These 6 genius Dave Ramsey budgeting habits might just help you climb your way out of a mountain of debt and finally claim financial freedom.
What are Budgeting Habits and Will They Make me Rich?
Budgeting habits are an essential part of financial independence. They are the limits, goals and spending habits you put in place to manage your money. Without budgeting habits, you’ll likely not know what you’re spending or how to save money for the future.
Whilst personal finance experts like Dave Ramsey recommend you set-up some budgeting habits of your own to track your personal finance, they won’t necessarily make you rich. Think of budgeting habits as ways to save money rather than make money.
You can budget and save all you want, but the best way to become rich and attract more money into your life is to increase both your passive income, side hustle earning potential as well as increase the number of income streams you have. Did you know the average millionaire has 7 income streams?! Yes, really.
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Who is Dave Ramsey and Why Should I Listen to Him?
Dave Ramsey is a huge influencer in the realm of personal finance. Simple, but actionable his tips have helped millions of people get out of debt and balance their budgets — but only after making huge money mistakes in his twenties. Whether you recognise him or not, his budgeting tips for becoming financially free are spot on.
Here are 6 of his best budgeting habits that you can use for financial planning, money management and finally becoming debt free.
Important Side Note:
If you’re in debt, I highly recommend reading Dave Ramsey’s book ‘The Total Money Makeover’ which you can check out here. It’s been recognised by Business Insider and Forbes as one of the fastest ways to climb out of debt, and has helped Millions already claim financial security quickly.
He also has another great book called The Legacy Journey. Check it out here!
1. Take Care of your ‘Four Walls’ First
Taking care of your four walls first the single most important financial mindset shift beginner budgeters can make. When budgeting it’s always a good idea to prioritise what you spend your hard earned cash on, especially if you’re in an emergency cash flow situation.
When your electricity is getting ready to be turned off and you’re struggling to make ends meet, Dave Ramsey recommends focusing on the four most important things in your life first and budgeting accordingly. These should always be accounted for first in this order.
The four walls include:
Put the four walls of your home up first when you’re in a crisis situation. He then recommends working your way through the other stuff.
2. Create an Emergency Fund
Dave Ramsey recommends creating an emergency fund as soon as possible. We all know that unexpected fees and payments pop up when we least expect it.
After accounting for the ‘four walls’ in your budget, try to look at what you can put away or save each month. This may differ each month which is totally okay! Ramsey recommends having a minimum $1,000 emergency fund. Three ways you can reach this figure quickly; Sell something. Find one-time income opportunities.
Better yet, create a side hustle with a steady stream of income. The average American earns an extra $10,000 a year through their side hustles. Get a second job. Not a popular choice for obvious reasons, but when in a cash-strapped situation, Ramsey says sometimes this is your only temporary option.
3. Use Cash Instead of a Card
It’s very tempting to keep swiping your card without thinking about what your spending. Have you ever rocked up to a counter and felt guilty handing over so much cash, yet don’t bat an eyelid when you swipe your card? That’s because with cash we can physically see how much money we are spending.
A recent study by MIT showed that when we pay using our cards we spend 100% more in shops than when we use cash because we aren’t conscious of how much money we are handing over. With a card, it feels like you have an infinite budget.
Ditch the card, and use cash envelopes instead. Determine how much money you wish to spend before you go shopping and only take that amount.
You can create envelope categories to stop you overspending on a certain item too i.e. one for food, clothes, pets, dining out, kids etc.
4. Use Sinking Funds
Sinking funds operate in a similar function to an emergency fund, except you are already prepared for the fee. They’re effectively a highly strategic way to save a chunk of money to pay for large expenses that are planned. If you don’t have sinking funds, special events and medical treatments can quickly sneak up on you and before you know it, you have no funds stashed away for it.
These things can include dental fees, routine veterinary bills, vacations, birthdays, Christmas etc.
These are all things you can save for months in advance and put into a separate cash envelope so it isn’t used in your everyday bank account. Better yet, set up a bank account specifically for your sinking funds. Ideally, you’ll want one with a 2-3% interest rate minimum.
5. Pay off Credit Cards Monthly (and Fast)
Interest rates on credit cards can be astronomical and can quickly add up. Ramsey recommends paying your credit cards off monthly.
Based on my experience, some credit card companies will also negotiate a lower payment fee per month if you are consistent with your payments so it’s worth checking with them first if that’s possible for you. Some credit card companies will also write off your debt if you pay a settlement lump fee, which is typically a lot lower than the cost of your remaining debt. Always worth asking!
If you are seriously struggling to manage your debt, call one of these free helplines to be paired with a debt management expert. The consultation is also free.
Care Connect USA – Debt Relief Helpline (888) 790-1337
Step Change Debt Charity – UK’s leading Debt Helpline 0800 138 1111
6. Live Like No-one else so you can live like No-one else
This may seem common sense but in today’s society we are obsessed with the here and now, often to our own detriment. According to Alexa Von Toebel’s fascinating TED Talk, the average American makes 6-10 bad money decisions that will hurt their financial situation long term. These include impulse buys, buying items with depreciating value and bad investments.
Ramsey believes in sacrificing what you want now so you live the life you truly want later, without all of the stress, debt and worry!
Make sure to purchase Dave Ramsey’s Total Money Makeover here for more tips, advice and discover how to create your own money management success blueprint.
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