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"Total Money Makeover" by Dave Ramsey - Book Review

January 7th, 2019 at 12:37 pm

If you are in debt, this is the first place to start to get motivated and organized. It breaks down the process of going from sinking in a paycheck to paycheck (or worse) life to taking your extended family out on a cruise. The “baby steps” go as follows:

1. Save $1,000 for a rainy day
2. Pay off all debt (except your house) using the debt snowball technique
3. Finish off your emergency savings by saving up 3-6 months’ worth of expenses
4. Invest 15% of your household income in the S&P 500 (I’d put it elsewhere)
5. Set up a tax exempt college fund for your kids
6. Pay off your house
7. Give!

As you knock out each baby step, the next baby steps get easier because you’ve eliminated the drag of debt or at least have the savings to avoid putting on more debt. If you ever slip a step (you had to use your emergency savings for a broken car), just pause the step you are on and go back. You’ll find yourself getting to the later steps faster and faster each time.

Where I Found It:
I think most people looking at finances have come across this book. Dave Ramsey is the recognized lead for getting out of debt. I figured I couldn’t write about finances unless I’ve read it, so I picked it up off the shelf at the library and read it in an RV on a stormy beach.

What I learned:
There was very little in this book that I didn’t already know. It had a few things in the later baby steps about taxes that I had never stopped and considered, but I’m not there yet anyways. What I LOVE about this book is how motivating it is. It made me almost wish I had more debts just for the adventure of getting out of them. He made it that exciting.

I also learned that Dave Ramsey’s method isn’t perfect. He really doesn’t have much a clue when it comes to the later steps. That’s okay though because when he tells a broke person that you can expect to get a 12% return in the S&P 500 (try 4% or less!) they’ve probably got years before it matters. Maybe it is helpful in motivating them to get out of debt faster and maybe it doesn’t matter since investing 15% is the commonly accepted responsible thing to do anyways.

Recommendations:
This book is amazing at getting you motivated and there is a ton of wisdom in the baby steps. I got a little bored with the stories, but they are in boxes and easy to skip. I HIGHLY recommend this book to anyone in baby steps 1-3. There are some major problems with the later steps though.

One thing to note is the 12% he claims you should expect from the stock market is completely absurd. Get through the other baby steps first, but do more research when you get to the investment part. Please read why the S&P 500 is not a great investment.

Actually, don’t trust any of Dave Ramsey’s numbers. Even his $1,000 emergency savings in baby step #1 is off. I don’t disagree with $1,000, but $1,000 in 2003 (when the Total Money Makeover was first written) is equivalent to $1,362 in 2018 if you believe government published inflation data. If you want to assume a 5% inflation (like I do), that $1,000 is actually $2,079. I’m not saying that you have to have $2k in the bank before you should look at paying down you debts. I’m saying that you have to choose for yourself what number will keep you and your family from bouncing back to the credit card with every unexpected expense. Write that number down and work towards it. Then, even though you’re only sitting on a thin cushion, start attacking that debt aggressively.

I also disagree with the children’s college saving as step #5. Sure, it would be great to have money set aside for education, but my oldest is only 5 and there is a lot of uncertainty shrouding the topic.

Ramsey talks about state programs where you pay for college early so you don’t have to worry about future price increases. What if you move across the country? Now your kid has to move far away just to go to a state college. What if state colleges are overly politicized or immorally overly politically correct by then? Speaking of politics, tuition itself has become a huge political issue. I think it is just as likely that state colleges are free in 15 years.

Looking at the last 15 years and assuming things only accelerate, I’ve decided to pay my house off and get myself financially secure first so that I can afford whatever tuition at whatever school I’m asked in the future. Maybe that is silly since the money is very transferable and if I decide I’m really not going to use it, I can even withdraw it (taxes will apply). I just want to focus on the known first. If I have solid footing, the rest won’t matter as much.

Note: My husband actually sent money home to his family while in college and I only received financial help from mine the first year. We both graduated from college debt free.

I recommend Dave Ramsey’s “Total Money Makeover” to just about anyone and especially those who don’t see how they can make it financially or are in the early “baby steps”.

More Financial Book Reviews by Milly

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