Dave Ramsey saving money tips are widely accepted ways personal money management. Many families have dug themselves out of debt following Dave’s advice.
How would you like to pay off all your debt? What about saving enough money to retire?
Dave has helped numerous people manage their money. Learning about his money saving process can help you save money as well.
Why should you listen to Dave’s advice?
Dave Ramsey went from broke to having a net worth of over $55 million. He has gone through the struggle of living paycheck to paycheck to saving his first million dollars. Would you rather take money saving advice from your broke friend or a millionaire?
Luckily for you, I’m going to summarize the best Dave Ramsey saving money tips. Follow these steps and pieces of advice and apply them to your life. Remember, everyone’s situation is different. You need to build wealth in a way that makes sense to your family.
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The best Dave Ramsey saving money tips
Every day, people are making huge money mistakes. Dave has seen it all. As a result, Dave has a set of guidelines to keep people in line when it comes to finances.
Here is a summary of his best money saving tips.
1. Zero based budgeting with the cash envelope system
Zero based budgeting accounts for every dollar earned in your budget. All expenses (except autopay) have their own cash envelope. Any purchases are to be made with money from your envelope.
With a zero based budget, you know exactly where your money is going. Having a cash envelope serves as a physical reminder of money remaining. Your envelopes are refilled at the beginning of each month.
Cash envelopes work because you can see the amount of money you have. Credit and debit cards are too easy to swipe. You would have no knowledge of the amount of money in your account.
I’ve tried the cash envelopes before, but I prefer consistent budgeting. The cash envelopes are nice, but you’ll freak out if you think you’ve lost an envelope. Consistent budgeting allows me to know how much is in my account at all times.
2. Don’t have credit cards or pay them off each month
It’s no secret that Dave Ramsey is not a fan of credit cards. I don’t blame him, especially when I see credit card interest rates of 18 percent! Most people lack the discipline to pay these cards off each month.
Credit companies shouldn’t be allowed to charge 18 percent interest. It’s absurd and borderline predatory behavior.
However, credit card companies aren’t the only one to blame. You should never make any purchases without the intention of paying it off every month.
3. Buy a starter home
Buying a modest first home is the best way to save money. Your home will be one of the biggest expenses you’ll occur. Unfortunately, it’s really easy to buy more home than you can afford.
Dave recommends you spend no more than 25% of your income on your mortgage. However, 25% is still a lot of money! You can always buy cheap, pay off the mortgage, and then move into a larger home.
4. Don’t buy new cars
New cars lose a lot of money when you drive them off the lot. Look for cars that are 5-7 years old. Your money is best spent on buying a slightly used car and driving it into the ground.
5. Keep your cell phone
Consumer culture is killing your finances. Cell phones are one of the biggest wastes of money. You should not be buying a new cell phone every year.
Personally, I will buy an iPhone and use it until it doesn’t function anymore. Usually, I get at least five years out of my phone. At $1,000 per phone, the cost of owning an iPhone is about $0.50 per day.
Buying a new iPhone each year is a huge cost of $2.74 per day!
I’m a huge fan of buying quality items that you use over quantity. My phone is an example of buying a quality item. I get a lot of use out of my phone, so the cost averaging works out great.
6. Always have an emergency fund
We know things break down, but we don’t plan for them. You know that you get sick, but you don’t have money set aside for hospital visits? Setting up your emergency fund will make sure you’re prepared for the inevitable.
7. Stop eating your money
Eating at restaurants is my weakness. However, eating out is one of the most expensive things you can do. You need to plan your meals accordingly.
Eating out is easy. It’s hard to cook when you’ve been beaten down by work. Your kids are screaming for fast food, so it’s easy to cave.
If you’re not careful, you can eat your entire paycheck. At the very least, try to cut down to eating out once per week.Click to Tweet! Please Share!Click To Tweet
How does Dave Ramsey save money? (Baby steps for saving money)
Dave Ramsey is famous for his seven baby steps for money management. These baby steps are meant to take you from zero money management to wealth building super star.
Step #1 – Save $1,000 for emergencies
People go into debt when their are unexpected expenses. What happens when the car breaks down and the repair shop gives you a bill for $700. Do you throw it on your credit card or can you pay cash?
You cannot go through life expecting things to be perfect. Your car will break down and need new tires. Appliances don’t last forever. We have to go to urgent care every now and then.
You need to start planning for emergencies now so that you don’t rely on credit cards. The first step is all about planning for minor expenses.
How can I save $1,000 fast according to Dave Ramsey?
Dave Ramsey says you can save your first $1,000 by selling your unused items around your home. Selling your stuff is the fastest way to reach $1,000. However, selling items isn’t the only way to save $1,000.
If you haven’t already, start a budget. Budgeting is the best way to track your spending and make sure you’re saving money. Dave also suggests the following (with my comments):
- Using cash back apps when making purchases. I like Rakuten for online shopping. You can even check out our article for saving money shopping online.
- Stop wasting electricity. Who doesn’t leave a light or two on?
- Use energy efficient lights. Don’t worry about replacing them all at once.
- Making your own coffee. Yes, making coffee is always cheaper at home. I don’t recommend paying $5 for a coffee every day. However, you don’t have to give it up completely if it works in your budget.
- Avoiding rush hour. Avoid traffic jams which increase fuel consumption.
- Use a programable thermostat. Or just adjust the temperature so you’re not heating or cooling an empty room.
- Pack your own lunch.
- Stop using bottled water.
- Wait 24 hours before purchasing.
- Take advantage of automatic deposit.
- Cutting dryer sheets in half. Why? Just why? Side note – You can buy dryer balls which replace dryer sheets.
- No spend challenges.
- Couponing. Ugh, more hassle than it’s worth.
- Only eat out once per week. Anything else is too much!
- Skip the beverage at restaurants. Way over priced!
- Cut Cable. No need for cable anymore!
- Stop monthly subscriptions. Maybe keep a couple.
- Shop discount grocery stores.
- Buy generic brands. It adds up over time!
- Use your slow cooker. See my guide on batch cooking!
- Borrow appliances.
- Weatherproof your home.
- Using low flow fixtures.
- Save your change.
- Wear glasses over contacts.
- Lower your cell-phone bill.
More of my comments on Dave Ramsey saving money tips
Personally, I recommend starting a budget and cut out excessive spending. You can only cut so much from your budget which is why I like to focus on growing your income. Having more money is a better tool for fighting poverty than managing the pennies.
As for Dave’s advice, it can only get you so far. Sure, I’ll switch to only eating out once per week. No, I will not replace all the toilets in my house for low flow options. You shouldn’t be spending a bunch of money to “save money” if you’re already hurting for money.
Do what makes sense to your family. For me, creating a good budget, avoiding debt, and building my income was what worked for me!
Step #2 – Pay off all debt except the house
Dave Ramsey’s next baby step is to pay off all your debt except your house. Your debt is holding you back from reaching financial freedom. Who can really afford a $300 car payment anyway?
Your money is either spent on assets or liabilities. Assets help you build wealth while liabilities take away your earnings potential. Avoid paying for liabilities!
Dave recommends paying off your debt using the debt snowball method. The debt snowball pays your debt off in order of smallest amount owed first. Work on the next smallest debt once the smallest is paid off.
The benefit of the debt snowball is the quick wins. You get a boost of motivation and accomplishment when a debt is paid off. However, the debt snowball is not the fastest way to pay off debt.
The fastest way to pay off debt is paying off highest interest rate first. Start with your highest interest rate loan and then work on your next highest.
Step #3 – Save 3-6 months expenses for emergencies
Ideally, you should have 3-6 months worth of expenses saved up for emergencies. Your emergency fund is available for major expenses that you weren’t expecting. For example, you lose your job and no longer have an income.
You need to estimate your monthly expenses. For example, how much do you pay each month for rent, groceries, and bills? What is the minimum amount you need to survive each month and multiply by three to six months.
Having a budget will help you determine your monthly expenses. I can’t stress how important it is to have a budget!
Where does Dave keep his emergency fund?
Dave Ramsey recommends keeping your emergency fund accessible. You never know when you’re going to need to access your funds. Therefore, consider keeping your emergency fund in a savings or money market account.
Personally, I keep my emergency fund in a money market. Money market accounts pay slightly more dividends than a savings account and is fairly accessible.
Usually, it’s not a good idea to invest your emergency fund in the stock market. The stock market is volatile, which means the value of stocks is always changing. You wouldn’t want to lose money on your investments when you need it the most.
Generally, the stock market takes a dip whenever the economy isn’t doing well. Therefore, you are more likely to lose your job while the stock market loses value.
How much should you have in savings?
Again, you should have 3-6 months worth of savings set aside for emergencies. Some people choose to keep more money available depending on their level of comfort.
Personally, I choose to keep six months worth of expenses in my money market. I also keep about one to three months in my savings and checking accounts. The money market is left alone, but the savings and checking are for my normal spending.
Step #4 – Save 15% of your household income for retirement
Dave recommends you start saving 15 percent of your household income for retirement. Therefore, if you make $50,000 per year then you should contribute $7,500 to your 401(k). Ideally, you’re not counting any company match towards the 15 percent.
Keep in mind, 15 percent is only a guideline. You should plan your retirement and figure out how much money you need for retirement.
Also, keep in mind your age. You may need to save more if you have nothing saved for retirement and are 50 years old. Again, retirement planning should help you decide how much to invest.
Another consideration is for young high-income earners. You may not want to save everything in a 401(k) if you’re 20 years old and making $100k per year.
A 401(k) isn’t meant to be touched until retirement age. Therefore, even if you’ve got enough money to retire at 50 you still can’t without taking an IRS penalty for early withdrawal.
My recommendation is to contribute to your companies 401(k). However, you should also open a brokerage account for post-tax savings. Therefore, you can coast into retirement until you can withdraw from a 401(k).
Step #5 – Save for your child’s college education
Funding your children’s college education is your next goal. Dave recommends setting up a 529 plan or an educational savings account (ESA). Whatever you do, start saving now because college is only getting more expensive!
You can set up a 529 plan through a brokerage such as Vanguard. Vanguard makes it easy with their age based 529 plans. The 529 investment options become more conservative as your child gets older. Therefore, you’re less likely to lose money when your child is about to start college.
Step #6 – Pay off your house early
Dave Ramsey saving money tips has you paying off your house next. Your retirement and child’s college education has been dealt with. Your goal is to pay off your next biggest expense, the house!
Personally, I recommend looking at your mortgage’s interest rate before paying off your home early. The interest rate on my house is less than 4%. Historically, the stock market gains around 10% per year.
Investing my money is more important to me because the interest rate is so low on my home. I would earn more money investing in stocks than paying the mortgage. However, there is a freedom in paying off your home!
Regardless, I recommend paying off your home before retiring! It’s easier to reduce your expenses with your jobs income.
Step #7 – Build wealth and give
Finally, Dave recommends building wealth. As you build wealth, you can give money easily because you have more of it!
Dave Ramsey recommends investing your money in low-cost mutual funds. Personally, I recommend investing in low-cost exchange trade funds. Some investors choose to invest in dividend stocks, but doing so can be risky if you don’t know what you’re doing.
You will need a brokerage account for post-tax investing. The easiest brokerage account for beginners is Robinhood. You can always have someone else manage your money, like J.P. Morgan or Edward Jones.Click to Tweet! Please Share!Click To Tweet
How do I start a Dave Ramsey Budget?
Dave recommends starting a zero based budget. At the start of each month, all of the money you will earn is already assigned to an expense. Therefore, you start the month knowing exactly where your money will go.
I agree, budgeting every single dollar is the best way to go. If you make $4,000 this month then you will know where each dollar is going to go. Zero based budgeting is the best method for budgeting, but it takes the most work.
In order to be successful, you need a budget. The harder you work on finances the more successful you’ll be. You just can’t skimp on budgeting.
However, I understand that a lot of you don’t have the time or energy for this level of budgeting. I strongly suggest you find a way to make it work. At the end of the day, the best budget is one you can stick with.
Dave recommends you follow his budget percentages.
These percentages give a rough breakdown of where your income should go. Don’t worry if you can’t work within the percentages. However, try and keep the biggest expenses (Housing, Transportation, and Food) to a minimum.Click to Tweet! Please Share!Click To Tweet
Summary: Dave Ramsey Saving Money Tips
As you can see, Dave Ramsey saves money through zero based budgeting. You can use the cash envelope system to make sure you’re not overspending each month. Dave recommends you avoid credit cards, high mortgage payments, new cars, and extra spending.
Avoid being a consumer. Yes, you can still buy your expensive phones, but make sure your financial plan is set. Personally, I buy something nice and use it until it doesn’t work anymore.
You should start the 7 baby steps if you’re just getting started managing your money. Ideally, you’ve already set up your zero based budget. The seven baby steps include:
- Saving $1,000 for emergencies.
- Paying off all debt except your house. Dave recommends paying off your debt starting with the smallest amount. The faster way is to pay off your debt starting at the highest interest rate.
- Save 3-6 months for emergencies.
- Save 15% of your income for retirement. I recommend planning your retirement over shooting for an arbitrary 15 percent.
- Save for your children’s college education. Dave recommends using a 529 savings plan or an educational savings account.
- Pay off your home early. Personally, I recommend reviewing your loan terms. You may want to invest more money
- Build wealth and give. Keep investing your money. Give to those in need.
Personally, I feel the best thing you can do for your finances is your budget. Budgets can be boring and no one wants to update them. However, if you don’t have a plan for your money then you won’t have any.