I think I can sum up Dave Ramsey’s teaching in a single phrase, ‘If you don’t have the cash, you don’t need it.’ When I first heard about this message, I was a Finance major at Grand Valley State University. “Debt is a tool”, was a popular phrase in Business Finance. To a point, I still understand this message; there is such a thing as ‘good debt’ and ‘bad debt’. But, more often than not, my colleagues would use the phrase, ‘debt is a tool’ to justify unnecessary school debt (used when they just didn’t want a job while in college) and car loans. For these items, debt may be a tool, but it comes in the form of a shovel, because it causes you to continually dig deeper and deeper with less and less hope of getting yourself out of that hole.
The more I read Dave’s books, the more I understand how simple his teachings really are. We should all know that buying a PS3 on credit is a dumb idea, but we do it anyway because all of our friends did it that way. I admit that it is difficult to go against the grain, but after just a few of years, it is possible to pay for a car with cash, to have $10,000 in your emergency fund, and to put 50% or more down on a house! Crazy huh? Dave Ramsey suggests following the 7 baby steps outlined below.
1. Set aside an Emergency Fund of $1,000
2. Pay off all debt (all debt except the mortgage)
3. Save the rest of your emergency fund – 3 months to 6 months of expenses
– keep this money in a safe place. Do not invest it.
4. Save 15% of your gross income in your retirement plan
5. Save for the children’s college fund
6. Pay your house off early
7. Get rich and give money away
I have fallen in love with this plan and will write about it often. Be prepared.
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