Dave Ramsey's Total Money Makeover

A former coworker introduced me to the Dave Ramsey blog a few years ago during a conversation regarding finance and various debt payback strategies… snowball.. avalanche… etc. Earlier this month a came across the Dave Ramsey Show on YouTube and decided to purchase the Total Money Makeover book. The book was easy to read with some entertaining quotes and lays out a simple “baby step” approach to financial fitness.

My Rating: 5 of 5

The Baby Steps:

1. Save $1,000 cash as a starter emergency fund
2. Start the debt snowball (pay off all debt except for the house)
3. Finish the emergency fund (3-6 months of expenses)
4. Invest 15 percent of your income in retirement
5. Save for kids’ college education (ESAs and 529 plans)
6. Pay off your home mortgage
7. Build wealth by investing (need to be able to live off 8% interest)
8. Give to charity

My Key Takeaways

1. Stop using credit cards and buying things you don’t need
2. There are three things a person can do with money: spend, save, or give. It is recommended a person so some level of all throughout the baby steps but focus primarily on one area at a time.
3. It is recommended the baby steps are followed in order and you can backtrack as needed. For example, if you are working on step 2 and refrigerator quits and wipes out your starter emergency fund you now switch to paying minimums on debt and building up the emergency fund.
4. Don’t be normal…normal is broke, in debt, and living paycheck to paycheck
5. Before starting the baby steps, you should create a household monthly budget that accounts for planned and irregular expenses.
6. Debt snowball: the debt snowball is a method of debt repayment in which a person pays down debt in order of smallest balance first… regardless of interest rate. The idea is that people will feel a sense of accomplishment and be more motivated to continue paying off debt.
7. Education: a college education is important and can add value to adult life and a career BUT “college degrees don’t ensure jobs, success, or wealth. They only prove someone has passed a series of tests.” Some attribute training and education to 15% of success while the remaining 85% was attributed to attitude, perseverance, diligence, and vision… I guess the take away is DO go to college but DONT rack up a lifetime, or two, of debt you can’t pay back.
8. Retirement: Ramsey recommends a person be able to live off the interest of their retirement. He uses 8% for this figure and to ignore any contributions to social security… or as he calls it “social insecurity.”
9. Giving: if you make it to step 8 you are debt free, have at least 6 months expenses saved, have the house paid off, fully funded kids’ education, and have fully funded your retirement… as a decent person and regardless of your spiritual beliefs, you should give to causes you support and others in need.

Video summary by AchievingConcepts