How to be Good with Money – an Interview with Dave Ramsey
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We all want to take control of our money and build wealth for ourselves and our families, but what’s the best way to do it? I recently spoke to legendary personal finance expert Dave Ramsey about his new book, “Baby Steps Millionaires.” Dave shared how anyone can become a millionaire if they follow the right steps. Here’s how:
Step 1: Step 1 is to allocate $1,000 to a starter emergency fund. For some people, $1,000 is a lot of money, for others it’s not, but getting this sum together and setting it aside as a beginner fund is a powerful way to get on track to financial freedom.
Step 2: This step is about paying off all of your debt, except your home, using what’s called the Debt Snowball. To begin, list your debts smallest to largest and then attack them in that order. This process usually takes somewhere between 18 to 24 months, depending on the level of debt you have. At the end of this step, you’ll be debt-free, bar your house, which is a great position to be in. Now that you don’t have any payments to contend with, you can start investing.
Step 3: Step 3 focuses on stockpiling three to six months of expenses. With this emergency fund in place and no payments to make except on your house, you’re no longer at the mercy of the big bad wolf, like a global pandemic, that can come knocking unexpectedly at your door. You’ve gotten rid of the defensive problems and you’re ready to play offense!
Step 4 is to put 15% of your income into retirement; Step 5 is to start saving for your kids’ college; and Step 6 is to put everything else you can – while still living your life – towards paying off your home.
Step 7: At this step, the average person will have reached the first milestone of wealth – $1 million to $5 million. This process usually takes 12 to 17 years, depending on personal circumstances. Once you’ve reached this stage, you’ll have accumulated approximately $800,000 in a retirement fund and will have paid anywhere between $400,000 and $600,000 for your home. This means you now have a net worth of over $1 million!
When you get out of debt, you start to control your largest wealth building tool: your income. You can then become wealthy, change your family tree and be outrageously generous to other people! To learn more, listen to the latest episode of “It’s a Good Life.”
