Dave Ramsey Warns About This Money Mistake That's Like Dropping an Atomic Bomb on Your Budget

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  • Dave Ramsey is a finance expert who has provided lots of advice about budgeting.
  • He's warned against making a major home-buying mistake that could destroy your financial security.
  • Ramsey believes it can be devastating to purchase more home than you can afford.

Could Ramsey's advice help you avoid a huge financial disaster?

Financial mistakes can impact everyone at some point, whether they involve missing a credit card payment or accidentally overspending and blowing your budget.

Some mistakes, however, are more serious than others -- and can be harder to recover from. Avoiding these big errors is crucial to protecting your future financial security, but you need to know what they are to protect yourself.

Finance guru Dave Ramsey has identified one of these big mistakes, and has a strong warning for his followers about it. In fact, Ramsey described this error as being so serious that it's akin to "dropping an atomic bomb on your finances."

This big mistake could ruin your financial life

The big error Ramsey has identified and urged people to avoid is a mistake more people are at risk of now than ever. It's overspending on a house.

As Ramsey's blog explains, taking out a bigger mortgage in order to buy a costlier house than you originally planned is like dropping a bomb on your financial life because the large monthly payments that you'll end up taking on can destroy your ability to do other important things with your money.

"You'll wipe out all your other money goals (say goodbye to that vacation you planned)," Ramsey's blog warns. "You may even struggle to pay bills and put food on the table. That's not what you want. When life happens, you need some wiggle room in your budget!"

Unfortunately, with mortgage rates at the highest level in more than a decade, the risk is higher than ever of making this error that Ramsey urges avoiding.

Is stretching to buy a house really so bad?

In warning against buying a home that's too expensive, Ramsey is spot-on. There are a few big reasons why this mistake is so difficult to recover from.

The first big issue is that buying too much house can have long-term financial consequences. When you take out a mortgage loan, you commit to paying it for decades. If you've borrowed more than you can comfortably afford, the error will come back to haunt you for years to come. You could struggle to cover your costs for the life of the loan -- causing you a lot of unnecessary stress and leaving you without funds to do important things like build an emergency fund or save for retirement.

If you've borrowed more than is comfortable for you, you'll also be at greater risk of losing your home to foreclosure. Even a minor decline in your household income could prevent you from keeping up with your big mortgage bills. And it would be harder to save enough money in an emergency fund to pay for your monthly housing expenses since your emergency fund would need to be much bigger to cover them.

Fixing this mistake is also difficult because there are huge transaction costs when you sell a home, and it can sometimes take a long time to find a buyer -- especially as the housing market is cooling in many areas. If you regret your purchase, you may not be able to quickly sell your house for enough to pay off your loan and cover closing costs and real estate agent fees.

You don't want to find yourself stuck with a house that makes it impossible to make your budget work, so be sure to follow Ramsey's advice: Decide how much house you can comfortably afford and stick to your budget, even if your bank is willing to lend you more.

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