Dave Ramsey: Here’s When It’s OK To Splurge

Dave Ramsey headshot

Dave Ramsey is famous for his aversion to debt when it comes to personal finances, routinely advising folks to avoid it entirely. Instead of leveraging debt for investments or using it to buy things you don’t really need, Ramsey recommends following a process called The 7 Baby Steps.

Explore More: I’m a Self-Made Millionaire: I Followed These 3 Dave Ramsey Rules To Get Rich

But life can’t be just about preparing for the future. So when can you splurge? It turns out, Ramsey has an answer to that question, too.

And to help with the budgeting, here are nine frugal habits Ramsey swears by.

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Dave Ramsey On Splurging

Ramsey’s financial philosophy focuses on being smart with money today to prepare for a brighter future. However, he doesn’t entirely rule out splurging on luxuries you want today. He just recommends reaching a few key financial milestones before you do it.

When responding to a question about splurging from a fan, Ramsey said “First, you should be completely debt free except your house. Second, you need to have your fully-funded emergency fund [which means] three to six months of living expenses.”

This advice corresponds to completing the first three of Ramsey’s 7 Baby Steps. These are:

1. Saving $1,000 for a starter emergency fund
2. Paying off all debt except your house
3. Saving three to six months of expenses in a larger emergency fund

Ramsey also says to make sure your family is well taken care of before you start splurging and to use cash to pay for any luxuries you buy.

For You: Dave Ramsey: 7 Vacation Splurges That are a Waste of Money

Getting To a Place Where You Can Splurge

Ramsey recommends not splurging if you have any non-mortgage debt or lack an emergency fund. If that’s you, your next financial step will be figuring out how to solve these problems. Here’s some more advice from Ramsey to help you do it.

Review Your Budget

You should start by updating your budget. Doing so will help you free up the cash you need to pay off debt, save for emergencies and eventually splurge on luxury.

Ramsey and his team recommend zero-based budgeting. This means allocating every cent you earn to a specific purpose so that your income minus expenses equals zero. Zero-based budgeting can be helpful because it forces you to take control of every penny.

If you’re ready to create your new budget, Ramsey recommends following these steps:

1. List your income
2. List your expenses
3. Subtract expenses from income
4. Track your expenses throughout the month
5. Adjust your budget if you overspent or underspent

Remember, reviewing your budget is something that you should do monthly. Your shopping habits and income will change over time. Your budget won’t serve you effectively unless you update it to match those changes as they occur.

Track Expenses

Ramsey and his team also stress the importance of tracking purchases when working toward financial goals. This lets you see where your money goes each month so you can compare it to the budget you made.

You may discover you’re spending too much or too little in certain categories and make changes next month. Do this consistently, and you could make tremendous financial progress in as little as a few months.

Tracking your purchases manually is one option. But there are also various expense tracker apps that will do the job for you. EveryDollar, YNAB and Rocket Money are some of the best.

Ultimately, the key is finding what works for you and sticking with it.

Don’t Fall Into the Raise Trap

As long as you set the right budget and track expenses consistently, the road to splurging should be fairly straight. But some life events, like getting a raise, can throw you off course.

When people get raises, they tend to become more loose with their money. Instead of allocating the new dollars to a specific job, you might use them to inflate your lifestyle. Ramsey says this is a huge trap that can keep you from reaching your financial goals.

Lifestyle creep isn’t always bad — you just need to be smart about it. If you want to go out to eat more often after getting a raise, put it into your budget so you don’t have to pull funds from elsewhere to do it.

Final Take

Dave Ramsey has built a massive following by offering simple, down-to-earth money advice. He’s not the only financial expert worth listening to, but his advice on splurging is sound.

It boils down to not splurging until you have a solid financial foundation in place. If you overspend on luxuries too early into your financial wellness journey, it can take you much longer to reach your long-term goals.

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