Popular radio personality and personal finance guru Dave Ramsey has offered valuable financial advice to thousands through his nationally syndicated radio program, “The Ramsey Show,” and many best-selling books like “The Total Money Makeover.”
At 26 he was already a millionaire with a $4 million real estate portfolio. However, his fortunes took a drastic turn, leading to bankruptcy by the age of 28, Go Baking Rates reported. Today he has an estimated net worth of $200 million, according to Celebrity Net Worth.
He had to work his back up, and now he’s teaching others how to rise from the financial ashes.
Here is an explanation of the seven factors.
Step 1: Save $1,000 starter emergency fund
Financial emergencies can strike unexpectedly, leaving many unprepared. The first step involves building a starter emergency fund of $1,000 to cushion against unforeseen circumstances like car repairs, medical expenses, or home maintenance.
Step 2: Pay most of your debt using snowball method
Debt is a significant barrier to financial freedom. The second step focuses on eradicating all non-mortgage debt using the debt snowball method. Under this method, you start by paying off the smallest debt while making minimum payments on others, then progress to larger debts.
Also don’t add large debts. He suggests buying a less expensive car, for example, so you have lower car payments. The money say can be invested and then ear you money.
The average car payment in the United States is $499 a month, according to Ramsey. “From age 30 to 70, if you take $500 a month and invest it, you will have over $5 million,” he said.
While having credit is nice, it comes at a high cost. So Ramsey recommends paying off your credit cards.
Credit card companies generate billions in revenue from cardholders in the form of interest and fees, Upgrade Points reported.
Step 3: Save 3–6 months of expenses
Once debt is cleared, it’s vital to build a substantial emergency fund covering three to six months of living expenses. This fund provides a safety net during unexpected job loss, health issues, or other emergencies.
Calculate your monthly expenses and multiply by three to six to determine your target savings.
Step 4: Invest 15 percent of household income in retirement
Allocate 15 percent of your household income to retirement savings, taking advantage of employer-matched contributions and tax-advantaged accounts.
Step 5: Save for children’s college fund
Investing in your children’s education is a key financial goal. Start saving for their college fund while ensuring your retirement savings remain a priority. Utilize tools like Educational Savings Accounts (ESAs) and 529 plans.
Step 6: Pay off home early
Owning a home outright is a significant achievement. Accelerate mortgage payments to pay off your home early and save on interest over the loan term. According to Ramsey, most wealthy people pay off their mortgage in 10-15 years. Develop a plan to pay off the mortgage in 10-15.
Step 7: Build wealth and give back
The final step emphasizes growing wealth and practicing generosity. Invest and build substantial wealth to enjoy a comfortable retirement while also giving back to the community and causes you are passionate about.
“Just give and be a giver. It’s about changing your spirit anyway,” he says on his website.
In this July 29, 2009, file photo financial guru Dave Ramsey sits in his broadcasting studio in Brentwood, Tenn. (AP Photo/Josh Anderson, File)