A Q&A with Dave Ramsey, financial expert
By Traci Neal
In our April issue, we featured a brief Q&A with financial expert Dave Ramsey, who has counseled millions of people out of debt with his syndicated radio show, and through programs like Financial Peace University, a Bible-based debt-reduction training series, and his best-selling books, including Total Money Makeover. Freedom from debt is attainable, Ramsey affirms; in fact he says most families who follow his “Baby Steps” can be debt-free — except their mortgage — in 18 to 20 months. Check out our interview in April’s Catholic Digest, and read more tips from Ramsey here:
How & why did you get involved in this type of work?
After going broke over 20 years ago, I went on a quest to learn how money really works and how I could get control handling it. I read everything I could get my hands on. I interviewed older rich people who had made money and kept it. That quest led me to realize that if I could learn to manage myself, I could win at money. That realization led me on another journey over the past 20-plus years of helping others learn what I had to learn the hard way.
It sounds like a pipedream. Is it really possible to get completely out of debt?
It is absolutely possible to get out of debt and live debt free! We have hundreds of people that call into our radio show each year to scream “I’m debt free!” and tell their story of how they worked hard to pay off their debt. Even more people email and write us to share their stories of overcoming obstacles and living on less than they make to pay off debt and build their wealth!
Getting out of debt and staying out of debt is really about living your financial life intentionally. So many people don’t bother when it comes to their finances, then they look up one day and wonder where all of their money went. If you want to get out of debt, you have to create a plan for your money and live on less than you make.
We were raised to believe that car loans, credit cards, and mortgage payments are just a fact of life. Are you saying this isn’t true?
Debt hasn’t always been a way of life. The thought of borrowing money to older generations is ridiculous. But now debt is so ingrained into our culture that most Americans can’t imagine a car without a car loan, a house without a mortgage … and credit without a card. The fact is that the majority of wealthy people in the country did not build their wealth through debt. They all lived on less than they made and spent only when they had cash. Proverbs 22:7 says, “The rich rule over the poor, and the borrower is slave to the lender,” and I have found that this holds true. When you have payments, you are literally a slave to them. If you live on less than you make and save for large purchases, you are free to do with your money what you wish instead of being obligated to the debts you’ve made.
Does this mean we’ll have to pinch pennies and deny ourselves? I work so hard! If I want a latte or a Friday night pizza, shouldn’t I be entitled to it?
Most people get into debt because they fall into this cycle of thinking that they deserve something. That type of entitled thinking is what gets people into debt in the first place. If your goal is to get out of debt, you’re going to have to make sacrifices. You can wander your way into debt, but you can’t wander your way out.
What’s the best way to get the kids on board?
The best way to get your kids on board is to get them involved. Show them what you are doing and why you are doing it. Have them sit down with you and your spouse while you are doing the family budget. This will allow them to see how you all handle the family finances and work together to decide how much to save, spend, and give. If they are earning their own money through a commission from their chores, have them make a game out of savings. Learning about money doesn’t have to be boring!
We’ve never done allowances — or chores, for that matter, aside from the basic picking up and homework. Should we start?
I don’t suggest giving kids an “allowance” because kids need to make the connection between work and money. Instead, pay a “commission.” Work, get paid; don’t work, don’t get paid. Of course, when they are younger, the definition of working is small chores where you can assist. But how they handle their money is done differently when they earn it and that is what you are teaching them.
What about unplanned financial demands? One of the kids needs money for a school field trip; a friend wants to get together for lunch; we’re invited to a baby shower or birthday party or family wedding. It seems like the less money we have, the quicker it flies out the door for expenses we can’t really avoid. How do we budget for the unexpected?
For weddings, birthday parties, or field trips, you typically know about them far enough in advance to include them in your [monthly] budget. If you have to make adjustments during the month, that is fine. But remember your budget has to balance! You can also have some “blow money” in your budget each month so that you can cover these unexpected expenses. This will allow you to still have some freedom while getting out of debt. But if you run out of money and then get asked out to lunch, you need to learn to say no!
How long should it take for a family with average debt to become debt free?
People who are focused and intense are typically debt-free, except for the house, with a starter emergency fund of $1,000 in around 18 to 20 months.
How can people learn more?
By visiting our website, daveramsey.com.