Record-breaking inflation rates may have throttled Americans’ budgets over the last year, but Dave Ramsey says you can’t blame high costs for all your financial woes.
Here’s how much money the average middle-class American household makes — how do you stack up?
‘Hold onto your money’: Jeff Bezos says you might want to rethink buying a ‘new automobile, refrigerator, or whatever’ — here are 3 better recession-proof buys
Millions of Americans are in massive debt in the face of rising rates. Here’s how to get your head above water ASAP
In a recent episode of The Ramsey Show podcast, Ramsey stated that household debt is at an all-time high — not because inflation is increasing the price of essential goods like groceries, but because of how consumers have responded to these price changes.
“Let’s be clear here. The debt is not because of inflation,” Ramsey said. “The debt is because you wussed out and refused to cut your freaking lifestyle to offset inflation.”
What Ramsey says is holding people back
You can save enough for retirement by putting $100 per month in a conservative growth fund from age 25 to 65, Ramsey said, but for that to work, “You can’t have a $750 F-150 payment. You can’t have a student loan that’s been around so long you think it’s a pet.”
“All you do is work for these stinking banks that have better furniture and bigger buildings than you do,” Ramsey said.
Ramsey went on to state that debt has become normalized in this country, if not throughout the world. It’s now a huge obstacle for those seeking to save money and put that cash towards retirement.
Yet instead of paying back debt, consumers seem to be using credit cards and other loan methods to continue funding their daily spending, Ramsey said. Rather than cut back during inflation, consumers chose to make up for the shortfall by borrowing money to maintain their lifestyles.
Ramsey stated that people’s continual reliance on consumer debt has kept him in the financial advice-giving business for the last several decades, and will give him job security for several more.
That’s why it’s a great time to remind Americans about Ramsey’s baby steps to secure your finances and kick debt to the curb.
Create a starter $1,000 emergency fund
Ramsey’s guidance here is to start an emergency fun with $1,000. He’s since come out to say that was never meant to be enough for Americans. However, even as you work to pay down your debt, this is the bare minimum amount you should have put aside, because life happens.
Down the line, you can start contributing far more to this fund. But, if you’re suddenly hit with a big medical bill, a broken-down vehicle, or some other emergency, you’ll want that $1,000 available to avoid losing all the steam you’ve gained on your debt payments.
Read more: Americans refuse to let higher prices derail their travel plans — 10 tactics to keep your summer vacation on budget
Pay off all debt (except the house)
Granted, almost no one has hundreds of thousands of dollars available to pay off their mortgage in one go. But by using the snowball method, Americans can pay down all the rest of their debts in a reasonably quick period of time, Ramsey claims.
To do this, list your debts, from student loans and car payments to credit cards. Then, order them from the smallest balance to the largest, regardless of interest rate, Ramsey says. Then, start making the minimum payments on everything except that little loan, putting everything you can at it. The smallest loan is often a credit card balance, which is helpful, as it’s usually also the account with the highest interest rate. Repeat with the next smallest balance, then the next, until you’re debt-free.
Achieving this is going to require you to cut back spending, Ramsey says — so it may be time to re-evaluate what’s actually necessary in your life.
“When you actually consider the way we all live, it’s outrageous,” Ramsey said. “Our lifestyles are outrageous.”
Create a fully funded emergency fund
Now stop for a minute and celebrate. You’ve paid off your debt! This is a huge step that deserves congratulations. But there’s still so much more to do. You can start investing and saving towards long-term goals, but before any of that, you’ll want to circle back and top up your emergency fund.
Ideally, you should have between three and six months of expenses put aside for your household. This means you’re going to have to go back and look at what you’ve spent over the last three to six months. On the bright side, you’ve already likely cut back dramatically. Even better, you’ve created a habit of paying down debt on a consistent basis. So now, you simply put the money you were using on debt towards savings.
Once this emergency stash is funded, you’ll be protected should one of life’s enormous surprises — like a layoff or long hospital stay — comes your way. If you’re lucky, this won’t happen, and you can use your emergency fund as income down the road. But having it available will give you peace of mind.
“You just have to look in the mirror and tell yourself, ‘Boy, we buy some really stupid stuff,’” Ramsey said. “Don’t be a victim. You’re not a victim. You’re a victim of the person in your mirror.”
What to read next
You could be the landlord of Walmart, Whole Foods and CVS (and collect fat grocery store-anchored income on a quarterly basis)
This janitor in Vermont built an $8M fortune without anyone around him knowing. Here are the 2 simple techniques that made Ronald Read rich — and can do the same for you
What do Ashton Kutcher and a Nobel Prize-winning economist have in common? An investing app that turns spare change into a diversified portfolio
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.