Table of Contents
Before we discuss the 5 foundations of personal finance popularized by Dave Ramsey, we need to know how we got here in the first place.
The United States of America and several other developed nations are currently struggling with economic crises and financial instability.
As a result, expert economists point to the ineffectiveness of current fiscal policies and inappropriate practices by financial institutions.
They’re the principal contributors to financial issues because they are allowing individuals to dig themselves deep into debt.
Creating a poor lifestyle characterized by continuous suffering and aggravated financial challenges.
However, personal finance issues result from more than the need for banking institutions to make profits by issuing loans.
The main reason why individuals worldwide are struggling with managing their finances is low levels of financial literacy.
These basic steps are what every middle and high school student should know as they grow into adulthood with more financial confidence.
Luckily, familiarizing yourself with the five foundations of personal finance can put you in a better position to plan your expenditure according to your income sources and ensure financial freedom
The Dave Ramsey 5 Foundations of Personal Finance and their Essence
Dave Ramsey’s 5 foundations of personal finance are expert-reviewed money management tenets intended to guide individuals toward financial success.
Although most educational institutions teach students how to be innovative and thrive in their endeavors, managing finances is a topic that is widely neglected, thus limiting their success.
Nonetheless, it is advisable to adopt these principles and incorporate them into your lifestyle to mitigate financial setbacks.
Save a $500 Emergency Fund
Most individuals in the US live in poverty because of limited employment opportunities and unequal distribution of resources.
However, it is sad to note that more than 60% of employed people do not have an emergency fund, despite earning regularly.
On that account, the first foundation of personal finance advocates for saving at least $500 for your emergency needs. It is important to have an emergency fund in place because emergencies are unprecedented and impossible to avoid.
As a result, many individuals are forced to borrow loans from loan sharks and seek other solutions to deal with unforeseen problems.
However, saving a $500 emergency fund can alleviate your concerns in case of a misfortune. Moreover, sustaining this habit can improve your money-saving behaviors, allowing you to improve gradually and enhance your financial stability.
Consequently, you will be able to set your mind on other crucial factors and improve your living standards.
Get Out of Debt
A majority of individuals in America get into debt before they reach adulthood. For example, most students have student loans deductible from their salaries as soon as they start earning.
However, some of these students also have credit card debts and car financing debts, while others have mortgages because they believe that starting home payments early is a good idea.
Unfortunately, accumulating debts is one of the most detrimental habits to personal development and financial stability.
They will weigh you down in the long run, despite working hard to earn and repay the loans in bits. It is critical to note that debts decrease your net earnings since you will always pay more in installments.
That being said, you should find solutions to settle your debts once and for all and limit your borrowing behaviors.
Pay Cash for Your Car
Nothing is more exciting than finally getting your driving license and the opportunity to drive on roads and highways legally.
Unfortunately, many teenagers rush into purchasing their first cars without analyzing the impact of their decision on their finances.
The easiest solution to obtain a car in the US is through car financing loans. As a result, most teenagers take on these loans to finance cars without organizing solutions to repay the loans.
Economists often refer to motor vehicles as liabilities because they take money out of your pockets. Moreover, financing a car loan coupled with car maintenance costs can prove challenging to manage due to increased financial obligations and more spending.
Therefore, it is advisable to pay for your car in cash to allow you to focus on other issues, financial development, and economic security.
Pay Cash for College
Socio-economic inequalities in the US disproportionately impact marginalized groups and minorities, forcing many individuals to depend on student loans from the government and lending institutions to fund their education and learning.
Consequently, most people finish college with thousands of dollars in debt, thus limiting their overall revenue and complicating their financial management.
However, contrary to many people’s beliefs, learning through college and university without borrowing student loans is possible.
Although it might be tough to focus on your studies while struggling to make ends meet, paying off your higher learning education without borrowing debt can help you live a stress-free life and allow you to advance financially immediately after completion.
It is critical to adhere to all the five principles of personal finance to graduate debt-free.
Build Wealth and Give
The last of the 5 foundations of personal finance recommends building wealth and being extremely generous as the keys to financial stability and success.
Building wealth not only assures enough money to support a better lifestyle and deal with issues, but it also provides an opportunity to have more control over your life and the freedom to make decisions.
Similarly, providing individuals with the tools and resources they need for personal development is a win-win situation.
You never know who could offer a helping hand in the future or improve the lives of other people due to your generosity.
Experts advise building your wealth by accumulating several financial resources. Also occasionally giving to enhance your personal development and peace of mind. This benefits you by knowing that you have positively contributed to changing the world.
Summary of the Five Foundations of Personal Finance
The financial instability of individuals in the US is not a result of ineffective government policies and a lack of accountability.
Instead, it is a product of unawareness and destructive financial behaviors that confine individuals to an endless string of debts.
Making wise financial decisions requires the knowledge of how to create and organize income resources, manage debts, and build wealth. Using good personal financial apps offers a range of solutions such as researching and tracking your financial success.
Financial planners recommend familiarizing yourself with the five foundations of personal finance. They provide comprehensive information about advancing from economic servitude to financial stability.
It is critical to learn about these foundations and observe their principles to achieve financial goals.