The Total Money Makeover
By: Dave Ramsey
Dave Ramsey outlines his financial plan to a wealthy life in this book. He has 7 baby steps, that if followed, he says can get you out of debt and on the fast track to a better life. The 7 baby steps are not easy, but they are simple.
1. Save $1000 and put it away as an emergency fund! This will protect you from going further into debt as you work through the baby steps.
2. Begin your debt snowball- list all of your debts, excluding mortgage, in order of smallest to largest. Pay minimum payments on all of them except the smallest debt, attack that one with every penny you have that isn't necessary to your survival. Once that debt is paid off, put all of the money you were paying into the first debt into the second smallest one. And so on until you are debt free, excluding your mortgage.
3. Finish your emergency fund of three to six months of expenses. This allows you to cover emergencies in case there is an injury, illness, unemployment, or major repair that was expected. This is not to be used for wants.
4. Invest 15% of your income into retirement savings. Do not rely on social security for retirement, even if you get some, you will be eating Alpo in your retirement. You need to plan for retirement now.
5. Save for college. Dave recommends an ESA (educational savings account) invested in a growth-stock mutual fund. If you max out that, then look into 529s for college savings
6. Pay off your home mortgage! Imagine life without this payment! Now put all you can into paying it off. Dave recommends only 15 year mortgages (it's the only debt he allows, although he still prefers the 100% cash plan).
7. Build Wealth. With a well-stocked emergency fund, no debt, retirement and college taken care of--- you can now build your personal wealth! Yay! Money is good for... fun! to invest! and to give!
Recently my personal mission has been to become a responsible adult. I've always been on the more mature side, even as a kid. However, since having our own child, I just feel like I'm still not there yet. There is still so much that I don't know and so many decisions that I need to make and I just don't know the right answer. Part of my worries are about money- both my current budgeting and spending, as well as planning for the future- a house, retirement, college, etc. I don't want to make the wrong decision.
My husband and I have very little debt. We paid off his student loans within several months of them kicking in. We do have a car loan but we are almost done with that and it was a 0% interest loan, which is why we were able to pay off the student loans so quickly. However, I do enjoy spending money when I probably should have been saving more of it. We now want to buy a house and there is no way we are close to having a 20% down payment. But I digress......
My parents did Dave Ramsey's Financial Peace University classes several years ago, so I had heard his name being thrown around before. I read this book in order to get a feel for what is recommended to do with our money. I really like his plan, although we may not follow it to the letter, we will probably get a 30 year mortgage. I think the principles of his plan are good... live on less than you make, invest and save everything you can, some sacrifice now can pay dividends later, "live like no one else so later you can live like no one else." Dave Ramsey's plan is very no-nonsense. It is not a get rich quick scheme, his plan will take years and years of hard work but it can pay off. However, sometimes it does sound like he is trying to sell his plan a little too hard. For example, there are testimonials from people who followed through on his baby steps and now find themselves much better off than before they started the plan. While inspiring, these can get a little annoying when you just want the information, plain and simple. Since I already knew the basics of his plan and was on board with it, his sales tactics sometimes bothered me, but that shouldn't detract from the principles in this book.
I highly recommend this book if you want ideas on how to better your financial situation. His baby steps make it easy to see what you need to be focusing on at this moment. If all of American could stop it's reliance on debt products, I do believe we would have a better, more mature and responsible, culture. Nothing good should come too easy, we need to work for what we want.
This was one of my favorite quotes from the book, it came towards the end after he talks about building your wealth:
Another paradox is that wealth will make you more of what you are... If you are a jerk and you become wealthy, you will be king of the jerks. If you are generous and you become wealthy, you will be more generous. If you are kind, wealth will allow you to show kindness in immeasurable ways. If you feel guilty, wealth will ensure that you feel guilty for the rest of your life.I'm not sure why that spoke to me so much, but just loved the reflection on money. It is amoral, it only gains a characteristic when we give it that characteristic. We need to build wealth, but not so that we can have anything we desire, but so that we can be and do good. For us, our families, and our communities.