The Total Money Makeover – Dave Ramsey [Book Summary]

by Nick

The book “The Total Money Makeover is a step-by-step guide to improving your financial situation, no matter how hopeless it may seem now. Following seven simple steps, you can regain financial security and begin to plan a comfortable and comfortable retirement.

Dave Ramsey is an American writer, television and radio host, a motivational speaker who specializes in finance and debt-free. He is best known for his Dave Ramsey Show radio show, in which he shares financial advice with people who listen to him all over the United States.

This book is available as:

AudiobookeBook | Print

How to Transform Your Financial Condition

Finding answers to questions regarding finance and security can be very depressing; There are tons of financial gurus telling you how to become a millionaire in a few simple steps.

Most of these tips are complete nonsense, but some are still true. In this summary, you will get acquainted with a simple and understandable plan based on the advice of recognized financial expert Dave Ramsey. If you follow this plan, you will have a real chance to put your finances in order and achieve financial security – that is what we all ultimately dream of.

From this book you will learn:

  • why you really aren’t as comfortable as it seems;
  • why it makes sense not to go to college; and
  • why you should not eat an elephant in one sitting.

Your Financial Security is an Illusion – It’s Time to Do Something About It

Do you think that you live quite comfortably? Many of us feel relatively safe in terms of finances, even if sometimes we have to spend a few extra dollars. Surely you have a job, maybe even a house and a car, and financial difficulties seem so far away.

But no matter how safe you feel now, financial threats may be closer than you think.

Imagine that you suddenly lose your job:

What will you do?

Can you pay your bills? Hardly. Financial security is often a much more illusory thing than we think.

Let’s take one of the author’s clients named Sarah. After marriage, she and her husband calculated their total annual income – about 75 thousand dollars and took into account that each of them has several small debts. In general, they felt quite comfortable and decided to buy a huge house in a mortgage.

But what’s wrong with that? They could afford it. Or not?

One day, Sarah discovered that she could soon lose her job with an income of $ 45,000 a year. And suddenly the bank seizes the house they borrowed from them.

As with Sarah, sudden financial setbacks can lead to terrible despair. What can be done about this? One way to avoid unpleasant surprises is to take action right now before it’s too late.

It is much easier to change something while you feel safe, but most people begin to take care of their finances when they are urgently needed. This is completely irresponsible. Financial difficulties sometimes arise from nowhere, and before you realize them, you are already in trouble.

This recalls the story of the very frog in the boiler with water. As the water gradually warmed up, the frog did not realize that it was boiling and allowed itself to die. This is what is happening to you right now. Financial security may begin to crumble at any time – but you will not even suspect it.

So it’s time to act!

Debts Are Considered Part of the Realities of Life, but We Must Be Aware of Their Danger.

In the modern world, we constantly want to go and buy something – a house, a car, a large TV. And how do we pay for everything that we urgently need? Of course, with the help of a loan.

Debts are so firmly rooted in our lives that it is hard to imagine ourselves without them. You probably have some debts behind you, be it student loans, mortgages, credit cards or car loans.

The debts have already taken root in our society so much that one of the author’s clients felt quite comfortable, having behind him a debt of 72 thousand dollars for paying for housing and 35 thousand dollars of debt on credit cards and consumer loans.

And although debts seem to be the realities of our everyday life, they will not lead us to financial well-being, but rather, on the contrary, to financial difficulties.

Take one of the most common forms of debt: credit cards. They seem to us almost a kind of free money, giving the possibility of unlimited spending. In the long run, however, they greatly undermine our financial condition.

According to statistics from the American Bankruptcy Institute, 69% of bankrupt people said that this was due to credit card debt.

Interestingly, many people use debt to create the illusion of wealth, while truly wealthy people tend to completely avoid debt.

75% of people on the Forbes-400 list said that the best way to get rich is to become and remain free of debt. Many successful companies, ranging from Walgreen’s and Cisco to Harley-Davidson, claim to be completely debt-free. If these companies and people managed to achieve success without burdening themselves with debt obligations – can we not do the same?

Step # 1: Create an Emergency Reserve

So far, we have found out only one way to ensure financial security: do not try to pave our way to success with a loan. What else needs to be done?

Now you need to start by creating a step-by-step plan to achieve a good financial form. Although you understand that you need to change your approach to finance, it is also important to understand one more thing: you cannot change everything at once. Give yourself the opportunity to move slowly, in small steps.

Think about it: if you need to eat an elephant, you will not try to eat it whole at a time. You will start with small portions per day, slowly but surely eating it in small pieces and gradually approach your goal.

The same approach applies to finance. If you try to attack different financial aspects of your life at the same time – for example, you try to close immediately a mortgage, a credit card, and a debt of 400 thousand – you will spray your efforts, and as a result, nothing good will come of it. So move slowly and bite off small pieces.

But where to start? The first step of your Money Reboot is to create a reserve for emergencies – a sum of $ 1,000 deferred on a rainy day.

Money Magazine estimated that approximately 78% of people every 10 years experience a major unpleasant event – for example, an unplanned pregnancy or a car breakdown. You need to be prepared for this.

Yes, an amount of $ 1,000 will not help you much, but it’s worth starting with this and at least it will reduce the likelihood that you will have to borrow.

But remember: this reserve is only for emergency cases, and if you take something from there, you need to replenish it again as soon as possible.

Steps #2 and #3: Start Paying Off Debts and Then, When You Are Ready, Increase Your Insurance Reserve

As soon as you have formed your insurance reserve, you embarked on the path of changing your financial situation. Now it’s time to deal with debts.

The second step of the Money Reloading process is the creation of the so-called snowball. We all know that if you begin to roll snowball on the ground, it will very soon turn into a huge snowball. The same thing happens when you pay off your debts. And here’s how to do it:

Write down all your debts in order of increasing size, from a small telephone bill to a large mortgage. It’s time to seriously think about the payments and start with the smallest. As soon as small debts disappear, you will have the motivation and energy to deal with larger ones.

And after you start rolling this snowball, you will need to return to your insurance reserve again.

Step number three is to start growing your insurance reserve until its amount covers your average expenses for a period of three to six months.

Of course, we all have different spending needs, so the exact number cannot be given here. Usually, it is from 5 to 25 thousand dollars. More specifically, with an income of 3 thousand dollars a month, the insurance reserve should be at least 10 thousand dollars.

As soon as you have an insurance reserve, you will find that with it you have the confidence to move on the path to financial freedom. If you have to spend some of your savings or even pension savings to pay off debts, you will still have an insurance reserve that will protect you for at least

six months in advance. This will allow you to be more stable and confident in the face of possible financial difficulties.

Step #4: Set Aside 15% of Your Income in Investment Funds

Each of us is concerned about the financial situation in which we will find ourselves after retirement. We all ask ourselves: “Will I have enough money to live comfortably in my elderly years?”

To get rid of these fears, let’s look at the fourth step of the Money Reloading:

Investing 15% of your income will provide you with a decent and comfortable old age. Yes, it may seem too much, but there are many reasons why it is worth putting off this particular part of the income.

For starters, old age will not be the most enjoyable time of your life if you have to rely on others in the hope of a comfortable life. Especially if you are hoping to live on a pension from the state. By the time you reach retirement age, the chances that our government will be able to provide you with a decent life are very small.

It may seem like it makes sense to postpone less but focus on things like educating children or paying a mortgage. But your children’s diplomas will not feed you after retirement, and too many elderly people live in their own apartments, but without any reliable source of income.

As soon as you make a commitment to save 15% of your income, you need to decide where exactly to invest this money. The author of the book recommends mutual funds for this purpose (note that this option is suitable for US citizens since in Russia there is no such thing as a “mutual fund”, there is only its closest analog – mutual investment fund – approx. )

Step # 5: If You Want to Send Your Child to College, Plan Ahead to Avoid Debt.

Almost every parent wants to give his child higher education, and many parents are even ready to doom themselves and their children to debt – just to achieve this dream. But, as already mentioned, any debts and loans should be avoided. Overlook the idea of ​​paying for a child’s education on credit.

How then to pay him tuition?

One way is to use a savings account to pay for educational expenses, based on some kind of mutual fund, which can provide you from 72 to 126 thousand dollars at the time of his eighteenth birthday. And if you use this account to pay for training costs – this money is not taxed

(we are talking about the realities of the United States – approx. Transl.).

But even with this opportunity, you should think – is it really worth investing in education – does your child need it?

In a book about successful people, Emotional Intelligence, author Daniel Holman states that only 15% of success is driven by training and learning. The remaining 85% is a corresponding attitude to things, perseverance, hard work and a clear vision of the future.

These qualities in life will lead you much further than a piece of paper with the inscription “Diploma”.

So, does your child need to go to college? If for this you have to incur debts, then the unequivocal answer is “No.”

Step #6: Relief From Debts by Paying the Most Voluminous of Them – a Mortgage Loan

How much do you have to pay your mortgage? Usually, this process takes decades.

The sixth step of the Money Reloading is to pay the mortgage as fast as possible. For most people, this is the final and most difficult step, but if they overcome it, it makes them completely free from debt.

However, there are many pitfalls that can prevent you from dealing with a mortgage. And it depends on you whether you can avoid them.

For example, you can hear such a version that you can take money from the security of your home and invest them in stocks or elsewhere, gaining an advantage due to the percentage difference.

But this is terrible advice. Suppose you take 100 thousand dollars on bail at home at a rate of 8% and invest in the stock market with the expectation of a 12% return. That is, you expect that you will earn 12 thousand dollars in this way, then pay a percentage for the mortgage – in this example it is 8 thousand dollars, and you will have 4 thousand dollars clean. Not so bad.

But this scheme does not take into account taxes and fees that you constantly have to pay when playing on the stock exchange. In the end, you will have somewhere around a thousand dollars. Is this money worth such a big risk?

Another misconception is that you can take a mortgage for 30 years with the intention of paying it for 15 years. But you will inevitably encounter expenses that will lead you astray – electricity bills, medical expenses, etc.

And if this is not prescribed by law, then practice shows that no one makes any additional payments necessary for the quick payment of a mortgage.

Therefore, it makes sense to simply take a mortgage for a shorter period. Compared to a 30-year mortgage with a rate of 7% per annum, a mortgage for 15 years will help you save about 150 thousand dollars. Just think about what you can do with this money!

Step # 7: Follow Your Plan and Spend Money if Necessary

At this point, your finances are almost in perfect shape. The last step remained.

As soon as you got rid of your debts and started saving up money for the future, it’s time to start working on building wealth.

Surround yourself with specialists in the financial field – tax consultants, lawyers, mortgage brokers, realtors, etc. who can give you good advice on what you can do with the money that you have today.

And no matter what happens, stick to your plan. Over time, you will find that the older you get, the more you are concerned about small changes in the market, especially if you are afraid of recessions.

But don’t worry!

These small fluctuations are nothing compared to the prospect of long-term growth.

Finally, it is important to understand that financial well-being does not mean that you must live like Scrooge, scattering money left and right. Spend your money only when you really can afford it.

The ability to organize this process is an important element of Money Reboot. Should everyone wear a watch for 30 thousand dollars? Drive a car for 50 thousand? Or live in a house for 700 thousand dollars? Of course. But only if they really can afford it.

Learn to spend money ONLY when you can afford it. And forget about everything else.

When a suitable opportunity comes up before you – you also need to be ready to give money just like that. It’s just as enjoyable as spending it on good things, and the return on it is priceless. Feeling generous is wonderful – but in order to give something, you need to have it.

And on this, you will complete your path to financial freedom. The time will come to enjoy it fully, living a comfortable, happy and safe life.

Conclusion

If you want to fundamentally change your financial situation – follow seven simple steps from the book that will help you embark on a path free of debt and financially successful life.

Truly wealthy people tend to avoid credit cards. You should do it too!

Your insurance reserve should be equal to the average income for at least 3 months, or better for 6.

Learn to live your own life. You probably have some friends about whom it seems from the outside that they are doing well. Yes, many people really look much more successful than they really are.

To support this illusion allows getting into debt and loans, but this is a failed strategy.

Therefore, never compare yourself with other people.

Why You Should Read “The Total Money Makeover”?

  • To improve your financial situation
  • To get out of debt or avoid it
  • To better prepare for the future, whether it’s your own retirement or your children’s education.

This book is available as:

AudiobookeBook | Print