Dave Ramsey is perhaps best known as the host of the popular “Dave Ramsey Show,” where he offers advice several days a week to people across America who are struggling to get out of debt. Ramsey offers his same advice in his book The Total Money Makeover. Ramsey’s no-nonsense advice coupled with down-to-earth, real-life stories of people who have managed to rid themselves of debt is an inspiring, practical handbook for anyone who wishes to follows Ramsey’s recipe for success.
Ramsey breaks down his method into what he calls “baby steps.” He focuses not only on measuring one’s success but he doesn’t neglect the psychological rewards of little wins along the way.
Getting Started With the “Money Makeover”
Ramsey pulls no punches, and the book barely starts before he admonishes his readers to stop denying the mess they are in financially. He also outlines a list of what he calls “debt myths.” He urges his readers to learn to deny themselves immediate gratification and – by so doing – learn to live without so that down the road, they can enjoy all the fruits their labor has to offer.
Ramsey also destroys several “money myths” in which he gives further advice about day-to-day handling of money. The first few chapters of his book really are a way for people to psychologically prepare themselves for buckling down and following his program with what Ramsey calls “gazelle-like intensity.”
Ramsey’s First Baby Step: An Emergency Fund
Ramsey challenges his readers to begin saving $1000 as an emergency fund. Before doing that, however, all their bills must be up-to-date (and if they are not, Ramsey also tells readers how to catch up quickly while dealing with collectors). Some tips Ramsey offers:
- The emergency fund is literally for emergencies only (the transmission goes out; the water heater needs to be replaced; etc.). It is notfor Christmas spending, vacations, or the like.
- The emergency fund must be easy to get at. It should be liquid and available from a savings account, etc. If it is not easy to get at (like if it’s locked up in a CD), it’s not available in an emergency. However, it shouldn’t be too easy. Otherwise, Ramsey warns, it will be easy to spend on non-essential things.
- Build up this fund as quickly as possible. Ramsey recommends that people get a second job, have a yard sale, or whatever it takes to get this fund built up fast.
The Second Baby Step: The “Debt Snowball”
Ramsey admits that his financial advice is unlike other financial advisors. He urges his readers and listeners not to pay off their highest-interest credit card first; instead, he tells people to pay off their lowest debt first. Why? Because, Ramsey says, paying off a smaller debt fast is a psychological win and gives people the courage and enthusiasm to continue. He also emphasizes that once the lowest debt is paid off, the amount that was going towards that debt is then “snowballed” into the next lowest debt, and so on.
Finally Debt Free!
Once a family is debt free (aside from paying off their house), Ramsey urges readers to build up their emergency fund. $1000 simply isn’t enough for big emergencies, so he urges readers to next build up their emergency funds to cover several months’ worth of expenses.
He then tells readers how to begin investing for retirement, saving for college, and paying off the mortgage. Last, but not least, he encourages his readers to build their wealth.
Why Dave Ramsey’s Book?
Ramsey himself admits that his advice is nothing new. However, he takes a different approach and he isn’t afraid to go a little crazy and urge his readers to do the same. Not only does his book incorporate Ramsey’s homespun wisdom based on his own formula for building wealth, but it also integrates real-life stories of people who have become debt free following Ramsey’s plan. Finally, the back of the book has several reproducible sheets to help with budgeting and the like.
Ramsey urges families to work together and to put a budget down on paper every month. He asks his readers to be realistic and firm with themselves, because if they can buckle down now, they can reward themselves later on. Ramsey’s advice is easy to understand and encouraging. One can barely get through one chapter without feeling excited and eager to get started.