If you’re looking to get out of debt, handle your finances, and build long term wealth; you may be tempted to see what the financial gurus are saying on what to do.
One of the most popular financial gurus out now is Dave Ramsey. He has reached millions with his Total Money Makeover system, Financial Peace Univerity classes, his radio program, and TV show.
Dave Ramsey on Getting Out of Debt and Credit Cards
Dave Ramsey is aggressively focused on paying off debt. He encourages his readers and listeners to have gazelle intensity.
Dave Ramsey is against credit cards. He advocates using check cards/debit cards instead of credit cards because they take money directly out of your checking account.
He is a big believer in the psychology of personal finances and notes that the pain felt in a wallet from using your debit card has a bigger impact than just borrowing on your credit card.
Dave Ramsey and Building Wealth
Dave Ramsey has a pretty consistent message on debt reduction and wealth building. He outlines a direct and clear 7 step program that he calls ‘Baby Steps’.
1. Save up for a small emergency fund. For most people Dave mentions saving up $1,000 to cover for emergencies while you aggressively work to pay down your debt.
2. Pay off your debts with the debt snowball strategy. Dave is a big believer in paying down debts according to amounts owed rather than interest rate. It’s due to his firm belief that handling personal finance is about focusing on changing behavior.
If you’re more of a numbers person, you may not agree with Dave’s approach as it can cost more money than a pay by interest rate plan.
3. Grow your emergency fund 3 to 6 months of expenses in savings. After you paid off all of your non-mortgage debt, Dave wants you to go back and really build your emergency fund. He also suggests that the size of your emergency fund is determined by the more financially conservative spouse.
4. Save and invest 15% of your household income into Roth IRAs and pre-tax retirement. After you have paid off your debts, you should have some ‘extra’ money ready to be used to build wealth. Dave Ramsey advises directing that money to retirement investing and specifically into growth mutual funds.
5. Save for your child’s(or children’s) college fund. Some people feel they have to put their kids’ college funds ahead of their retirement invensting. Dave points out that kids can receive scholarships and financial aid if neccessary; parents have no safety net.
6. Pay off your home mortgage early. Not being a fan of debt, Dave suggests paying the mortgage as soon as you can; after taking care of earlier steps of course.
Some people disagree with this step as they think that investing would give bigger returns. Again, Dave is looking at not just the numbers, so his advice may go in a different direction than some other financial gurus.
7. Build wealth and give! This step is taking the habits you develop and using your money to reflect your values. Dave Ramsey is a huge proponent of giving to worthy causes and highlights stories on his radio show where people share their success.
What Dave Ramsey Says About Buying a Home
Dave Ramsey’s thoughts on buying a home is based on his financially conservative values. He favors a 15 year fixed mortgage with a payment no more than 25% of your monthly net pay.
He also advises for at least 10% down for your house, but if you can afford more, the better.
My Thoughts On Dave Ramsey
While I don’t agree with everything he says (no investing at all until Baby Step #4), I think Dave Ramsey’s Baby Step system is a great guide for those looking for a way to dig out of debt and build their finances.
It’s clear and the guidelines looking at the psychology behind personal finances and works.
With everything, find out if this advice is useful for you. No one is going to care about your finances like you do. Following the guidelines of a financial guru doesn’t get you off the hook for personal responsibility.
What are your Thoughts?
Do you listen to financial gurus’ money advice? If so, which one? Is there a financial guru you’d like me to review?
Four Pillars has a post out today: Is Dave Ramsey A “Financial Expert”? He shares his thoughts on Dave’s financial skills. You should check it out.