. Meet your cost of living expenses and enjoy a bit of what life has to offer, but do not overspend on frivolous purchases and use the extra money to save and invest in order to grow your wealth.

Drive Used Cars

Wealthy people tend to drive used cars because the whole point of a car is to get you from point A to B, not to keep up with the Joneses. Cruze urged everyone to utilize this strategy when it comes to car buying, especially used Hondas or Toyotas which are driven by a lot of millionaires.

Paying Your House Off Early

Do not wait to repay the mortgage on your house. Instead, find ways that you can increase your payment amounts or frequencies so that you outright own your house sooner rather than later. Again, Cruze mentioned that when you do not have a mortgage payment that is more cash to save, invest and increase your net worth.

Investing In the Future

“Investing 15% of your income is so important,” Cruze said, citing a 2019 Ramsey Solutions study that found wealthy people tended to invest in their own companies, as well as ventures they believed would evolve and grow in the coming years. Giving to worthy causes and organizations is also part of this. “‘Generosity peace’ is what continues to give you joy as you continue to build wealth,” Cruze added.

Share This Article: