If you need help managing your money, then Dave Ramsey is your guy! By following his teachings, Josh and I have been able to pay off over half of our $80,000 student loan debt in three and a half years. I have no doubt that Dave can help you with your finances too!
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If you’ve been here before, then you probably know that I’m a huge Dave Ramsey fan. And if you know me personally, then you’ve probably heard me talk about him once or twice (or ten million times ?).
It’s no secret that Dave Ramsey is the man who set Josh and me on the path to a debt-free lifestyle. Through him, we saw what was possible, and we’ve been working toward it ever since. It’s a bit of a slow process considering that we started out with around $80,000 in student loans, plus a home mortgage of about $100,000. In less than three and a half years, though, the student loan is now halfway gone!
Among personal finance nerds such as myself, Dave Ramsey is a household name. We know his philosophy, beliefs, signature phrases and words, and 7-step plan. But for the average person, the whole personal finance thing (Dave included) is a bit fuzzy.
If you’re just starting on your journey to financial freedom, let me introduce you to Dave.
Dave Ramsey: Your Financial Knight in Shining Armor
Dave Ramsey is an author, speaker, and educator of all things personal finance. He offers sound financial advice from a Christian perspective, and is an advocate of a debt-free lifestyle.
I first learned Dave’s methods by taking his signature Financial Peace University (FPU) course…twice. It was just that good! In FPU, Dave thoroughly explains complex matters such as insurance, investing, and home mortgages. He also teaches his seven-step plan to becoming financially free. These are what he calls his “Seven Baby Steps.”
I highly recommend you take FPU if your finances allow it. However, if you need a budget-friendly option, his book The Total Money Makeover is a great place to start. You can buy a copy or see if your local library has a copy you can borrow.
FPU and The Total Money Makeover are where you’ll get fully acquainted with Dave’s methods and thought processes. It’s probably a radical shift from how you currently think about money, so you really need to take full advantage of one of these fantastic resources.
In the meantime, here’s an overview of what you can expect from Dave.
The Seven Baby Steps
Dave Ramsey wants to help you achieve financial freedom, and that means living a debt-free lifestyle. That means no credit card debt, car loans, student loans, home mortgages, etc. Completely and utterly debt-free is the end goal here.
In order to get you there, he gives seven baby steps for you to follow:
Step 1: Save $1,000 as a starter emergency fund
Step 2: Pay off all debt except for your house using the debt snowball method
Step 3: Build up a fully-funded emergency fund of 3-6 months’ worth of expenses
Step 4: Invest 15% of your household income into retirement accounts
Step 5: Start saving for your kids’ college
Step 6: Pay off your home mortgage early
Step 7: Build wealth and give generously
What’s a Debt Snowball?
The seven baby steps are all pretty self-explanatory except for the part about the debt snowball method. This is where you pay off your smallest debt first and then move to the next smallest debt and so on until all of your consumer debts are paid off.
Instead of paying off loans with the highest interest rate first (which is probably your first instinct), Dave’s method operates on an emotional level. You feel a sense of accomplishment when you pay off that first debt, which gives you the motivation to tackle the next one.
It’s a different way of thinking, not paying off the debt with the largest interest rate first. But don’t worry about the math. As Dave often points out, if you were concerned with math in the beginning, you wouldn’t have gotten into debt in the first place. ?
At this point, it’s just about doing whatever it takes mentally to get you to pay off your debt as quickly as possible. Often, all you need is that small, quick win (by paying off the smallest one first) to motivate you to tackle the rest of your debt.
The One Thing You Need to Accomplish Your Financial Goals
These seven baby steps may sound well and good, but if you actually want to accomplish them, you need to have a plan. Dave recommends creating a budget every single month before the month begins so you have a clear-cut plan for how you will spend your money.
Since each month is different, and you’ll have different expenses to plan for each month, you need to create a new budget every month. And you need to make the budget BEFORE the month begins so you don’t have a chance to spend your money before you have a plan for it!
Creating and sticking to a budget is really how you’re going to get a grip on your finances. Even if you don’t think your spending is out of control, if you aren’t following a budget, you’re losing money. Money you deserve to keep!
Dave approaches budgeting a little differently that what you’re probably used to. He calls his method “zero-based budgeting.” This means your expected income minus your planned expenses equal zero.
Of course, this doesn’t mean you spend every dollar you earn, but rather that you assign each dollar a specific purpose (mortgage, utilities, food, emergency fund, debt, etc).
By deciding ahead of time where each dollar will go, you won’t get to the end of the month and wonder where all your money went. It’s quite genius, really. Because the sad fact is that you have to consciously tell your money where to go or it will magically disappear.
Budgeting Forms and App from Dave Ramsey
If you’re new to creating budgets, I highly recommend you use one of Dave’s printable budget forms. The PDF includes his main forms, so pick the one that will work best for you. I like the monthly cash flow plan since it’s a little more detailed than the quick start budget. Just use your discretion here.
If you’re more of an app person, give his EveryDollar budgeting app a try. I haven’t used it since I’m a pen and paper kind of girl, but I hear lots of good things about it.
The Secret Sauce to Sticking to Your Budget
Now that we’ve covered the importance of budgeting, we’re going to talk about your budget’s best friend: the cash envelope system.
One thing Dave emphasizes is that we treat cash differently than we do a credit or debit card. When we see cash leaving our hands, it triggers something in our brains that causes us to feel pain. It actually hurts to hand over cash!
Swiping a credit or debit card doesn’t have the same effect, so we’re far more likely to spend more when we use those methods of payment.
Because of that, Dave recommends using cash for almost every purchase (excluding gas and bills that you normally pay online or with a check).
Enter the cash envelope system.
Each of the spending categories in your budget (groceries, restaurants, clothing, beauty products, etc.) has its own envelope so you can keep the cash separated. You can use actual envelopes, or you can use clips to separate your cash. I use a mix of both, so read this post to see exactly how we use the cash envelope system.
The cash envelope system is a total game-changer, y’all. Even though I swore up and down that I was disciplined enough to use plastic, I consistently exceeded our planned budget in almost every category when I used my card to pay for everything. Now, I almost always come in UNDER budget at the end of the month by using cash! It’s a psychological thing, friend!
How to Get the Most Out of Dave Ramsey’s Teachings
Once you’re on board with Dave’s plan, there are a few things you need to know in order to make the most out of his teachings.
Know Your “Why”
As you make your way through the seven baby steps to financial freedom, keep your end goal in mind. Know WHY you want to achieve financial freedom and then do whatever you can to make it happen. Baby Step 2 can be especially difficult, so remembering why you’re on this journey will give you the motivation to stick with it.
Get serious about making your budget before the month begins (so you have a plan before you ever spend a penny) every single month. Stick to your cash envelopes so you spend less. Also, get creative finding new ways to save money in your budget! Cut out unnecessary spending and expenses such as cable, expensive hobbies, eating out at restaurants, etc. You’ll be amazed at the amount of money you have left over to put toward whichever baby step you’re on!
Remember, the more money you can put toward the baby steps, the closer you’ll be to accomplishing your “why.”
Related: 6 Tips to Score Big at Thrift Stores
Make Adjustments If You Need To
Follow Dave’s baby steps in order and you’ll be well on your way to a debt-free, financially-secure lifestyle.
However, I’m telling you that it’s okay to rearrange the steps if you absolutely must. We live in an older house with quite a few problems, and we’re a single income household. For my peace of mind, we keep a fully-funded emergency fund even though we’re still on Baby Step 2.
Related: 4 Reasons You Need an Emergency Fund
This is just my personal preference, and I’m glad we do it this way. We’ve had some big expenses that far exceeded the base $1,000 emergency fund.
Do what’s best for you. Exercise good judgement while you try to stick as closely as you can to the baby steps.
More Dave Ramsey Goodies
You can also listen to his podcast where he takes calls and answers questions from people just like you and me. He has a free app that you can use to listen to the podcast.
Wrapping It Up
Dave Ramsey has truly been a life-changer for me and Josh. His teachings give us hope that we can one day live like no one else rather than be slaves to debt.
If you’d like to turn your finances around and forever change your family tree, I highly recommend you dive into his teachings head first. It’s an awesome journey, my friend!
Other Posts You May Enjoy
- How to Save Money Without Feeling Deprived
- The Best Financial Advice I Ever Received
- No-Spend Month Results: What We Learned from Our First No-Spend Challenge
What about you? Are you a Dave Ramsey fan?
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