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This is it. The book that kick-started our journey out of debt, and that gave us a framework for how we plan to manage our money for the rest of our lives. I suppose that tells you how I felt about The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness, but what about the book itself, and the author, Dave Ramsey? If you’re not familiar with Ramsey or his Baby Steps, this book is the launching point into his deep world of books, podcasts, seminars, classes, and worksheets.
Ramsey is a polarizing figure in the arena of personal finance, and once you’ve heard him, you’re usually either a lifelong fan or a staunch critic. I’ll get into why I think that is a little later, but as far as the book goes, it’s a straightforward approach. Ramsey claims his plan will work for anyone, regardless of their position in life, though this book is aimed at the person who has already landed themselves squarely in the middle of the average American life. That person has student loans, credit card debt, a car payment or two, a mortgage, and only dreams about retirement. Sound familiar? Yeah, that’s why the book has sold so well. It’s sort of divided into two parts. The beginning is about making sure you’re ready to make a drastic change like the kind the Baby Steps call for, and then the Baby Steps themselves, which are:
- Save $1,000 – This step breaks the cycle that many people are in. It represents a step down a different path, the resolve to stop borrowing to cover emergencies. $1,000 won’t cover everything life can throw at a person, but it will cover most of the smaller speed bumps until a full emergency fund can be saved.
- Pay off all debts except for a mortgage – This is the hardest step for most people, because it’s where the fighting happens, where the work in the trenches is done. It’s where the budgeting, the slashing expenses, the selling everything you can get your hands on is done. Ramsey advocates paying off debts smallest to largest because even though it may not be as efficient as paying off the highest interest rate debts first, it keeps the motivation up, and that’s what keeps the progress moving forward.
- Build up 3-6 months’ worth of expenses in an emergency fund – A full emergency fund is the best insulation against going back into debt for anything ever again. If you have $15,000 in the bank, it doesn’t matter if your furnace gives out, your car’s engine blows up, or the local moth convention meets in your closet and eats your entire wardrobe. You can handle almost anything you encounter, or at least survive long enough to figure out how to overcome it.
- Save 15% of income for retirement – The Total Money Makeover isn’t just a plan to get out of debt, it’s a plan for a lifetime of responsible financial planning. Part of that responsibility is the acknowledgement that unless you die young, you’ll grow old. And unless you want to be working until your funeral, you need to plan for your golden years, starting before they arrive.
- Invest in a college savings plan – Again, TMM is about changing how your family handles money, and a huge part of that is making sure those changes carry through to your children. Teaching them that debt is to be avoided like the plague, even for something “everyone” goes into it for like college, is the next step. Plus, what parent doesn’t want to help their child go to school?
- Pay off the mortgage – The last remaining portion of your debt, the house, is saved until after the emergency fund, the retirement account, and the college savings are taken care of. That’s because this step is the longest to move through, and delaying the others until after it’s completed could be catastrophic for the other goals. Once it’s complete, though, and you have no debts at all, your income is 100% yours, which leads to…
- Build wealth and give it away – If you have no debt, a full emergency fund, your retirement is on auto-pilot, your kids’ college is taken care of, and you own your house completely, what do you do? Anything you want! At this point, you can see visit exotic places, travel the country in search of ornate tea kettles, finally start your hedgehog grooming business, anything you want to do. Ramsey reminds his readers at this point that at the top of their to-do list should be giving. He knows that money is not what matters in this life, but rather the impact that we make on other people, and if we are in the position to give, then we need to give.
So there you have it. Dave Ramsey’s famous Baby Steps. Those don’t seem too hard, so why is he such a love-him-or-hate-him kind of guy? I can’t answer that for everyone else, but my opinion is that it’s because he doesn’t really offer financial advice as much as he does behavior advice. He even opens the book by saying that his advice is not new, or secret, or profound. His program is built on concepts that have worked for as long as we have used money; spend less than you earn, save for later in life, live within your means. The reason he has made such a splash is because he teaches that people are the problem, and those people don’t want to hear that. I sure didn’t the first time I heard him. Before R and I started on the Baby Steps, I was confident that I wasn’t the problem. All I needed to do was figure out the secrets of the industry, that perfect mix of stocks that I could put my extra $20/month in, and I’d use the massive gains to pay off my debts a few years down the road. I didn’t need some self-righteous old guy that had obviously cheated his way to the top telling me that if I stopped eating out, I’d be able to make those payments now. I certainly didn’t need to hear that paying cash for cars was a smart decision, because that meant I was going to be driving 10-year-old cars for the rest of my life, and that was just laughable. The Total Money Makeover is more of a heart makeover, one that requires a big slice of humble pie and admitting that I alone am responsible for my financial situation, and I alone (well, teaming up with R now) am responsible for making it better. Once you make that connection, the entire thing clicks. Ramsey doesn’t have any groundbreaking secrets to show you, and he doesn’t claim to make you a millionaire overnight. All he does is hold a mirror up to the problem, then offer a hand in cleaning it up in the years to come. That’s why his program has been so successful, and that’s why R and I are following it.
The Total Money Makeover is a quick read, peppered with personal success stories that you can skip if you just want the meat. The book comes with a bunch of worksheets that you can use to start your budgeting and retirement calculations as you read. I highly recommend adding it to your library, even if you just go to a used bookstore for it. I read it through a second time for this review, and it renewed that fire all the more. I’ll probably read it once a year for as long as I can remember how to read, just because the reminders of why we’re doing this are so good.