Finance guru Dave Ramsey explains the key to early retirement

Finance guru Dave Ramsey has claimed the golden rule to retiring early is paying off your mortgage. 

The controversial radio host, who is famed for his ultra-frugal tips, advocates households live a virtually debt-free lifestyle.

And in his latest blog post he doubles down on the advice, laying out his ultimate plan for giving up work before the age of 65. 

It is vital to clear all debts - especially a mortgage, he says. That is because it tends to the biggest debt Americans have in their lifetime and can eat up hundreds or thousands of dollars a month in payments.  

He says anybody with the aim of early retirement must come up with a mock retirement budget to cover their expenses. And without any debts it is much more manageable, he says.

Below, we go over Ramsey's budget. It will help you establish how much income you will need each year - which you can multiply by the expected length of your retirement to know how much you will need in savings.

Finance guru Dave Ramsey has claimed the golden rule to retiring early is paying off your mortgage

Ramsey insists anybody hoping to do so must come up with a mock retirement budget to cover their expenses - which excludes a home loan

To make his point, Ramsey points to a National Study of Millionaires which points out millionaires spend around 10.2 years on average paying off their properties.

He writes: 'Notice this budget doesn’t include a mortgage payment. That’s because you want to pay off the mortgage (and any other debt) before you retire.

'Debt will destroy your plans to retire early! It will eat up your monthly income and drain your retirement savings faster than you can say 'foreclosure.'

The mock budget outlined gives an example of how to live off $3,500 a month - or $42,000 a year.

An ardent Christian, Ramsey's plan includes donating $350 a month. On top of that his budget covers: $200 savings, $125 on utilities, $700 on all insurance, $300 for medical costs, $400 on food, $100 on a phone plan, $50 for internet, $50 for clothes, $200 for gas, $200 for entertainment. 

The plan also allows $200 for a new car fund, $100 to be added to a trip fund, $100 for a gifts fund, $100 for home and car repair, $200 for hobbies and $125 for extra expenses. 

But Ramsey cautions that your mock budget must also account for inflation which means maintaining your current budget will be different in decades to come.

Ramsey is an ardent Christian famed for his ultra-frugal lifestyle tips. He is pictured with daughter Rachel

After establishing how much money you will need, the finance guru recommends evaluating your current financial situation and paying off your debts.

Ramsey promotes the 'debt snowball' method which encourages individuals to make a list of their outstanding debts and pay them off from the smallest balance to largest regardless of the interest rates. 

After debts are paid, he recommends savers work on building up three to six months' worth of expenses in an emergency fund. 

As a rule of thumb, Ramsey says households should be putting 14 percent of their income into a tax-advantaged retirement account like a Roth IRA or 401(K).

However, he adds that anybody who wishes to retire early needs to be stashing every extra dollar they have away for retirement.

To do so, he says households should invest in a brokerage account which offer more flexibility than traditional retirement accounts because owners can withdraw from them whenever - without triggering a penalty.

But he cautions profits made from investments on a brokerage account will be taxed as capital gains in the same tax year they were sold. If your account pays dividends you will also be taxed on that, Ramsey notes.

His other key tips for early retirement include: meeting regularly with a financial advisor, making serious lifestyle changes, investing in real estate and 'playing it smart' once you retire.