Total Money Makeover by Dave Ramsey

I joined a military spouse group a few months ago, and one of them refer a money makeover class at home by Dave Ramsey. I thought it was just another self-help budgeting book with extra tools to help. Then I look into it on the net, and it appears he uses a rather traditional principal in handling money: based on the bible. I got curious.

You can see some of his classes on Youtube, where he associate life’s example based on the bible. One thing I remember clearly is when he said, “He placed in our hands resources; money, talent… They’re not ours. He owns it. We are the managers, responsible to the owner.”

It kicks right into my head how it can help people ease their trouble with credits, loans, and payments. If only we realize that money is tangible and are able to manage it properly, we can get a hold of it. Then a neighbor happens to have one of his book, one that seems to have the big idea of the whole thing; The Total Money Makeover.

The book consists of baby steps to get you out of debt, finish mortgages, and have plenty for the later days. It won’t be easy, nor quick, as the book has warned. It will take years, but it will get you out of debt as it told you not to get connected with debt, including credit cards. These are the baby steps suggested in the book:

Baby Step 1: Save $1,000 cash as a starter Emergency Fund

Emergency fund is to help when something unplanned and urgent happens, such as illness or job loss. It shouldn’t be used on sudden leisure activities, which often happens such as recreation or sale.

Baby Step 2: Start the Debt Snowball

The most important thing is to pay off all debts, including credit card balances, car payments, and other loans we may have. You would list from the lesser amount of debt to the highest, pay the smallest debt as fast as the budget allows, then move to the next debt with equal amount and some more you find from the budget.

Baby Step 3: Finish the Emergency Fund

It should cover your life expenses for as long a 3 to 6 months, depending on your situation. When the money is used, then you should get back to step 3 and secure the emergency fund again before moving on the next step.

Baby Step 4: Invest 15% of your income in retirement

Let’s face the truth. We’ve come to the age of uncertainty, especially when it comes to money. We can’t rely on government retirement income or expect our children to give us allowance, can we now. When doing this step, make sure to invest with a minimum of 12% interest. Average inflation is 4%, thus you would be 8% ahead of inflation.

Baby Step 5: Save for college

Not for you, but for your children. Most people I met have ‘Student Loan’, which is a lot. Yes, college ain’t cheap, which is why you should help your kids start their life without a debt. Inflation for education is also higher than regular inflation, which averages about 7% a year.

Baby Step 6: Pay off your house early

You start to control your spending as you start to live on budget and set aside extra for the baby steps above. Now you can put all attention to paying off the house mortgage as soon as possible.

Baby Step 7: Build Wealth

You are free from debt and mortgages, and on the right track investing for your retirement and your kids college by the time you arrive on this step. Use your money to multiply themselves.

The book also give several advice on where to invest, although there are other books out there that would be more descriptive and helpful once you reached the last baby steps. There are also stories from people who reads this book, listen to Dave on radio, or attend the classes. I would say that people in average reach baby step 7 after their seventh or eight years after starting the steps.

The most important thing the book tells us to do is to stop using credit card, as it became epidemic with even barbie toys with its own Barbie Visa. Most people got into debt when they start college, starting with student loan and credit card promo that can get you ‘discounts for books and other things’, and slowly they increased the credit limit so you can spend more on the money you don’t have. How ironic.

I am a victim of this consumerism lifestyle myself, but it’s time for a change. You can do it, too!

Total Money Makeover

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