Dave Ramsey is the author of The Total Money Makeover: A Proven Plan for Financial Fitness. He also hosts a radio talk show on personal finance. The show can be downloaded on iTunes twice a week. I enjoy listening to the podcasts. I start my week listening to him on my Monday drive to work and on Friday’s drive home. We have long eliminated our debts except for the mortgage before we heard of Dave Ramsey. However, his advice keeps me motivated. I like hearing callers shout “I’M DEBT FREE”. This statement typically does not count the mortgage but some of Dave’s callers have very inspiring stories. Most are able to eliminate thousands of debts in a short period of time.
Dave Ramsey’s philosophy is strict on eliminating debt. It entails making big lifestyle sacrifices to aggressively eliminate debt. A lot of people including some well known financial bloggers have followed Dave’s teachings and have helped turn their lives around. One notable blogger is Adam Baker of Man vs Debt. I highly recommend Dave Ramsey to families and individuals who are struggling with finances and have debts. His method consists of 7 baby steps. He also has a Financial Peace course that covers other topics. The course is offered at numerous locations. It costs around $95 for a 13 week session and meets once a week. Check out his website for locations and schedules in your area if interested.
Below are Dave Ramsey’s 7 Baby Steps as written in his website at www.daveramsey.com.
Baby Step 1- $1,000 to start an Emergency Fund
An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen.
Baby Step 2 – Pay off all debt using the Debt Snowball
List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first.
Baby Step 3 – 3 to 6 months of expenses in savings
Once you complete the first two baby steps, you will have built serious momentum. But don’t start throwing all your “extra” money into investments quite yet. It’s time to build your full emergency fund.
Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth.
Baby Step 5 – College funding for children
By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now.
Baby Step 6 – Pay off home early
Now it’s time to begin chunking all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments.
Baby Step 7 – Build wealth and give!
It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It’s really the only way to live!