Updated: Mar 2
It’s tax season, the time of the year where you’re truly faced with the hard reality of the number of dollars you actually brought home this past year. Chances are many of you are in the same boat I’ve been in, staring at my W2 wondering where all that money actually went. A few years ago I decided it was time to learn how to make some better financial decisions.
This led me to personal money-management expert and extremely popular national radio personality, Dave Ramsey.
If you’ve never heard of Dave Ramsey, don’t despair! Let me share with you 5 gold nuggets from Dave Ramsey to get you on track to a better financial future.
1. Budgeting= Telling Your Money Where to Go. Not Budgeting= Wondering Where Your Money Went.
Dave Ramsey is a stickler for sticking to a written budget. This one was a toughy for me. Budgets sound so constricting, but Ramsey emphasises that budgeting brings freedom! His budgeting plan is pretty simple. Write down your total monthly income. List all of your expenses (everything from rent, to groceries and entertainment). Subtract your expenses from your income to equal “0”. This is a zero based budget- or “every dollar” budget as Ramsey calls it.
Finally, track your spending. His team has even created a pretty handy free app called “Every Dollar” that can help you do all of this. The awesome thing about following a written budget is it allows you to truly prioritize where your money has gone, rather than regret spending that $56 on your Aunt Annie’s pretzel habit at the mall every month.
2. Save $1000 for an emergency fund.
Dave Ramsey is infamous for his financial “baby steps”. Step one is setting up an emergency fund. Bleh, this sounds so boring you say. Why must I save money when I have all this debt to pay off? Saving for an emergency fund first tells the rest of the world that you’re no dummy, because you can plan on emergencies happening.
Your house is going to need a new roof. Your car is going to break down. Your kid is going to need those braces. It’s these situations that can really get you in a pickle and increase your debt. Saving $1000 puts you in a secure place for when these sticky situations head your way.
3. The Debt Snowball
“Debt is dumb, cash is king!” Dave Ramsey is always hammering home how idiotic accumulating debt is. American society tells you debt is normal, but is it really normal to flush your hard earned money down the toilet by paying all these interest on your debts? If you want to be ahead of the average joe and on your way to being a millionaire you need to avoid debt like the plague.
Ramsey recommends attacking your smallest debts first and then allowing that momentum to propel you towards paying off all of your larger debts.
4. Invest 15% of Your Income in Retirement
Retirement sounds sooo far away for me right now, but as the old adage says “time flies”. It’s time to get serious about retirement. Ramsey recommends taking 15% of your monthly income and investing it directly into your company matched 401k (up to the amount your employer will match) and then investing the rest into a Roth IRA. Roth IRA’s are taxed on the front end so when you withdraw your savings at retirement you can enjoy your investment profit tax free!
5. Buy a Home that Won’t Blow Your Budget
How much home can you afford? Ask this question and you’ll get a myriad of answers in return. Ramsey recommends housing payment, including property taxes and insurance, to be no more than 25% of your take-home income. Why? Because life changes are bound to happen down the road and it’s good to have breathing room.
You will most likely be approved for far more than a payment of only 25% of your monthly income, but avoid being trapped in a home you really can’t afford. You can have peace of mind if you don’t stretch yourself too far in choosing that new home.
Adding it all up
These little golden nuggets from Dave Ramsey are sure to set you up for success! If you want to dig a little deeper and further invest in yourself take his Financial Peace University class! It’s a great resource that goes in depth on how to pay off debt, budget, save Money, and give generously.