The Dave Ramsey Budget: Budgeting Tips For Successful Savers

by Silicon Valley Blogger on 2009-03-2427

I’ve been a follower of Dave Ramsey’s baby steps methodology for a while now. And whenever I can, I try to catch one of the weekday radio shows of this financial guru and popular talk show host with Fox Business News. Here, Dave Ramsey gives advice on how to make a budget full of win — the kind of successful budget that allowed him to pay off debt and become a millionaire.

I thought I’d share some of the pointers I’ve picked up from Dave and add my personal thoughts to each point:

The Dave Ramsey Budget: 6 Budgeting Tips For Successful Savers

1. Start with what you have.

Don’t budget for “the perfect month” and don’t use your monthly average over the past year. A budget should reflect what is happening currently.

On the first day of each month, sit down and write out exactly what will be coming in that particular month. Will this be a two-paycheck, three-paycheck, or even a five-paycheck month? Perhaps you’re expecting a bonus payout, stimulus check, tax credit or refund. Is there anything special happening this month? Then make sure it’s on your list.

Check out an effective budgeting tool. There are a couple of ways you can go about this if you’d like to use software. There are both desktop tools (which you’ll need to purchase) or browser tools (which can be available for free). Let’s look at a couple:

YNAB Desktop Budgeting Tool: One awesome budgeting tool made for the desktop is “You Need A Budget” or YNAB. It has excellent ratings and is built on a savings paradigm that is designed to get you out of debt quickly. It’s actually built on a unique premise, making it different and more effective than most standard budgeting tools today. It helps you develop a “forward-thinking” budget so that you’re always aware of your saving and spending activities in advance (a month ahead). For more details, you can read our review of YNAB personal budget software products, as well as our discussion of YNAB’s budgeting paradigm.

Mint Budgeting Tool: This is a free browser based tool you can use to track your expenses easily. It’s now part of the Quicken line and serves as the online counterpart to their desktop products. It’s available at no cost to you, but you’ll have to sign up and provide your personal information. Part of it’s success and popularity is due to the fact that it is pretty convenient and is able to pull all your account information under one account. Check out our review of here.

Dave Ramsey budget, budgeting tips

2. Evaluate your financial priorities.

A good budget doesn’t take your credit score into consideration nor does it forget to pay the mortgage (unless there is absolutely no money coming in that month, in which case, you’d be facing bigger problems).

So after figuring out how much you have, you need to spend every dollar on paper and give it a purpose before it even makes it into your checking account. Your budget should go in the following order:

  • Food. When you have food in your belly, you live to fight another day.
  • Utilities. Should you keep the lights on? Make sure you’re budgeting for electricity and water even as you work to perfect your credit score. “Utilities” also includes insurance payments (renters, homeowners, life insurance, etc.).
  • Housing (rent or mortgage). Watch that you don’t fall behind on your mortgage.
  • Transportation costs (gas, car payment, car insurance). You can’t get to work if the car’s been repo’d.
  • Clothing. This is not an excuse to get the latest $400 pumps. The clothing budget — especially when you’re trying to pay down debt — should only be for the essentials.
  • Health. Most of us have copay and deductibles to meet, so we need to anticipate those medical payments that are not covered by insurance.

After the necessities for living — food, utilities, shelter, transportation, clothing and health — are covered, anything left over is called “discretionary income”. This can be used to get rid of debt (or at least those pesky monthly minimums), to invest for long term financial goals, or to spend at will.

3. Budget as a team! The Nerd vs. The Free Spirit

In every relationship, there’s a nerd — someone who absolutely loves spreadsheets and budgets and numbers — and a free spirit — the one who absolutely chafes at the thought of being constrained by the dreaded “B” word.

Here’s a suggested way for couples to work things out together: The Nerd can initiate the family’s financial planning process. He (or she) should come up with a preliminary budget and submit this plan to the Free Spirit. It’s easier for the Nerd to start things off as this person is in his comfort zone.

The Free Spirit should then take the time to review the budget and make changes as necessary (e.g. there shouldn’t be a clothing budget of $20 for a family of five when it’s back-to-school time). She (or he) should come up with a revised budget which she returns to her partner, and a compromise should be reached.

After both parties agree upon a budget, they should promise to stick to it (the hard part!). Here’s more of Dave Ramsey discussing the nerd and the free spirit budgeting archetypes.

4. Make allowances in your budget and pace your spending.

It’s very likely that your first budget will not work. To be realistic, consider allocating a little more to your budget categories. Unless you are literally living on Top Ramen, $100 for food will not work. Dave Ramsey recommends that until you get the hang of things, over-budget (or create a bigger budget than you think you’ll need) for your first few monthly plans. Being realistic about what you can afford and pacing your spending well throughout the month should help you avoid dining on fast food and leftovers by month’s end.

5. Budget for emergencies.

Cars break down, pipes wear out and break, and kids get sick. Don’t forget to build an emergency fund to pay for these unexpected events. The emergency fund should be put into a savings account that can offer you a good return and which has check-writing or bill paying privileges (e.g. ING Direct) — something that’s liquid, but not too liquid. And no, I don’t consider “Gucci shoes are half off!” as an emergency.

Tip: Online savings accounts usually offer higher rates than what you’ll find at traditional banks. If you’re looking for savings options, check out our list of high yield savings accounts here.

6. Talk about your money.

If something changes in your budget, both you and your partner should conduct an emergency “budget committee” meeting, where everyone discusses how to address the issues at hand. It’s ideal when both parties are able to sit down and discuss the possible budget changes that are afoot. Did you get an unexpected bonus? It’s a good idea to decide on how to handle the money together. Did you get an unexpected cut in hours? Sit together and determine which budget category (or categories) will be impacted by your loss of income.

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 27 comments… read them below or add one }

HS March 24, 2009 at 8:13 pm

Dave Ramsey and budgets just don’t make sense to me, I like his debt approach but my life is just very hectic/dynamic to plan how I’m going to spend each paycheck every month. I think if all the bills are paid for the month, groceries are stocked and the savings account is funded, spend the rest of your paycheck as you wish.


John March 24, 2009 at 8:37 pm

Thanks for sharing some of Dave Ramsey’s budget tips; I have always been a big fan of him!

Andy March 25, 2009 at 6:25 am

Anyone else find a touch of irony that those are Euro denominated coins in the picture?

Neal Frankle March 25, 2009 at 6:41 am

Its always good to get a reminder of good habits.

Silicon Valley Blogger March 25, 2009 at 7:58 am


Yes, thanks. Nice! Budgeting is budgeting regardless of where you live. 🙂

inowweb March 25, 2009 at 9:27 am

saving and budgeting is very hard to do, but not entirely impossible. 🙂

Eric March 25, 2009 at 7:22 pm

Part of budgeting is also following through with it. My wife and I were having issues with that and I just could not commit to Ramsey’s envelope system. For the past few months we’ve been using it and it is amazing. I’m angry that I waited so long to use it because it works really really well. When we would budget and just use the debit card things got a little crazy and out of control sometimes. Now, its all cash and envelopes. I know exactly how much is being spent, where and when. It’s great!

Funny Quotes March 25, 2009 at 7:34 pm

I find an emergency fund to be very important. You never know when something terrible will come up and you’ll need some sort of money to pay it off. I also agree with when budgeting, we should only get the necessary clothing, and not the $400 pieces of clothing.

RAJEEV ON SAVING March 26, 2009 at 12:18 am

I agree with Dave and i feel making a budget is the first step towards getting your finances in order. It will help you identify the areas where you might be spurginga nd hce provide an opportunity to curtail that. Alos it will give you an opportunity to plan investments and your lifestyle. While making it the most important aspects are
1. Make it reasonable budget which will work.
2. Have an emergency fund
3. Add 5% of the overall budget as miscellaneous expense. this will ensure that you dont overshhot your budget initially and hence will keep your faith in it.

Adam March 26, 2009 at 8:15 am

Love this post.

We are big Dave fans, and this post puts some of his “larger” ideas into simple language. We aren’t big fans of budgeting, but we try. These simple statements will help us as we prepare for April.

Thanks for the summary.

Kate March 26, 2009 at 9:37 am

Making a drastic transition from living on a free spending plan to living on a strict budget can be pretty unrealistic, but if you ease into it gradually, the habits you form will become automatic and long-lasting. Despite the predictions for an economic up-swing in 2010, we all need to learn to live within our means, and essentially, that means living on a budget. But, by harnessing The Power of Small, we can make this change incrementally to ensure lasting results.

Rich March 26, 2009 at 10:44 am

People who say that budgrting/saving is too hard or time-consuming are usually stuck in debt. It takes me a half-hour every paycheck and it is worth it. Pun intended.

Jim March 27, 2009 at 11:37 am

Are the necessities meant to be in priority order? If so then why would you put paying your utilities above paying rent/mortgage? Maybe its nitpicky or just personal preference but I don’t see why you’d not pay the rent first. Its not going to help you too much to have your utilities paid up if you get evicted.

Gina April 7, 2009 at 12:54 pm

The mortgage or rent can be late or even not paid for a few months. It is not good, but it can happen. If you do not pay the electric bill then with in 30 days they will turn off your power.

Craig Scott April 12, 2009 at 7:39 am

The point about how two very different people (nerd and free spirit) can work together is helpful. Husbands and wives often have different priorities in budgeting but also need to get along and agree.

hyperluv May 23, 2009 at 12:50 pm

HS March 24, 2009 at 8:13 pm
“I think if all the bills are paid for the month, groceries are stocked and the savings account is funded, spend the rest of your paycheck as you wish.”

You should really track everything you spend in a worksheet. That way you will see where you waste or spend most of your money. It may even make you do some drastic changes (i.e. basic cable instead of digital cable) lol. Once you see how much you spend a month (or even a year) on certain things, make spending limits on the items that you can do with out. This will be your budget. Save the rest.

Marie July 8, 2009 at 12:48 pm

If you start this budget out with an income of 3,000.00 per month and rent of 800.00 per month, and one person loses their job making 2000.00 per month, the remaining budget amount is 1000.00 per month income. After 3 months and no job hire, what do you do to live?

Jeremy July 23, 2009 at 8:04 am


800 is 26.6% of 3000, meaning the rent is too high for the income in the first place. Housing (rent/mortgage) should be 25% or less of the budget. What I would have done even before that is move into a place I could afford. But, because it’s so close to the 25%, let’s say you’re able to make ends meet without a problem while employed. What happens when you lose your job…

Amputate first
Your old budget is based on different reality. You’ve stashed the 3 months net in your emergency fund so now you have 9000 over as long as 8 months. You don’t keep living like you used to, and you cut your budget to just the needs.

Amputate toys, cars, and possibly even the house; and downgrade to reflect your new reality. If your budget is in order by priority, with needs at the top, start removing and slashing from the bottom up. You can cut back food by going back into the life style you lived in while doing the debt snowball, as Dave would say, “Beans and Rice”. Start shopping thrift stores, and low cost food places (if you don’t already). No job means no cable, no Internet (library is free), no buying or going to movies (library is free), no eating out, no new clothes (if a real need, not want, arises go to the thrift store), ect. If you have kids, no new toys, no new gifts, no trips to see Micky, no latest and greatest sneakers. No one said it would be comfortable, but it will get you through.

Sinking fund
The money that you’ve been stashing to buy new furniture, boat or other want item that you’d like but don’t need. Spending every cent on paper also includes payments you’ve been making to yourself for such things, if your budget allowed. If it did, use the sinking fund (with the new lower budget of needs only) before touching the emergency fund.

Average vs Reality
While the Average is currently 8 months out of work, that is just an average. Average (mean) is bad indicator, as it’s easily swayed by extremes. Even if you consider a median amount of time, instead of mean, that still means that half the people were able to find work before that amount of time, and half after. How hungry and motivated to take a job isn’t being factored into any of these reports, nor is what job they are willing to take. There are still some people who won’t take a job that pays less than what their last job made. A guy I used to work with recently needed to change jobs, and within a 3 month period had 3 job offers. The job he took plays into the stats, but the stats don’t point out that his diligent search actually could have had him hired sooner (2.5 months), and three times over. Many other people give up hope because they keep hearing how bad the economy is. Some people don’t start looking until their unemployment insurance runs out, which also tends to drive the average upward. Jobs are out there, you just have really look for them. Most people won’t settle for a job that is “below them”, you’d be surprised how even picking up a job sweeping floors or delivering pizza part time at night, while looking for a “real” job, will help stretch the 3 to 6 months you have in the emergency fund.

Get creative
If you’re a married couple with children and one parent is staying home with the child, and the other loses their job; perhaps it’s time for both to find part time work sweeping floors or delivering pizza. The job search can continue, and staggered shifts can leave someone home with child until normality is restored. That will stretch the emergency fund, or perhaps remove the need to draw from it (if you amputated enough), and will tide you over until employment is found.

Perhaps you have a skill that allows you to freelance or do contract work to fill in the gap between real jobs. For instance, if your in IT or other tech related job and have the knowledge to fix computers, you can always fall back to freelance computer repair while out of work. If you are professional illustrator and the publishing company you work for lays you off, consider doing freelance, contract work or “work paid for” work.

If you have a Bachelors, perhaps this it’s time to go back to college. The stimulus package has some nice tax benefits to going back to college. Moreover, taking a position as a Teaching Assistant or Research Assistant will generally pay the tuition plus a stipend. The stipend typically is barely enough to live on, but it is enough to barely live on. Pair this with fellowships, publication of research and companies graduate internship programs and going back to college starts to seem pretty appealing.

Hands off retirement
Don’t give into the temptation, however, to dip into your retirement. It’s alright to stop contributing (out of work, stopping contributions is a given), but don’t rob/borrow against the Roth IRA or the 401(k)/403(b). Why? If, God forbid, you find yourself needing to declare bankruptcy retirement accounts aren’t touched. Remember, that bankruptcy is the last resort and only if all other options have been exhausted, and really only helps if you still have credit.

Annie August 7, 2009 at 12:47 am

Budgeting is essential when it comes to family finances. In budgeting it requires you to look ahead and formalize future goals. By establishing a budget, you can set goals for achieving a certain level of income and monitor your expenses.

Ann August 10, 2009 at 11:39 am

It could definitely be difficult and boring when we begin budgeting our expenses. However, once we realize its importance, we’ll automatically relish the idea of budgeting. We have to practice managing our budget in order to reach our financial goals. Companies themselves do this, after all!

Mann August 21, 2009 at 1:50 pm

Due to circumstances both within, and out of my control, I ended up owing thousands in credit card debt, loans, legal fees from a child custody battle. Right in the middle of this, the recession caused my employer to cut our hours to 30 hours a week.

Keeping up with debt payments has been extremely difficult, leading my once-stellar credit score to dip to new lows. My dreams of buying a house have dwindled to nought.

After stressing out about my credit score, I realized there was nothing much I could do about it. I focus on covering my basics. If there is any money left over, I try to pay a little on my bills.

However, things are looking up. We are gradually getting back our hours, but it will take a long time to climb out of this debt hole. I’m going to do it right this time. Budget every penny. Save up my $1000 baby step 1 emergency fund so I don’t keep digging deeper into debt by using credit cards and taking out loans.

Slowly, but surely, I will get back….

Beau September 3, 2009 at 2:21 pm

Spot on! I also use ING Direct for my emergency fund. It keeps it just far enough out of reach, but close enough to use when there’s an emergency!

For basic budgeting, I’ve been using a tool called “”. It’s free and easy to use.

Janet Heck September 6, 2009 at 10:52 am

Is it good sense to cancel as many credit cards as possible to improve your credit rating or should I keep them open and purchase something on them every so often paying in full as soon as the bill comes in?

shelly wilson October 28, 2009 at 7:05 am

I’m sorry but I was just on a site that Dave recommends for meal planning that cost you $1.25 a week!!! Who has the money to budget in $65.00 a year to meal plan!? I have taken his classes before and this goes against everything he preaches, yet he endorses this? Seems awful weird to me, hey Dave thats just not good enough!!! If you have to pay $65.00 to have someone plan your meals for a year then you need more help than you know!

Joel January 4, 2010 at 11:49 pm

I love Dave Ramsey but I have to say that he is absolutely dead wrong with respect to his “one size fits all” approach to credit cards. Rather than launch into a long diatribe in a comment here is something I just wrote that makes the case for ignoring Dave Ramsey’s advice in at least 2 areas: (I agree with pretty much everything else he says though).

jysharp2003 December 4, 2010 at 9:36 am

I agree with Joel. Measuring my current spending without constraints then sizing down my expenses was our family trick. With years of failing because of manual entry to budget spreadsheets etc, I found importing my bank statement for tracking is the truest way to make a budget work long term. My MS Money application no longer worked so I searched and found a program called bank2budget, which worked for me.

Web Design January 6, 2011 at 2:45 pm

Got the envelopes out and ready for a new year! Budget, budget, budget…

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