Why You Should Use the Dave Ramsey Method (2024)

FAQs

Why You Should Use the Dave Ramsey Method? ›

Ramsey advocates paying off your smallest debt first, then adding what you were paying towards that debt to the payment for your next largest debt. In this way, you eliminate the number of debts you have at a faster rate (even if your total debts aren't paid faster).

Do Dave Ramsey's Baby Steps Work? They can, but they might not be for everyone. Ramsey's steps are sound and logical, but they rely on some best-case scenarios. Not everyone makes enough money to save 15% for retirement while also saving for college and paying the mortgage early.

There are three basic reasons to save money. First, we save for an emergency fund. Second, we save for purchases. Third, we save for wealth building.

There's an 80-20 rule for money Dave Ramsey teaches which says managing your finances is 80 percent behavior and 20 percent knowledge. This 80-20 rule also applies to constructing a healthy life. Personal wellness is 80 percent behavior and 20 percent knowledge.

And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.

There are many types of investments to choose from, but good growth stock mutual funds are the best way to invest for long-term, consistent growth. Here's why. A mutual fund is an investment that pools money from a group of people to buy stocks in different companies.

Recently, a radio talk show host named Dave Ramsey recommended that retirees invest 100% of their assets in equities, from which they would withdraw 8% per year of the portfolio's starting value, with each year's expenditures adjusted for inflation.

“Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.” Just look at the story of former custodian Ronald Read for a perfect example.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Dave Ramsey has said several times that the most important wealth-building tool is your income. He advises getting rid of debt to free up your income for investing.

How much of your income should you save Dave Ramsey? ›

Eventually, your goal is to have 3–6 months of expenses in a fully funded emergency fund and at least 15% of your gross pay going into retirement savings. (These are part of the 7 Baby Steps, aka the proven method to saving money, paying off debt, and building lasting wealth.)

You do not need to live on 4% of your money for your nest egg to survive.” If you only withdraw 4% from an investment portfolio that is earning 12% compound annual growth (CAGR), Ramsey thinks you're missing out on a big opportunity. “Where the flip is the other 8% going?” said Ramsey.

One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.

“Your most powerful wealth-building tool is your income. And when you spend your whole life sending loan payments to banks and credit card companies, you end up with less money to save and invest for your future.

For example, let's say you want to retire early at age 55. That means you need to have enough money in your bridge account to last about 4 1/2 years. So if you expect to live off of $50,000 each year in retirement, your goal should be to have at least $225,000 in your bridge account by the time you turn 55 years old.

As a general rule of thumb, many financial experts recommend setting aside 3-6 months' worth of living expenses. So if you generally spend $2,000 per month on rent, utilities, food, gas, healthcare, and other necessities, you should try to save between $6,000 and $12,000.

The chart shows total cash compensation for the RAMSEY SOLUTIONS Ramsey Personalities in the United States, which includes base, and annual incentives can vary anywhere from $68,505 to $88,547 with an average total cash compensation of $78,526.

Dave Ramsey Budget Percentages. Giving (10%), Saving (10%), Food (10% - 15%), Utilities (5% - 10%), Housing (25%), Transportation (10%)... PENNY PINCHER!