PROVEN 7 Steps Plan To Reach Complete Financial Freedom [Dave Ramsey - Total Money Makeover]

Dave Ramsey became a millionaire twice. The first time he did it he was 26 and he felt great but he ended up losing everything. He went from four million dollars to zero in just a few months. With two kids suddenly he didn't even have the money to fix the heater in the house where he lived and was afraid he wouldn't be able to keep his family warm. It was then that Dave realized he would have to change the way he handled money. He made many other mistakes but eventually found a way out of that situation and that's what got him to where he is today. In this video I'm going to talk about the strategy Dave used to get rich from scratch. He calls it the total money makeover. Maybe step one a starter emergency fund. This step is important for those who are not in the habit of saving money. At this point you need to dedicate yourself to saving one thousand dollars in cash. That one thousand dollars is your starter emergency fund. For some people saving a thousand dollars can be quite easy. Maybe you already have it but this can be a huge step for others because some people are just not used to saving or have so much debt that they have no money left at the end of the month. If this is your case it may take you a little longer to complete this step but you don't have to worry about it. Baby steps will get you there. Of course a thousand dollars won't catch all the big emergencies but it'll help you fix issues you have during the next steps of your total money makeover. Think of it as an umbrella on a rainy day. Of course you'll still need the raincoat and the rain boots but we'll talk about that later. Once you have a thousand dollars leave that money in an accessible place but not too accessible that you end up using it for something that isn't an emergency. The idea is that you feel safe dealing with a house repair or an unexpected medical appointment but buying a new cell phone model you've been craving to have is not an emergency. Baby step two getting debt free. The author says for some people debt is a way of life. If you've barely finished paying off your car payments and you're already planning to take out a loan so you can trade it in for a newer model I'm looking at you. Dave says that many people think that debt is the best way to grow and get things in life. That's what most people think but with total money makeover you won't think and act like everyone else does because most people are not millionaires. Here's the rule if you can't afford it don't buy it. Before you started this makeover you would use your credit card when you needed to pay for things you didn't have money for. These can be things you want such as new shoes or they can be things you need such as a car repair. Now you'll use the money in your starter emergency fund to pay for those things you need and do you know why? Because from now on no credit card. Never. I know you must be thinking that the author is crazy and a credit card is the best way to control your bills buy more expensive things without messing up your monthly budget and make your life easier but according to the author all are myths. More than 70 percent of people can't pay off their credit cards every month so they lose all the advantages that might have existed. Besides do you know the best way to spend less? Seeing the money. When you use a credit card you don't notice the money going away. They're just numbers you don't have to worry about until you see the statement. So when you're out with your credit card you think it's okay to spend just ten bucks more it's only ten dollars. Now if you have a pile of ten dollar bills in your hands and start using a bill here another there and you start noticing your pile shrinking in size you can see your money going away. Few people have a real sense of how much debt they've accumulated. They focus on the amount of money they have to pay each month and forget that these payments will last for years. How many years will it take you to pay off your house and your car? Don't forget your credit cards and that money you owe to your brother. Put everything on paper and you will see that your debt is much bigger than you think. Paying your debts is probably your biggest monthly expense. I can bet you pay more on your mortgage alone than all your basic household expenses together. Am I right? Imagine if you could stop making all these payments. How much money would you have left every month to buy the things you love? This is the idea. Pay for what you want in the present and stop paying for your past. So let's get started right away. Get all the documents you need and list your debts in order with the smallest payoff first. At this point you can ignore things like interest rates. In the item section write what your debt is. Total payoff is how much you still have to pay before paying off that debt. Use this value to rank your debts from smallest to largest. So the smallest debt should be on the top of the list and the largest at the bottom. Under minimum payment write down what is the minimum you need to pay each month so that your debt doesn't get even bigger. In our example we'll suppose you earn two thousand dollars a month. First deduct your basic expenses such as food, rent, clothing, etc. Let's say your basic expenses add up to nine hundred dollars. Now pay the minimum payment on your debts except the first one on the list. In this case you will pay your last vacation and your car loan which will add up to seven hundred and fifty dollars. In the end you earned two thousand dollars minus nine hundred of your basic expenses and seven hundred and fifty dollars of your other debts. You are left with three hundred and fifty dollars. Use all that money that is left to pay your first debt. In our example it's your credit card debt. When that first debt is paid off completely do the same with your second smallest debt. In this case your last vacation debt. You will find that this second debt although larger will be easier to pay off because you no longer have credit card debt eating up a portion of your income. This technique is called debt snowball. Just like a snowball you start small but by the time it gets bigger while you are paying off some of the loans which gives you a I can hear you saying but my debt is too big. Will I have to wait 35 years to pay off my house to get rich? No way. If you have a very large debt such as a 35 year mortgage then leave that debt out of your list for now. The reason is simple. Even if you have a high salary and pay extra on your mortgage a debt this big will still take a few years before you finish paying it off. This delay will discourage you and cause the next steps of your total money makeover to be delayed and they are essential for you to start building your wealth soon. Ideally step two should take a few months up to two years at the most so that you are free of as much debt as possible and can move on to step three. If the large debt you have is not the house where you live the author advises you to get rid of the item. Sell the car and buy a cheaper one for example but don't do this with the house where you live unless you have very good reasons to do so. If you find it's too difficult or too slow to pay your debts with your income alone make a temporary sacrifice to supplement your income. Work overtime, find a second part-time job, do freelance work, sell the things you don't need but don't sell irreplaceable family heirlooms. No matter how much money you make you can't buy them back. There are many ways to earn extra income that can help you speed up this process. The faster you are debt-free the faster you will start accumulating wealth. Let's look at your situation now. You are no longer deep in debt but you still have a few payments. Maybe you had to sell things such as your car and other valuable items you used to have. Your quality of life will likely drop for a while. This is necessary and everyone who has gone through the total money makeover and is now a millionaire has also experienced this situation. If you used to drive a BMW that would take you 17 years to pay off and now you had to sell it and started to drive an old car, your family, friends, and neighbors will see you are different. They might think you're falling, that your life is worse, that you're broke. Jealous people will be happy with your apparent downfall. You shouldn't listen to them or care what they think. They only do that because now you're not like them anymore. But you don't want to be like everyone else, remember? You want more than the average. Maybe step three, complete emergency fund. You can relax. You are no longer in debt and have a small savings of a thousand dollars. It's hard to believe but at this point you already have a healthier financial life than 80% of the people you know and the fun part is just beginning. Since you don't have any more debt except maybe your house, you're seeing all that money left over. Let's direct you to the right things. First, let's increase our emergency fund. To find out how much you should have in your emergency fund, calculate your monthly expenses. You will want to save enough to survive paying all your bills in three to six months. That is, if you spend four thousand dollars every month, then the amount you need to have in your emergency fund is between twelve thousand and twenty four thousand. The decision depends on the type of job you have and how secure you feel with your income. If you have a stable income, you can focus on saving for three months. But if you have variable income or depend on a lot of external conditions, six months is right for you. You'll use it for situations you can't control. Discovering a health problem that needs long-term treatment, experiencing damage to your home, losing your job, anything that makes it impossible for you to work and maintain an income or is a too high expense to fit your monthly income. Only use your emergency fund for emergencies. Buying a gift for your mother is not an emergency. Her birthday is on the same day every year, so you should save for it in your budget. Baby step four, invest in the future. The second place you are going to direct your money is investments. Time has come to make your money start working for you. The plan now is to start saving fifteen percent of your salary and investing it in something that gives you high returns every month. No, no exceptions. There are many investment possibilities. As the author is American, he brings the possibilities of investment in his country. The rules, however, are the same. Only invest in something that makes you money. This is not the time to make risky investments yet. These investments can include rental property, provided you do the math and it pays off. Stocks, but don't include, for example, a car if you're not going to use it as a source of income. Professional training that can bring you a better income is also a form of investment, but don't invest all fifteen percent on them. Do your homework and learn as much as you can about investments before you decide. Baby step five, education of children. If you don't intend to have children, no problem. You can skip this step or replace it with some other long-term goal you have for yourself. Your wedding party, a master's degree abroad, or giving your parents more quality of life in their old age. But if you have children or are thinking about having them, calculate how much money you will need to invest in your children's education. This can include school and university if they are paid where you live, but it can include extra courses as well, such as music, gymnastics, or an exchange program. There's no need to make complicated calculations about future inflation and interest rates. Just an estimate is enough at this point. Take a small portion of your salary every month and set it aside for that purpose, so in the future you won't have to go into debt so your children can have a good education. Baby step six, your home. If you have completed all the previous steps correctly, you are already having a comfortable and safer life. It's time to focus on one more step, having a place to live. If you're already paying for a house, focus on paying it off as quickly as possible by making as many extra payments as you can. If you don't have a house yet, we've reached an impasse. Dave Ramsey's philosophy is that we should live completely debt-free, so he suggests renting and working extra hard until you have enough money to pay cash for a property. The author says you'll likely pay much less for it because you're paying cash. I know his advice might not make sense depending on the country you live in, property prices, mortgage rates, your savings per month, so take your context into account. In general, his advice of paying for a house in cash is quite controversial and many people think that it isn't realistic, but I want to add one piece of advice the author gives to help you make your decision. Getting into debt is something we should only do when there is no other way to solve the problem. This advice from Dave is based on a fact that it is true all over the world. People in debt go through hell when a major economic crisis hits them. The crisis may be global like a pandemic or individual like a layoff, but they'll suffer anyway. It'll be stressful, you'll lose money, and you won't be able to enjoy the momentum to win more money. Baby Step 7. Have fun, invest, and donate. Remember those people who laughed at you when you traded in your BMW for an inferior car? It's your time to laugh. From now on, you will just see your money accumulate more and more, and with no debts to pay and a very safe plan for emergencies, you know what's missing? Fun. After all, isn't that what we want to be rich for? See different places, drive the car we've always dreamed of, buy things we like, even the extravagant ones. You are now fully aware of your financial situation and know exactly what you can and cannot do with your money. Remember that the total money makeover plan will be in place until the end of your life. Just because you've reached this stage, it doesn't mean you can go back into debt or gambling. Keep living sensibly, and you can do much more than you think. The author recommends that we look at millionaires and billionaires around the world. Occasionally, a photo of them goes viral. It shows Mark Zuckerberg wearing basic clothes and driving a Volkswagen, and Warren Buffett and Bill Gates having a meal at McDonald's and paying for it with coupons. This shouldn't surprise us. Do you know why these people do this? Because they have so much control over their money that they know where it's wise to spend it and where it's not. That's why they are billionaires. Without wisdom, even millions can run out in a very short time. Only you can decide where it's really worth placing your money. And don't forget to give. You'll find when you get to this point that one of the best things you can do with your money is helping other people. Typically, givers are happier and more satisfied than takers. Don't give more than you can, but always think of your money as a way to bring more joy to the world. The author brings many testimonials of people who became millionaires using this plan and offers some helpful materials to make the process easier. I personally enjoyed the book and agree with many of his suggestions. The only thing I don't like about Dave Ramsey is the fact that he completely disregards any type of debt. I believe good debt exists, and if you do your homework, it can be a great tool toward building wealth. If you liked this video, I think you'll also enjoy the summary of a book called Automatic Millionaire. The book explains how even small amounts, such as five dollars a day, can be turned into millions of dollars. I will put that video on the screen in case you're interested. Thanks for watching!