If you have been looking around on the internet for advice on how to manage your money, or how to get out of debt, you have probably come across Dave Ramsey. He gives great advice on how to gain control of your money and ultimately reach financial freedom. And, when you are just starting on this journey toward financial freedom, learning from others who have done it is the perfect place to start.
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Who is Dave Ramsey?
Dave Ramsey is a personal finance influencer, coach, mentor, and guru. He teaches people how to change their finances and ultimately change their lives. He is most known for making the debt snowball method of getting out of debt very popular, and for his 7 baby steps.
Dave’s advice works because he focuses on teaching the individual to change their behavior. When you can change the way a person thinks about and uses their money–rather than the math involved in dealing with money–that is when true change can happen and people can win.
What are the 7 Baby Steps?
The 7 baby steps are Dave’s philosophy on how to get out of debt and obtain financial freedom and, ultimately, wealth. He breaks the large goal of financial freedom up into 7 smaller steps that are easier to attain and allow people to see success and that they are winning with money.
Step 1. Save $1000 as a starter emgency Fund
Step 2. Pay off all debt with the debt snowball
Step 3. Save 3-6 months of expenses as a full emergency fund
Step 4. Put 15% of your income towards retirement
Step 5. Save for College Education for Kids
Step 6. Pay off the Mortgage on your house (early!)
Step 7. Continue to build wealth and give.
You can learn all about the 7 baby steps in Dave’s book, The Total Money Makeover. This is the book I read right after Mr Dentist finished Dental School and I was determined to find a way to get out of the dental school loans as quickly as possible. It really worked. So, if you haven’t read it, I highly recommend it.
20 Best Dave Ramsey Tips and Tricks
Dave gives lots of pieces of advice in his podcasts, radio show and conferences. It can be hard to get it all and the baby steps listed above just scratch the surface. So I have compiled 20 of the best tips Dave Ramsey gives to help people get control of their money and live the life they want.
1. Be Intentional
It is so easy to wander into bad financials decisions and debt. But it is impossible to wander your way out of debt. Dave always says to be intentional with your money and your decisions. You arrived at your point in life based on a number of decisions made in the past. Make good, intentional decisions moving forward so that you can win and create the life you want. It doesn’t just happen–you have to do it on purpose.
2. Get on a Budget
This one is pretty obivous, but SO VERY important. In order to win with money, you have to get on a written budget where you detail out where your money is going. If you don’t have a plan, you can’t make progress. Your budget is that plan. Dave recommends utilizing a zero based budget where every dollar that comes in is given a job to do so that income minus expenses=$0. If you still have money left over then you need to find a job for it to do. Tell your money where to go so you don’t wonder where it went.
3. Pay with Cash As much as possible
When you are first starting out on this debt free journey, it will be easier to keep track of your money if you pay with cash instead of a card. It is so easy to just swipe the credit card and not think about how much is being added to the card balance with each transation. With cash you really have to think about how much is going out and seeing it leave actually hurts more. So use cash to pay for things whenever possible. You won’t want to spend as much when you see the actual cash leave your hand.
4. Don’t buy a new car
This could be a new off the lot car or a new to you car–if you can’t afford it. How do you know if you can afford it? Can you pay cash for it? If the answer is “no”, then you can’t afford it.
Furthermore, cars and other vehicle type items, go down in value. So you don’t want to be paying on a loan for an item that is qucikly losing its value.
When it comes time to get a new (to you) car, find one that you like and for a good deal. Then look at your budget and figure out how much you could save for that car each month. Take the monthly amount you can save and divide it by the price of the car. WIth this number you will know how long it will take you to save up for, and buy, the car. This is a longer way to do things. BUT you won’t take on more debt and the car will be yours free and clear.
5. Don’t lease a car
On the same thread as the above tip, don’t lease a car. This is the single most expensive way to drive a vehicle. You make payments every month to the car company and at the end you don’t even get to keep the car, unless you pay them even more to actually buy it!
If you want to win with money, you need to have access to as much of your money as possible. Pay for your car(s) with cash and stop sending car dealerships so much of your hard earned cash each month.
6. Use the debt Snowball to Pay down debt
This tip was such a big help in our debt payoff journey. The idea behind the debt snowball is that you list out all of your debts smallest to largest by amount owed. (Don’t worry about the “math” of doing highest interest rates first.) You pay the minimum amounts on all of the debts, except the smallest. Attack the smallest debt with any money you can find in your budget. Once the first debt is gone, take the amount you were spending on the first debt and add it to the minimum payment for the second debt. This new combined payment is now what you pay on the second debt, until it is paid off. And you keep doing that until all of the debts are paid.
I can personally tell you that this method works! Again, it is about changing behaviors. And when you see those debts start to fall off the radar because they have been paid in full, you get excited and energized to keep going.
When we were paying off Mr Dentist’s dental school loans, we had 17 individual loans to pay. We could have consolidated them into one big loan with a smaller interest rate. But I wanted to see our progress as each smaller loan was systematically eliminated. Each time we paid off a loan we had a little celebration. Take advantage of the small wins to keep your momentum going towards to big wins.
7. Get Life Insurance
Life happens. And sometimes that results in events that are not planned for and tragic. The best way to protect your family and/or loved ones is to get life insurance to take care of them, in the event of your passing. There are too many stories of spouses dying and leaving their family with nothing but grief and debt. Don’t do this to your family. Give them some hope. And when you do get insurance, get Term Life Insurance. It is affordable and your family will get the full benefit in the case of your death.
8. Learn to Cook and Eat at Home
This is a tip that will help with sticking to your budget. Food is already a large portion of any household’s budget. And eating out can be a huge factor to that amount. If you can learn to meal plan for your family and cook and eat at home, you will save an enormous of money each month. Dave is famous for saying “You shouldn’t see the inside of a restaurant unless you are working there”. And it is so true. When getting out of debt, pare down your expenses as much as possible to free up as much as possible to pay down debt.
9. Have an Emergency Fund
Doesn’t it always happen that you decide to work on your finances and get your money under control and then a curvenball gets thrown your way. And that curveball usually results in some kind of unexpected bill. This happens A LOT. But if you have an emergency fund, this curvenball does not have to derail your plans. Dave recommends starting with a $1000 emergency fund while you are getting out of debt. Most of the time $1000 will cover an unexpected expense and see you on your way. Once you are out of debt, then you will want to beef up that emergency fund to cover 3-6 months of your household expenses. But, when starting, work towards saving that first $1000.
10. Lower Expenses
When you are working on your budget, do what you can to lower the amount of money that goes out every month. Are there “extras” that you are paying for that you don’t need right now? Some examples might be cable, a gym membership, regular trips to the salon, extra streaming services, eating out, etc. Find where you can lower expenses so that more of your money can go towards your financial goals and dreams and you aren’t left wondering where it is going.
11. Increase Income
Sometimes there just aren’t enough expenses to cut from your budget and your budget still needs help. In that case, it is time to increase your income. You can start by asking your employer for a raise. Hey! The worst they can say is “not at this time” right? But it is a good place to start if you already have a job. The next idea is to take on a part time job or start a side hustle. There are lots of opportunities (and more popping up every day) for earning some extra income on the side. Yes, it takes time. But, again, it doesn’t have to last forever.
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12. Don’t Borrow Money from Family
Really, Dave doesn’t want you to borrow money at all. But he is especially against borrowing money from family. Thanksgiving dinner feels a whole lot different when you are sitting across from someone you owe money to. Borrowing money from family adds an entirely new strain to any relationship, no matter how good the relationship started out. Suddenly the family member could start judging the way you live/spend your money. And there will always be that nagging feeling about the money you owe them when you see them. If the opportunity arises to borrow money from family, thank them for the offer and their generosity and then politely decline. Don’t put a relationship at risk over money.
13. Investing is a slow and steady journey
Dave Ramsey encourages people to start investing (after they are out of debt) into good mutual funds. He does not recommend trying to time the market, or purchasing single stock options or adding any more risk than is necessary to your investing journey. He recommends investing slowly and consistently into the market. This is the method he used to become wealthy and the method thousands of people have used to become an Every Day Millionaire. There is no “get rich quick” method. It is a slow, deliberate, consistent effort that yields good results.
14. Don’t Use a 401(k) to pay off debt
Investing in a 401(k) is good, great even! However, when you are facing paying down debt, it can be so tempting to see that money sitting in the 401(k) and want to pull it out to help with the debt, or buy a house, or reach some other financial goal. Afterall, it is your money isn’t it? Well, yes, it is your money. But DON’T PULL IT OUT. Don’t do it. What happens is, the money that you take out will be taxed at your current tax bracket, plus an additional 10% penalty for taking it out early. The only time Dave suggests taking money out of retirement accounts early is to avoid bankruptcy. Otherwise the taxes and penalties are not worth it. Keep your money in your retirement where it can grow and become a great nest egg for you in your future.
15. Save 15% towards retirement
When it comes to saving for Retirement, it seems like everyone knows you should do it, but few are really sure how much to put away. Dave says to invest 15% of your income–not your take home pay but your annual gross income–into retirement accounts. This will give you enough money to still live comfortably now. But it also gives enough money into those retirement accounts to accumulate interest and grow over time. You can do more, if you want, later on. But a great place to start is the 15% mark to get you going.
16. Personal Finance is 80% Behavior
It is easy to think that personal finance is confusing and frustrating. But the truth of it is that winning with money and personal finance is only 20% knowledge and 80% behavior, or what you do with that knowledge. If you have problems with money, it is probably because of the person in the mirror. The way to change your money problems is to learn what you can and then implement what you have learned–change the way you view and use money. There is not some magic formula that some people get and others don’t. You have to change your behavior and when you do that, then you can win.
17. Only take out a 15 year mortgage
When you are ready to buy your house, don’t look at how long you can stay in debt. Focus on getting out of debt as quickly as possible. One of the times this applies is when buying a house. A 30 year mortgage will keep you in debt for 30 years! A 15 year mortgage costs a few hundred dollars more each month, but you are in debt for half the time! Plus you will pay a significantly less amount in interest over the life of your home loan, with a 15 year, and keep more of your hard earned money in your home, not the bank’s business account.
18. Be willing to Give
Dave teaches a lot about being generous and giving. When we were paying off student loans, we made it a point to give (tithe) 10% to our church. But we also made the effort to give in small amounts in other ways as well. People who give are actually happier overall and tend to be more successful. Money that is given brings you more joy than money spent ever will.
19. Get Your 4 Walls in Place
If you are just starting out and behind on bills, you will to prioritize where you money is going to go. Focus on what he calls the “Four Walls” First
Food, Shelter, Transportation Clothing. These 4 things comes before any other debt payments or expenses. Once these are caught up, then you can focus on making progress towards other debt and expenses.Bottom Line is to make sure you take care of your family’s immediate needs first, then go forward from there.
20. Save, Save, Save
Dave Ramsey is all about keeping more of your money in your own bank accounts, and not sending it out to bills or expenses. Save up for larger purchases and pay for them in cash. Lower your monthly expenses so you can save more towards retirement and live more today. The more money you save, the more you have. When you have money in hand, you can take care of emergencies, unexpected expenses and enjoy life more.
Dave Ramsey is a great source of advice and encouragement when it comes to finances. As you can see, he has a lot to say and there is a lot that you can do today to get started and make a difference in your financial life.
Living your best life, staying out of debt and achieving financial freedom is absolutely possible. If you are willing to put in the work, make the needed changes and keep moving forward you will eventually have a life free of financial stress.
Let me know in the comments what you favorite Dave Ramsey tip is!