If you're like most people, you probably have a love-hate relationship with money.
You love having it but hate having to manage it. And, if you're like many people, you probably have some bills that are just too much for you to pay off in full each month. (What more with debts, right?)
Well, if this sounds like your life, or even if it doesn't, you will want to hear about Dave Ramsey!
Dave Ramsey is a popular personal finance icon. He's been around for decades, and he's known for being blunt, candid, and "in your face" regarding money.
He has his radio show and podcast, and he's offered better advice on managing your money through his books, including his bestseller Financial Peace Revisited.
Dave Ramsey's tips are practical because they focus on changing behavior rather than just giving tips on how to save more money or make more money (although those are important too).
His advice works so well because he focuses on changing the way you think about money so that you actually feel motivated to save, earn, and budget.
But before we head to the best tips from Dave Ramsey, He also started Baby Steps.
Dave Ramsey's Baby Steps are a great way to get out of debt. They're also a great way to save money, invest for retirement and build wealth.
If you don't know much about his plan, it is broken down into baby steps:
Baby Step 1: Save $1,000 for Emergencies
Baby Step 2: Pay off all your debts
Baby Step 3: Save 3-6 months' worth of expenses
Baby Step 4: Invest 15% of your income for retirement.
Baby Step 5: Save for children's college fund
Baby Step 6: Pay off your mortgage early.
Baby Step 7: Build wealth and give
15 OF THE BEST DAVE RAMSEY TIPS
- Trying out a zero-based budget.
The first step in building wealth is to create a budget that works for you and your family. Dave Ramsey recommends creating a zero-based budget where all income is accounted for — not just the money that comes into your checking account each month. This includes any extra income from side hustles like driving for Uber or Airbnb hosting.
- Use cash on purchases
In order to stick to your budget, it's important to pay with cash whenever possible. This helps limit impulse spending and keeps you from overspending on small items like coffee or lunch.
Cash envelopes are a way to organize your money and track how much you spend. Using cash makes it harder for you to overspend since the money is real and can't be easily replaced with credit or debit cards.
Using cash forces you to think about each transaction and how much it will affect your bottom line in the long run.
- Prioritize necessities first
Dave Ramsey advises prioritizing necessities over luxuries when making purchases for your home or family. This can be difficult because we all have different ideas of what constitutes a necessity versus something we might want but don't need right now (like a new car). However, once you've decided what's most important, make those purchases before anything else!
- Sacrifice now, Enjoy later.
Dave Ramsey always says, "Sacrifice now for enjoyment later." What does that mean?
When you are making your budget, you want to prioritize your spending. The "four walls" (food, shelter, clothing, transport) are the most important things we need to survive and get to work. These things come before anything else.
- Do not focus on your credit score
One of the biggest mistakes people make is obsessing over their credit score and trying to get it as high as possible by paying off old debts and paying their bills on time. While this may help in the long run, getting a reasonable interest rate on loan or mortgage isn't necessary.
If you want a reasonable interest rate, focus on paying off all of your debts aggressively so that there are no late payments and collections accounts reported on your credit report by lenders.
- Saving $1000 before paying off debt
This is a little tip that can really help you make a solid start on your debt-payoff journey.
Saving $1000 is the first baby step in Dave Ramsey’s plan. Making your zero-based budget and catching up on your necessities is the groundwork for the baby steps.
- Pay off debt using the Debt Snowball Method
One of the best Dave Ramsey tips is the Debt Snowball Method. This method will help you pay off your debt as quickly as possible by focusing on one debt at a time and then moving on to the next.
The best way to use this method is to write down all of your debts in order from smallest to most significant, with the smallest being at the top of the list. Once you've written them down, make sure you don't change their order for any reason!
Now it's time to start paying off your debts. When you receive money from an income source (like a paycheck), put it toward paying off one debt at a time until it's paid off completely. Once that happens, move on to the next and repeat this process until they're all gone!
- Make use of Sinking Funds.
One of the best Dave Ramsey tips is to use Sinking funds. This is a way of taking the money you're saving and putting it in an account set up specifically for one purpose. This fund allows you to set aside money in your budget for things that may not happen for a while.
For example, if you want to buy a house, you can create a sinking fund with money from your monthly paycheck that goes toward your house. That way, when the time comes to make a down payment, you have the cash ready and waiting.
- Start saving up for emergencies
Save for emergencies by setting aside three to six months' worth of expenses in an emergency fund that is not connected to your checking account. If ever you lose your job or something else happens, you will not have to use credit cards to pay for it because there won't be any available credit left!
- Act your wage
You've probably heard Dave Ramsey say this one before. It's one of his favorite tips for getting out of debt. He often speaks to "act your wage," and it's a great tip for anyone trying to manage their money. Here's what he means: live within your means!
If you want to be successful, you need to live within your means. That means spending less than you earn and saving all of the difference. If you can't do that, it's time to reevaluate your life choices because that's a pretty good indicator that you're not on the right track.
- Stop using debt
You don't need rewards. You just need to stop using debt.
Dave Ramsey's baby steps are meant to help you get out of debt and live a life free from debt. This means no more credit card purchases, not even when they're "rewarding."
Do you know what's rewarding? Paying off that debt and watching your bank account grow. The only way to do that is by not spending more than you have, and the best way to make sure you don't spend more is by not using credit cards.
- 15-year mortgage rule
See, Dave Ramsey is a realist. He knows that sometimes you have to take on debt to get ahead, but he also knows that if you can't pay it off quickly, you will be in trouble.
He recommends a 15-year mortgage that is not more than 25% of your take-home pay with 20% down.
This way, you'll be paying off your mortgage in half the time and will have no problem getting rid of it by the time the kids are grown.
- Tell your money where to go, or it will leave you.
When Dave Ramsey says you have to "tell your money where to go or it will leave you," he means that you have to be in control of your money, or it will control you.
It's not a matter of whether or not you're good with money—it's a matter of whether or not you have any. If your finances are out of control, then they're controlling YOU. The only way to take back control is by starting budgeting!
There are a lot of ways to start budgeting. It can be the 50/30/20 rule, using these super easy budgeting spreadsheets, or even just setting up a checking account and keeping track of your spending.
- Cut up your credit cards.
This is a tip that Dave Ramsey has been giving since the beginning of his career as a financial guru, and it still holds today. If you have more than one credit card, you're likely spending more than you realize because of all the interest rates and fees they charge.
The reason this tip is so important? Credit card debt is one of the biggest reasons people have trouble paying off their debts. Spending money on interest charges will take you longer to get out of debt—and sometimes even longer than you think!
- Give Generously
Dave believes that giving is one of the best ways to save money. He also believes that giving should never be done out of obligation or guilt; only do it if you want to give something away!
You've probably heard this one before, but it can't be said enough: Giving is good for the soul. When you give generously, you invite new opportunities and experiences into your life. Your generosity comes back to you in ways that are often unexpected (and always appreciated).
I know, I know. You're thinking, "but I'm not a math person!" or "I don't know how to start budgeting!"
The truth is that Dave Ramsey's tips and common sense advice will help you manage your money and build long-term wealth. He has helped millions of people pay off debt and live the life they want, and he can help YOU too!
This is all about changing YOUR behavior, even if you suck at budgeting. Especially if you have debt, living within your means, avoiding debt, and investing for the future will help you build a legacy for your family and future generations.
You CAN do this!
