A Proven Plan For Financial Fitness
The Total Money Makeover
"The Total Money Makeover" by Dave Ramsey is a comprehensive guide to financial fitness and wealth building. Ramsey's approach is rooted in practicality and common sense, aimed at helping readers take control of their finances and achieve true financial freedom.
Video Explanations:
A 7 minute summary of the 7 Baby Steps that are foundational to The Total Money Makeover.
A 9 minute summary of how to do a monthly budget.
Book Summary:
Key Themes and Principles:
Financial Philosophy: Ramsey begins by outlining his financial philosophy, which revolves around the principles of living debt-free, spending less than you earn, saving for the future, and giving generously. He emphasizes the importance of changing your mindset about money and adopting disciplined habits.
The Seven Baby Steps: Central to Ramsey's approach are the "Seven Baby Steps," a step-by-step plan designed to lead individuals from financial insecurity to wealth and generosity. These steps include saving a $1,000 emergency fund, paying off all debt using the debt snowball method, building a fully funded emergency fund, investing 15% of your income for retirement, saving for your children's college education, paying off your home early, and building wealth and giving generously.
Debt Snowball: Ramsey introduces the concept of the debt snowball, where you pay off your debts smallest to largest, regardless of interest rate. This method focuses on building momentum and motivation as you see smaller debts disappear quickly, keeping you motivated to tackle larger ones.
Emergency Fund: Ramsey stresses the importance of having an emergency fund to cover unexpected expenses. He recommends starting with $1,000 and later building it up to cover 3-6 months of living expenses. This fund serves as a safety net, preventing individuals from going further into debt when faced with emergencies.
Investing and Retirement: Ramsey provides guidance on investing for the future, recommending that individuals invest 15% of their income into retirement accounts such as 401(k)s and Roth IRAs. He advises choosing low-cost, diversified mutual funds and staying committed to long-term investing strategies.
Homeownership: Ramsey discusses the benefits of homeownership but warns against taking on too much mortgage debt. He advocates for paying off your mortgage early to achieve true financial freedom and save thousands of dollars in interest payments.
Building Wealth: Once debt-free and with a solid emergency fund in place, Ramsey encourages readers to focus on building wealth through smart investing and consistent saving habits. He emphasizes the importance of living below your means, avoiding consumer debt, and making wise financial decisions.
Generosity and Giving: Throughout the book, Ramsey emphasizes the importance of giving generously and living a life of abundance. He encourages readers to share their wealth with others and find fulfillment in helping those in need.
Overall, "The Total Money Makeover" provides a clear roadmap to financial success, emphasizing discipline, sacrifice, and long-term planning. By following Ramsey's principles and taking control of their finances, readers can achieve lasting prosperity and live the life of their dreams.
Book Quotes:
“Winning at money is 80 percent behavior and 20 percent head knowledge. What to do isn’t the problem; doing it is. Most of us know what to do, but we just don’t do it.”
“If you will live like no one else, later you can live like no one else.”
“My promise to you is this: if you will follow the guidelines of this proven system of sacrifice and discipline, you can be debt-free, begin saving, and give as you’ve never given before.”
“Debt is so ingrained into our culture that most Americans cannot envision a car without a payment, a house without a mortgage, a student without a loan, and credit without a card. We have been sold debt with such repetition and with such fervor that most folks cannot conceive what it would be like to have no payments.”
“The FICO score is an “I Love Debt” score. According to the FICO website, your FICO score is determined by:
35% Debt Payment History
30% Debt Levels
15% Length of Debt
10% New Debt
10% Type of Debt”
“The first hurdle is ignorance. In a culture that worships knowledge, to say ignorance about money is an issue makes some people defensive. Don’t be defensive. Ignorance is not lack of intelligence; it is lack of know-how."
“Overcoming ignorance is easy. First, with no shame, admit that you are not a financial expert because you were never taught. Second, finish this book. Third, go on a lifetime quest to learn more about money.”
“The second hurdle in this chapter is Keeping Up With the Joneses. Peer pressure, cultural expectations, “reasonable standard of living”-I don’t care how you say it, we all need to be accepted by our crowd and our families. This need for approval and respect drives us to do some really insane things.”
“The way you eat an elephant is one bit at a time. Find something to do and do that with vigor until it is complete; then and only then do you move to the next step. If you try to do everything at once, you will fail.”
“You must set a budget, a written budget, every month.”
“The Debt snowball is very possibly the most important step in your Total Money Makeover for two reasons. One, you free up your most powerful wealth-building tool, your income, during this step. Two, you take on the entire American culture by declaring war on debt. By paying off your debt, you make a statement about your stance on the issue of debt.”
“Hope is what I want you to walk away with from this book. Hope that you can be like the people whose stories I told in this book. Hope that you can turn your money troubles into money triumphs. Hope that you can retire with dignity. Hope that you can change your family tree, because by building wealth you can leave an inheritance. Hope that you can give money in a way you have never given before.”