Perhaps the biggest financial stress-points of majority of families today are getting out of debt and saving more money. In a perfect world, we’d all be debt free and have millions in the bank! Regardless of your current financial situation, these Dave Ramsey tips and strategies will accelerate your path to achieving your financial goals.
Dave Ramsey, a financial expert at getting out of debt and building wealth, can tell you from firsthand experience that it is possible to improve your finances no matter how big the obstacles are.
We even have a Dave Ramsey rant video later to motivate you or get you upset. Either, way, it helps you tackle your debt and save more.
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To buy the book, which we recommend every family to have a copy click this – Total money makeover
Although we poke at Dave Ramsey’s method sometimes in our articles, his financial advice has gotten many people out of debt’s horrible bondage. We learned a lot from him in our beginning stages and we still adapt many of his financial tips to our life.
For example, this article about how Dave Ramsey is outdated, try our 12 toddler steps to financial freedom talks about some modifications we made in our own algorithm. Our foundation was still his 7 baby steps.
Here are 15 Dave Ramsey tips that will get you out of debt quicker, and help you save more money faster.
Whether you’re a seasoned financial advisor giving millionaires advice on their money, or whether you’re a parent with mountains of credit card debt and student loan debt, these 15 tips are no respecter of persons, and should be followed by everyone seeking to obtain a prosperous future:
1. Use A Zero Based Budget Plan
A zero-based budget means creating a budget in advance of the upcoming month, and accounting for every dollar that comes in. By using a zero based budgeting plan, you know where every dollar of income is being spent, and have more control on how your money is spent.
We talk a lot about budgeting on this site. This is just to reinforce the idea that everyone needs a budget of some kind.
I’ll give some experts a break, if you are frugal by nature or you have perfected budgeting for few years, it is just like a training wheel, you can experiment without it and see if there is any changes. Otherwise, stick to some form of budgeting. Even corporations budgets. Are you smarter than corporations?
We talked about this in our article about the limitations to budgeting and how to fix it.
Other budgeting articles for your viewing pleasure.
Frugal doctor’s wife budgeting perspective where Mrs Breathe Easy spilled the beans and her debut to writing.
Budgeting Tips For Young Adults To Arrest Their Debt
2. Have An Accessible Emergency Fund
Emergencies happen, and the last thing you want to do is go back into debt due to an unexpected major event. An emergency is a truly unexpected event, such as a flat tire, a health bill, or something similar. It is not an emergency to pay for regular car repairs, or to take advantage of a retail sale that you’ve been waiting for so anxiously.
By having an emergency fund of at least $1,000, you will give yourself a safety net when an unexpected financial expense arises.
Remember though, that the $1,000 is just the mini emergency fund. More on the real emergency fund in number 12.
3. Payoff Debt Using The Debt Snowball
The Debt Snowball is a technique used to payoff your debt starting from the smallest debt to the largest. The plan is to pay minimum payments on all of your debts, with exception to your current smallest debt, to which you will focus on paying off as fast as possible.
Once your first debt is paid off, apply that payment plus the minimum payment and anything extra to the next smallest debt until it’s paid off, and so on. Do this until you have paid off all your debt balances.
This one is very debatable. It works on its own, but if you want to be financially more savvy, we believe in the avalanche method
Difference between the snowball and avalanche method
Lets say you have three different types of debt.
- $10,000 credit card debt at 21%
- $5,000 car loan debt at 5%
- $15,000 student loan at 10%
In the snowball method, you will start paying down your debt starting from the car loan. Whereas, with our avalanche method, you will start with the credit card debt with the highest interest.
Your money will go much farther using the avalanche method, and you will end up paying less interest over time.
Here is a resource for awesome comparison between the two – Debt avalanche vs debt snowball
No matter which method you choose, they both require you to strap down and be serious about vanquishing your debt.
4. If You Take Out A Mortgage, Never Exceed A 15-Year Term
Although Dave Ramsey advises against taking out a mortgage at all, he understands that most people aren’t in a situation to pay cash for their house. Should you decide to take out a mortgage, only take out a mortgage note with a term of 15 years or less. Doing so will save you tens of thousands of dollars in interest that otherwise would have been paid to the mortgage company.
For example, in Dave Ramsey’s book “The Total Money Makeover”, he gives the following example: “Imagine you buy a $130,000 home, for which you take out a $110,000 mortgage at 7%. The final cost after all is said and done and paid would be $283,520 after 30 years or $197,840 after 15. The difference? Just $256 extra per month. Go with 15 years!”
Take a break and enjoy Dave’s Rant about various people in financial mess making bad financial decisions. This will motivate you.
5. When Budgeting, Start With The Most Important Things First
Prioritizing what is most important and paying that first is a must when planning the upcoming month budget. The goal is to see how long your income will stretch, and make it last as long as possible without sacrificing the necessities. According to Dave Ramsey, the first priorities in your budget should always be food, shelter, heat and electricity.
We talked about the financial pyramid in one of our articles where we touched base on Maslow’s theory.
You have to meet your most basic level of human needs before you can meet your higher-level needs. Like a pyramid, the most fundamental needs are at the bottom and the self-actualization and self-transcendence needs are at the top.
6. It Takes A Team Effort To Win
Did you know that one of the biggest causes of divorce is due to finances? Yup. When budgeting as a couple, both spouses need to be on the same page, and plan the budget together. Dave Ramsey even advises against having separate bank accounts, and suggests that couples share the same bank account and work as a team.
There is nothing more awesome than couple working together as a team on their finances. We do have both a joint account and separate accounts. Every income goes first to the joint account, then we move funds to savings, investments and personal accounts as needed. This way, there is transparency and also we are on the same page.
We talked about how couples have to be on the same page in some of our articles.
Before you get married, know your partner financially.
Forget prenup, try these financial strategies instead.
7. Don’t Underestimate The Power of Goals
Setting goals give you a path to follow and a plan to get to where you want to go. Dave advises setting SMART goals. SMART goals are goals that are Specific, Measurable, Attainable, Relevant, and Time Sensitive (thus, the acronym SMART).
In other words, setting a goal to “get out of debt fast” is not a SMART goal because it’s too broad, and not detailed enough. An example of a SMART goal would be to “payoff $10,500 in debt by December 31st of this year.” Be specific, and set a timeline for your goals.
This does not work for just debt by the way. It works in every area of life.
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8. Stop Comparing Yourself To Others
In Dave Ramsey’s own words, “We buy things we don’t need with money we don’t have to impress people we don’t like.” The fact is that over 40% or households live paycheck to paycheck, and 58% of households don’t live on a budget!
The lesson: it’s pointless and wasted effort to compare yourself to others. “Live like no one else, so that later you can live and give like no one else” – Dave Ramsey
We discussed about how money is a doubles’ game in our article about 20 rules of money every entrepreneur needs to know. In that article, we discuss how money is a doubles game. Someone else game is different from yours. Someone with 1.6 million dollars is only about 4 doubles ahead of someone with 100,000 dollars. So focus on your own game.
We recommend to buy the book – game of money, it will teach you how money is a game and how to play the game. This was written by Tony Robbins.
9. When Investing, Pick A Diversified Mutual Funds
I will be the first to say his 4 fund portfolio is a little less to be desired. However, there are some basics he got down.
Dave is big on growth stocks. And he has his recommended 4 fund portfolio.
A growth stock mutual fund is a fund of hundreds of stocks picked by professional investors, and only comprised of companies that have high potential for growth.
By investing in an index fund, you are diversified among hundreds of companies.
If one company loses value, you are protected by the other hundreds of companies that may have gained value. When choosing a growth stock mutual fund to invest in, Dave advises in choosing one that has the longest track record of successful returns.
For full transparency, here is what others think about his mutual fund philosophy. He got the basics right, but the deep analysis is here.
10. Save More When Times Are Good
It’s not uncommon for most jobs today to have some form of variable compensation. While this applies mostly to those who work in a sales role or performance based role, most of us probably also receive a year end bonus or quarterly bonus of some sort.
When the income is healthy, it is a wise idea to set aside more during these times rather than spending it. Chances are there may come a month when you actually need it.
This is the main reason we focus on supersizing out savings early in life. This is when we are healthiest and we have the capability to make money. It is better to quickly save as much as possible , although make sure to still enjoy here and there.
11. It Takes 3-6 Months To Get Your Budget Right
A common frustration among individuals and couples budgeting to get out of debt and grow their wealth, is the variable changes in their budget from month to month. This often results in people giving up and quitting early on.
It’s important to keep in mind, that it takes an average of 3-6 months of budgeting to finally start to feel comfortable and familiar with your expenses and expectations. Don’t give up!
We discussed some of the reasons why budgeting does not work for some people in this article. Sometimes you might not get it right ever, but you will get closer each time.
Rome wasn’t built in a day. You won’t achieve your desired budget overnight. You’ll find success with discipline and repetition. Stick with it!
Check out the envelope cash method we have used in the past. This system let you use cash instead of credit or debit cards. Trust me, it is much more difficult to part with your cash than to swipe a card.
12. Save Up 3-6 Months Of Emergency Fund
After you have paid off all your debt except for your house, Dave Ramsey advises that you save up an emergency fund of 3-6 months of monthly expenses. This is a longer term emergency fund for major occurrences such as getting laid off or losing your job.
Keep in mind that this is after, and in addition to your original $1,000 emergency fund saved up when getting out of debt.
The 6 months emergency fund is what I call the real emergency fund. Aim for it. If you are a high income earner, you might be able to do 3 months. If you have a house, aim for 6 months for sure.
Here are more resources on how to save that emergency fund
New Year Resolution: 6 Tips To Save Your $1000 Emergency Fund
5 Ways To Save $532.30 On A Tight Budget
101 Epic Ways To Save Money That You Haven’t Tried
13. Trim Your Monthly Expenses
Dave Ramsey advises to not be scared of tightening up the budget in areas that you can afford, so that you can pay off your debt quicker. Some things to start with is to look for subscriptions that you pay for that are not needed, pack a lunch rather than eating out, take the city bus or ride your bike whenever possible, and don’t purchase name brand clothing.
One of my favorite saying is : there are two highways to wealth really. Increase your income and reduce your expenses as much as possible.
We should be like the top billionaires, who despite what many might assume, they do not spend wastefully. People like Warren Buffet, a gazillonaire in my mind, still use coupons and lives in the same house for decades.
14. Set A Schedule And Stick To It
Pick a time and a place, at least monthly, if not weekly or bi-weekly to sit down for a few minutes and review your budget. Your budget is ever changing as expenses vary from month to month, and its important to know where those changes happen, and how you measure up to your goals you set.
Not having a schedule, on the other hand, results in budget planning sessions never happening, and ultimately falling back into your bad money habits that started the mess in the first place.
This is the reason we have a family financial meeting monthly. This is where we discuss our budget and plans for the upcoming month. Just make sure to make it fun and not stressful.
Our last family budget meeting was at Starbucks, we used a gift card and plan not only our monthly budget, but our overall financial goals for the year.
15. Have a Buffer In Your Budget For Unexpected Expenses
Giving yourself a margin of money set aside for expected changes and varying expenses will ensure you have enough to account for everything. As previously mentioned in step 11, it takes an average of 3-6 months to start to feel comfortable with your budget.
By giving yourself a small cushion, you eliminate potential errors made, and avoid the consequences of an unbalanced zero-based budget.
Don’t go overboard with it now. For example, we tend to round up most expenses. For example, our car insurance every 6 months is about $613 for our two cars. We allocate about $110 per month.
Some purist might not consider our budget to be strict, but it works for our current lifestyle. We sometimes have money left at the end of the month which we use to treat ourselves or put towards the next month.
Note that when we were living paycheck to paycheck and paying debt, we followed our budget more closely. We also used any remaining money to make additional payments towards debt. This is our recommendation for those who are still paying off debt or living paycheck to paycheck.
Not Just A Plan, But A Lifestyle
Following popular budgeting and savings tips aren’t just a temporary plan to follow and forget about. They are logical habits that have been followed by millions, and have very proven and predictable results. They should become a lifestyle of healthy financial habits that are passed on to your family.
By following these 15 tips and advice from financial expert Dave Ramsey, no doubt you will pay off debt faster, and even exceed your financial goals and expectations.
Here is our 12 steps too as alternative if you really want to kick this one up a notch.
Another chance to buy his book or other books on amazon – Total Money Makeover
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15 Dave Ramsey Tips That Will Change Everything
Adebayo
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I am a pulmonary and critical care doctor by day and personal finance blogger/debt slaying ninja by night.
After paying off close to $300,000 in student loan debt in less than 6 months into my real job, I started on a mission to help others achieve the same. There is no magic to this than to strap up and get it done. Some of the ways we achieved this include side hustle, budgeting, great negotiation skills, and geographical arbitrage.
When I was growing up, common knowledge in Nigeria is that there is one thing you cannot trust anyone else with, and you guessed it – your money.
Being frugal came easily to me based on my background. However, the concept of building wealth did not solidify in my mind until when I finished medical school. I wish I knew what I know now when I was 14. Still, I don’t know enough and I am constantly learning to improve my knowledge.
My goal is to reduce financial illiteracy among young professionals. I am catering to the beginners – babies and toddlers in financial literacy.
