Dave Ramsey is a famous financial guru who promotes living debt free and managing your financial life with cash purchases. Dave Ramsey uses a system he calls “Baby Steps” to help get you out of debt and remain out of debt.
The Dave Ramsey “Baby Steps” to financial freedom are:
- Save $1000
- Pay of all consumer debt
- Save 3-6 months of expenses
- Invest 15% in retirement
- Save for kids college
- Pay off mortgage early
- Give generously
These steps can get you on the way with a strong financial foundation as well help to get you started living debt free.
Dave Ramsey’s system likes to use envelopes of cash to help you stick to your monthly budget. For example, if you set a monthly entertainment budget of $200, at the beginning of the month you would place $200 cash in an envelope labeled Entertainment. Then when you do things under that category of expenses you would only use the cash in the envelope and when you run out you run out. Ramsey uses a zero-based budget design. A zero-based budget design includes ‘spending’ all your monthly income. That doesn’t mean spending it with no savings or cushion, it means accounting where every dollar goes. Typically when making a budget you account only for your expenses and not where extra will go. This can create a budgeting system that does not leave your ‘extra’ income accounted for.
One tenant that Ramsey teaches is that before attacking your debt to acquire a $1000 cash cushion in the event of an emergency. By doing that and adding to it monthly, you can set up a safety net that allows you to better focus on attacking and paying off your debt. Dave Ramsey also employs a great mental trick to help you begin to attack your debt. He recommends picking a high-interest account and attacking that first and making only minimum payments on your other accounts. By doing this you are setting up goals and going from one debt account to the next with personal milestones in between.
The tips and tricks Dave Ramsey employees to help get people out of debt have helped my family to get out of debt and I recommend his Financial Peace University for anyone looking to get out of debt and achieve financial freedom.