If I could make you listen to me about one thing, it would be money. I know what you’re thinking–what do I know about money?
I know just about everything you shouldn’t do with it. And I finally am learning what you should do with it.
I started listening to the podcast recording of The Dave Ramsey Show nearly a year ago. I’ve read a couple of his books, including one on kids and money that he co-wrote with his daughter, Rachel Cruze. I’ve been working on following his plan, and it has changed my thinking about a lot of money-related things. And slowly, it’s still a work in progress, things are getting better.
Here are some of the things I’ve learned that I really want you to know:
- Never have debt. Don’t ever sign up for a credit card. Just don’t. Since none of you have debt so far, you have a HUGE advantage over the rest of us who first have to get rid of it.
- Have an emergency fund in a savings account so it is easy to access in an emergency. Most experts, Dave Ramsey included, recommend saving 3-6 months of expenses. So total up everything you pay in a month for necessities (rent, food, utilities, insurance, etc.) and multiply it by 3. Then multiply it by 6. That’s your range. Bank some amount in that range.
- Do NOT buy a house until you can actually afford it. The ideal, other than paying cash, is 20% down with a 15-year mortgage. If you buy a house without have an emergency fund and a decent income, you will regret it. Having a home is great, but having a home where you can’t afford to fix a leaky roof or a broken water heater is not.
- Do NOT take out student loans. There are ways to get through college without them. There is a whole chapter in Dave Ramsey and Rachel Cruze’s book (Smart Money, Smart Kids) with ideas on how to do it. Student loans will ruin your life more effectively than putting off college (if necessary) will.
- You do not need a credit score. You can buy a house without one, you just have to find a mortgage company that will do actual underwriting. The only thing a credit score is good for is borrowing money. All a good credit score proves is that you’re good at handling debt, not that you’re good at handling money. You do, however, need to NOT have a bad credit score. A bad credit score can keep you from being able to rent an apartment, get a job in some cases, buy insurance, and lots of other things. The goal is no credit score at all, not a bad one.
- Earn more than you spend. The easiest, most sensible way to do this is to never spend more than you earn. It’s that simple.
- Invest 15% of your income for your whole life and you’ll retire rich. 100% of the time. The earlier you start, the richer you’ll end up.
- Debit cards are great and convenient, but paying cash hurts more.
Mostly just don’t go into debt. Not for any reason. It’s a downward spiral that it is very hard to pull out of. It’s not impossible, but if you can avoid it all together, that is much easier.