The Total Money Makeover By Dave Ramsey

The total money makeover by Dave Ramsey is one of the best financial books I have read in a long time. I had mentioned in the 7-baby steps that Dave Ramsey speaks about in the total money makeover book when I posed the question, ‘should you save money when you are in debt?‘. And whilst I think Dave Ramsey answers it best, I think when it comes to money management, it is personal decision whether to pay debt and save money at the same time. Reading through the total money makeover book and reading the various testimonies it gave me a great feeling that I was on the right track financially.

Over the last 3-months, I had been debating with myself whether I should pay off my car now or wait until end of the year when I was due to make a decision to either buy the car outright or trade for a newer model. For many years I had considered ‘car-debt’ as a good kind of debt to have but in reality it’s not really, cars are items that depreciate in value meaning that every single year I am losing money. It took me reading this book cover to cover to realise, its better for me to raid my emergency fund now, pay off my car and apart from my mortgage become debt-free.

Disclaimer – I am not a financial advisor, all opinions shared are my own.

The Total Money Makeover By Dave Ramsey

Dave Ramsey is the American Money guru that we love to hate, he is brutally honest but sometimes his advice cuts deeper than a hot knife thru butter. But I realised that if I truly wanted to achieve financial freedom and build my wealth, I needed to look past so pre conceived notions I had about money and about debt. Reading the total money makeover was totally an eye opener and I am recommending this book to anyone who wants to be serious about their finances. Maybe the testimonies in the book will spark a flame in you also to start working on your finances and become debt free.

When I finished university about 8+ years ago, I left with ~£12000 in debt but I was fortunate to start work immediately after university. For the next 18+ months, I followed the principles of the Snowball Method by Dave Ramsey and I cleared all my consumer debt and became debt free for the first time in my life. Because I did not consider a car loan debt, I bought my first car via finance and I have been paying car repayments ever since. A year later into owning my first car, the dealership offered me a deal I couldn’t refuse and I got a brand new EcoSport which I absolutely love.

Four years after becoming debt-free, I went into debt with my car finance and a mortgage, both of which I did not think of as debt and it took a lot of myth busting for me to see debt is debt and I need to work on getting rid of that debt. The only debt Dave Ramsey recommends is your mortgage but even then he speaks of getting a 15-year fixed mortgage than a 35 year mortgage which is what I have. I don’t know if the UK offers 15-year fixed mortgages but in any case, I plan to pay off my mortgage early by making small but consistent extra repayments every single month.

The total money makeover by Dave Ramsey covers his 7-baby steps in debt whilst at the same time busting money and debt myths. I found myself re-reading some of the myths he covers in his book, some of the myths like credit card myths I believed for many years – that you need a credit card to build a credit score. There are many others that have been shared overtime by lenders that they are now in the fabric of our society as truths. The 7-baby steps he shares in his book are:

• Step #1 – Fund your initial Emergency Fund with £1000: For most of us we understand emergency funds to be ‘financial safety nets’ that protects us from the unforeseen future so £1000 ($1000) does not make sense but how he explains it does. Many people paying off debt can not scrape more than that amount to keep in their savings but overtime you can put a little in the account to amount to £1000 ($1000) to act as a buffer so you don’t fall into more debt as you are working on paying off your debt.
• Step #2 – Pay off all your consumer debt (except your mortgage): This is something I achieved recently, I decided to raid my emergency fund, cleared the balance of my car and now I own it 100%. This is something that may take you 3-4 years to do but I think it is such an important step on your journey to build wealth. I think it is hard to build wealth when a big chunk of your money goes to paying off debt, by reducing debt you reduce how much money leaves your bank account and instead can be saved or invested.
• Step #3 – Fully fund your emergency fund with 3-6 months worth of expenses: I am currently on step #3 and working on re-building my emergency fund after I removed £8000 to pay off my car. I intend to fully fund my emergency fund with at least £15,000 which will cover over 6 months worth of expenses. Dave Ramsey recommends for single income households you save 6 months worth of expenses and for multiple income homes you can get away with 3-months. I want to fund my emergency fund with at least £50k in the next 18months for various reasons.
• Step #4 – Invest 15% of your annual income into retirement: When I was in my early twenties, I often laughed when someone talked about saving for retirement because I thought I was too young to think about retirement. Although later in my twenties I started matching my employer’s contributions, I still wish I had started earlier. Although not recommended, I am doing both step #3 and #4 at the same time because the earlier you start with investing the better even if its just a #100 a month. I am investing 7.5% of my annual income at the moment.
• Step #5 – Save for your kid’s college fund: Until I heard those words, you can’t go to uni this year because we can’t afford it, I didn’t understand the importance of saving up for your kids future until then. I was gutted that I had to wait a whole year of working full-time before I could go to uni but everything worked out in the end. I don’t yet have kids so for now I will be funding my emergency fund 3 times what I need instead of adding to a kid’s college fund.
• Step #6 – Pay off your mortgage early: the feeling of owning your own home 100% is one that I can not wait to experience in the near future. I don’t wish to be repaying my mortgage for another 30 years, I want to work hard now at repaying the mortgage than later when I should be enjoying my retirement.
• Step #7 – Build Wealth and Give: When you have zero debts to pay, not even a mortgage, you can start to truly build your wealth because apart from your utilities, you will have 80% of your income for saving. But, don’t only just save, you need to also learn to give, as a Christian this is important to me and right now I do my tithe and it makes me happy.

Reading the total money makeover by Dave Ramsey was a total eye opener and I am ready to build wealth for my future. I am glad to be completely debt-free (again) and now I can focus on re-funding my Emergency Fund, invest 15% of my annual income and pay off my mortgage, these are my 3 financial goals I will be working on for the next 3-5 years.

Have you read the total money makeover yet? Which of Dave Ramsey’s 7-baby steps are you on?