Dave Ramsey shares key steps to be taken with “extra money” – “Be Happy and Wealthy!” | Personal finance | Finances
Without having focused financial goals, the money you have can “get away from it” and just continue to “sit in the bank and earn very little interest”. In a video posted on The Ramsey Show Highlights YouTube channel in 2016, Dave Ramsey urged viewers to have “a mission or an assignment” for every pound they have.
Michael, 41, from New York called the Ramsey Show to ask Dave what to do with the $ 65,000 (around £ 48,324.25) in his savings account.
The personal finance guru teaches his clients the “Baby Steps” as a guide to creating potentially sustainable wealth and ensuring that every pound has a mission and is used deliberately.
The first step he teaches is to save the $ 1,000 (about £ 743.51) Michael has.
Then he teaches people to get debt free beyond their homes.
Michael mentioned that the only debt he owed was for his car and that he had three payments left on it.
Dave still had around $ 1,500 to pay, Dave urged Michael to “write and pay a check today.”
Step three is to set up an emergency fund for a “rainy day”.
He said, “That should be three to six months in spending.
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“You are obviously living on less than your income because you have saved money.”
With an annual income of $ 92,000 (around £ 68,385.90), Dave suggested that Michael put 20-30,000 in a separate savings account easily accessible as “life insurance”.
After this move, Michael should still have around $ 30,000 (approximately £ 22,303.65) in “unallocated” money.
Baby step number four means setting aside 15 percent of annual income for retirement.
Dave suggests that Michael should invest approximately $ 14,000 (about £ 10,402.77) each year in pension funds that can grow his money.
The next step is for parents who indicate they should save on their school fees, but Michael has no children so he can skip this step.
Additionally, the sixth step is to prepay your home and own a home.
Michael owes around $ 135,000 (about $ 100,293.46) for his house, so Dave suggested using his remaining $ 30,000 (about $ 22,287.43) on it after the car was paid off and the emergency fund set aside .
He said, “If you found money outside of your budget, I would do a math to see how quickly you can get your house paid off.
“You could pay for it in two or three years if you do that.
“You would be 45, sitting on a paid condominium, an emergency fund, no debt and maybe $ 500,000 invested in retirement at that point.
“You rock man, you are well on your way to becoming a millionaire.”
Baby step number seven is to get the most out of your retirement savings and invest it.
Once all the steps are complete, he suggested that people get “tremendously generous”.
The happiest and wealthiest people are those who are generous, he explained.