Living Below Your Means, Dave Ramsey-Style

I’ll just come out and say it: Dave Ramsey is a divisive figure in the universe of personal finance experts. The radio and social media talk show host has millions of views online via his podcast, and even more listenership over the years on his radio and through his other in-person seminars and programs that have helped many individuals work their way out of debt.

Ramsey shot to prominence over the years via touting his “baby steps” program, which touts the seven main steps each individual should take to get out of debt, and eventually grow one’s wealth. These start with building a $1,000 emergency starter fund, paying off all debt (except for one’s house) using the debt snowball method, saving 3-6 months of expenses in an emergency fund, investing 15% of one’s income for retirement, saving for the kids’ college fund, paying off one’s home early, and building wealth and engaging in philanthropy.

Those sound like some fantastic steps to follow, on their face. But of all the pieces of Dave Ramsey advice out there, this is the one I think is most important for long-term investors planning for a long and beautiful retirement to consider. 

Live Below Your Means

I’d argue that each of the baby steps listed above really come down to this one principle. Those who are able to consistently live below their means will have the ability to fund their emergency fund, pay down debt, and ultimately save and invest for a big, beautiful tomorrow.

Money comes and goes, with most Americans living paycheck to paycheck. I’ve actually ready a number of concerning articles of late that most Americans are now not only living paycheck to paycheck, but loan to loan, borrowing money to pay off interest on other loans. That’s the sort of negative debt spiral Ramsey and others are trying to pull everyday Americans out of. 

Indeed, the simplicity of this message is perhaps overshadowed by how difficult it can be to meticulously execute such a strategy. Even having a small percentage of one’s income at stand by to pay down debt or invest can be ultra-difficult for the average person. Thus, it’s the discipline involved with creating a budget and living on less than one makes that provides the “secret sauce” for any of these baby steps to work. 

Controlling Lifestyle Inflation 

In the Instagram-heavy world we live in, young people everywhere perhaps have it harder than past generations, in that seeing the champagne and yacht lifestyles others in the same age bracket are living can provide a “keeping up with the Joneses” mentality, but on steroids.

Avoiding spending as one earns more, but living the same lifestyle (and pocketing the remainder of one’s raise or bonus, putting that into debt repayment or investing the difference) is easier said than done. When one gets a windfall from a tax refund, a bonus at work, or a meaningful raise, it can be very easy to plan on how one expects to spend this excess capital. Putting a plan together to save or invest this money can (counterintuitively) be more difficult. 

That said, the “beans and rice, rice and beans” approach Dave Ramsey advocates for means that until one’s debts are paid off, and one can invest 15% of their income in the market, no toys or games. There’s no time for that. If one’s goal is to build wealth and pass something (like an education) down to their kids, following the baby steps ruthlessly means avoiding living an Instagram life to the greatest degree possible. 

How It’s Going So Far

I have to admit, I don’t follow Dave Ramsey’s advice religiously. While I do save 15% for retirement, and don’t have non-mortgage debt, it’s hard to avoid spending on certain life events that require going into debt for short periods of time. Whether we’re talking about a wedding, kids, or other once-in-a-decade trips, I acknowledge that at least for me personally, it’s very difficult to put almost everything I make away without spending some. 

Life is meant to be enjoyed, and while I do follow Ramey’s advice of living below my means, there are times when I don’t. I look at gurus like Dave Ramsey and others as providing road maps to live by. But going off the beaten path once in a while, so long as it’s not to the degree that it derails everything, isn’t necessarily a bad thing. 

Everyone’s personal financial situation is just that – personal. Do what you see fit. But living below one’s means – that’s good advice everyone can follow, which can lead to prosperity. I intend to do just that.