The Total Money Makeover by is a book on personal finance which covers all the basics of sound household money management.
- Pay all your debts and don’t embark in new one
- Save up & invest
- Earmark all your expenses
Financial Security is Illusory
Dave Ramsey says that most of us have a few financial worries but, overall, feel rather secure. But that security is illusory.
Would you still be financially secure if you lost her job? Probably that just one little thing would change everything, right?
Which means, you’re one little step away from disaster.
What’s the solution, then? It’s to change right now. It’s to put you on course to real financial security.
Dave Ramsey says that debt has become such a part of our culture that is simply seems normal to be in debt.
The author is especially caustic towards credit card debt, which gives us the illusion of wealth but only create future problems.
1. 1k Starter Emergency Fund
Stop thinking of emergencies like rare events. There’s a 78% chance we will all experience major negative life events.
The first step then is to set aside $1.000 for emergency situation. This first 1k is for emergencies only.
2. Debt Snowball
List all your debt from smallest to biggest. And start paying off the smaller ones. As you successfully erase debt, it will inspire you to tackle the bigger ones.
3. Grow Your Emergency Fund
The third step is to cover your emergency fund to cover your life expenses for a period of at least 3 to 6 months.
4. Invest 15% Income
The Total Money Makeover recommends that for a comfortable retirement you need to invest 15% of your income on mutual funds.
My Note: many other wealth books don’t recommend mutual fund for the high fees. And they’re right. I recommend you check out:
5. Debt Free College
The Total Money Makeover recommends you send your children to school debt free. You can do that in the following ways:
- With a scholarship
- Saving up with an Education Savings Account which is tax-free
- Avoid college
The author cites Emotional Intelligence to say that only 15% of success is because of training and education.
Thus, he argues, going into debt for college might not be worth it.
6. Pay Off Biggest Debt
The biggest debt is often the mortgage, and that’s what you should aim to pay off ASAP.
It starts from the moment you take the mortgage: make it as short as possible.
The author says that borrowing against your home to take advantage of lower interest rates is a terrible idea.
7. Have Fun
The Total Money Makeover doesn’t want you to live like Scrooge McDuck but to enjoy life as well. As long as you can spend without going into debt and can afford… Do enjoy your disposable income.
And to maximize your disposable income the author recommends you take advice from the best CPAs, tax advisers and lawyers, which is the same suggestion of Rich Dad Poor Dad.
Real Life Applications
Write Down All Your Expenses
This little trick can be a game changer for many to have a better overview and quickly reduce their expenses.
Stick to Your Budget
Set aside money in advance for your expenditure and stick to it to avoid “accidental over-spending”
No Debt Agenda With Silly Paragons
The author says we shouldn’t impinge on debt. And that’s all true. But he says that most wealthy people stay away of debt and some of the best companies are completely debt-free.
Well “most” and “some” mean completely nothing. Some of the best companies take up debt too, and some wealthy individual do use debt as leverage.
The concept still make sense, but I’m a logic nazi and these cognitive biases drive me crazy (in this case it’s an induction reasoning fallacy).
Don’t go for mutual funds, go for ETFs
The Total Money Makeover stresses behavior and habits above knowledge. And I liked its approach on making the changes. Instead of changing everything at once for example, you should tackle things one by to concentrate your efforts and stuck up early wins.
Covers all the basics
While I say that it’s basic as a con, The Total Money Makeover is great for all of those who aren’t yet following the suggestions.
The Total Money Makeover has a positive mindset that reminded me a bit of the Ant and the Grasshopper fable. Basically, it’s about avoiding flashy expenses and tackling your future problems today. So that you can enjoy a better life later on.
The Total Money Makeover is a great resource for people who aren’t yet taking good care of their finances.
It’s good both for the basics and for the practical tips it recommends.