We reached out to financial guru Dave Ramsey and asked for his three top-level budget ideas. Dave got back to us with three simple ideas: Do it, have a plan and use the tools.
Ramsey is an author, radio host and personal finance expert. The Dave Ramsey Show is on 500 stations in the U.S. and Canada. He is author of five New York Times best sellers, including The Total Money Makeover and Dave Ramsey’s Complete Guide to Money.
Dave’s budget ideas are simple, easy to follow and pack a punch. In fact, Ramsey claims that by following the three simple ideas below and saving just $100 a month, any 25 year old can retire a millionaire.
1. Do It
Dave’s #1 budget idea is simply: “Do it.”
“Number one: do it,” Ramsey says. “No really, do it! We have found that personal finance is 80 percent behavior and only 20 percent head knowledge, so get on a zero-based budget at the beginning of every month and give every dollar a name.”
It’s been said that 80% of success is just showing up. (The other 10% is math skills.) Nike had the right idea when they said, “Just do it.” Put another way, you can’t win the lottery if you don’t buy a ticket.
A “zero based” budget is the idea that every dollar is accounted for. So if your paycheck is $800, every dollar is given a job before the check gets cashed. People who slice that paycheck up before they get it, then put it into rent and bills and groceries and savings find there’s actually money left for savings. People who don’t tend to spend it on pizza, restaurants, gadgets and toys. Somehow there’s never any left to put in the bank.
The idea that those who budget save more money isn’t new, any more than it’s a new idea that smoking isn’t healthy. The key is to follow the advice.
Also see: Take Control of Your Money: 4 Steps to a Master Budget
2. Have a Plan
Dave Ramsey’s #2 budget idea is “have a plan.”
“Change the way you think of budgeting. It’s having a plan. You plan for a lot of things. Why not plan where your money goes?”
To many people, budgeting is like a 1950’s schoolteacher with a ruler, ready to rap the knuckles every time a dollar goes astray. The real idea with budgeting is simply planning. People plan their route to work, they plan their weekends, plan their shopping trips and even plan for parties. Why not have a plan for spending money too?
3. The Tools are There. Use Them.
Ramsey’s third budget idea is tool based. In the past, the envelope system helped consumers track their budgets. Today, budgeting apps like Dave Ramsey’s own top rated Everydollar app (iTunes) and other top budgeting apps can tame the budget beast without the paper mess.
“Budgeting has never been easier,” says Ramsey.” We created Everydollar.com, an online budgeting tool and companion app where people can set up their budget within ten minutes. It’s absolutely FREE. There are no excuses. If you don’t do these things you will never have enough for important things like saving, investing and giving.”
Now the Top 3 Budget Mistakes
Knowing Dave Ramsey’s most important budget ideas is all well and good. What about the pitfalls? Ramsey’s budget ideas come along with things to watch out for. Here are three ideas on budgeting that’ll scuttle any budget effort if they’re not addressed up front.
1. I Promise to Stop Procrastinating Tomorrow…
Those who procrastinate wait and those who don’t budget don’t save.
“The most common budget mistake people make is not having one,” says Ramsey.” Most people don’t have a zero-based budget set up at the beginning of every month ready to tell every dollar where to go. That’s the biggest mistake.”
The solution? Have a zero based budget. Plan how you’ll spend each dollar before it hits your wallet.
Also see: 7 Best iPhone Budget Apps
2. Love is Blind, and Also Broke
The second biggest budget mistake is the idea that a budget can work with only one partner on board. A budget both partners haven’t signed off on might as well be imaginary.
“The second mistake people make is not getting on the same page as their spouse,” Ramsey says. “You cannot manage your money well if you and your spouse can’t agree on the best ways of spending and saving your income.”
Getting together with your spouse and agreeing on a budget is the first step toward a family budget that works. This might take time. Having one partner come up with all the ideas is a sure path to a budget that only goes halfway.
3. Guessing is for Game Shows, Not Budgets
Dave’s third budget pitfall is guessing. The idea here is, too many budgets are based on “I think.” A budget that works is based on real numbers.
“Don’t guess,” Ramsey says. “Be intentional. Look at your spending history and come up with a reasonable number to set a baseline going forward.”
Can Budget Ideas Make You a Millionaire?
Is it possible for the average person to “budget” their way to becoming a millionaire? Are there secrets millionaires can teach us or are they just lucky? We asked Dave if following his top level budget ideas can get a saver to the million dollar mark. His answer is a little bit surprising: “Yes.”
“There is no luck involved,” Ramsey says. “There is intentional living, and budgeting is essential. I have talked to hundreds of millionaires, and what they know isn’t really a secret: budget, save and invest. Live like no one else so that later you can live and give like no one else. When you budget at the beginning of every month and tell every dollar where to go, you will find all kinds of money. If you were to invest $100 a month from age twenty-five to sixty-five in a good growth stock mutual fund Roth IRA, you would have accumulated more than a million dollars. No one should retire broke. You work too hard to have nothing at the end of your life to show for it.”
Also see: Billionaire Warren Buffett: Debt is a Trap
That last calculation should make any consumer sit up and take notice. Common sense would say millionaires have big incomes. They’re doctors and lawyers and such. But according to Ramsey, anyone who saves $100 a month can reach millionaire status by retirement. Don’t believe it? Check out Dave’s investment calculator here. Plug in $100 a month at 12% for 40 years. Bam. $1 million. While it’s not easy to hit 12% regularly, it is possible, and most people can scrape together more than $100 a month if they try. It just takes following Ramsey’s three top-line budget ideas: Do it, have a plan and use the tools.