← The Ramsey Show Highlights
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So number one rule, we've got to get control of our most powerful wealth building tool, which is our income, which means we have to get out of debt. Stop borrowing is the first step. The next step we use to get people out of debt is called the debt snowball. The debt snowball works like this. We call it baby step two in our place. And you list your debts, smallest to largest, you pay minimum payments on everything but the little one. You attack the little one with a vengeance. When that debt is gone, you squeeze every dollar out of your dadgum budget that you possibly can. And you attack number two. You take six jobs, you sell so much stuff the kids think they're next, and you attack number three. Then you attack number four. And every time you pay off one, you're freeing up more money to attack the next one. The snowball rolls over. And every time it rolls over, it picks up more snow and it gets you out of debt. Now this works. I've taught millions and millions of people to do this and it works. Well, Dave, it's not mathematically correct. You should pay off the highest interest rate first. Honey, if we were doing math, we wouldn't have credit card debt. What a stupid but statement is that, Dave, it's not mathematically correct. Actually, it is mathematically correct because your math that you're using when you say highest interest rate to lowest interest rate leaves out a basic tenet in business math called the probability of completion. When you factor in probability of completion, paying off the highest interest rate first doesn't give you any feedback that says, oh, this is working. My hope factor is going up. I'm getting more excited. I'm sacrificing deeper. I'm pushing through, I'm pushing through, I'm pushing through. That's not happening with that other plan. It happens with the debt snowball. And the probability of completion on the debt snowball is much higher. People actually do it, they don't do the other one and that's what matters. So mathematically speaking, when you factor in probability of completion, the debt snowball is far superior to any other plan. And we've proven it in the marketplace. We have the social proof. So shut up and do it. Quit arguing with me. So hilarious to me that broke people want to argue about money from with somebody that's got some. That's kind of dumb. Don't do that. Now, once we're out of debt, what are we going to do? Well, we're going to start saving. The first thing we save for is we save for an Emergency fund. You need a. Well, Grandma said it, didn't she? She said save for a. Everybody say it with me. Rainy day, right? Visual aid. You need to save for a rainy day. You need to save because crap's gonna happen. And if you don't have any money, that garbage that happens is gonna be new debt. Or you're gonna cash out your 401k and take a penalty to put the transmission in your car cause you had no money. Or to pay for a medical bill that happened because you had no money. You need an emergency fund. Stuff's gonna happen, Dave. You need to be positive. I'm positive. Stuff's gonna happen. You need a fund to catch it. Absolutely, 100%. It'll give you peace. Think with me for a second. What if you had no payments. Cause you used the debt snowball and you had 10 or 15, $20,000 sitting for. Just for an emergency. Just breathe that in for a second. You with me? You feeling your shoulders drop? You feeling the weight come off? Feeling the hope come up? Feel peace. Anxiety starts to go out the side door. Well, that's the math. And that's what's going to happen. If you got $20,000 in the bank and no payments, but a house payment and something comes your way, it's a yawn. If you got $20,000 in debt and no money and something comes your way, it's drama. Have you ever noticed that when you're broke, your life looks more like a country song? And when you're doing things right, everything seems to go right? Yeah, it's the way this stuff works, folks. So get that emergency fund in place, clear that debt, and then we can begin to really build wealth. Start putting money in your kid's college fund. Start putting money in your 401k. Certainly Roth 401, Roth IRAs and good growth STU stock mutual funds. Do you know $100 a month invested from age 25 to age 65 at prevailing market rates for the last 40 years? If you take the average of the s and P500 and you invest at that rate, you'd have $1,176,000. $100 a month. So if you're 25 years old and you're watching this and you don't end up a millionaire, you ought to have your butt kicked, because I just showed you how. Just $100. Oh, and by the way, if you wait till you're 40, you can still do it by the time you're 60, not even 65. You can go from 40 to 60 and still be a millionaire. But it's $1,000 a month. And that's even doable for a lot of folks. I don't care what your age is, what your income is. None of that's static. None of that's. That's just a snapshot. Your life is a film strip. You can change. You can change. You can move on to the next thing. You can push through and we can show you how. And those are the first two things you do. The typical American budget, and we've done literally millions of them shows $1,583 a month going to debt payments that are not the house payment. That's cars, student loans, credit cards, medical bills, and other miscellaneous stupid butt stuff, right? $1583 a month. Now, if you're 40 and you take, you just free up that stuff doing the debt snowball like I just showed you, and you take that 1583 and you put it in a good growth stock mutual fund, you're going to have about a million and a half dollars at 60. 20 years from today, you'll be a millionaire and you'll be following the baby steps that we talk about at Ramsey all the time. And we call that a baby steps millionaire because you follow the stuff we teach. It's very doable. We have to lower our ridiculous level of consumption. Get control. Start acting like freaking adults, not little children. I want it and I deserve it. Cause I work hard. Oh, shut up. Call the wambulance. Nobody cares how hard you work. We all work hard. Shut up. Here's the trick. Do something to get control of your life. Sacrifice and listen. As long as you care what other people think, you're gonna be broke. If your broke friends aren't making fun of your financial plan, you're not on track. So you have got to get this whole mindset shift and have that I've had it moment. Les Brown, the great motivator, says people change their lives when they finally say, I've had it. And you can just decide, I'm just disgusted. Or you can go bankrupt like I did. That's how I had my have had it moment. I don't recommend that method. Instead, just decide, look at it and go, we make too much money. We work too hard to be this stressed out that this broken, this far in debt. I've had it. You can say that right now. You can look at your spouse right now and go, that's it. And not I've had it with you spouse. I'm talking about I've had it with our stupidity in this house. We're going to stop the insanity. It's got to be stopped.