The Amateur Financier

I’ll admit, I haven’t been able to read all the books on money and related issues that are out there.  Admittedly, it would all but impossible to do so, even if I really wanted to; there are tens of thousands (probably more) of money books out there now, and hundreds, if not thousands, of new books being released on a regular basis.  Trying to read even one percent of them could occupy all of my free time for the next decade, easily.  So, I don’t stress too much that I haven’t read EVERYTHING in the personal finance sphere.

That said, there are times when I look at my book collection and my book reviews and notice a rather surprising gap.  One such gap is that I haven’t reviewed any books by Dave Ramsey, or even read any.  Given that Dave Ramsey is one of the huge names in the personal finance field, right up there with Suze Orman and David Bach, such a gap in my reviews (and my personal reading) just seems unforgivable.  So, when I saw a copy of The Money Answer Book in my local supermarket, I decided to buy a copy and learn more about Ramsey’s take on personal finance, and share that learning with you:

Summary

The Money Answer Book opens with a chapter on the basics, which lists Ramsey’s Seven Baby Steps to getting out of debt and managing your money.  The chapter also starts to cover Ramsey’s view on debt and credit cards (short version: he’s not a fan).

Speaking of debt and credit, that’s the subject of the next chapter of the book, along with bankruptcy.  In a series of questions (such as those from people following the Seven Baby Steps) and answers from Ramsey, the same format used throughout the book, he covers advice on how to pay down debt, avoid bankruptcy, and otherwise manage your money.  There’s also advice on handling creditors and bill collectors attempting to collect owed money.

The next chapter covers relationships and money, which tend to be tricky for many people to handle.  There are quite a few questions about combining finances when you get married (and separating them if you happen to separate).  This chapter also covers issues with children, from how to handle allowances (Ramsey prefers paying commissions for completing tasks around the house) to how to handle adult children who make poor money decisions.

The fourth chapter covers budgeting.  Ramsey recommends sticking with a strict budget, and using envelopes to divide up the money you will be spending each budget period (and no refilling envelopes once they’re empty, of course).  Chapter five covers saving and investing.  After stressing the importance of saving money (and the need for focused emotions to build up your savings), Ramsey stresses the need to invest, as much as possible, preferably in mutual funds.

The rest of the chapters in the book are fairly short, covering a variety of other monetary issues.  Chapter six primarily covers student loans and education expenses; as with everything, Ramsey doesn’t recommend using borrowed money (that is, student loans) to get a higher education.  Chapter seven covers giving to charities and the church, stressing the Biblical mandates to tithe a portion of your income.

Chapter eight is about insurance, providing a list of the types of insurance you need, from life insurance (term, not whole) to disability insurance.  The ninth chapter is on retirement and estate planning, covering things like how much to save for retirement and the importance of having a will.

Chapter ten covers automobiles, stressing the importance of buying a used car (one at least two years old) and not taking out a loan in order to purchase it.  Chapter eleven covers real estate, recommending only getting a house if you can pay at least 20% down and can get a mortgage that requires less than 25% of your monthly income to pay the monthly bill.  As you might expect, even more recommended is paying cash for your home.  The book ends with a series of useful resources to find other information that you might need.

Pros

If Ramsey is nothing else, he’s quite passionate about money and getting people out of debt.  Most of his methods are quite effective, and he’s well known for encouraging people to get out of debt.  If you have an excess of debt that you are trying to eliminate, Ramsey’s methods are likely a good bet.

Neutral

Ramsey is a very passionate Christian, and throughout the book (particularly the chapter on Stewardship), he emphasizes a relationship with God, and he shares Biblical quotes in the book’s margins.  Depending on your religious views, this could be a plus or a minus.

Cons

The emphasis on no borrowed money seems to be taken to extremes.  In particular, not borrowing money for student loans seems to rather short-sighted, as does the suggestion to work a second full time job to gain more money to pay off debts.  The assumptions about the growth of investments also seems a bit optimistic, leading people to underestimate the amount they need to invest to meet their goals.

Overall

The Money Answer Book can serve as a helpful guide to those who really need help getting (and hopefully staying) out of debt.  The hard-line approach against debt, though, seems to be ill advised for most people.  Most people tend to either be all for Ramsey’s methods or tend to disagree with them; I’m more of the latter, but if you think his extreme approach to eliminate debt would work for you, this could be a good book for you.