- 5 Simple Dave Ramsey Tips for Building Wealth
- 1. You need a written plan
- 2. You’ve got to get debt
- 3. Live on less than you make
- 4. Save money
- 5. Be outrageously generous
- Tools for getting started on the Dave Ramsey plan
- Tool 1: Free Financial Worksheets
- Tool 2: The Total Money Makeover
- Tool 3: Easy Money Toolkit
- 15 Dave Ramsey Tips He Wish Everyone Knew Sooner
- 15 Best Dave Ramsey Money Tips
- 1. Create a Zero-Based Budget with the Envelope System
- 2. Stop Buying New Cars
- 3. Buy a Modest Home You Can Afford
- 4. Keep Your Current Cell Phone
- 5. Pay Off Your Credit Card Balances Each Month (or don’t have cards at all)
- 6. Pay Cash Whenever Possible
- 7. You Don’t Actually Need a Credit Score
- 8. Have an Emergency Fund
- 9. Minimize Your Expenses
- 10. Increase Your Income
- 11. Go For Free Stuff Whenever Possible
- 12. Avoid Brand Names
- 13. Unsubscribe From Emails With Discount Offers
- 14. Stop Eating Out All the Time
- 15. Save, Save, Save
- Do you have any other non-traditional money hacks to share, that have made a big impact on your finances? We’d love to hear them!
- What Is Passive Income and How Do I Build It?
- What Is Passive Income?
- Why Build Passive Income?
- How Much Money Can I Make?
- How to Build Passive Income
- Real Estate
- Start a Blog/ Channel
- Sell Digital Products
- Store People’s Stuff
- Rent Out Useful Items
- Passive Income Tips
- Build Wealth That Lasts
- Dave Ramsey’s 7 Baby Steps Review: Get Debt, Build Wealth And Give
- Baby Step 0: Getting Started, Making A Decision To Change
- Baby Step 1: Save A
,000 Baby Emergency Fund
- Baby Step 2: Pay Off All Debt Using The Debt Snowball
- Baby Step 3: 3-6 Months of Expenses In Savings
- Baby Step 4: Invest 15% Of Income in Roth IRAs And Other Pre-Tax Investments
- Baby Step 5: College Funding For Children
- Baby Step 6: Pay Off Your Home Early
- Baby Step 7: Build Wealth And Give
5 Simple Dave Ramsey Tips for Building Wealth
I don’t know about you…
But I didn’t learn how to manage money wisely as a kid.
And at some point in your adult life, you realize it’s time to buckle down. And it’s time to learn how to manage your money better.
But you struggle to get started.
Should I pay off debt or save money? How do I budget? What do I do if I don’t make enough money?
With all these questions popping up, it’s no wonder that managing your money can seem difficult.
So today, I wanted to talk about one of my favorite financial experts, Dave Ramsey. Dave created and popularized a financial plan called the “7 baby steps.” As a result, he’s helped thousands of people pay off debt and reach financial freedom.
So I want to share Dave’s video that inspired this article, then I’ll summarize his tips below.
5 Things That Will Make You Wealthy – Dave Ramsey
So if you’ve read Dave’s book, The Total Money Makeover or gone through his financial course called Financial Peace University, then you know Dave teaches a 7 step financial process. They’re called the “baby steps” because you take them one at a time, in order.
Here are the 7 Baby Steps:
Baby Step 1 – Save $1,000 for an emergency fund
Baby Step 2 – Pay off all debt using the Debt Snowball method (everything except your mortgage)
Baby Step 3 – Once you’re debt-free, bump up your emergency fund to cover 3-6 months worth of expenses.
Baby Step 4 – Invest 15% of your household income into Roth IRAs and pre-tax retirement
Baby Step 5 – Start a college fund for your kids
Baby Step 6 – Pay off your mortgage early
Baby Step 7 – Build wealth and give
These steps need to be done in order, but depending on your situation, you might start at step 2 instead of step 1.
For example, if you’ve already saved $1,000 for an emergency fund, then you’ll skip to step 2. If you’ve already done steps 1-3, then you’ll skip to step 4.
These steps are a great starting point for anyone learning how to manage money wisely.
But how do you get the most this financial plan? Let’s dive into Dave’s 5 tips for making it work:
1. You need a written plan
Want to know the first step in winning financially?
Creating a written budget.
What’s the big deal about budgeting? I do my budget in my head. I just don’t have time to sit down and budget. Plus, budgeting feels way too restrictive.”
Let’s be honest. We’ve all thought that at some point.
But here’s the thing:
Sure, you may have a mental idea of what your expenses are. But writing everything down will let you see ALL the little things you tend to forget about.
Little by little, those little things become a lot. So budgeting is the first step in learning how to control your spending habits.
Budgeting builds confidence.
No more wondering if a coffee run will break your budget. Or if you can eat out this weekend. Your budget allows you to spend confidently on the things you enjoy.
It’s not about restriction, it’s about control.
Every good budget includes “fun money” in it. If it doesn’t, then it’s not realistic.
Jordan, one of EndThrive’s readers says he budgets because “It feels good to know where my money is going each month. Peace comes from having ‘fun’ money budgeted in that I can do whatever with.”
Budgeting is easy.
You don’t have to be a math nerd or financial expert to do this stuff.
All you need is a pen, paper, and a calculator for basic adding and subtracting. Then you can create a zero-based budget.
A zero-based budget just means you assign every dollar a job. This is the key to learning how to manage money wisely.
For example, do you have $150 leftover? That’s great news, but you aren’t done budgeting yet.
You have to put that $150 in a category – savings, retirement, groceries – wherever. Just make sure you give it a job.
See how easy that is?
People who use zero-based budgets pay off 19% more debt and save 18% more money. Why? Because it’s about behavior modification. When you put every penny to work, you’re less ly to waste it.
And just any other skill, budgeting gets easier with time and practice. The first budget you make is your blueprint. Each time after that, budgeting will take less time because you already have a guide to go by.
2. You’ve got to get debt
Do you ever feel stuck with your debt?
…almost it’ll always be hanging over your shoulder?
It happens to the best of us.
But you have to get sick and tired of being sick and tired. You have to get to the point where you look at your debt with a healthy amount of anger and fear.
At that point, you’ll tell yourself:
I can’t live this anymore. Not with a family. Not with kids. I can’t set them up for failure this.
Andrea, an EndThrive reader, had this to say about it:
“What pisses me off the most about my debt is how self-centered it is. All the eating out and online shopping and who knows what else. I can’t even remember 90% of what I BOUGHT, and I’m still paying for it!”
And Michael said this:
“I can’t wait until the money I’ve been throwing at my debt is actually able to be used in other ways. on my family, home improvements, savings, etc.”
When you’re learning how to manage money wisely, you have to get fired up at your debt. Get sick and tired of giving your money away to creditors.
So after you’ve created your budget, you can pick a debt payoff plan. Dave Ramsey recommends the Debt Snowball Method.
The idea behind the debt snowball is simple:
List your debts from smallest balance to largest balance. Put as much money as you possibly can towards the smallest balance. Make minimum monthly payments on everything else.
Once the smallest balance is paid off, move up to the next smallest balance.
Here’s an example of how that looks:
When you’re writing down your debts from smallest balance to largest balance, you’ll also want to include the minimum monthly payment for each debt.
Next, you’ll fill out your debt worksheet this:
(Above: Order your debts from smallest to largest, left to right.)
This worksheet is completely free for EndThrive readers. You can find the link for it at the end of this article.
So as you can tell from the worksheet example above, you’d focus on putting all your extra money towards the MasterCard since it’s the smallest debt.
Both the Visa and the Car Loan only receive their minimum monthly payments. Then once the MasterCard is paid off, you’d take what you were paying on it ($600) and add that to the Visa’s minimum monthly payment ($50)
$600 + $50 = $650
You’re now putting a whopping $650 each month towards Visa.
Here’s an example:
And lastly, once the Visa is cleared, you’ll add the $650 Visa payment to the Car Loan payment ($325)
$650 + $325 = $925
With a new car loan payment of $925 each month, you’ll have the car paid for in no time.
3. Live on less than you make
If you’ve followed Dave Ramsey for any amount of time, then you know he’s not afraid to give you a kick in the ass when you need it.
He teaches more than just how to manage money wisely. He teaches you common-sense financial principals that’ll stick with you forever.
Which means he’s also not scared to tell you this:
“If you spend everything you make, then you’re a fool.”
Here’s the deal:
There’s a new bad guy in town, and he’s attacking lower, middle, and upper classes. He’s called lifestyle creep – and it doesn’t matter how much money you do or don’t make – he can still find you.
So what is lifestyle creep?
Lifestyle creep is when your income goes up, your expenses rise to match it.
Got a raise at work? Sweet! I need a new car. Besides, I can “afford” the monthly payments.
Got a bonus check? Great, I’ve been needing a new phone too.
It’s an easy trap to fall into. And once you’re in the hole, it can be hard to pull yourself out.
So let me be clear:
You can never get ahead when earning more money means wasting more money. Don’t take on new debt because you can “afford” the monthly payments. Think about it. Lenders make a ton off the interest they charge you.
So that new $25,000 car ends up costing you thousands of dollars in interest by the time you’re done paying it off.
To add insult to injury?
After 4 years, that $25,000 car that you spent almost $30k for with interest, is only worth about $12,000 after it depreciates.
The worst part?
Not only do cars depreciate in value, but they sit idle 90% of the time.
So 2 things are important when it comes to avoiding lifestyle creep:
1. Don’t keep up with the Joneses
2. Make a budget and stick to it
4. Save money
“100% of the people who don’t save money don’t have any,” says Dave Ramsey
We all know that saving money is a part of learning how to manage money wisely. But, sometimes there’s a disconnect between knowing what we should do and actually doing it.
Even the most financially disciplined can become sidetracked by the newest shiny object. Or sometimes we know that dining out is eating into our budget, but we’re having another “I don’t feel cooking” kind of night.
This is when your bills start controlling your paychecks and you tell yourself:
Well, I just don’t make enough to save any money.
There are no secrets to saving money, you just have to do it.
So the key here is to take a hard look at your spending habits. I mean really look at them. Scan your receipts, credit card statements and online bank accounts over the last 4 weeks.
If you could get rid of 3-4 unnecessary expenses, what would they be?
Have you ever had a moment when you think about something you once bought and ask yourself, “Why on EARTH did I spend my money on THAT?”
These are considered low-value purchases. Otherwise known as the purchases that don’t make your life any better.
As Andrea said earlier:
“I can’t even remember 90% of what I BOUGHT, and I’m still paying for it!”
Read that sentence again. It’s the things that we put on our credit cards, that we don’t even remember months later.
Some repeat offenders are:
- Excessive dining out
- Unused subscription services
- Unused gym memberships
- Impulse shopping
So once you pay off debt, Dave recommends investing 15% of your income into retirement. He says that good growth stock mutual funds are the way to go.
According to his website, “One of the biggest perks of mutual funds is diversification. Because your investment is split between a variety of companies, you don’t have to worry about your account tanking because a single stock underperforms.”
5. Be outrageously generous
“If you’ll get debt, invest, live on less than you make, and have a plan, then you can be outrageously generous,” says Dave.
We’re all told to budget, save money, and pay off debt, right? But when it comes to learning how to manage money wisely, how many people tell us to donate our money or our time?
This is what I love about Dave Ramsey. Sure, he’s all about building wealth but he’s also all about helping people who are less fortunate. He doesn’t necessarily mean with money, either.
A quote from Dave’s website:
“There are plenty of opportunities to volunteer at a soup kitchen or charity. You can help that single mom down the street by offering to babysit her children while she goes to night school or takes an evening to herself. You can also cook dinner for someone in your church who has lost a loved one”
Giving is one of the most fulfilling things you can do. Do good, feel good./span>
Tools for getting started on the Dave Ramsey plan
To summarize the 5 tips, they are:
Tip 1. Have a budget
Tip 2. Focus on getting debt
Tip 3. Live on less than you make
Tip 4. Save money
Tip 5. Give
By now you’re probably wondering:
I’m in…but where do I start?
Here a few tools for getting started:
Tool 1: Free Financial Worksheets
With these worksheets, you’ll get:
- A budgeting template
- A debt breakdown worksheet
- A money-saving challenge
These 3 templates should be all you need to get started on your baby step journey. Oh, and did I mention they’re free?
Tool 2: The Total Money Makeover
This book changes everything. It’s a deep dive into the 7 baby steps and answers all your burning questions about getting your financial life together.
As one reviewer said, “Take the plunge and change your life.”
If you’ve ever wanted to get your financial ducks in a row, now is the time to start. Dave is your go-to guy for learning how to manage money wisely. If you prefer video/audio over written content, you can listen to him live on the radio Monday-Friday from 2pm-5pm EST. You can also watch him live on his channel at the same time.
Tool 3: Easy Money Toolkit
Maybe you’re less of a pen and paper person. Or you just prefer having your budget with you on the go.
If that’s you, I recommend the Easy Money Toolkit. This toolkit includes everything you need to start winning financially. It’ll take you from saving no money (ever) to paying off debt and saving your first $10k. You can read more about the toolkit here.
(Above: The Budgeting Template from our Easy Money Spreadsheet)
(Above: The Savings Tracker from our Easy Money Spreadsheet)
15 Dave Ramsey Tips He Wish Everyone Knew Sooner
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Dave Ramsey may be an outspoken financial guru, but his advice and teachings are solid.
He became famous for his easy to follow baby steps to financial peace.
With financial advice on everything from emergency funds, side hustles ideas, and destroying debt, you’re bound to find the answer to just about any financial question by listening to his podcast or reading his book Total Money Makeover.
15 Best Dave Ramsey Money Tips
The baby steps listed above cover the basics of his concepts, but not everyone has the time necessary to consume all the material Dave has.
Below we’ve summed up the best money hacks and tips Dave Ramsey wants everyone to know to get their finances in order and start living their dream life.
1. Create a Zero-Based Budget with the Envelope System
Have you heard about this one? The concept is that if you ran your budget and paid your bills entirely on a cash system, you’d set aside the money for each line item of your budget in its very own envelope. As a zero budget, you’d have every penny of expected income each month assigned to an envelope in your system.
When you only touch a set, smaller amount of money per bill, you’re way less ly to overspend on anyone’s budget item.
This can definitely be done just as well with a non-cash system, it just requires a little more diligence and discipline on your part.
Take a look at some simple budget templates for ideas on how to structure your envelope system. Click here if you’re looking for a step-by-step tutorial on how to start a budget.
Dave also has some great guidelines when it comes to budgeting percentages you should strive for.
We also have a complete 20+ page Budgeting Binder that has helped over 1,000 families take complete control over their finances and stop stressing about money.
2. Stop Buying New Cars
Or, honestly, don’t buy any cars for as long as you can, new or otherwise.
His concept is this: as soon as you drive off the lot, your “investment” depreciates (i.e. loses value). If the average brand new car depreciates in value by 18% in its first year alone, it clearly makes far more sense to try to buy a 1-year old car for 18% off the sticker price instead!
The best way to avoid falling for this common pitfall is this: when you decide you WANT a new car (but you don’t, in fact, NEED one), find the car you want (at the best deal you can find), then figure out what the monthly payment would be. your monthly budget, assuming it’s within your budget to do so, set that amount of cash aside in a cookie jar until you’ve saved up the cash value of that car.
It’s a long game, but the satisfaction of not accruing any more debt, plus owning the car outright when you drive off the lot, is incomparable.
3. Buy a Modest Home You Can Afford
The biggest expense most people have in their life is their home. Dave’s advice is to buy a small modest home so you don’t overextend yourself.
A good rule of thumb is keeping your housing expenses under 30% of your take-home income. Better yet give yourself some more wiggle room and keep it under 25% of your take-home income.
If you fall into the trap of buying too big of a home all of your other expenses will follow. You will also naturally buy more things to fill the space in the house.
Keep things simple and buy a comfortable house your family can afford and give you a good quality of life.
4. Keep Your Current Cell Phone
In today’s culture, this is probably one of the hardest concepts to wrap your head around.
If you asked Dave Ramsey for tips for cell phones, he’d probably tell you that so long as it still makes a call and maybe can send a text, it still works and doesn’t need replacement.
Have you ever thought about that when doing the typical 2-year upgrade on your phone? Why are you paying someone a ridiculously high full price for a phone that does EXACTLY the same thing your last phone did?
Instead of buying a brand new phone just because it’s 2 years old, keep your phone until it literally doesn’t work anymore. At that point, buy a phone that’s 1-2 models old or used/refurbished instead of wasting money on the latest, new models.
There are so many benefits to having a frugal lifestyle and saving money is just one of them.
5. Pay Off Your Credit Card Balances Each Month (or don’t have cards at all)
A lot of people fall for the corporate trap that to be “affluent” you need to “charge it to your card.” Typically, the only people who truly benefit from this are the credit card companies.
Sure, you might earn some rewards but how much money do you need to spend to earn a 1% reward that’s worth something? When you get $1 for every $100 spent, it might be a better idea to just pay cash and not run the risk of accruing a 12-30% interest charge.
If you can’t seem to break the cycle of getting charged interest on your cards, here Dave Ramsey’s best advice is his famed “plastic surgery” — cut up the cards and say good riddance.
Don’t fall into the trap of burning yourself in debt making it impossible to retire in the future.
6. Pay Cash Whenever Possible
We’ve already talked about good debt/bad debt, credit cards, and cars. Every single time you pay with any method besides cold, hard cash, you run the high risk of paying over and above the actual price due to the “I.O.U.” fee, also called interest.
You might argue that “same as cash” financing is a good idea, because it’s no interest. Perfect, right?
Wrong. Next time you use a 0% financing offer with a credit card, run the math. You’ll find that your statement minimum payment does not equal the actual monthly minimum required to pay off the balance in full by the end of the promotional period.
7. You Don’t Actually Need a Credit Score
A lot of people to tell you that you need a credit score or else you won’t qualify for a loan.
I’ll ask you to see number 6, and realize that if you always pay cash, you’ll never NEED a loan, so who cares!
And despite what the mortgage companies and realtors tell you, you do NOT need a credit score to be approved for a mortgage.
The mortgage companies make interest on your use of their financial products, and many realtors get small commissions for referring clients to companies and banks they have a relationship with.
As Dave Ramsey so accurately says, the only way to get a credit score is to borrow money, so your score goes up, so you can borrow more money. It’s an eye-opener worded that!
8. Have an Emergency Fund
Paying cash for everything and avoiding as many sources of interest charges as possible sounds you’ll be good to go, right?
Well, misery loves company and problems are bound to come up sometimes.
Where to put an emergency fund, you ask? When you build your small, fluid, $1000 emergency fund as part of following Dave Ramsey’s advice, you’ll want that to be cash or an easily-accessed savings account. This will cover things smaller car repairs or furnace repairs.
As you make it through Dave Ramsey’s baby steps, you’ll eventually build a much bigger emergency fund, to cover 3-6 months of expenses should some seriously bad luck hit. This should also be a fairly fluid account.
9. Minimize Your Expenses
The fewer things you need to give up your money to each month, theoretically the less money you’ll be spending each month.
Chances are good you’d do just fine without that magazine subscription, the weekly dinner out, or that third streaming service.
Turn it into a fun game, to see just how many things you can truly remove from your budget and then see how big you can grow your debt snowball.
Dave has some incredible budget percentage suggestions that were super helpful for us when we started budgeting.
Try using a company Trim, they will automatically negotiate lower monthly bills for you.
10. Increase Your Income
While better-managing your money and shrinking your expenses are both huge in terms of getting your finances in order, sometimes that still isn’t quite enough to see much difference.
Whether it’s selling off your dust-collecting junk from your attic or finding a way to make a little extra cash on the side, increasing your income is a great way to quickly see your budget stretch farther.
The easier and less time-consuming the side hustle is, the better. If you can make money while you watch tv, well that’s the dream, right? (You can learn more about earning money while watching Netflix,here).
Besides our obvious favorite side hustle of blogging for an income, check out these other ways to make money online to boost your side hustle cash flow.
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11. Go For Free Stuff Whenever Possible
Most Dave Ramsey tips include advice to get you to spend less, with a preference being on taking advantage of free stuff whenever possible.
There’s no shame in accepting (or asking for) unwanted, old furniture from family or friends.
There’s no shame in checking the free section of craigslist regularly for something that needs just a little TLC to be functional again.
And when you have the chance to use a coupon on an already good deal, do so, so you don’t pass up what’s essentially free money.
Using a cash back app Ibotta is perfect for this! Simply take a picture of your receipt and get paid to shop!
12. Avoid Brand Names
There’s no hard and fast rule that says that brand names are superior to “off-brands” or generics. Sure there might be a few exceptions, but in general, you’ll save a lot of money not paying for a name.
You’ll also save valuable time by not needing to shop around for a sale price since generics are typically consistent prices all year long.
13. Unsubscribe From Emails With Discount Offers
If you’ve signed up for newsletters from stores or brands, you’re definitely receiving “subscriber-only discounts.”
Those discounts, though, offer the big temptation to spend money. Why?
Those companies understand the psychology of consumers, that most shoppers will spend money purely to “not miss out on the deal” before they even realize that they didn’t need to buy any of it in the first place.
When you truly NEED something from that site, sign up for their emails then and unsubscribe after you’ve used the coupon.
14. Stop Eating Out All the Time
The amount of money people spending on eating out every year is insane.
Learning how to cook from home will not only save your bank but also your health.
The fewer calories you consume, the less weight you could gain, which minimizes weight-related health risks.
Having less food per meal means less food in the house, which obviously makes your grocery trips smaller, faster, and cheaper.
Even if you start working on this advice by simply putting less cheese sauce in your mac and cheese, you’ll quickly see your grocery budget thank you!
Also by meal planning your weekly meals, you can save so much each week.
$5 meal planning, will help you save money and time by getting meal plans sent directly to your email.
15. Save, Save, Save
With a whole plan of “baby steps to follow,” the common theme with all of them is to SAVE your money. Spend less, put the rest away, is the basis of all the Dave Ramsey tips you’ll find.
In a nutshell, start by saving money on the expenses you can’t get away from — don’t buy what you don’t need, buy less of what you do need (if possible), and always make sure you’re getting the best deal so you’re not spending more money than needed on any one thing.
It’s called being frugal and being frugal = FREEDOM!
Move on to saving your money for retirement, big future purchases (to avoid interest charges), or big life events.
The more money you save, the more money you have.
Take Online Surveys – The perfect side hustle while you watch tv, wait in the doctor’s office, or even sit on the toilet. Yes, you can make money while you use the bathroom.
Start a Money Making Blog – It takes a lot of effort up front but once you start seeing the success the sky is the limit. Our blog brings in over $10,000 per month!
Start a Side Hustle – Want to make money using . There are plenty of small business owners in need of marketing help. The perfect flexible side hustle anyone can start.
Teach for VIPKID – If you love working with kids and have some teaching experience why not earn up to $22/hour teaching English online?
Become a Proofreader – Love to read? Why not get paid to read others work and find spelling/grammatical errors. You can easily earn a few hundred dollars a month in your spare time.
Flip Items on Ebay and Amazon – Love going thrift shopping and finding neat things to turn into cash? Start your own flipping business today!
As you can see from this list, there are a TON of ways to better make your money work for you — the thing Dave Ramsey advises the most. Any of these tips can be as small or as involved of an effort as you want them to be.
Just remember that the more effort you put into your financial journey, the better the results that will come out.
Do you have any other non-traditional money hacks to share, that have made a big impact on your finances? We’d love to hear them!
What Is Passive Income and How Do I Build It?
If you’re a forward-focused thinker, you may be dreaming about leaving the workforce to enjoy an easier life in retirement or you might even be considering retiring early. But a dream without a plan is just a wish.
To put some wheels on that dream, you need to consider passive income. There are plenty of different passive income options and explanations of how to build it. If you’re new to the idea, we're about to break it down for you.
What Is Passive Income?
Passive income is money you earn in a way that requires little to no daily effort to maintain. Some passive income ideas— renting out property or building a blog—may take some work to get up and running, but they could eventually earn you money while you sleep.
Why Build Passive Income?
Your income is your greatest wealth-building tool—a tool that typically requires your active participation in the form of a full-time job.
You know what we're talking about! Even if you love your job, we're willing to bet you wouldn’t mind earning some extra income without the blood, sweat, tears and time commitment of another job.
Here’s what building a passive income can do for you:
- Increase your wealth-building plan
- Create an opportunity to retire early
- Protect you from a complete loss of income if you lose your job
- Provide an additional source of income when you’re no longer able to work or if you outlive your retirement fund
How Much Money Can I Make?
Passive income generally won’t make you wealthy overnight, so forget about any get-rich-quick schemes you’ve heard of. But steady, profitable passive income options can build some serious money over the long haul. We’re talking anywhere from a few thousand dollars to hundreds of thousands of dollars—depending on the income stream.
How to Build Passive Income
Passive income can be built in many ways, but first let’s take a look at what it truly is and which income streams are available.
When we say “passive income,” some people tend to think of investing because it can produce the largest results with the least amount of work. But your retirement plan and passive income should be thought of as two separate things.
Be confident about your retirement. Find an investing pro in your area today.
The whole idea behind long-term investing is to create income for retirement. You want to make sure you’re investing in your company retirement plan, a 401(k)—if your fund choices are good and they offer a match—in addition to other tax-favored plans a Roth IRA if your company doesn’t offer a Roth 401(k).
These are great options for building a solid retirement plan, but you will incur taxes and penalties for any withdrawals before a certain age. With retirement planning, you want to let your money grow for the long haul and not touch it!
On the other hand, we want to think about passive income as a type of low-effort income that can be accessed at any time. Let’s take a look at some of these options below.
One way to build passive income after you’re debt-free and have some cash saved up is by purchasing real estate and renting it out to tenants.
Rental property can be a great source of extra income, but it isn’t the most passive choice because you’ll put a lot of time and effort into managing the property—unless you hire a property management company.
We suggest buying close by so you can personally keep an eye on the property. Find a real estate agent who knows your area well so you can buy property in a location that will attract renters.
If you go the rental property route, you need to be in control of your property. I don’t recommend real estate investment options—such as a real estate investment trust (REIT)—that pool your money into properties under its control while other people make decisions about your property for you.
Finally, before you buy rental property, pay off your own home first and purchase your investment property with cash.
Don’t ever go into debt to buy rental property!
Start a Blog/ Channel
If you have a brilliant idea that appeals to a specific audience, you could create something an educational blog or a tutorial series to generate online traffic. If your content is engaging and it sees enough daily traffic, you could sell ad space on your blog or ad spots on your channel. After you put in the heavy lifting, you can sit back, relax, and enjoy streams of passive income.
Sell Digital Products
If you’ve discovered how to create content that produces enough traffic to host ads, you could make a product your audience would love to buy. That could be anything from a simple e-book to a complex app that generates income for years after it’s released.
Store People’s Stuff
People have a lot of stuff—and they’re always looking for inexpensive ways to store it.
What could be easier than having people pay you to store their stuff? Building passive income by offering storage could involve a large-scale investment of buying a storage facility (with cash!) or something simpler offering your basement or shed. You’ll just need to ensure their items are safe and secure.
Rent Out Useful Items
Do you have any items you don’t use all the time that others would to borrow? Useful items a truck, trailer, trampoline, kayak or even your own yard could earn you passive income as rental items.
This also includes renting out spare rooms in your house with the help of websites Airbnb.
Hop on your favorite social media site, upload pictures of your items, set a price, and tell the world they’re ready for rent.
Passive Income Tips
The list of passive income ideas could go on forever. As you search for the best fit, keep an eye out for ideas that show positive long-term track records.
Do other people make money on the idea? Has it come back to bite someone who tried it? Some people ask about passive income options drink, vending or other rental machines in public places.
The bottom line? Don’t fall for any passive income ideas that promise a quick return or require huge amounts of money up front. They will sabotage your other financial goals. Look for ideas that are steady, profitable and trustworthy. Do your research. And never go into debt!
Don’t fall for any passive income ideas that promise a quick return or require huge amounts of money up front.
Build Wealth That Lasts
Did any of these ideas interest you in building passive income? Want a clearer picture of how different income streams might fit into your overall wealth-building strategy? If so, connect with a financial professional through our SmartVestor program and create a game plan to start building wealth that lasts. A financial pro will look at all your income streams and help you develop a financial plan that meets your individual needs.
Find a SmartVestor Pro today!
Dave Ramsey’s 7 Baby Steps Review: Get Debt, Build Wealth And Give
Here is an in depth look at Dave Ramsey’s Baby Steps plan for getting debt, building wealth and giving. The plan really is a pretty simple one, some might say it’s common sense, but it brings home a lot of concepts that a lot of us don’t normally think about.
I thought it might be helpful to go over the baby steps and see how they can help you.
Baby Step 0: Getting Started, Making A Decision To Change
Before getting started on the Baby Steps plan you may not have ever thought about working on your finances before. You just kind of let your money happen to you. To get started on this plan you have to make a conscious decision to care about where your money is going, and to live responsibly and within a budget. For many of us, this will be a quite the shift.
For some people they won’t want to make a change until they’ve hit rock bottom, facing a foreclosure or bankruptcy. Hopefully you’re getting started before reaching that point. Whatever point you’re at, just remember that you’re not alone, and you’re making this change to make your family’s lives better. It won’t be easy, but nothing worth having ever is!
Commit yourself to living within a budget, and to creating no more consumer debt! As long as you’re creating new debt, none of this plan will work! Once you’ve made the decision to make a change, cut up the credit cards, get on the same page with your significant other (if you have one), and move on to step 1!
Baby Step 1: Save A $1,000 Baby Emergency Fund
Baby step one is where you start building up an emergency fund for your family to cover any incidental and emergency expenses that might come up while you’re paying off all the debt you’ve created.
Some people don’t feel secure with only $1,000, and depending upon your circumstances, you may need slightly more. But $1,000 is a good starting point, and for most families will be more than adequate to cover the little expenses that come up for every family.
Get “gazelle intense” about saving that first $1,000. Most people will get it saved in the first 1-2 months of the plan.
Baby Step 2: Pay Off All Debt Using The Debt Snowball
In baby step 2 the family starts their debt reduction portion of the plan. This is often the hardest part of the plan for most families, especially if a large amount of debt has been created.
To get rid of the debts Ramsey has put together what he calls the “Debt Snowball”. In this plan you setup a debt repayment plan where you pay your necessities first (food, clothing, shelter, transportation), and then you pay the minimums on all of your debts.
Once the minimums are paid, you pay as much extra as you can on the smallest debt. You continue doing that every month until the smallest debt is paid off. Once that debt is paid you “snowball” all the extra money created by paying that debt off into the next smallest debt.
You continue doing that until all of your debts are paid off.
Some people can get the debt paid off within a few months, where others can take a few years. In either case it will sometimes be helpful to get part time jobs, sell stuff and do other things to temporarily create extra income to help pay off the debts. Once the debts are paid off you can quit those part time jobs because you’re debt free except the house!
Baby Step 3: 3-6 Months of Expenses In Savings
In baby step 3 you continue building that emergency fund that you started in baby step 1.
Starting from the baby emergency fund of $1,000 you build your reserves until you have 3-6 months of expenses saved in an easily accessible savings account.
Depending upon your family’s expenses, the amount you’re saving up will be different, and some people will prefer to build up more than 6 months of expenses depending on their desired level of risk, and what they feel comfortable with.
Remember, you’re saving up this money to help eliminate much of the risk that comes from the “little murphies” or life’s unexpected events that just seem to pop up. Things car troubles, medical expenses and job losses. When you have the emergency fund buffer, it makes these life events seem more bumps in the road instead of horrible car wrecks.
Baby Step 4: Invest 15% Of Income in Roth IRAs And Other Pre-Tax Investments
After you’ve saved up your 3-6 months of expenses it’s time to get cracking on investing and saving for your retirement. Dave Ramsey suggests saving at least 15% towards retirement, and saving it in a Roth IRA or other pre-tax investment. The order he suggests saving for retirement is this:
- Company 401k or other plan up to the match
- Roth IRA for you and your spouse
- Back to the 401k or other plan
Some people debate on whether 15% is enough to invest, or what types of investments are the best. For me I believe the key is just to get started investing, and do it now!
Baby Step 5: College Funding For Children
After saving 15% of your income for your retirement, it’s time to save for your child’s education! Some people think that this step should come before step 4, but Ramsey stresses the point that your child will have other options to help fund their education if they need to including scholarships, grants, working part time and other things. If you don’t fund your retirement, however, you’ll never be able to get that money back! Fund retirement first, and then your children’s college.
Some good places to save for your kid’s education include:
- Education Savings Account (ESA):
- 529 Plan
Other options exist as well, but the above options are the best.
Baby Step 6: Pay Off Your Home Early
Once the children’s college is paid for, it’s time to start making extra payments on your house! There are a lot of good reasons to pay off the house, including:
- Less Risk: With no house payment and a fully funded emergency fund, there aren’t many things that can happen ( a job loss) that can threaten your well being.
- Peace Of Mind: With no house payment you’ll be free to do a lot of things with your time and money that you might not have been able to otherwise.
- Interest Savings: By paying off the house early you’ll save thousands in interest. The earlier in the life that you pay the mortgage off, the better you’ll do!
- Less Stress: With no worries about losing a house, paying off debt, or small expenses coming up, you can live a more stress free life!
Paying off your house will free you up to do so many things with your time and money! It’s getting a raise since you’ll have all that extra money every month. With that extra money you can save, give and live no one else!
Baby Step 7: Build Wealth And Give
The last step of the baby steps is the one that gets me the most excited – building wealth and giving!
When you are debt free and you have no large payments a mortgage, it frees you up to begin building wealth, and it allows you the freedom to help others with the blessings that you’ve received.
As a Christian I feel called to give to others, and getting to baby step 7 is something I look forward to because it will allow my wife and I the ability to help others out even more than we are now! We are stewards of everything that God has given us, and God wants us to give because giving to others makes us less selfish people, and better in every aspect of our lives. Less selfish people are more successful in relationships, business and in life in general. Plus, we are happiest when we are serving and giving!
Thanks for taking the time to look at Dave Ramsey’s 7 baby steps with me, it has truly been a lot of fun for me.
I really do believe that his plan is a good one, and can help others as it has helped my wife and I. If you’re looking at your checkbook and accounts and you have a mountain of debt – don’t delay! Get started on getting debt today! Step one is only a decision away!
Live no one else today so that tomorrow you can live no one else!