Yahoo Finance Dave Ramsey’s 7 Tips To Free You From Monetary Mediocrity
Dave Ramsey, a well-known financial guru, businessman and radio host, has a wealth of knowledge for people who are struggling to become financially independent and build wealth. Much of this insight can be found on Ramsey’s website, Ramsey Solutions, but a lot of it is scattered around the web.
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To make things easier, GOBankingRates has compiled some of Ramsey’s top tips for getting out of — or avoiding — financial mediocrity. Some of these tips are things you can start implementing right now. Others will take some time but can prepare you for a better future. Just remember that certain tips might be more applicable than others, depending on your current financial situation and goals.
With that in mind, here are Ramsey’s top tips.
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Prioritize Your Debt
One of the most straightforward pieces of advice Ramsey suggests is to focus on eliminating your debt prior to investing and saving. On his website, he provides many specific tips on how to pay off your debt.
A top debt repayment strategy is the debt snowball method. With this, you make a list of all debts, from the smallest balance to the largest balance. From there, you focus on paying off the smallest balance first, while only paying the minimum monthly amount on all other debts. Once the smallest account is fully paid off, you can move on to the second-smallest debt. You can then repeat the process until all of your debts are paid off.
Other ways to start paying down your debts include starting a side gig or selling your car. Regardless of how you go about it, the main focus should be to create a budget that prioritizes debt payoff.
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Create an Emergency Fund
Many financial experts, including Ramsey, suggest creating an emergency fund with enough money to cover between three and six months’ worth of expenses. Ramsey defines an emergency fund as money that you have set aside in case of unforeseen expenses like a sudden job loss or medical bills. With a fully maxed out fund, you can cover these expenses for a few months until you get back on your feet.
If you’re single, have a stable source of income and don’t have any dependents, Ramsey suggests starting with a smaller savings goal. For example, you could save up three months’ worth of living expenses. The same goes for married couples with steady income and no dependents.
Alternatively, Ramsey suggests having six months of expenses if you’re:
Married and have only one income source between you
A single parent
Self-employed or have irregular income
Ramsey also suggests keeping your emergency fund easily accessible in a liquid (cash) form. This could be in a savings account, an online bank or even a money market account (assuming it comes with a debit card).
Avoid Comparing Finances
Another tip is to stop comparing finances.
The issue with comparing your financial situation to someone else’s is that it can lead to a sense of mediocrity, even if that’s not necessarily the case. It can also cause people to spend more money than they should trying to impress others.
Focus on the Future
Having a personal budget and a full emergency fund are both key to building financial security and avoiding mediocrity. But part of the journey also involves focusing on your financial future.
On his website, Ramsey recommends saving around 15% of every paycheck. The median household income is around $70,000. If you earn around this much, you should be investing $10,500 a year, or $875 a month. Over the span of 30 years, assuming an average rate of return of 11%, you could have around $2.3 million.
Furthermore, Ramsey highly recommends putting that money in a tax-advantaged account, such as a 401(k) with employer-matching contributions. However, if that’s not a possibility, then a traditional IRA or a Roth IRA could be a good alternative.
Be Prepared at the Grocery Store
Grocery shopping is essential, but it’s also the source of many impulse buys — something Ramsey refers to as “budget busters.” To combat these unnecessary purchases, Ramsey recommends creating a meal plan and a dedicated shopping list and following it whenever you shop.
Ramsey also offers a step-by-step guide to meal planning. This includes setting aside time to check your pantry and fridge for things you already have and using those. It also includes adjusting your budget as needed.
Use Technology To Manage Your Finances
There are many ways you can save money and avoid financial mediocrity. One of Ramsey’s tips is to take advantage of the various budgeting software programs and apps. This includes coupon apps, cash-back apps and other savings tools.
While not meant for budgeting, per se, Ramsey also suggests using smart devices at home to cut back on the electricity bill. These devices might cost more up front, but they can pay for themselves over time.
Consider Working With a Professional
According to Ramsey, one of the best ways to avoid financial mediocrity is to keep an eye on your finances and to work with a professional or two. After all, finances can become quite complex, especially if you’re trying to track multiple accounts or sources of income.
But when you work with an expert, such as a financial advisor or planner, you can use them to fill in the gaps, help you make better financial decisions and guide you along the way to wealth. Ramsey offers suggestions on how to find a financial planner that works for you. This includes looking over what your financial needs are, becoming familiar with the different types of financial advisors that are out there, and comparing costs and services.
Once you’ve narrowed down your options, Ramsey suggests asking as many questions as you can so you can learn more about them and how they can benefit you.
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This article originally appeared on GOBankingRates.com: Dave Ramsey’s 7 Tips To Free You From Monetary Mediocrity
