Book review: Total Money Makeover, by Dave Ramsey

Dave Ramsey is a radio show host of the Dave Ramsey Show out of Tennessee in the US. His concepts offer followers the ability to achieve financial peace. The basics of his concepts are presented in his book, The Total Money Makeover.

Dave introduces easy to follow baby steps to financial freedom. These steps aren’t particularly unexpected. And are easy to understand and follow:

  1. Save a $1,000 emergency fund
  2. list all your debts (excluding your home) lowest to highest. Pay minimum payments on all but the smallest debt and attack the smallest amount until it paid off. Repeat until all debts are paid. (The debt snow ball)
  3. Save up 3 to 6 months emergency fund
  4. Save 15% towards retirement
  5. Save for kids college
  6. Pay off your home early
  7. Build wealth and give

The life altering lesson Dave presents is that Personal Finance is 80% behavioural and 20% math. In baby step #2, Dave introduces the debt snowball. Pay off the smallest amount of debts first, irrespective of the interest rates. Focus all your attention on that debt until it is paid. Stop all retirement contributions, limit your budget to the basic necessities until you non-mortgage debts are paid.

That which we focus on is what we win at. Before reading the Total Money Makeover, I always tried to do too many things at once, excelling at nothing. By intensely focusing on the debt snowball, success is achieved. And success begets success. The smallest debit is extinguished fast, then the next debt is attacked with the extra budget room from the first debt being paid. The rewards from the small successes snow ball into the motivation to tackle the larger debt.

The other life altering concept introduced by Dave is that truly wealthy people avoid debt. If you can’t pay cash for it, you can’t afford it. Debt weighs on your budget like a tax, preventing you from proper wealth building. This is a radical concept for many people. For example, extending your mortgage with a low 3.5% interest rate over 25 to 30 years to fund long term investments is common practice. But studies of millionaires shows this isn’t the pathway to wealth. The typical millionaire pays off their mortgage in 11 years.

Behavioural management through delayed gratification, simplification of lifestyle and avoidance debt is the proven recipe for wealth building. You don’t hear those concepts from other, so-called, experts on wealth building. Since I was first introduced to Dave in 2016, I have used Dave’s methods to pay off all debt even my home mortgage.

Imagine your monthly budget with no debts to pay and no mortgage. Imagine having all that extra money do save, give and enjoy life. Imagine financial peace.

The Dave Ramsey Show is available on podcast and is worth a listen. His concepts from the book are addressed in the podcast. Featured are debt free screams where followers of Dave’s principals call in to discuss how the Total Money Makeover changed their lives and allowed them to pay off all their debts, finishing with a scream, “I’m debt free,” signifying the relief having achieved financial freedom

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