Dave Ramsey: Here’s the Biggest Difference Between Rich and Broke People
Written by
Joel Lim
Edited by
Cory Dudak
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Dave Ramsey, famous radio talk show host and owner of Ramsey Solutions, a company that provides financial counseling, is known for having grown his wealth from the ground up. He offers a number of tips for people wondering how to go from being broke to rich.
One of his most popular concepts is the difference between rich and broke people. The basic point, he says, is when it comes to buying something, rich people ask, “How much?” Broke people, in contrast, ask, “How much is the down payment?”
Let’s look at what these two ends of wealth really mean.
Rich People Don’t Make Impulse Buys
Ramsey makes the case that rich people don’t go into debt so they can own something. Whenever a potential purchase comes up, they consider, instead, how that purchase, and its total cost, aligns with their budget, income and wealth portfolio.
You may have heard that rich people become rich by not spending all their money on frivolous or impulse buys. This is where that lesson comes from.
Rich People Limit Unnecessary Monthly Payments
According to Ramsey, the flip side of that rich coin is being broke, and a broke person’s mentality is to acquire things — even those they might not need. So, instead of worrying about whether they can afford something, they simply figure out whether they can afford a down payment and monthly payments.
This mentality often leads to the broke person becoming overleveraged, with too many monthly payments they can’t afford. Then, when an emergency arises, they don’t have the money to take care of it, and they go deeper into debt.
How To Avoid the Broke Pitfall
So, how do you start to take on the rich person’s mentality? It’s not easy, especially if you’ve been asking, “how much is the monthly payment?” for a long time. However, here are some tips based on Ramsey’s teachings that can help you get there:
- If you can’t afford to pay in full, don’t buy it: This tip is at the heart of the difference we discuss here. The bottom line is this: if you don’t have all the cash to make the purchase you want right now, you cannot afford it. Even then, look at whether you have emergency savings, cash for your bills, and cash for any upcoming expenses you know you’ll need. If, after all this, you have the money on hand, you can make the purchase.
- Avoid credit cards: One of Ramsey’s most famous directives is to never use credit cards. He’s famous for pulling out his wallet and showing the only four pieces of plastic he owns: a business debit card, a personal debit card, his driver’s license, and his concealed carry card. Spending money on credit cards is a surefire way to stay broke unless you pay off your balance every month.
- Use cash or debit cards only: Instead of credit cards, use cash or your debit card only. Cash is better because people tend to be more reluctant to use it, preventing them from making impulse buys.
- Understand needs versus wants: This brings us to this next point: understand what items you need versus what you just want right now. People without money tend to spend it quickly once they get it. Switch this up and buy only what you actually need. The rest of your money should go to savings, investments and experiences.
- Create a budget and stick to it: To help you avoid impulse buys and spending money you don’t have on what you don’t need, create a monthly budget, and then fill envelopes with cash for your expenses. When you run out of cash, you can’t spend any more for the month.
- Make savings and investing priorities: One surefire way to grow your wealth is to save it or invest it in interest-bearing accounts. In particular, compound interest-bearing accounts can grow your wealth more quickly than you might imagine. Educate yourself on compound interest, and start saving now. Even small amounts each week will add up to greater wealth over time.
- Focus on experiences rather than impulse buys: Finally, a big shift for the rich person versus the poor person is that rich people tend to pay for experiences rather than things. They take vacations, visit wineries, and even go to the movies, creating lasting memories that build relationships and form connections. Broke people buy and give items that can be tossed in the trash and forgotten later.
Follow Dave Ramsey’s advice, and you may be on your way to becoming the rich person you always knew you could be.
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