I don’t know about you…
But I didn’t learn how to manage money wisely as a kid.
But at some point in your adult life, you realize it’s time to buckle down. It’s time to learn how to manage your money better.
But you struggle to get started.
Should I pay off debt or save money? How do I budget? What do I do if I don’t make enough money?
With all these questions popping up, it’s no wonder that managing your money can seem difficult.
So today, I wanted to talk about one of my favorite financial experts, Dave Ramsey. Dave created and popularized a financial plan called the “7 baby steps.” As a result, he’s helped thousands of people pay off debt and reach financial freedom.
So I want to share Dave’s video that inspired this article, then I’ll summarize his tips below.
5 Things That Will Make You Wealthy – Dave Ramsey
So if you’ve read Dave’s book, The Total Money Makeover or gone through his financial course called Financial Peace University, then you know Dave teaches a 7 step financial process. They’re called the “baby steps” because you take them one at a time, in order.
Here are the 7 Baby Steps:
Baby Step 1 – Save $1,000 for an emergency fund
Baby Step 2 – Pay off all debt using the Debt Snowball method (everything except your mortgage)
Baby Step 3 – Once you’re debt-free, bump up your emergency fund to cover 3-6 months worth of expenses.
Baby Step 4 – Invest 15% of your household income into Roth IRAs and pre-tax retirement
Baby Step 5 – Start a college fund for your kids
Baby Step 6 – Pay off your mortgage early
Baby Step 7 – Build wealth and give
These steps need to be done in order, but depending on your situation, you might start at step 2 instead of step 1.
For example, if you’ve already saved $1,000 for an emergency fund, then you’ll skip to step 2. If you’ve already done steps 1-3, then you’ll skip to step 4.
These steps are a great starting point for anyone learning how to manage money wisely.
But how do you get the most out of this financial plan? Let’s dive into Dave’s 5 tips for making it work:
1. You need a written plan
Want to know the first step in winning financially?
Creating a written budget.
What’s the big deal about budgeting? I do my budget in my head. I just don’t have time to sit down and budget. Plus, budgeting feels way too restrictive.”
Let’s be honest. We’ve all thought that at some point.
But here’s the thing:
Sure, you may have a mental idea of what your expenses are. But writing everything down will let you see ALL the little things you tend to forget about.
Little by little, those little things become a lot. So budgeting is the first step in learning how to control your spending habits.
Budgeting builds confidence.
No more wondering if a coffee run will break your budget. Or if you can eat out this weekend. Your budget allows you to spend confidently on the things you enjoy.
It’s not about restriction, it’s about control.
Every good budget includes “fun money” in it. If it doesn’t, then it’s not realistic.
Jordan, one of EndThrive’s readers says he budgets because “It feels good to know where my money is going each month. Peace comes from having ‘fun’ money budgeted in that I can do whatever with.”
Budgeting is easy.
You don’t have to be a math nerd or financial expert to do this stuff.
All you need is a pen, paper, and a calculator for basic adding and subtracting. Then you can create a zero-based budget.
A zero-based budget just means you assign every dollar a job. This is the key to learning how to manage money wisely.
For example, do you have $150 leftover? That’s great news, but you aren’t done budgeting yet.
You have to put that $150 in a category – savings, retirement, groceries – wherever. Just make sure you give it a job.
See how easy that is?
And just like any other skill, budgeting gets easier with time and practice. The first budget you make is your blueprint. Each time after that, budgeting will take less time because you already have a guide to go by.
2. You’ve got to get out of debt
Do you ever feel stuck with your debt?
…almost like it’ll always be hanging over your shoulder?
It happens to the best of us.
But you have to get sick and tired of being sick and tired. You have to get to the point where you look at your debt with a healthy amount of anger and fear.
At that point, you’ll tell yourself:
I can’t live like this anymore. Not with a family. Not with kids. I can’t set them up for failure like this.
Andrea, an EndThrive reader, had this to say about it:
“What pisses me off the most about my debt is how self-centered it is. All the eating out and online shopping and who knows what else. I can’t even remember 90% of what I BOUGHT, and I’m still paying for it!”
And Michael said this:
“I can’t wait until the money I’ve been throwing at my debt is actually able to be used in other ways. Like on my family, home improvements, savings, etc.”
When you’re learning how to manage money wisely, you have to get fired up at your debt. Get sick and tired of giving your money away to creditors.
So after you’ve created your budget, you can pick a debt payoff plan. Dave Ramsey recommends the Debt Snowball Method.
The idea behind the debt snowball is simple:
List your debts from smallest balance to largest balance. Put as much money as you possibly can towards the smallest balance. Make minimum monthly payments on everything else.
Once the smallest balance is paid off, move up to the next smallest balance.
Here’s an example of how that looks:
When you’re writing down your debts from smallest balance to largest balance, you’ll also want to include the minimum monthly payment for each debt.
Next, you’ll fill out your debt worksheet like this:
(Above: Order your debts from smallest to largest, left to right.)
This worksheet is completely free for EndThrive readers. You can find the link for it at the end of this article.
So as you can tell from the worksheet example above, you’d focus on putting all your extra money towards the MasterCard since it’s the smallest debt.
Both the Visa and the Car Loan only receive their minimum monthly payments. Then once the MasterCard is paid off, you’d take what you were paying on it ($600) and add that to the Visa’s minimum monthly payment ($50)
$600 + $50 = $650
You’re now putting a whopping $650 each month towards Visa.
Here’s an example:
And lastly, once the Visa is cleared, you’ll add the $650 Visa payment to the Car Loan payment ($325)
$650 + $325 = $925
With a new car loan payment of $925 each month, you’ll have the car paid for in no time.
3. Live on less than you make
If you’ve followed Dave Ramsey for any amount of time, then you know he’s not afraid to give you a kick in the ass when you need it.
He teaches more than just how to manage money wisely. He teaches you common-sense financial principals that’ll stick with you forever.
Which means he’s also not scared to tell you this:
“If you spend everything you make, then you’re a fool.”
Here’s the deal:
There’s a new bad guy in town, and he’s attacking lower, middle, and upper classes. He’s called lifestyle creep – and it doesn’t matter how much money you do or don’t make – he can still find you.
So what is lifestyle creep?
Lifestyle creep is when your income goes up, your expenses rise to match it.
Got a raise at work? Sweet! I need a new car. Besides, I can “afford” the monthly payments.
Got a bonus check? Great, I’ve been needing a new phone too.
It’s an easy trap to fall into. And once you’re in the hole, it can be hard to pull yourself out.
So let me be clear:
You can never get ahead when earning more money means wasting more money. Don’t take on new debt because you can “afford” the monthly payments. Think about it. Lenders make a killing off the interest they charge you.
So that new $25,000 car ends up costing you thousands of dollars in interest by the time you’re done paying it off.
To add insult to injury?
After 4 years, that $25,000 car that you spent almost $30k for with interest, is only worth about $12,000 after it depreciates.
The worst part?
Not only do cars depreciate in value, but they sit idle 90% of the time.
So 2 things are important when it comes to avoiding lifestyle creep:
1. Don’t keep up with the Joneses
2. Make a budget and stick to it
4. Save money
“100% of the people who don’t save money don’t have any,” says Dave Ramsey
We all know that saving money is a part of learning how to manage money wisely. But, sometimes there’s a disconnect between knowing what we should do and actually doing it.
Even the most financially disciplined can become sidetracked by the newest shiny object. Or sometimes we know that dining out is eating into our budget, but we’re having another “I don’t feel like cooking” kind of night.
This is when your bills start controlling your paychecks and you tell yourself:
Well, I just don’t make enough to save any money.
There are no secrets to saving money, you just have to do it.
So the key here is to take a hard look at your spending habits. I mean really look at them. Scan your receipts, credit card statements and online bank accounts over the last 4 weeks.
If you could get rid of 3-4 unnecessary expenses, what would they be?
Have you ever had a moment when you think about something you once bought and ask yourself, “Why on EARTH did I spend my money on THAT?”
These are considered low-value purchases. Otherwise known as the purchases that don’t make your life any better.
As Andrea said earlier:
“I can’t even remember 90% of what I BOUGHT, and I’m still paying for it!”
Read that sentence again. It’s the things that we put on our credit cards, that we don’t even remember months later.
Some repeat offenders are:
- Excessive dining out
- Unused subscription services
- Unused gym memberships
- Impulse shopping
So once you pay off debt, Dave recommends investing 15% of your income into retirement. He says that good growth stock mutual funds are the way to go.
According to his website, “One of the biggest perks of mutual funds is diversification. Because your investment is split between a variety of companies, you don’t have to worry about your account tanking because a single stock underperforms.”
5. Be outrageously generous
“If you’ll get out of debt, invest, live on less than you make, and have a plan, then you can be outrageously generous,” says Dave.
We’re all told to budget, save money, and pay off debt, right? But when it comes to learning how to manage money wisely, how many people tell us to donate our money or our time?
This is what I love about Dave Ramsey. Sure, he’s all about building wealth but he’s also all about helping people who are less fortunate. He doesn’t necessarily mean with money, either.
A quote from Dave’s website:
“There are plenty of opportunities to volunteer at a soup kitchen or charity. You can help that single mom down the street by offering to babysit her children while she goes to night school or takes an evening to herself. You can also cook dinner for someone in your church who has lost a loved one”
Giving is one of the most fulfilling things you can do. Do good, feel good.
Tools for getting started on the Dave Ramsey plan
To summarize the 5 tips, they are:
Tip 1. Have a budget
Tip 2. Focus on getting out of debt
Tip 3. Live on less than you make
Tip 4. Save money
Tip 5. Give
By now you’re probably wondering:
I’m in…but where do I start?
Here a few tools for getting started:
Tool 1: Free Financial Worksheets
With these worksheets, you’ll get:
- A budgeting template
- A debt breakdown worksheet
- A money-saving challenge
These 3 templates should be all you need to get started on your baby step journey. Oh, and did I mention they’re free?
Tool 2: The Total Money Makeover
This book changes everything. It’s a deep dive into the 7 baby steps and answers all your burning questions about getting your financial life together.
As one reviewer said, “Take the plunge and change your life.”
If you’ve ever wanted to get your financial ducks in a row, now is the time to start. Dave is your go-to guy for learning how to manage money wisely. If you prefer video/audio over written content, you can listen to him live on the radio Monday-Friday from 2pm-5pm EST. You can also watch him live on his YouTube channel at the same time.
Tool 3: Easy Money Toolkit
Maybe you’re less of a pen and paper person. Or you just prefer having your budget with you on the go.
If that’s you, I recommend the Easy Money Toolkit. This toolkit includes everything you need to start winning financially. It’ll take you from saving no money (ever) to paying off debt and saving your first $10k. You can read more about the toolkit here.
(Above: The Budgeting Template from our Easy Money Spreadsheet)
(Above: The Savings Tracker from our Easy Money Spreadsheet)