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Book Review: The Total Money Makeover by Dave Ramsey


About a few months ago, I discovered Dave Ramsey through his podcast of this radio show - The Dave Ramsey Show. After listening to his podcast many times while driving in my car from work, I had a good handle of many of his concepts and these same concepts are the ones that I grew up learning from my parents in India.

"Debt" was considered something really bad in India at that time and most people saved money and bought stuff. (I honestly don't think this is still true in India anymore - times have changed there). So when my husband and I bought a house, getting into so much debt was very very scary to me. However, I adjusted to the idea over time. And probably here in comes the problem - you get used to the idea of being in debt. 

I'm so grateful to have had those money lessons growing up and for us having had good jobs that we don't have much debt - mostly just our mortgage. And after listening to Dave's podcast, I've been inspired to get out of even that debt. While I don't always agree with what he says, I do like most of his no-nonsense style of breaking through problems. 

So after listening to his podcast for a few months, I had heard a lot about his baby steps and his book - The Total Money Makeover. I saw the book at my library a few days ago and decided to pick it up. 

The book was a really interesting read. There were quite a few things I learnt from the book. Dave's style of getting out of debt is more behavioral. His way uses small victories to fuel your enthusiasm to get out of debt. He emphasizes that it's not easy to get out of debt - you have to make sacrifices and work hard. In short, do whatever it takes whether it be working more to get more money or spending less to save more money for putting into debt. One of his favorite lines which he repeats a lot - "If you live like nobody else, later you'll live like nobody else".

Dave Ramsey's Baby Steps to getting out of debt:

  1. Save $1000 for an emergency fund
  2. Get on a budget and every dollar not towards necessities goes towards paying off the smallest debt you have. Once you pay that off, you pay the next biggest one. You don't spend  money on any luxuries, any vacations, etc. Everything is on hold till you pay off your debt. If any emergency comes up during this time and you have to use any part of $1000, stop step 2 and go back to step 1. 
  3. Build up an emergency fund of 3-6 months of expenses. 
  4. Put 15% of your income into retirement (IRA or 401k). Don't count your company's match - that's just icing on the cake. 
  5. Put money in a college fund for your children.
  6. Pay off your mortgage. This step will take time and most people may be so used to having a mortgage payment that this may seem weird and the mortgage is so huge that it may take us so long to pay it off that we even give up at this point. Getting a 15-year mortgage with lower interest rates and making extra payments is the way to go for paying off your mortgage. 
  7. Build wealth. Have fun, invest and give. Do all three and live a happy life. 
The only thing I probably disagree with is that he uses a 12% return on any investing in mutual funds. In my past 10 years of investing in a 401k, I've never received 12% interest on even a single year. It might be that I'm investing in wrong funds (but I'm limited to what's provided by my employer) or my investing method might be wrong. And he does state that it's 12% historical average - not every year. But still, I feel 12% extremely optimistic and I would probably use a lower number like 8%.

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