Dave Ramsey's Complete Guide To Money

1. Take control of your finances through intentional budgeting and saving

"If you aim at nothing, you'll hit it every time."

Zero-based budgeting. The key to financial success is creating a written, zero-based budget every month before the month begins. This means allocating every dollar of income to a specific purpose, whether it's expenses, savings, or debt repayment. Use the envelope system for cash expenses to stay on track.

Emergency fund. Start by saving $1,000 as a beginner emergency fund (Baby Step 1). Once you're out of debt, build a full emergency fund of 3-6 months of expenses (Baby Step 3). This protects you from life's unexpected events and prevents you from falling back into debt.

Benefits of budgeting:

• Removes financial stress and guilt
• Helps you achieve your financial goals faster
• Improves communication in relationships
• Gives you control over your money

2. Avoid debt at all costs and pay off existing debts quickly

"The borrower is slave of the lender."

Debt is not a tool. Contrary to popular belief, debt is not a wealth-building tool. It's a product aggressively marketed by banks and credit card companies. Avoid all forms of debt, including car loans, credit cards, and student loans.

Debt snowball method. To get out of debt, use the debt snowball method (Baby Step 2). List your debts from smallest to largest, regardless of interest rate. Pay minimum payments on all debts except the smallest, which you attack with gazelle intensity. Once the smallest debt is paid off, roll that payment into the next smallest debt. This method provides quick wins and motivation to keep going.

Types of debt to avoid:

• Credit cards
• Car loans
• Student loans
• Home equity loans
• Payday loans

3. Build wealth through consistent, long-term investing in mutual funds

"The tortoise wins every time I read the book."

Slow and steady investing. Building wealth is not about get-rich-quick schemes or complicated investment strategies. It's about consistently investing in good growth stock mutual funds over a long period of time. Start investing 15% of your household income for retirement once you're out of debt and have a full emergency fund (Baby Step 4).

Diversification. Spread your investments across four types of mutual funds: growth, growth and income, aggressive growth, and international. This provides diversification and balances risk and return. Avoid single stocks, bonds, and whole life insurance as investment vehicles.

Key investing principles:

• Start early and be consistent
• Invest for the long-term (5+ years)
• Choose mutual funds with a track record of at least 5-10 years
• Use tax-advantaged accounts like 401(k)s and Roth IRAs

4. Protect your assets with proper insurance coverage

"If you don't have health insurance, life insurance, and a will in place, do not go to bed until it is done!"

Essential coverage. Proper insurance is crucial for protecting your assets and transferring risk. Focus on these key areas: homeowner's/renter's, auto, health, disability, long-term care (if over 60), identity theft, and term life insurance.

Avoid unnecessary coverage. Stay away from whole life insurance, credit life insurance, and extended warranties. These products are often overpriced and unnecessary. Instead, self-insure through your emergency fund for smaller risks.

Insurance tips:

• Get term life insurance for 10-12 times your annual income
• Opt for high deductibles to lower premiums
• Review your coverage annually and as your life circumstances change
• Create a "legacy drawer" with all important documents and information

5. Make smart home-buying decisions and pay off your mortgage early

"Location, location, location."

Buy wisely. When buying a home, focus on location and buy in the lower price range of the neighborhood. Get a 15-year fixed-rate mortgage with a payment no more than 25% of your take-home pay. Put at least 20% down to avoid private mortgage insurance (PMI).

Pay it off quickly. Make extra payments on your mortgage to pay it off early (Baby Step 6). This frees up your largest monthly expense and allows you to build wealth faster. Don't fall for the myth that keeping a mortgage for the tax deduction is beneficial.

Home-buying tips:

• Get a thorough home inspection
• Avoid adjustable-rate mortgages (ARMs) and balloon payments
• Look past cosmetic issues to find good deals
• Consider buying foreclosures or short sales for better prices

6. Develop multiple streams of income through career growth and side businesses

"Your most important wealth-building tool is your income."

Career development. Focus on working in your strengths and passions to maximize your earning potential. Continuously improve your skills and look for opportunities to advance in your career. Don't be afraid to change jobs or industries if it aligns better with your strengths and goals.

Side businesses. Consider starting a side business based on your skills and interests. This can provide additional income to reach your financial goals faster and may even turn into a full-time business opportunity.

Income-boosting strategies:

• Negotiate for better pay and benefits
• Take on additional responsibilities at work
• Freelance or consult in your area of expertise
• Create and sell products or services online
• Invest in rental real estate (once you're financially secure)

7. Give generously once you've achieved financial peace

"I have met some rich people who are total greedy jerks, and so have you. I have also met some poor people who are total greedy jerks, and so have you."

Cultivate generosity. As you build wealth, make giving a priority. This not only helps others but also brings joy and fulfillment to your life. Start with small acts of generosity and increase your giving as your financial situation improves.

Leave a legacy. Once you've completed the first six Baby Steps, focus on building wealth and giving (Baby Step 7). This allows you to leave a lasting impact on your family, community, and causes you care about.

Ways to give:

• Charitable donations
• Volunteering time and skills
• Mentoring others
• Supporting family members
• Funding scholarships or grants
• Creating a charitable foundation

Last updated: January 23, 2025