the total money makeover by dave ramsey
can you tell i’m interested in personal finance? hah. i think a lot of young people these days aren’t very good at handling their money. neither was i - no one teaches it to us; not at school, at home or amongst friends. but my mom got me this book as a college graduation gift and i ignored it even after being salaried for two years. when we got down to one income, though, i took this book to heart. john and i had over $29k in car and student loans and in just 5 years, we were able to pay it all off because of the things we followed in this book!
this book actually doesn’t seem to target young people - the book is peppered with testimonies and they’re largely white, midwestern/southern, christian, and old. HOWEVER. dave’s tactics are awesome. he gets the psychology behind personal money management and the whole “debt snowball” - where you pay off the lowest debt amount first, not highest interest rate, is very well-explained in this book. it’s called a “quick win” and the motivation that you garner from paying off that one debt is huge.
there are 7 simple steps to the total money makeover and read the book (easily digestable and quick to read). you are NOT to skip ahead to the other steps! these must be done in order!
1. save a $1000 emergency fund - because emergencies happen. all. the. time.
2. pay off your debt using the debt snowball - after using all your free income to pay off the lowest debt amount, you use all of that money to pay off the second debt. once the second debt is paid off, you use the money from the first and second debt to pay off the third debt, and so on. this way, your ability to pay off debt accumulates and accelerates.
3. save an emergency fund of about 3-6 months - this way, you don’t have to panic if you suddenly lose your job or income
4. max out your retirement - obviously first max out any company matches in the retirement. if your’e self employed or don’t have a retirement plan at work, open a roth ira. dave calls this pretty much the most perfect investment ever. reason being that you make after-taxed contributions and aren’t taxed at all when you start making withdrawals. i put ours in a vanguard target retirement fund because the expenses are super low and they automatically rebalance and change as i get older. since i’m still young and have time on my side, the majority of the fund is in stocks and as i get closer to retiring, the fund will change to lower risk options, like bonds.
5. max out your college funds for your kids - college ain’t getting cheaper. and yes, it is more important for you to be able to take care of yourself when you’re retired than it is for your kids to go to college.
6. pay off your mortgage - this step will probably take the longest. as an aside, i don’t think home ownership is a good idea, especially when mobility in this globalized economy is key. not to mention, getting a 30-yr mortgage on a $300k house will cost you nearly 2-3x that even if your credit score is perfect.
7. build wealth like “crazy” - dave doesn’t go into specifics about how he does this other than investing and real estate. however, he does talk about how giving away your money is the best part of finally having control over your money :)
i highly reccomend this book because he goes into so much detail and it definitely gets you pumped up about taking control of your finances. money - it’s an excellent slave but a horrible master.
my favorite line:
“don’t even consider keeping up with the joneses because they’re BROKE!”
so true, dave, so true.
