In this post, I'm going to show you how you can use Dave Ramsey Tips to win with money. In fact, these are the exact techniques that I used to grow my net worth.
People trying to dig their way out of mountains of debt typically turn to Ramsey for help. His advice will come in handy irrespective of your personal goals and present financial situation.
Before we dive into the Dave Ramsey tips, how much do you know about Dave Ramsey?
What are these Dave Ramsey Baby Steps anyway?
It makes sense to first learn about the guy from whom you are about to take advice. So first, let's answer these burning questions.
Who Is Dave Ramsey
According to Wikipedia, Dave Ramsey is a well-known American radio show host, successful businessman, and national best-selling author.
A seasoned financial expert at getting out of debt and creating wealth.
Through his show, podcast, and website, Ramsey encourages people to improve their finances no matter how significant the obstacles they face are.
The former realtor lost everything and filed for bankruptcy in his early years.
Somehow, he managed to get out of debt and began another path of helping others take the same quest.
Known for his Christian background and no-nonsense approach to personal finance, Ramsey gradually rose to become one of the most trusted and sought-after financial advisers in the United States.
He has a huge fan base of followers. With an estimated net worth of $55 million, Ramsey is living proof that you, too, can turn a bad financial situation around.
The award-winning Dave Ramsey Show is one of the most popular and longest-running talk radio shows in the United States.
The nationally syndicated radio show is aired on over 600 radio stations and attracts 13 million listeners every week.
Click here to find out if the show is on your local radio station.
Alternatively, The Dave Ramsey Show App is now available on iOS and Android. You can download it to listen and watch anytime, anywhere.
As an evangelical Christian, through Ramsey Solutions – a personal finance counseling company, Ramsey offers biblically-based, common sense training that helps people reach their financial goals.
Over the years, Ramsey has made many media appearances and offered classes and workshops.
Some of Dave Ramsey’s famous books include:
- The Total Money Makeover,
- Smart Money Smart Kids,
- Dave Ramsey's Complete Guide To Money,
- and EntreLeadership.
It's worth mentioning that some of his methods are heavily criticized. But one thing is for sure: Ramsey has helped thousands of people overcome bankruptcy and achieve financial freedom.
What Are Dave Ramsey's Baby Steps
Dave Ramsey's finance philosophy is based on seven steps that are part of The Total Money Makeover book mentioned above.
Since its original publication, the book has undergone a few revisions and updates, but the core concepts haven't changed. Dave Ramsey's Baby steps is a 7 step process to financial freedom.
Ramsey designed the 7 step system to be an extensive road map to help financially strapped individuals get out of debt and begin their journey towards building wealth.
By taking things one step at a time, any goal is easier to achieve. To help accomplish the steps, you must commit to live debt-free.
Debt Snowball and Gazelle Intensity
The Dave Ramsey steps revolve around two tactics: Debt Snowball and Gazelle Intensity. The former is a strategy he uses to help people get out of debt hastily.
You can do this by applying extra money in your budget toward your debts to hasten payments, and repeat the process until you pay off all your debt.
Over time, the debt payments snowball, hence the name. The theory is that the quick wins will keep you motivated.
Ramsey uses Gazelle Intensity to refer to how you need to attack your debt. He likens financial lifestyle to a gazelle saving itself from an attacking cheetah.
According to Ramsey, you should “outmaneuver the enemy and run for your life.” Now that you understand the baby steps, let's have a closer look at them before we move on to the Dave Ramsey tips.
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Baby Step 1 – Save $1,000 to start your Emergency Fund.
Getting rid of your debt is one of the wisest financial commitments you can make if you want to get serious about being financially free.
Even if you have massive credit card debt, you should set aside $1,000 in an emergency fund.
Fifty percent of Americans lack the resources to pay off a $400 unexpected expense, and according to Bankrate, only 39 percent of Americans can pay cash for a $1,000 emergency.
These are worrisome numbers. In the event an emergency does happen, a starter emergency fund will allow you to stay on track, and you'll easily stay out of debt.
An online savings account is the best place to stash your emergency fund savings. Here, you can have easy access to your cash while earning a decent interest rate.
Note that an emergency fund is not an account that you tap to buy that new iPhone or go on vacation.
Baby Step 2 – Pay off all debt except for your house.
In this step, Ramsey advocates using a debt snowball to pay off consumer debts – student loans, credit card debts, personal loans, etc.
To do this, take every small amount you can save, and instead of splurging, use it to pay your debts. Don't just throw money at different debts. Have a plan.
The whole premise of the snowball method is listing debts from lowest to highest and paying them off in that order.
Every time you pay off a debt, take the amount of that payment and roll it to the subsequent debt payment. Do this until you pay all of your debt.
This step might take years. The quicker wins (marking those smaller debts as “Paid in Full” faster) will give you momentum in your debt payoff journey.
Baby Step 3 – Save 3 to 6 months of expenses in an Emergency Fund.
Bye-bye, debt. See you never.
Remember the $1,000 you put aside for your emergency fund in Baby Step 1? It was a great accomplishment, but, it's not enough.
Worry not! Now that your debt is taken care of, it's now time to beef up your emergency savings fund. This concept of Dave Ramsey baby step 3 seems simple, but it is not that easy to implement. Ramsey encourages that you make saving a priority and pay yourself first.
To do this, consider setting up an automatic withdrawal from your paychecks. This way, money goes straight to your savings account. According to Ramsey, the three primary reasons for saving are:
- to use an emergency fund,
- buying stuff,
- and building wealth.
More than likely, no two months will be the same.
In the unfortunate event that you are laid off or are out of work for months due to work-related injury, what will happen to you and your family? Will you go into debt again? While disability and unemployment insurance may chip in, they are unlikely to cover all of your expenses.
Only 29 percent of Americans have the recommended 3-6 months of expenses stashed away, and 1 in 4 Americans have no emergency savings at all. Where do you fall?
With 3-6 months of living expenses, you will be in a better position to make it through that challenging period.
The amount to save depends on your job security and risk tolerance. With a full emergency fund, you'll have freedom from worrying about slipping into debt despite major life events.
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Baby Step 4 – Invest 15% of your income for retirement.
Look at you now! No more consumer debt.
While you've managed to free yourself from the shackles of debt, to be truly financially free, you need your money to work for you.
Don't start throwing all your ‘extra' money into investments quite yet. One way you can do that is by starting to put money away for retirement. Save for your retirement in tax-advantaged accounts so your golden years can be secure and comfortable.
You can do this by investing at least 15 percent of your household income into Roth IRAs and pre-tax retirement accounts. This money will help you in the next two steps.
Baby Step 5 – Save money for your children's college.
By this step, you already have an emergency fund, are out of debt, have 3-6 months of expenses saved, and are contributing at least 15 percent towards your retirement savings.
Next up, kids! Having a kid in America costs nearly a quarter of a million dollars. If you don't have kids or have fully grown and gone kids, skip this step and move on to Baby Step 6.
If you have kids, college is the next significant expense. It's entirely your decision to decide whether or not to assist your kids through college.
There is no law requiring parents to cater to their children's college education. To begin saving money for their schooling, this is the stage you get to do that.
Yes, there are student loans and grant applications, but financial institutions consider parental income levels when processing. If you decide to take responsibility for your children's college tuition, you mustn't place college savings ahead of your retirement savings.
The reason is simple – you can't borrow your way through retirement. With college, you can receive grants and loans, which can be acquired and repaid.
Baby Step 6 – Pay off your mortgage early.
Your house should be the last bit of debt standing between you and financial freedom.
You are probably wondering whether it makes economic sense to repay your mortgage early. Honestly, there are fair arguments for both sides. Look at it this way; mortgage debt is typically inexpensive debt.
In the long run, investing the cash, you could use to prepay your mortgage could earn you much more money. $1,400 – this is the monthly mortgage budget line of the average American.
But it doesn't change the fact that a mortgage is still a debt. Why wait 30+ years to finish making house payments?
If you have completed the above five steps and still have some extra cash, consider paying off your mortgage early. Doing this will free up more money each month and give you other freedoms.
Baby Step 7 – Build wealth and give generously.
Woo! You did it! The first six steps were the hardest by far. Now let's look at the final baby step; at this stage, you should be feeling pretty good about things.
No consumer debt. A fully-funded emergency fund. At least 15 percent of household income going to retirement accounts, your kid's college, and mortgage sorted out.
The next logical step should be wealth-building beyond your wildest dreams. Deciding on a particular type of investment is the hard part.
They say money can't buy you happiness. I say you can! To buy happiness, give some of it away. On giving generously, Ramsey advocates tithing 10 percent. You don't have to do it his way.
Giving is a personal thing, and you should do what you presume is the right thing to do.
How The Baby Steps Work
The 7 Dave Ramsey Steps are effective as they focus on changing behavior. To win with money, you need to change what you've been doing.
Albert Einstein said the definition of insanity is doing the same thing over and over again and expecting a different result.
Rather than attempting to accomplish all the steps at the same time, Ramsey recommends you do them one at a time until you complete them all.
The first step of deciding to live within your means by setting up an emergency fund is the most important. Once you do this, focus on getting out of debt.
Live the early years of your life like most people won't, so you can spend the rest of your life like most people can't.
20 Of The Best Dave Ramsey Tips
With the Dave Ramsey steps debt management plan out of the way, let's now take a look at some of Ramsey's specific money tips and tricks.
Tips on saving money, budgeting, buying a home, paying off debt/mortgage, buying a car, etc.
The Dave Ramsey tips can help you a great deal – they'll teach you the best money hacks you wish you knew and how to reach financial independence on your terms.
1. Create A Zero Based Budget
A reason why most of us overspend is that we have nothing or no one to tell us when to stop. Maintaining a monthly budget is the first and most crucial step to any financial plan. Create a budget that you'll actually use.
In Ramsey's envelope system, he recommends that you assign every dollar of your income beforehand using a zero-based budget.
Allocate each portion of your bills or budget category to a specific envelope such that your income minus expenses equals zero. This way, every portion of your income will have its place, and you'll see where all your money goes.
2. Pay Off Any Debt You Have
It can be downright depressing to look at the total debt owed. Debt is like a disease that continues to live and breed until you decide to put a stop to it.
Try the debt snowball method to clear your debt. When you start settling easier debts, you will notice results and get the motivation to remove the rest of your debt.
3. Find Ways To Cut Expenses
I know I know. It can be scary or hard to look at your financial picture. Without a plan, things are not going to get any better.
How much are you paying for things like phone, internet, and cable? Whatever the amount, it could probably be smaller.
By cutting out four unnecessary purchases that cost $5 each week from your budget, you'll save $1040 a year.
If you don't know where to start, begin with what Ramsey calls the four walls:
- shelter and utilities,
- essential clothing,
- and utilities.
After you've set aside money for basic needs and savings, cut any unnecessary expenses.
4. Start An Emergency Fund
As perfect as your budget may look, something unexpected will always pop up. Taking a look ahead will get your financial plan back on track.
Put away some money for a rainy day. This is especially important when you have celebrations and holidays like Christmas, Thanksgiving, and birthdays.
Let the emergency fund stay in a checking account separate from your regular account.
5. Set Goals And Celebrate Wins
Are you comfortable with working until you're 60? Do you plan on owning your own house? Get a pet? Go on vacation?
Time and tides wait for no man, so stop wasting yours. The best time to plant a tree was 20 years ago. The second best time is now.
Set goals to start getting yourself to your destination. And don't forget to celebrate milestones, big or small.
6. Stop Using Credit Cards
Money is a tool, and how it gets used is up to you. Most Americans are under an avalanche of credit card debt.
Credit card debt is one the easiest ways to get into trouble with money and one of the worst kinds of debt to have. Reason? The high interest rates can make it hard for you to make progress.
7. You Don't Need A Credit Score
According to Ramsey, a credit score is like an “I love debt score.” Your score needs to be good or zero.
There's a significant difference between good and bad credit. If done correctly, a mortgage is a good credit, while bad credit relates to several other types of credit. If you need to take out some form of credit, ensure it's the good kind.
8. Look For Free Stuff
Take advantage of free stuff whenever possible. If you are cash strapped, there's no shame in asking for (or accepting) old furniture from friends and family.
Several nonprofit organizations give out free appliances to financially struggling families.
Whether it's free shoes, clothes, or furniture, check if there's one in your area and ask them about the available programs. Your birthday may come once a year, but it's also a great time to get freebies.
9. Quit Trying To Keep Up With The Joneses
Personal finance is 20 percent head knowledge and 80 percent behavior. It's easy to compare your situation to that of the Joneses.
You're not the Joneses. You both have completely different budgets and sources of income. You can't live like you can afford luxury cars, designer outfits, and expensive holidays every day on minimum wage.
Avoid buying the stuff you don't need, with money you don't have, to impress people you don't like.
Comparison is the thief of joy. Live within your means and don't spend more than you earn. This Dave Ramsey tip really hits home for me.
10. Save Money On Food
How much did you spend on your last grocery trip? How often do you eat at the restaurant or local diner? If your answer is a lot to both of these questions, it's time for a change.
Instead of junk food, try healthy home-cooked meals. It may sound more like diet advice, but it will save you money. Read about other easy ways to save massive money on groceries.
11. Cancel Automatic Subscriptions
Automatic subscriptions are an excellent way to waste money. In this Netflix era, a significant percentage of Americans manage their finances based on their monthly subscription payments.
Most subscribe to automatic subscriptions with little regard to the amount they'll pay in the long run. Cancel automatic subscriptions and only subscribe when you need a service.
Use a free app like Trim to lower your cable or internet bill and cancel unwanted subscriptions easily. Trim can also find better car insurance for you.
12. Automate Your Savings
Saving is a vital part of building wealth as it provides you with the financial flexibility to avoid taking debts and make moves.
The average American saves less than 5 percent of his or her disposable income.
To increase your savings, consider automating them. Check out these five best money-saving apps.
With your savings, you can survive big life problems discussed in Dave Ramsey's baby step 3.
13. Sell Things You Don't Use
This is my favorite Dave Ramsey Tip. Decluttering and selling stuff you don't need will help you pay off your debt faster.
Take an inventory of all your stuff, and be drastic about what you need and what you don't. Clean out your garage, basement, and closet. Sell so much stuff that your children will think they're next.
Hold a garage or yard sale to turn your clutter into cash. You can also sell in online marketplaces like Craigslist or Facebook Marketplace.
Check out the nine best apps to sell your stuff. Avoid accumulating lots of unnecessary possessions again.
14. Enjoy A Staycation
Instead of going on a fancy vacation, how about spending time close to home?
Find out attractions in your area and take a trip there with your family. You can participate in leisure activities within driving distance of your home.
While at it, carry packed food and return home just in time for bed. This way, you will save money that you could've spent on food, accommodation and travel costs.
15. Try A No Spend Challenge
A no-spend challenge will save you money by cutting out non-essentials for a predetermined length of time.
It allows you to avoid impulse spending. You can pick a period, say a week, a month, or just a weekend to not spend any money.
You can choose to have allowances like gas and groceries. A no-spend challenge is one of the hardest of Dave Ramsey's tips, but it will help you recover from an emergency or spending slip up.
16. Pay Cash For A Car
A new car loses more than 60 percent of its value in the first few years. It doesn't stop there.
Car loan terms are longer at an average of 6 years. According to USA TODAY, Americans are now paying $550 monthly for new cars.
Instead of buying a brand new car, go for a pre-owned vehicle that is certified and pay for it in cash.
Fun fact: most millionaires buy 2-3-year-old vehicles. You can learn the truth about debt and your car loan payment here.
17. Don't Buy Name Brand Items
If you're too broke to buy brand-name items, try generic items. Many online and physical stores offer generic versions of popular brands at a fraction of the price.
You're getting pretty much the same thing, apart from the label on them. This way, you'll save money without sacrificing quality.
18. Teach Your Kids How To Manage Money
Your children inherit your money skills. You must set a good example for them from an early age.
If you don't teach them how to manage money, somebody else will. And believe me, that's not a risk you want to take!
A piggy bank is a great place to start, but a clear jar is a better option as it will give them a visual of how their money is growing. Instead of allowances, give commissions.
19. Invest For Your Future
While it's essential to live in the present, it helps to think about the future.
To build wealth, invest aggressively, and early. You can invest in pre-tax savings plans and carefully selected mutual funds.
20. Make Extra Money On The Side
Last but not least on Dave Ramsey's tips: earn extra income. There is only so much you can do to cut your monthly expenses.
When the average American spends 5 hours a day watching TV, there's no excuse as to why you can't have a second stream of income.
Not long ago, making extra money outside your 9-5 jobs often meant a traditional part-time job like serving or retail.
Thanks to the internet, you can earn from the comfort of your home. You can read about five side jobs to make extra money here.
Final Thoughts On Dave Ramsey Tips
Being debt-free is the first step to financial freedom. Dave Ramsey's 7 Baby Steps will help you get out of debt, stay out of debt, prepare for financial emergencies, and build wealth.
Regardless of where you stand financially, if you use this comprehensive guide as a blueprint, you have better chances of attaining financial independence. As long as you are consistent, you'll get there!
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