Dave Ramsey: 2 Things That Lead to Your First $1 Million in Net Worth
Written by
Yaël Bizouati-Kennedy
Edited by
Cory Dudak
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Financial guru and radio show host Dave Ramsey spoke recently about the two primary things that can lead people to getting their first $1 million in net worth.
“There’s two things that really cause people to get their first $1 million to $5 million in net worth,” he explained on his program, The Ramsey Show. “They invest steadily in their retirement plans and good growth stock mutual funds like 401ks and Roth IRAs, and they pay off their home.”
Ramsey further added that this means not just paying the interest, as this will only “keep you in debt perpetually.”
Ramsey has long been a strong advocate of paying off debt fast and paying mortgage early, as this not only enables financial freedom, but it’s also a key way to build wealth.
“In fact, the average millionaire pays off their house in just 10.2 years,” he noted in a Ramsey Solutions article. He went on to offer a few tips to help achieve this:
First, make extra house payments. For example, say you have a $240,000, 30-year mortgage with a 7% interest rate and a monthly payment of $1,597 for your principal and interest. If you made an extra payment just once every quarter, and you’d pay off your house nearly 15 years early.
“That would mean cutting the length of your mortgage in half and saving a whopping $184,000 in interest along the way,” noted Ramsey Solutions.
Another tip is to “make extra room in your budget.” In other words, cut down on some expenses, such as subscriptions, groceries or eating out.
Additional tips include downsizing, or putting extra income toward your mortgage.
“To get really intense about knocking down your mortgage payment, put all your extra income toward your home loan. That means bonuses, raises, profit sharing, holiday gifts — yep, all of it,” Ramsey noted. “It’s more than okay to treat yourself from time to time (I still want you to enjoy your money for other things), but don’t let the temptation of lifestyle creep take over.”
By paying down debt early and avoiding massive interest fees and payments, you’re left with more money — which you can then invest steadily in your retirement plans and stock mutual funds, as Ramsey has suggested.
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