Ramsey outlines debt-free plan in Colorado Springs for living the

Colorado Springs Business Journal, Apr 11, 2008 by Rebecca Tonn

Dave Ramsey likens becoming wealthy to making great barbecue. "You have to cook it for a long time," he says. "There's no such thing as quick, good microwave barbecue."

Ramsey should know. By age 26 he had a $4 million real estate portfolio, but lost it all by age 30. So he decided to change his financial strategies, after going on a "quest to find out what older rich people are doing to win -- what financial principles they have."

"I don't want a 450-lb personal trainer," Ramsey told the audience of 8,000 at the Colorado Springs World Arena on April 5. "I want one that looks like a Greek god. No matter what, I don't take financial advice from broke people anymore."

Now he's a multi-millionaire, best-selling author of "Financial Peace" and other books, and has a nationally syndicated radio show and newspaper column.

During his Total Money Makeover Live seminar, the audience whistled and yelled its approval as he touted his simple advice: "make a written cash-flow plan, live on less than you make and get out of debt."

He cited statistics from the American Bankruptcy Institute that show the majority of personal bankruptcies are filed by well- educated, middle-class baby boomers, who have "big-time" credit card debt. U.S. first-quarter consumer bankruptcy filings during 2008 increased 27 percent year-over-year.

"Most people work their whole lives and retire broke," he said. "The great American dream starts to look like the great American nightmare. Normal in America today is to look good and be broke. We're the Joneses on steroids. They typical household today has $38,000 in debt. In Texas it's called big hat, no cattle."

To get on top of your financial house, he said, you need to use a ladder with seven baby steps that must be taken in order. Change is a process and our thought processes about finances need to change.

Baby step one is to start an emergency fund, in less than a month, of $1,000. Step two is to pay off all debt using the debt snowball: pay the minimum on all credit cards, except the one with the lowest balance -- and pay as much as possible on the smallest debt.

Ramsey's suggestions for repayment included stop borrowing, sell some things and take a part-time job. (And, in case you're wondering, yes, you should sell the car.)

Step three is to save three to six months of living expenses in a liquid account -- preferably a money market account.

"Grandma said to save for a rainy day," he said, while opening a big red umbrella amid laughter and applause. "Here's your visual aid. Grandma was right. It will rain, and this will be your umbrella."

Steps four through seven may be simultaneous: invest 15 percent of household income into Roth IRAs and pre-tax retirement; fund an education savings account for the kids; and pay off your home early.

He also had advice for nervous investors who worry about the present state of the economy. Investors should think about the current stock market as a blue-light special -- it's all on sale.

"Our economy is more diverse and robust than to topple from a couple of terrorists," he said, referring to Sept. 11. "The stock market's had an 11.8 percent average annual rate of return since its inception. Put your money into diversified mutual funds and then forget about them. Mutual funds are long-term investments."

Ramsey said it is possible to pay off debt and get ahead in this country, despite the rising cost of living. Since wages have increased, the affordability index is better now than it was during 1962.

"Eighty-eight percent of America's millionaires are first- generation millionaires -- they worked, and saved and earned it," he said.

Ramsey recommended that investors put 25 percent into growth and income funds, growth funds, international funds and aggressive growth funds.

According to a 2001 survey of Forbes 400 wealthiest people, Ramsey said, the most important tool to financial independence and wealth is becoming and staying debt-free.