Dave Ramsey had a US$4-million real estate portfolio when he was 26, only to lose everything two years later.

Today, Ramsey, 60, is regarded as one of America’s most dependable financial advisers, in addition to being a renowned radio host. He recovered from the bankruptcy of his early years to rebuild an even larger fortune, and now has a net worth of US$200 million (RM880 million).

Ramsey is open about his investment philosophy and advises his followers to avoid buying individual stocks. Instead, he encourages investing in mutual funds with proven track records of success. He also has a rental-property portfolio, built by purchasing real estate without using loan finance.

Here are some lessons that can be learnt from Ramsey’s approach to money management, especially when it comes to getting out of debt.

1. The snowball method

This is a debt-reduction strategy in which you pay off your debts from the smallest to largest, building momentum as you go. When the smallest obligation is paid in full, the minimum payment on that liability is rolled into the next smallest debt payment.

This is how it works:

• list your debts from smallest to largest, regardless of interest rate;
• make minimum payments on all your debts except the smallest;
• pay as much as possible on your smallest debt; and
• keep going until each debt is paid in full.

If your highest interest debt also has the highest interest rate, it will be a long time before you see a dent in the amount. But if you adhere to the plan without worrying about interest, you’ll get a kick out of paying off even the smallest debt quickly. This enthusiasm will drive you to keep working hard until you reach your goal of being debt-free.

2. Live frugally

Frugal living is defined as living well on a limited budget. Basically, aim to spend less money than you earn and put the remainder aside as savings or for your emergency or retirement fund.

It’s all about making wise financial decisions with the resources you have, and getting the most out of every ringgit so you can save more money and pay off your debts. Budgeting and a cash-envelope system are useful here (more on these below).

3. Keep things simple

Before spending money on a brand-new tool or paying someone to do a job for you, consider doing it yourself first. The cost of materials or a quick Google/YouTube search can save you a lot of money on home improvement.

That said, if you can’t nail it (figuratively or literally), enlist the help of a friend or neighbour who might be able to help you out. Also, instead of going out and buying something, try borrowing from a friend to save you from spending unnecessarily.

4. Raise your income ceiling

As most people only have one source of income, losing their job is financially catastrophic. You can, and should, have a variety of sources of income.

5. Budget

A budget gives you complete control over every ringgit you make or spend. Ramsey suggests using a zero-based budget to specify where every ringgit should go before the month begins. Here’s how:

• Write down your total income: This is your entire take-home pay for both you and your spouse if you’re married. Remember to include everything – full-time work, part-time jobs, freelancing earnings, and any other regular source of income.
• List your expenses and put aside extras: Keep track of every ringgit you spend, including your usual expenditure (mortgage, insurance, utilities) as well as irregular bills due in the future month. Don’t forget your monthly savings and emergency/retirement fund. Then tally up all of your other expenses, such as groceries, petrol, subscriptions, entertainment, and apparel.
• Subtract expenses from income to equal zero: A zero-based budget is one in which your income, minus your expenses and savings/fund contributions, equals zero. You’ll know that every ringgit you earn has a place in your budget. If you’re on the wrong side of the equation, double-check your maths or go back to the previous step and try again.
• Keep track and revise: It’s important to track your expenditure after you’ve created your budget. Adjust each month’s savings and expenditure as you go to see how best your money is spent – as long as it all adds up to zero on your budget sheet.

6. Sell your car

Cars are not only expensive to buy but to own. If it’s possible to give up your car in favour of public transportation, cycling, or walking, doing so could be beneficial to your financial – and even physical – health.

7. Cut up those credit cards

Cutting up your credit cards not only serves as a compelling visual representation of your determination to pay off your bills, but also as a deterrent to using your credit accounts in future.

Remember, though, that cutting up your card does not imply the credit card account is closed – the plastic is only a means of gaining access to your credit.

8. Use the envelope system

The cash-envelope system is exactly as it sounds: you divide your money into several envelopes according to your budget categories, and determine the exact amounts that go into each. For example, you might allocate RM300 to groceries and RM50 to entertainment.

The key is that you’ll only be able to spend money from these envelopes for the budget category in question until the following month. Only your variable spending should be covered by cash envelopes, such as household goods, groceries, self-care products, and entertainment.

9. Stop comparing

If you’re having trouble achieving success in your own life because things are rough and you can’t see the light at the end of the tunnel, reconsider your understanding of success and happiness. It is up to you to define it, and there’s no point comparing yourself to others.

Have faith that by following advice from experts the likes of Ramsey and others, you, too, can take better control of your personal finances.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.