The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.
So, if you have $10,000 in your life savings, how comfortable would you be with betting it all on black at the craps table?
If you answered, “Very comfortable”, then I’m guessing that you have nowhere near $10,000 in your bank account. If you ever want to see that amount of money in your account (and much more), then I suggest that you learn how to get rich with the non-risky plan that I am about to roll out for you.
I have followed this plan for the last 4 years and it has helped me go from a broke college graduate with a net worth of -$20,000 to a very prosperous adult with a net worth over $150,000. It is not an exciting plan, but it flat out WORKS. Give it a try for yourself, and you will soon be on your way to wealth like me.
The Dave Ramsey 7-Step Plan to Wealth
I received a copy of Dave Ramsey’s book, “Financial Peace” when I was 24 years old, and it changed my life forever. After reading this book, I soon realized that I was not going to get rich by playing the stock market or investing in gold. Nope, if I truly wanted to accumulate wealth, I needed to get out of debt and build up some serious cash flow. This is how Dave suggested that I get wealthy and I am going to relay the same message onto you.
#1. Build up a $1,000 Emergency Fund
The main objective of the Dave Ramsey plan is to pay off all your consumer debts, but before you do that, you need to build up a cushion (so you don’t end up using those credit cards in a financial emergency). So, sell some stuff on Craigslist, mow some lawns, baby sit for your neighbors. Do whatever you need to do to save up that thousand bucks. Then you can start paying down your debt and building your net worth!
#2. Pay Off Your Consumer Debt
Dave calls it the debt snowball. You start out by paying off your smallest debt and then applying that payment to the next one. Before you know it, you are making large payments on a debt you may have thought that you’d have forever! All in all, this can take some time, but with focus you can probably pay off all your debts much faster than you thought you could.
#3. Save Up 3-6 Months of Expenses
A $1,000 emergency fund is nice, but it won’t last long if you lose your job. Once your consumer debt (credit cards, student loans, and car loans) are paid off, then you should beef up your emergency savings to cover yourself for 3-6 months. This might take some time also, but it is absolutely essential to protect yourself from the inevitable financial problems that life throws your way.
#4. Invest 15% of Your Income
This is where the wealthy part starts to come into play. Sure, it is important to get rid of your debt, but this alone will not make you rich. In addition to getting out of debt, you need to invest some money today so it grows into a big pile of money in the future. Dave suggests that you invest in mutual funds, but along with that I would also suggest Index funds and real estate investments. Personally, I invest 15% of my money (with the help of my company match to my 401(k) investments), and I am also putting money aside for future rental property purchases.
#5. Put Money Away for Your Child’s Education
College is only getting more expensive, and if you would like to help your child pay for their education, then you most likely want to start saving today. One way to do this is to put money into a 529 fund, which is basically a 401(k) for your child’s college expenses. By putting money away today, you can grow quite a large amount for your kids 18 years from now.
#6. Pay Off Your Mortgage
I am working to pay off my house right now. When I purchased the house, I borrowed about $71,000 from my local credit union. Less than three years later and I only owe about $43,000. And, I have this crazy idea that I am going to pay off the entire mortgage by the end of this year!
This is the part of Dave’s plan that most people think is crazy. In their minds, your house is an asset and will appreciate in value at a faster rate than inflation. Plus, with interest rates at an all-time low, why would you want to pay it off early? There are plenty of reasons for this, but the most important one is CASH FLOW. How much money do you pay into your mortgage each month? Probably over a thousand bucks. Well, what if you didn’t have that mortgage anymore? That’s right, you could get super rich super fast. Which leads us to the next step…
#7. Get Rich and Give!
With an extra thousand bucks every month (after your bills are all paid for), wealth will come very easily for you. I modeled a plan to start investing in real estate and after just 20 years, I could buy 59 homes for cash (valued at over $5,000,000) that produce $500,000 a year. At this point, money is just not a problem. And, once wealth is accomplished, you can start giving money away! How great would it feel to just give $1,000,000 to your favorite charity with no strings attached? Follow this plan and I am confident that you will experience the feeling.
How about you all? At what step are you in the process laid out above? What do you see as your main obstacle to becoming wealthy?
Share your experiences by commenting below!
***Photo courtesy of https://www.flickr.com/photos/abulic_monkey/135488031/
