Dave Ramsey has been helping people take control of their finances for years. Considered a financial expert, he is also a radio host, television personality, author and motivational speaker.
Ramsey has created seven basic principles to help people transfer from financial mess to financial success. He believes that everyone’s goal should be to eliminate debts and live a financially exciting and debt free life.
Though Ramsey’s principles were created as guidelines for everyone, some people may not be motivated enough to stick to all seven of them. Ramsey didn’t create these steps to be easy—these guidelines will be hard work, but the end result will be worth the effort. While some of them may be harder to achieve than others, there are four of his principles that everyone needs to use to get on the road to financial success.
1. A $1,000 rainy day fund.
Ramsey is an advocate of creating budgets and actually sticking to them. He understands that unforeseen events do occur, and for this reason, everyone should set up a small rainy day fund of $1,000. This way, if any unexpected expense occurs, you will not be financially strapped or become stressed trying to find a way to stay afloat.
In order to keep your rainy day fund as a rainy day fund, you may want to consider putting this money into a separate bank account that is not connected with your everyday bank account. This way, you will not see the money in your account and think about spending it. Out of sight, out of mind is the basic principle here.
2. Pay off debts.
This one will be a bit harder to achieve, especially if you have a large amount of credit card or student loan debt. Ramsey believes that debts will hinder your ability for financial success. In order to pay them off, you need to be smart about how you go about it. He recommends making a list of all of your debts in order of smallest payoff amount to largest payoff amount. Focus on paying off the smallest debts first, and then continue chipping away at all of them until you are debt free. Once your debts are paid off, you can use that extra money to invest in a retirement fund or use it to pay off your mortgage.
3. Set up a college savings account for your children.
College is expensive, and parents are often scrambling to find ways to pay for their children’s education at the last second. This usually involves taking out loans or opening an escrow account on your home. Having a large amount of debt hanging over your head for tuition is not good for your financial future, and it will only add an extra expense in the long run. After you have paid off your debts, use some of the extra money and place it into an interest-bearing account that will pay for your child’s tuition.
4. Be generous.
Good karma has a way of reciprocating. After you have relieved yourself of all debts, live a happier and financially successful life. But don’t be greedy—now that you have some extra cash, be sure to give some of it away to those in need. Whether you give some directly to another individual or donate some to a non-profit, your generosity will go a long way.
You may think that there is no way Dave Ramsey’s principles will work for you, but you need to put some effort into it and stick to the principles that are actually attainable. Start by creating a budget and determining where you can make some adjustments. Use extra cash to pay off debts, and before you know it, you will be more financially successful in the end.
For more tips on better money management, buy David Ramsey’s The Total Money Makeover
Andy Hawkins is a business student at the University of Texas who enjoys writing for blogs in his free time. He also enjoys proper grammar and always makes sure to use a grammar checker prior to submitting any school work. He can’t wait for graduation as his parents have promised him a vacation to the Bahamas.