Many people have fallen on hard times financially within the past few years, and it may feel like the situation is hopeless. But amongst the despair, one financial expert shared his recipe for financial success.
Dave Ramsey, a personal finance expert, recently shared a clip on his TikTok channel featuring seven steps for financial success and subsequent generosity.
Ramsey claimed that his seven “baby steps” have helped over 10 million people get their financial struggles straightened out.
Finance Expert Dave Ramsey shared 7 steps to follow to become very wealthy and outrageously generous:
Of course, like most things in life, following Ramsey’s guidance is easier said than done. Life rarely allows us to follow one perfect plan, but as long as you have the intention to get your finances in order, the journey gets easier.
1. Save $1000
Ramsey explained that when he first started financial advising, this step did not exist.
Ramsey explained how people would complain to him about his methods not working because they would have car trouble or a medical emergency and wouldn’t have the money to cover these costs because they had put all their money towards paying off debt.
This made him realize that an emergency fund was integral to the process, giving people something to fall back on — a security net. So now when out of the blue, you have an emergency, you will be prepared.
Unsurprisingly, according to the Consumer Finance Protection Bureau, having a dedicated emergency is what they call “the first step” towards true savings. That’s because, should something unexpected arise, like your car breaks down, it won’t cause irreparable harm to your credit and it becomes much easier to bounce back.
2. Get out of debt using the debt snowball
The debt snowball is a debt-reduction method that entails paying off your expenses from least expensive to most expensive.
According to Citizens Bank, the debt snowball can best be broken down into a few steps of its own. (Steps inside steps?! Yes this may seem like a lot, but this is the most efficient way to get things done.)
- Put debts in order from smallest interest to highest.
- Pay the first debt beyond the minimum to bring it to a zero balance more quickly.
- Submit minimum payment for remaining loans. Eventually, the debt gets wiped out.
- Move on to the next loan and repeat the process.
Following these mini-steps will help you to clear yourself of debt as soon as you can.
3. Save 3 to 6 months of expenses for a fully funded emergency fund
Now that your debt is paid off, you can take the money that you were putting aside for paying it off and put it towards creating a fully funded emergency fund. If you haven’t used the initial $1000 you can add to that!
Now, instead of just having a little backup like in step one, you have a solid backup plan that will get you through any hardship.
It’s best to create a timeline for how soon you want your emergency fund to be set up. This ensures you are staying on schedule and holds you accountable.
4. Invest 15% of your household income into retirement
Ramsey’s next step is all about the future. With no debt and a fully funded emergency fund in place, you can now invest in retirement. Putting aside 15% of your household income into retirement ensures that you don’t have to spend your entire life working.
Most companies will offer future financial security through a 401(k) or 403(b) by guaranteeing that they will match their employees’ contributions to the company. However, if your company doesn’t have retirement savings, it may be wise to look into a Roth IRA (Individual Retirement Account), which allows you to have much more control.
