If you’re looking to build wealth, it’s wise to seek advice from reputable financial experts for some helpful guidance on your journey. Dave Ramsey is one such expert who has helped many people pay off debt and live richer. This is why we’ll be sharing his best advice on building wealth.
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Here are Dave Ramsey’s 10 best tips for building wealth.
1. Start Thinking Like Rich People
Ramsey has mentioned on his show that thinking like the rich is important because your mindset plays a major role in your financial situation. If you keep a short planning window, then you’re on track to be broke. If you keep a long-term horizon, you’ll be like the rich since they’re proactive. Rich people tend to plan for the future, and their decisions are based on a long-term perspective.
Ramsey cited several examples of what rich people do:
- Rich people have a will and financial plan.
- They plan for their children’s education ahead of time.
- They plan for retirement while still young enough to do so.
- They have the right insurance for protection.
The theme here is that slow and steady wins the race. The goal is to be patient and consistent when building wealth. You don’t want to withdraw from retirement accounts or try to live above your means. You want compound interest working in your favor for the long run.
2. Create a Plan for Your Money
It will be difficult to save if you don’t know where your money is going. If you want to build wealth, you have to write out a plan first so that you know where you’re headed.
Ramsey urges his audience to create a written plan for their money through a budget. He cites a survey conducted by his team that discovered that 93% of millionaires had created a budget that they stuck to.
3. Pay Off Your Debt
Once you start thinking long-term and make a plan for your money, the next priority should be to pay off your debt so that you can save money on interest payments in the long term. Ramsey wants his followers to get out of debt before they do anything else regarding building wealth.
To help, you can follow Ramsey’s debt snowball strategy by first paying down your lowest balance to build momentum as you strive to become debt-free. Whatever strategy you choose, the goal is to become debt-free as soon as possible.
4. Live on Less Than You Earn
Ramsey has often declared that rich people don’t spend their money frivolously on foolish purchases. Ramsey wants his readers to become rich instead of just trying to look rich. As tempting as it can be to try to live a lavish lifestyle, you want to live on less than you make so you can prioritize saving for the future.
When you live on less than you earn, you’ll have more money to allocate toward your investments so that you can speed up the process of building wealth.
5. Avoid More Debt
Once you pay off your debt, you must avoid more debt to build wealth. For example, Ramsey isn’t a fan of a mortgage, as he wants people to prioritize trying to pay for a home with cash.
However, this isn’t very realistic, so if you’re unable to pay for your home with cash, the goal is to never spend more than 25% of your monthly gross income on housing expenses. Ramsey also recommends a 15-year fixed-rate mortgage so you don’t become house-poor and neglect your retirement savings.
6. Invest in Things You Understand
On “The Ramsey Show,” Dave stressed that you should avoid investing money in things you don’t understand. Ramsey believes that people lose their money because friends recommend investing in something cool or trendy. These sophisticated investments aren’t usually the secret lucrative opportunities they’re made up to be.
When you invest in things you don’t understand, you risk losing your hard-earned savings since you rely on speculation and hype instead of focusing on the basics. This brings us to his next point …
7. Keep Your Investing Simple
Ramsey keeps it simple by investing in what he understands and doesn’t buy what he can’t afford. He stated that he only has three investments: his business, real estate that he owns outright, and mutual funds.
We must repeat this point because building wealth isn’t usually about finding some secret investment to get rich quick. Building wealth is about consistency and simplicity to stay on track.
8. Always Invest
When it comes to investing, the key to success is to focus on compound interest and let your funds grow without touching them. Ramsey often stresses on his show that rich people got to where they are by consistently investing.
9. Invest in Your Retirement
If you want to build wealth, you must consider the long term, which often involves planning for retirement.
Ramsey recommends investing first in a tax-advantaged account like a 401(k) or 403(b) from your employer. The goal should be to allocate about 15% of your gross income toward good growth mutual funds that will help you save up enough to live your desired lifestyle in retirement.
10. Donate Generously
The last tip is unconventional because Ramsey feels that the point of building wealth is to give back. He urges his listeners to work hard to build wealth to help those around them.
Once you get to where you want to be, it’s time to help out those around you who need it.
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This article originally appeared on GOBankingRates.com: Dave Ramsey’s 10 Best Tips for Building Wealth: ‘Start Thinking Like Rich People’
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