Dave Ramsey’s complete guide to money.
Dave Ramsey’s complete guide to money.
Snapshot
If you’re troubled by debt and can’t seem to get a handle of your money management, consider this seven-steps approach to put you on the right track towards financial freedom:
Plan your budget every month
A budget is essentially your plan for your money. It indicates how much of your income goes to which expense. When you create a budget plan, you’ll cut down on wasteful spending – effectively maximizing your income. You’ll be happier and stress-free too, because you know all your expenses are accounted for.
Remember, budgeting will only change your life if you live by it.
Put savings at the forefront of your financial plan
If you want to be financially free, you need to start saving for three primary things: an emergency fund, big purchases, and investments.
Avoid all kinds of debt
The second step of Ramsey’s strategy is to pay off all your debts - and to avoid it forever. One effective way to do this is through the debt snowball. With this method, you’ll pay off your debts starting from the smallest to the biggest balance, excluding your home mortgage. Concentrate on clearing the first one while paying the minimum on all the others. As soon as you check that one off your list, you can move on to the next small debt, and then the next one – until you finish settling everything.
Get the right insurance policies
Insurance shields you and your finances from unforeseen risks. There are a couple basic insurance types you need to have: health insurance, disability insurance, life insurance, identity theft insurance, home (or renter) and car insurances. Also, once you turn 60 consider long-term care insurance. By proactively securing these essential insurances, you effectively fortify your financial peace against life’s uncertainties.
Build your retirement funds
Contributing to a retirement plan now means you’re setting up future you for financial peace during your golden years. Research to consider your options on how to go about it (Ramsey's strategy is catered to the American crowd).
Fund your kids’ college education
Regardless of the savings plan you pick, funding your children’s college education should come only after you've secured your retirement funds. Your kids can always work to pay for college, and it won’t make you a bad parent if you’re unable to fund it by yourself.
Banish debt, build wealth, and give generously
After doing the first five steps of the strategy, it is time to pay off your mortgage as quick as possible. As the last step you’re encouraged to share your wealth with the community.
Source: Dave Ramsey’s complete guide to money, Dave Ramsey, 2012
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