Book Summary of The Total Money Makeover by Dave Ramsey
Book Summary of The Total Money Makeover by Dave Ramsey Introduction
Learn How To Transform Your Financial Situation
This book summary of The Total Money Makeover will show you give you a plan to get out of debt and this time, stay debt free. It can be stressful to look for financial guidance because there are so many experts who claim you can follow a few easy steps to become wealthy.
Some of this advice is sound, but much of it is nonsense. In this book, renowned financial expert Dave Ramsey offers a clear and concise method to get out of debt and build wealth. You’ll have a better chance of getting your money in order and achieving financial wellness, which is something we all aspire to, if you stick to his strategy.
This summary explains:
- Why you might not want to go to college.
- Why you aren’t as comfortable as you think you are.
- Why you shouldn’t try to devour an elephant in one sitting.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 1
Financial Security is an Illusion. You Must Act.
Your perceived financial security is a myth, and now is the moment to act.
Would you say that your financial situation is secure? Even if we could all use a few additional dollars, many of us feel as though our financial situation is solid enough. You most likely have a job, a car, a house, and any financial issues seem incredibly far away. However comfortable you might feel right now, financial instability might be closer than you realize.
What would you do if you lost your job unexpectedly? Are you able to make your payments on time? Unlikely. Security in money is frequently more illusory than we realize. Consider Sarah, a client of the author. After their marriage, she and her husband estimated that their combined annual income was above $75,000 and that they shared a relatively low amount of debt. They took out a sizable mortgage on their home after deciding that their income and debt were comfortable. But surely that’s all right? They had the money for it. Maybe they could?
Sarah learned one day that her $45,000-a-year job was being lost. They were now in danger of losing their home. Unexpected financial losses can leave us in a desperate situation very quickly, like in Sarah’s case. How can we help? Taking action before it’s too late is one strategy to avoid unpleasant surprises. Alter things right away.
It’s simple to ignore this sense of urgency and believe that you can keep on as usual until things start to go south, at which point you should make a change. But this is utterly reckless. Sometimes financial problems sneak up on you, and before you realize it, you’re in big difficulty.
As the water progressively heats up, the frog in the parable won’t understand that it is being boiled alive and will allow itself to perish. This is what is taking place right now with you. You might not be aware of it, but your financial stability could be eroding slowly all around you. The time has come to make some changes.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 2
Debt is Accepted as a Fact of Life. Acknowledge its Long Term Risks.
We are continually urged to go out and acquire things in the modern world, be it a house, a car, a big TV, or anything else. And how precisely are we going to pay for all of these necessities? course with credit attached. Today, debt has become so engrained in our way of life that it is difficult to picture live without it. You most likely have some debt of your own, whether it comes in the shape of credit card debt, student loans, a mortgage, or student loan installments.
In fact, debt is so ingrained in our culture that one of the author’s customers felt justified in owing $35,000 on credit cards and student loans, in addition to $72,000 on a rental property. Despite the fact that debt seems to be everywhere, it does not contribute to financial bliss; on the contrary, it just makes matters worse.
Consider one of the most widespread loan instruments: the credit card. Credit cards provide customers a lot of purchasing power since they feel almost like free money. But over time, they might weaken our financial stability. In fact, 69 percent of those who file for bankruptcy cite their credit card debt as the primary reason, according to the American Bankruptcy Institute.
It’s interesting to note that while many people utilize debt to make themselves appear wealthy, those who are truly wealthy typically steer clear of it altogether. In fact, 75% of those on the Forbes 400 list agreed that paying off debt is the best way to accumulate wealth. Additionally, some of the most prosperous businesses, including Harley-Davidson, Cisco, and Walgreens, are managed entirely debt-free.
Why can’t we achieve success without being burdened by debt if these businesses and people can?
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 3
Set Up an Emergency Fund
So far, we’ve identified one method for failing to achieve financial security: trying to use credit to spend our way to prosperity. What then can we do? Making a step-by-step strategy that outlines your path to financial wellness is where you should start. Even while you are aware that your financial strategy needs to change, you must also accept the fact that not everything can be altered at once. Instead, you should do yourself a favor and go cautiously and incrementally.
Consider this: you wouldn’t even consider attempting to eat an elephant all at once if you had to. You might start by eating, say, a foot a day, ultimately working your way up to the trunk and then the torso. The same strategy should be used for your finances. If you attempt to tackle multiple areas at once, such as your mortgage, credit card debt, and 401(k), you will squander your efforts and ultimately fail. Go slowly and take few bites, then.
But where do you even begin? Create a $1,000 emergency fund as the first step in your Total Money Makeover. This money is set away for a rainy day. In fact, according to Money Magazine, 78 percent of us will go through a significant unfavorable life event in any given ten-year period, such as an unplanned pregnancy or car trouble. You should be ready for when this occurs.
And while $1,000 won’t cover all of that, it’s still a good place to start and will lessen the possibility that you’ll need to incur debt.
But keep in mind that this fund is solely for emergencies, so if you have to withdraw anything, make sure to restore it as quickly as you can.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 4
Create a Debt Snowball
Make a debt snowball as part of Total Money Makeover step two. Everyone is aware that a little snowball may quickly grow into a huge snow boulder if you begin rolling it along the ground. When you pay off your bills, the same thing takes place. This is how:
List all of your debts, starting with the smallest and working your way up to the largest. Then, start paying them off one at a time, starting with the smallest balance. You’ll be motivated to take on those larger, more challenging debts as the smaller ones start to disappear. As the smaller debts are paid off, keep paying off the next largest debt.
It’s time to start building your emergency fund once you’ve started your debt snowball.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 5
Build Your Emergency Fund
Step three’s goal is to increase your emergency fund to the point where it can sustain your lifestyle for three to six months. Of course, each person has distinct spending requirements, so this amount isn’t set in stone. However, it typically falls between $5,000 and $25,000 To put things into perspective, if your household makes $3,000 a month, try to save at least $10,000.
Let’s assume that you were successful and now have a larger emergency fund. This will give you the assurance you need to keep moving forward in your quest for financial independence. You will have an emergency fund that will last you for six months if you need to use part or even all of your retirement and savings funds while paying down your debts. You are thus able to move forward in life with security and assurance.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 6
Invest 15% of Your Income into Mutual Funds
Everyone is quite concerned about their financial status once they retire. Will we have enough money to live comfortably in our golden years? You will need to invest 15% of your income in order to have a respectable and secure retirement. Although this may seem like a lot, there are several reasons why saving so much money is worthwhile.
First of all, depending on others to sustain a pleasant lifestyle in old age would be boring. This is especially true if you want to rely on government pension programs for your daily needs. By the time you reach retirement age, it is unlikely that our dysfunctional government will be able to support you in living a respectable life.
It may be tempting to save less for retirement so that you may prioritize tasks like setting aside money for your children’s college or paying off your home more quickly. However, your children’s degrees won’t support you after you retire, and too many seniors live in paid-for homes with no extra money.
Where exactly should you invest your money once you’ve decided to save 15% of your income? The author suggests investing in mutual funds for the best results. The stock market has historically returned an average of little about 12 percent. Because they capitalize on this tendency, mutual funds are a great option for long-term investments. One piece of advice is to choose funds that have a proven track record of success for at least five years and preferably ten. To ensure profitability, spread your investments across several funds.
Another important rule to remember is to invest 25% of your portfolio to growth and income (or “blue chip”) funds, 25% to growth (or “equity”) funds, 25% to international funds, and the remaining 25% to aggressive funds, or “riskier but higher return” funds.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 7
Save For Your Childs College Education
Every parent wants to be able to send their child to college, and many parents are willing to allow themselves and their kids go into debt in order to make this goal a reality. Debt, however, should be avoided at all costs, as we’ve already explained. Borrowing money to pay for college is not a viable option.
Your child will suffer for a very, very long time from a college loan. Since they leave college with an average debt of $25,000 to $27,000, today’s college graduates have earned the moniker “generation debt,” and that debt isn’t going away any time soon. What should you do to pay for college then?
Of course, one approach is to obtain a scholarship, or you can just save up the necessary funds.
Another option is to use a growth-stock mutual fund to fund an Education Savings Account (ESA). From the time of your child’s birth until the age of eighteen, you might save $72,000 on tuition by investing $2,000 a year in prepaid plans. Instead, if you used an ESA supported by mutual funds (which typically yield 12 percent), you would have $126,000 available for living and educational costs. And the funds are tax-free as long as they are used for educational costs.
Even with this choice, though, you still need to consider whether investing in your child’s college education is the best course of action. Only 15% of success, according to Daniel Goleman, who wrote the book Emotional Intelligence on successful people, can be linked to formal education and training. The other 85% is credited to attitude, tenacity, diligence, and vision. These latter traits will enable you to advance significantly in life as opposed to some piece of paper bearing the words “degree” inscribed on it.
So, is college a need for your child? No, not if getting there requires incurring debt.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 8
Eliminate All Debt by Paying Off Your Mortgage
How long have you been able to make mortgage payments? They frequently take years to pay off. Paying it off as quickly as you can is step six of the Total Money Makeover. The majority of people view this as their last obstacle to achieving financial stability, and clearing it will completely rid them of debt. But there are several of obstacles that could keep you from paying off your mortgage. You must steer clear of them.
For instance, you may hear advice to take advantage of low interest rates by borrowing money against your home and investing the proceeds in the stock market. However, this is awful counsel. Consider borrowing $100,000 from your house at an interest rate of 8% and investing the money in equities, which would yield a return of 12%. In this case, your potential profit is $12,000. You would have a healthy $4,000 left over after paying your mortgage interest, which in this case would be $8,000 in total. Not that horrible. However, that doesn’t account for all the taxes and other costs associated with trading stocks. You are ultimately left with about $1,000. hardly justifiable given the great risk.
Another myth is that you can take up a 30-year mortgage with the intention of paying it off in 15 years. However, there will definitely be expenses that derail your plans, such as excessive heating costs, canine immunizations, sick kids, etc. And almost no one ever pays the extra payments required to pay off a loan so quickly if they aren’t required to by law.
However, it’s frequently preferable to just take out a smaller mortgage. A 15-year mortgage will save you $150,000 over the course of the loan compared to a 30-year mortgage at 7 percent. Consider what you could accomplish with that sum of money.
Book Summary of The Total Money Makeover by Dave Ramsey Main Idea 9
Stick To The Plan, Give To Charity
You are currently on the verge of financial stability. You have one more step to do before reaching the end of your quest. It’s time to start developing your wealth once you are debt-free and have started saving for the future. Assemble a team of professionals around you who can give you wise financial guidance, such as tax consultants, CPAs, estate planning lawyers, etc.
Stick to your plan no matter what. As you age, you’ll notice that you’re more likely to respond to little fluctuations in the market, particularly if you suspect a downturn is imminent. But do not worry! These insignificant blips pale in comparison to the market’s long-term growth trajectory.
Finally, realize that having a frugal lifestyle does not equate to being financially fit. When you can, enjoy your money. A key component of the Total Money Makeover is having fun. Should anyone wear a watch worth $30,000? own a $50,000 vehicle? or possess a $700.000 house? Absolutely. If they can actually afford them, that is.
You need to develop the habit of only spending money on things you can actually afford. You should be ready to part with your money when the perfect chance arises. Spending money is enjoyable, but giving it out can be much more fulfilling. Being kind feels good, but you have to have before you can offer.
You’ve finally reached the end of your road to financial independence. It’s time to take advantage of it and live comfortably, happily, and securely.
Final Summary
The main idea is:
- Most people’s perceptions of financial security are merely pleasant illusions. But by taking seven “baby steps” that lead to a debt-free and financially successful life, you can improve your financial status.
You probably know a few people who seem to be doing fairly well. But many people give the impression that they are doing better than they actually are. This illusion is made possible by debt, but it will eventually fall apart beneath them, so stop comparing yourself to other people.
