Personal Finance

Dave Ramsey provides 5 ways to make you wealthy - and he calls it "common sense"

Rich Duprey

Published: November 18, 2024 12:44 pm

Personal finance guru Dave Ramsey wants people to transform their relationship with money. Because far too many people do the exact wrong thing with their finances, they end up in dire situations. 

While it is not easy to become wealthy, it’s not that hard either, relatively speaking. The difference is the relationship the rich have with money compared to that of regular folk. If people adopted a wealthy person mindset, they too could be rich instead of needing to live paycheck to paycheck.

In a recent show, Ramsey offered five ways you can become wealthy. They are steps anyone can take to be financially independent. His advice is really just common sense. Of course, as French writer and philosopher Voltaire once noted, “common sense is not so common.”

Here are the five “common sense” things Ramsey says you should do if you want to be wealthy:

1. Have a written budget
2. Get out of debt
3. Live below your means
4. Save money
5. Be generous

People may look at the list and scoff at its simplicity. But as simple as it is, few people actually do them. Let’s take a look at each step.

24/7 Wall St. Insights:

• People need to change how they use money if they want to be rich.
• The wealthy do things differently from average folk, but fortunately it is simple enough to emulate.
• In reality, these are common sense steps everyone can follow.
• Also: Take this quiz to see if you’re on track to retire.

The 5-step plan

Have a written budget. A written budget is crucial for financial success because it provides a clear picture of your income and expenses. It allows you to track spending, identify areas for savings, and make informed financial decisions. You can prioritize needs, avoid overspending, and achieve your financial goals.

Get out of debt. Never getting into debt is best, but getting out of it as soon as possible is the next best thing. Being in debt keeps you from having money, so paying it off can free you. Start with high-interest rate debt like credit cards, auto loans, and other forms of consumer credit, which will give you an immediate return on your finances.

Live below your means. It is not enough to live within your means, you must actually spend less than you make if you want to be wealthy. You can’t allow the same amount of money you make to go out the door. And once you have more money available, you can take the next step.

Save money. You must save money. Not in some subpar savings, but rather in investments that can beat, or at least match the S&P 500. There are mutual funds and exchange-traded funds that seek to match or beat the benchmark index. This sort of plain vanilla investing is the best option for most people because it gives them diversity across businesses, industries, and geographies. And the S&P 500 has a decades-long track record of returning about 10.5% annually.

Be generous. This is an unconventional one, but once you follow the other four steps you will become rich. You will have money. Real money. And then you can act rich because you are rich. 

As Ramsey notes, that doesn’t mean spending more and certainly not on some expensive car. Instead, he says you will be able to do the one thing that will be the most fun thing you ever did with money: “be outrageously generous, randomly generous, lavishly generous.”

Whether you call it generosity or giving back, doing something for others can bring joy to both the giver and receiver. It enriches lives and you can’t do that if you are poor. 

Key takeaways

The five steps to becoming wealthy is truly a common sense plan that anyone can implement if they want to be rich. While one step or another can help a little, it is only by doing all five that you can truly be wealthy.

So make that your focus going forward. Develop a plan and stick to it. Get out of debt as fast as possible and don’t spend more than you make. You can then start saving money like there is no tomorrow. At the end, you can help yourself and others to make the world a better place.