02 September 2008

Book Review: The Total Money Makeover

The Total Money Makeover: A Proven Plan for Financial Fitness
By: Dave Ramsey
5 stars

When I am running errands between 12-2, I make sure to tune into The Dave Ramsey Show (950 KPRC for you locals). His big mantra is: If you will live like no one else, later you can live like no one else. In essence, he teaches to sacrifice now (in spite of any ridicule you may receive) so that you can have the good life later (something the ridiculers won’t be able to afford because they spent their money and are in loads of debt from years of poor money management).

In our five years of marriage, we have worked hard to be smart with our money and plan well for the future. We have been successful in some areas (saving for retirement), and foolish in others (buying too much house for our needs when our goals would dictate putting some of that money elsewhere). I like listening to Dave Ramsey because it is easy to forget what our goals are when extreme consumerism looks so fun. In a way, I feel like I am surrounding myself with people who have similar values. Just like in high school, if you hang out with all the people who drink, you will probably end up drinking. As an adult, if we “hang out” with the financially savvy, hopefully we will be financially savvy as well.

This is an easy read and a great starting point if you are in search of more financial security and willing to work for it. It is written fairly conversationally, as if you are phoning into his radio show. And even though money is a taboo topic (which I believe is one of the reasons our country is in this financial crisis), if you ever want to chat about it, I would LOVE to exchange ideas. Reading financial books is helpful, but I like to hear from real-life people that I know rather than rely solely on the testimonials from strangers.

1) The program is spelled out for you with 7 steps and has been proven to work
2) The book contains helpful worksheets for budgeting, retirement planning, college saving, etc.
3) Dave Ramsey is Christian and holds many of my same values
4) Directs the reader to resources that will help during each step

1) It is difficult program and requires a major life change if you have not been living with this mentality
2) It is not very helpful if you are already 100% debt-free since it does not include more complicated investing advice

Before starting his program, it is imperative to:
• Commit to a Total Money Makeover
• Become current on all bills, etc.
• Use cash (or debit cards without the overdraft protection) for everything

Step 1. Establish $1000 in an emergency fund

Step 2. Pay off all your debts except for the house.
• He uses something called a Debt Snowball. It is the same accelerated debt reduction schedule Marvin J. Ashton published years ago
• This includes credit cards, car notes, student loans, money owed to family, etc.
• This may also include second mortgages, business debt, rental properties, etc. but not always—he gives more guidance in his book

Step 3. Establish an emergency fund of 3-6 months living expenses
• This does not mean 3-6 months income. It’s only what it takes to live. For the average family, this is between $10,000-15,000

Step 4. Invest 15% of gross income into retirement accounts
• The match provided by an employer should be utilized, but is not included in your personal 15% contribution

Step 5. Save for college
• Gives specific ways to do this in a way that is completely attainable (though still difficult)

Step 6. Pay off your mortgage
• Recommends buying a home with cash. If you choose not to pursue that route, then getting a 15 year mortgage and having a payment that is no more than 25% of your income is the next best option
• At this point, you have no debt except for the house, so it makes it a lot easier to purchase with cash or pay off within 15 years (but hopefully sooner)

Step 7. Build wealth
• 3 things to do with money: Have fun, invest, give


Blarney Girl said...

I have got to read this book! I've actually implemented a few of the things he suggests like paying off debt and putting 15% in my retirement, but I have two credit cards with some ugly debt on them. It's not as bad as what I've heard other people say they have, but for me personally, it's way too much.

Paul said...

Read it!. Done it! (and continuing to do it) Love it!

Jason and Lissa said...

We're debt-free except for the house, and our mortgage payment is pretty reasonable since we bought a small house beneath our means. I can testify that having no other debt is VERY liberating! I had none coming into the marriage, but Jason had school loans and a car loan (no credit cards, thankfully). Marrying into debt, when I'd had virtually none in my entire life, was stressful. We made paying it off a priority and managed it in about 2 years. Best decision we ever made!

Jen said...

I agree, it's a great book and we've implemented it in our lives (although we were mostly doing it already). Dave's radio show convinced Paul we should pay off his car, I had already convinced him to pay off his student loan. So, like the Stinsen's we only have our house, and it was surprisingly affordable. I'm up for talking about money anytime...politics, religion, money...bring it on!

Colette said...

We plan to be debt free in about 2 years...the car and student loans. We love Dave!!! The church has already given us the same steps too!

Anonymous said...

if you read dave's other book, financial peace, he goes into investment stuff. i love how he focuses on giving as a huge part of money management and that his first bit of advice isn't automatically, send the mom to work. it is hard, but worth it!