Book Review – The Total Money Makeover

There are very few financial advisers who are known throughout the entire personal finance community, who are so famous that they can be mentioned by their last name and you, if you have any financial knowledge, will instantly know who I am referring to. Bach, Orman, and Kiyosaki are such advisers, but perhaps even more famous (at least among the personal finance community) is Ramsey.

The Total Money Makeover, written by Dave Ramsey, is perhaps one of the most followed and celebrated personal finance books around. As the title implies, the goal is not to simply help you with one aspect of your monetary life, but to completely remake your monetary life. So, do all the Ramsey adherents have the right idea, or are they all headed in the wrong direction, money-wise? As always, let’s find out!

Summary

The Total Money Makeover (3rd Edition, just to be clear) opens with an Introduction in which Ramsey shares the history that led to the creation of the book, as well as his current position as a financial adviser. There is a section on what the book is not (including not being sophisticated, complicated, or wrong). The opening portion finishes with a discussion of what has gone wrong with the economy lately, and a few stories of those who followed the Total Money Makeover and have been in a position to succeed in life as a result.

The first chapter introduces the idea of the Total Money Makeover. It shares Ramsey’s history and how he ended up making the changes in his life that he currently promotes. It also shares the first story of those people who have successfully followed Ramsey’s plan (many others are shared throughout the book), and points out the ‘If You Live Like No One Else, Later You Can Live Like No One Else’ motto on the bottom of every page. Chapter two covers the issue of denial, pointing out that you can’t make any improvements in your life until you admit there are areas in need of improvement.

Chapter three looks at one of the myths about debt, that is serves as a tool to accomplish important things in life. It examines numerous different types of debt, from lending to family members to leasing a car to credit cards, expressing the problems with each of them. The fourth chapter looks at other money myths, from myths about bad types of investments to the need to have various types of insurance (the myth being that you don’t need insurance, that is). Chapter five looks at how to fight two more money problems: ignorance (by trying to expand your level of financial knowledge) and trying to keep up with the Joneses (by realizing that it’s more important to get your finances in shape than to get approval from others).

The next seven chapters cover the ‘Baby Steps’ Ramsey is famous for recommending to manage your money. Chapter six covers the first one, setting aside a $1000 emergency fund, after stressing the importance of creating a financial plan and budget in the first place. The seventh chapter covers Ramsey’s recommended way to get out of debt, the Debt Snowball. It works by focusing on paying off the lowest amount debt first, then the next lowest (now using the extra money from the first, paid off debt), then the next lowest, and so on. The goal is to pay off all the debts over (a hopefully short) time, with only a few exceptions (business loans, home and rental mortgages, which are covered later).

The eighth chapter covers Step Three, building up your emergency fund to three to six months’ worth of expenses. It suggests places to keep the money and reasons to alter the order of the steps (if you know there is an emergency coming up soon in your life, such as losing your job, the emergency fund becomes more important). Chapter nine looks at how to invest once you have a solid emergency fund and no debt (except  for possibly a mortgage), building up a retirement fund. It recommends putting 15% of your gross income aside, mainly in growth mutual funds, preferably in any retirement type accounts available to you.

Chapter ten discusses saving for your child(ren)’s education, setting aside a fund to help him or her (or them) cover their college costs. Ramsey highly disapproves of student loans, providing numerous suggestions on how to get a higher education without taking them on. The eleventh chapter looks at home mortgages, stressing the goal, now that everything else has been taken care of, to pay it down as effectively as possible. Chapter twelve looks at the final Baby Step, building up wealth, sharing advice on how to further invest your money, have fun with it, and give plenty away, preferably doing all three.

Chapter thirteen rounds out the book by advising the reader to take the steps suggested to heart and apply them as so many others have been able to do. The third edition then shares the winner of The Total Money Makeover Challenge, and ends with a series of forms that can be used to help follow the steps in the book.

Pros

The Total Money Makeover presents a very helpful, generally easy to follow method of money management. The steps are clearly laid out, and the advice given is pretty solid. The nature of Ramsey’s writing, as well as all the stories shared about people successfully applying the Baby Steps, is very encouraging.

Cons

There’s been almost as much written about where the Baby Steps go wrong as about how they go right (including by me). Many of the suggestions are rather optimistic, particularly the idea that you can live off 8% of your retirement savings (when most other financial experts suggest 4%, and even that is sometimes cited as too high). The repeated Bible references are likely to be a turn-off for any non-Christian.

Overall

The Total Money Makeover provides a pretty solid guide to getting your financial house in order, breaking the process down into simple steps. While these steps might not always be THE best method to take in order to get your finances in order, they are a pretty solid approach. I’d definitely recommend following this approach (or something very similar) to getting your finances in order, as I intend to do myself.

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