Here's What Dave Ramsey Says You Should Do if You Don't Want to Be Broke Anymore

Some of Dave Ramsey's advice can be hit or miss. To his credit, one area where he excels is helping people who are struggling and in need of serious financial changes. If you have no money saved or you're struggling with debt, Ramsey provides simple, actionable advice that can improve your situation.

Ramsey recently shared a video about a common personal finance mistake that "broke people" make, and it's something that holds lots of people back. Here's what it is and how you can fix it.

Stop buying things just because you can afford the payments

According to Ramsey, broke people think they can afford purchases if they're able to make the payments. He also says that "if you don't want to be broke people anymore, you get out of the land of payments." Instead of taking on more monthly payments, focus on increasing your income and decreasing your expenses, which also means not financing any more purchases.

Ramsey is right on the money about this one. One of the financial mistakes people make all the time is looking at monthly payment amounts instead of the total cost of the purchase.

Of course, retailers encourage this as much as possible. Online stores will show you how much you could pay for a product per month if you finance it. Car salespeople will make the entire conversation about the car payment, not the actual price of the car.

There are a few reasons making purchases this way is problematic:

• It can cause you to spend more money. You might balk at spending $1,500 on a new TV, which is why the merchant also conveniently offers it for six monthly payments of $250.
• Every time you commit to a monthly payment, it ties up more of your income. That's less money you can save, invest, or use to pay off debt.
• Smaller monthly payments keep you in debt longer and can lead to more interest charges. Let's say you get a long car loan so you can pay less per month. The loan will cost you considerably more overall because you're getting charged interest for a longer amount of time.

There are more ways than ever to pay for purchases in monthly increments. Credit cards and loans are the traditional options, but buy now, pay later (BNPL) plans have also become popular. In fact, research on household debt by The Ascent found that 50% of Americans have used BNPL.

Don't fall into the trap of financing purchases just because you can. For your long-term financial health, it's better to consider borrowing money a last resort, not your first option.

The best way to pay is in full

If you want to manage your money better, a good place to start is by paying for everything upfront and in full. Instead of taking on payment plans for big expenses, save up the money you need in a savings account before you make the purchase.

There are a small number of exceptions, the most understandable being buying a home. It would take a long time to save up enough money, and mortgages have some of the lowest interest rates of any type of loan. Because of that, getting a mortgage can be a smart financial decision.

A car is another type of purchase that can make sense to pay off over time. Just be careful how much you borrow. With a long enough loan, it's easy to buy a more expensive car than you can really afford.

With everything else, say no to payment plans. Pay in full to stay out of debt. And if you can't pay for it in full, wait until you can to buy it.