I have heard a lot of negative reports of Dave Ramsey’s approach to
building wealth. The main criticism I hear is that Ramsey leaves the person
unable to enjoy life while working toward a financially free lifestyle. As I read the
book, I began to see how someone can be turned off to The Total Money
Makeover even if the results of following it are overwhelmingly positive, like
millionaire positive. Dave Ramsey has no love for credit cards or anything that
requires you to borrow money unless it is for a home and even that comes with
stipulations (mortgage no more than 25% of your income and have a maturity
date of 15 years). He often shares a bible scripture which encapsulates his entire
paradigm on credit: Borrower is slave to the lender. This is a partial quotation of
Proverbs 22:7, in full it reads: The rich rule over the poor, and the borrower is
slave to the lender. We can see why it is that Ramsey comes against Credit with
such disdain… and it is often the same reason the laymen complain against
credit institutions as well. So why the dislike for The Total Money Make Over,
when both Ramsey and his detractors have overlapping reasons for standing
against the rich credit companies? Well, remember in the beginning of this our
journey we told you that the hardest part of this journey is facing yourself in the
mirror. Dave Ramsey doesn’t leave it up to interpretation why you are in debt and
why you are having trouble with money management, it’s you. Dave doesn’t just
poke fun at the reader rather he consistently brings statistics to prove his points.
Americans are terrible with saving money, and even more terrible with paying
back debts. With habits like these Rome would have never been built, laying one
foundation of stone only to have to pay back three more. The Total Money Make
Over isn’t easy, in fact, it will be one of the hardest things you do because it is a
journey that extends throughout a lifetime similar to being healthy and in shape.
There are a total of seven baby steps in the ‘TMMO’ and the beauty of this
makeover is that it doesn’t discriminate, meaning you can start from any position
in life, this is vital. People with over 200,000 dollars in debt, single mothers with
3-4 children, married couples with massive student loans…etc.
The first step is saving 1,000 dollars to put into an emergency fund that
should ONLY be used for emergencies. If you spend this money you must stop
what you are doing and return to saving 1,000 dollars in the emergency fund.
This fund is to keep you from needing to pull out funds/income that will be doing
another job. do not have this connected to a checking account that will eventually
be absorbed into some other debt you own. This enables you to keep moving
forward without slowing down too much, allowing you to accomplish more.
The Debt Snowball is the second step in this process. You must collect all
of your debts, smallest to largest, and the minimums you can afford for each. The
reason you are required to do them smallest to largest is because the quicker
you get ‘wins’ or paid off debts, the more you will likely continue this journey
instead of losing the fire to move forward because you haven’t experienced any
success as fast as paying off the smaller debts. Faster wins comes with smaller
debts first. The sense of achievement propels you forward to your next
assignment, the next subsequent debt. With each win you will take the minimum
payment and add it to the next debt making it a higher monthly payment, the
snowball, until you finished paying off all debts except your house. That is to
have no payments coming out of your check except for mortgage, on top of this
your emergency fund should be fully funded. Then you will be able to move to
baby step three.
Fully funding your emergency savings at this point is critical. In step three
you will need to have saved three to six months of expenses covered. In dollar
value this should be between 5,000 and 25,000 dollars depending on your
expenses. Emergencies happen to 78% of people within ten years. You are
definitely going to want to be able to cover this ever-coming reminder of Murphys
law. But once finished, you will be ready to tackle baby step four.
In step four Ramsey instructs those on the TMMO to invest into a
retirement plan with 15% of their income. Choosing companies that have a long
history of over 10% in ROI. This is where you will sow seeds for the future and
likely retire a millionaire in 30-40 years. The more you make the faster you reach
that goal.
Saving for college is step five, and depending on your situation you may be
able to skip this step, say if you don’t have kids and won’t be attending college
yourself.
In step six you will be paying off your final monthly debt and that is your
mortgage for your house. By the end of this step, you have 5,000-25,000 dollars
in an emergency fund, untouched. As well as having paid your house off. Your
retirement account is steadily growing and now with your biggest and LAST debt,
your home, is paid off. Everything from this point onward concerning your
income is for you to save or grow.
Finally in the last step, the 7th baby step, of the TMMO, Dave explains this
is where you will build wealth. More wealth can be gained with new
opportunities/ventures of money, like stocks at this point. Have fun, Invest and
GIVE is how Dave describes the final step. With emergencies covered, no
payments due ever again… all your funds are now not tied to anything. You will
be expecting to live off a certain percentage of you ROI meanwhile the rest will
sit and accrue each year. On top of this the rest of your income can be spent on
wants and charity, all in cash. On average someone completes the TMMO in
seven years. It is a shock to think that so many will refuse to trade seven years of
hard discipline for a lifetime of struggle.
Financial book reviews for beginners: The Total Money Makeover, Ramsey
