Signup for our free newsletter:

Dave Ramsey on Retirement Planning

Written By Brian Hicks

Posted December 27, 2013

Most people know Dave Ramsey as a money management guru. He’s on radio, has written books, and has thousands of articles online explaining his beliefs on paying off debt, saving, and investing.

retirement laneAs you start thinking about retirement, you may want to consider some of Dave Ramsey tips explained here.

What Makes Dave Ramsey a Know-It-All on Money Management

Ramsey was making $250,000 a year at one time in his life. That gave him about $20,000 a month of taxable income.

While this seems like a ton of money, he also had a ton of debt. Actually, he was $4 million in debt.

It wasn’t something unexpected that drowned him. He had some fun and started investing in real estate. But before he knew it, he was in over his head.

In just two and half years, he ended up losing everything. He just couldn’t keep up, and it soaked up all of his money.

He had to start from the bottom. He decided he needed to figure out where he went wrong and start managing money better, and this inspired him to teach others to do the same. He made it his mission to help others by helping himself.

When he started, he had to really look at himself. He realized the money problems were his fault. It was about him, and if he just changed himself in relation to money management, he would be able to get out of the financial trouble he was in.

As he got back on his feet, he wrote a book with his wife Sharon called Financial Peace. He sold this book out of his car.

From there, he started his first radio show, The Money Game. When it became a success, they changed the name to The Dave Ramsey Show.

Ramsey has a simple way of showing people how to get out of debt, save money, and invest. He explains things in a way that doesn’t overwhelm people, and that’s why people love to follow his advice.

Saving Money

The first piece of advice Ramsey gives people is to get out of debt. He says that in cases of debt, people should have just $1,000 in savings for an emergency. The rest of their income should be used to pay off debt.

While many financial advisors tell people to pay off the largest debt with the highest interest rate first, he believes people should start with the smallest debt, no matter what the interest rate.

In his view, paying off debt is as much about behavior as it is about knowledge. If you pay off a small debt, you feel accomplished, and that gives you the motivation to keep going. If it takes you what seems like forever to pay off debt, you may give up because you don’t feel the rewards of it fast enough.

Ramsey recommends making a list of debts in order of smallest to largest. As you pay debt, you can mark off each one as it’s paid. This will make you feel so good as you approach your last debt and pay it off.

Once you’re debt free, you can start to save money. He advises people to save three to six months of monthly expenses for an emergency fund. You can do this by getting second job, selling stuff, cutting back on eating out, carpooling, buying used items, canceling your cable subscription, or starting a business with your talents. It can take some sacrifices, but it’s all worth it when you achieve financial freedom.

Once you have your emergency fund, you can move on to retirement savings. Ramsey says you should put 15 percent of pre-tax income towards retirement. You can put this into a Roth IRA, or you can use a 401(k), 403(b), or TSP.

Once you have your retirement savings plan in place, you can start to work on other things such as college plans or paying off your house early. You can also start investing money. Ramsey advises to stick with mutual funds and real estate.

To invest in mutual funds, you’ll need to get to know them. Working with an experience fund manager can help you determine which ones are the best. Pay attention to the distribution among sectors too. They should be diverse.

With real estate investing, he recommends only buying with cash and starting small, with a small house or condo. After you get a handle on being a landlord, you can start to invest in more real estate – as long as you have the cash to do it.

Is This for Everyone?

Ramsey has a large following that supports his thoughts on everything from paying off debt and saving money to retirement planning and investing, but there are some people who don’t agree with him. You’ll have to decide how your income plays into his strategy.

Some people aren’t able to pay off all of their debt before retirement, so they have to find a way to have money on the side and include debt payments in their retirement plan.

With people like Ramsey, you simply have to take what works for you and leave the rest. It’s the only way you’ll end up with savings that work for your life.


If you liked this article, you may also enjoy: