Dave Ramsey is one of the first people who’ll say that it’s okay to be in debt. It’s okay to have a small savings account. And it’s okay if you know little about investing money.
What’s that? Dave Ramsey, the financial expert, is telling me it’s okay? Yes, you heard it right. Ramsey, popular personal finance author and radio personality, believes that we’re too hard on ourselves when it comes to managing our money. We place too much pressure on developing a big nest egg, but without taking the proper Ramsey-coined “Baby Steps” to build wealth, too many financial mistakes are made along the way.
“Most people are over-intimidated, overwhelmed with money, they have a lot of shame, a lot of guilt, because we’ve done such stupid stuff with our money,” Ramsey says. “And we all feel like doofuses and feel like everyone else is doing it right. We’ve got to clear all of that junk and go, okay.”
In its second exclusive interview with Ramsey, Go Banking Rates learned that saving money, getting out of debt trouble and investing your money, isn’t always about having lots of money, but rather, lots of self belief.
Finance for Beginners, Dave Ramsey Style
1. You have to make saving a top priority.
Say that you’ve never given too much thought to devising a savings plan, and consequently, have nothing set aside for retirement or emergencies. What would be the first steps someone could take to getting a savings plan on track? According to the Seven Baby Steps (Ramsey’s finance 101 plan), step number one is to make a $1,000 emergency fund.
Ramsey, however, says that many people (including himself) have made the common mistake of believing that saving money means having to make more money. “For years, I tried to out-earn my stupidity” he admits. “It just didn’t work. I couldn’t make enough.” Instead, make saving money a personal priority and work at your own pace.
“The first thing you’ve got to do is decide that saving is so important that it goes to the top of the list,” says Ramsey. “You have to make it a priority. It has to be a value of yours. And then you put it to the top of the list. Otherwise, all of life will interfere, and your savings will be pushed to the bottom of the list, and it never happens.”
2. Stay motivated to pay off debt with the “Snowball” strategy.
One of the first rules of the Dave Ramsey budget is to stay out of debt by staying motivated. Ramsey tells people to stay ahead of debt by working it off smallest to largest.
“Always list your debts smallest to largest when attacking them, and pay the little one off first. And that’s not mathematically correct.” But, he says, ” This is not about math, this is about behavior. The problem is with the idiot in my mirror. I’ve got to give him a behavior change.”
He emphasized, “It has to become the priority, to where you’re completely focused, completely intense. But the problem is that [debt] is so insidious and our lives are so busy, if you don’t clear the clutter out of your brain and get this laser light focused, you’ll never move the needle on debt.”
One of Ramsey’s secrets to digging out of debt is avoiding debt in the first place. “We say things like, ‘Oh, I can afford it.’ And that used to mean, ‘I can write a check and pay for it.’ Now, what it means is, ‘I might be able to make the payments.'”
3. Pretend investing is your job.
Where can a beginning investor turn when it comes to learning how to invest in their first portfolio?
“I tell folks to pretend it was kind of like their job, that they were hired by someone else to manage money,” Ramsey says. “If it was your job to manage money for someone, what would you do? You would read on websites, you’d get books and read, and you’d sit down with some experts — maybe a good mutual fund broker. And you wouldn’t just trust anything they said just because your job is on the line; you would learn and invest based only on your knowledge.”
That’s where investing errors happen — when people fail to educate themselves and thus, invest their money poorly.
“The problem people get into is they want to short cut, and they want to do it quick, and they go back and watch some Oprah rerun on TV or something,” he said. “Don’t short cut the process. Get in there and learn. If you meet with a financial professional, 85 percent of them have the heart of a salesman. Fifteen percent have the heart of a teacher. And that’s who you want.”
So how can you tell? “You can tell, when you leave the room, if you’ve been taught or you’ve been sold, if you learned something while you’ve been with them, or were you pushed, and manipulated, and closed with some sales technique into a deal,” Ramsey said.
Investing money wisely means investing in something simple. “Put (money) in something you understand. A simple savings account everyone understands,” Ramsey said. “I would like you to learn a little more, and do mutual funds and do better investing, but don’t put it in something because Dave Ramsey said to, or because some website said to, or because anybody else said to. Put it in there because you understand it. Then you won’t lose the money. It’s good to have experts to teach you, but you make the decisions based on your understanding.”
“Hope is the Fuel that Runs the Engine”
A healthy attitude towards money, Ramsey says, starts with a healthy attitude towards one’s self.
“You can do this stuff. And you can — you really can,” Ramsey said. “And here’s the first thing you do, and here’s the second thing you do, and here’s why you’re doing these things, so you know the why, not just the what. You wrap that in hope, and it causes some beliefs. More than anything, people will find their way through the techniques and the steps and all that stuff, only if they believe they can.
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