Dave Ramsey Says This Is Your Most Important Wealth-Building Tool. Is He Right?

This is one of Dave Ramsey's best pieces of advice.

Dave Ramsey is a popular source of financial guidance, and he recently shared advice about building wealth through his Twitter account. According to Ramsey, "Your income is your most important wealth building tool. As long as your money is tied up in monthly debt payments, you can't build wealth." Some of Ramsey's tips are controversial, but this one is worth listening to.

Dave Ramsey wants you to make the most of your income

Ramsey is notoriously anti-debt. He recommends avoiding all types of debt except for mortgage debt, since it's hard for most people to pay for a home in full upfront. Other than that, he believes in a debt-free approach, meaning no auto loans, credit cards, or buy now, pay later plans. If you can't buy it in cash, don't buy it.

His reasoning is that monthly debt payments tie up your income and keep you from building wealth. If you're spending $600 per month on a car payment, $150 on credit cards, and $250 on a loan, that's $1,000 per month of income gone. On the other hand, if you're debt free and not spending every last dollar on bills, you can start investing your money.

This is good advice overall, although Ramsey takes it to an extreme. For example, he recommends that people don't use credit cards at all. Savvy consumers earn rewards using their credit cards and avoid interest by paying the full balance every month. The key is paying in full so you don't end up with credit card debt. If you can do that, then it's not worth missing out just because of Ramsey's belief that credit cards are bad.

While Ramsey goes too far with some of his tips, he's right about the benefits of being debt free. Personal finance is far less stressful when you don't have any debts, and this also frees up money you can use to build wealth. If you currently have any debt, especially high-interest debt, paying that off is a good goal to set for yourself. However, there's one other thing that's lacking from Ramsey's advice.

Build your income to build more wealth

Ramsey's advice focuses on making the most of your current income by getting rid of debt. He doesn't mention looking for ways to raise your income, which is even more important.

Being debt free allows you to save and invest any money you're not spending on bills. You're still limited by how much you make, though. There's only so much money you can free up by paying off debt and reducing spending. The most effective way to save more, without needing to trim your expenses to the bone, is earning more.

What are the best ways to make more money? It depends in large part on your career and skill set, but here are a few tips:

• Look for paths to move up in your current job. If you've been performing well, it's fair to ask for a raise. You could also ask management about what you need to do to get a promotion to a position with more earning potential.
• Add another source of income. Examples include offering a service as a freelancer, starting a side hustle, or building your own small business. These are all ways to bring in more money, and if they're successful, they could even replace your primary source of income.
• Keep an eye out for new jobs. Browse job sites, set up alerts for positions that match your qualifications, and reach out to companies you'd be interested in working for. People often get their biggest raises by going to a new employer.
• Make yourself more marketable. Ways to do this include completing training programs, polishing up your resume, and building your web presence.

Ramsey is correct about your income being your most important wealth-building tool. When you're able to invest at least 10% to 20% of your income, you'll be able to grow your money. Just remember that it's not only about how you use your income -- it also makes a big difference when you're ambitious about increasing your income.