In January, I read “The Total Money Makeover” by Dave Ramsey and it was a game changer for me! I never really knew much about money other than how to make it and spend it, but I came to a point where I was tired of being BROKE! My bills stay paid and my kids want for nothing, but I could never seem to get ahead. I always had a burning desire to become a millionaire and decided that something had to change! I was never taught how to handle my finances, so I decided to teach myself, which is how I stumbled upon this book. This one is another must read for yourself , but it’s necessary that I go ahead and share with you some of the knowledge Ramsey kicks in this book…
The Total Money Makeover can be summed up in 7 baby steps that will help you build wealth and achieve financial peace. I am currently on step two, and I have to warn you that following these steps requires much discipline. I also want to remind you that the universe is abundant and there is enough money out here for all of us, but it’s so important that we learn how to make our money work for us.
Baby Step One
Ramsey suggests that you should stop everything and focus on saving $1000 fast for an ER fund. You should do this in less than a month if possible. A key to coming up with this money is to stay on top of your monthly budgeting, which I talk about in “5 Ways to Secure Your Money Bag”. You’d be surprised how many holes you find in your money when you write it down! I finished this book at the end of January which led me right into tax season. I was able to save $1000 by March. Ramsey advises you to sell stuff or work extra if you have to in order to save up your ER fund. Then once you save it, hide it from yourself! I put my money in an envelope and wrote “ER ONLY!!” on it. Then I put the envelope in a picture frame and hid the frame. Whatever works, right?
Side note: All of your bills need to be current before you start step 1.
Baby Step Two
Ramsey’s second baby step is start working on the debt snowball. In order to tackle your debt, first list all debts in order from smallest to largest. Then pay the minimum on all debts except the smallest. Every extra dollar you find in your budget should go towards your smallest debt until its paid. Once the smallest debt is paid, take the payment from that debt plus any extra “found” money and add it to second smallest debt. Once debt 2 is paid, take the money from debt 1 and debt 2 plus any found money and pay debt 3…and so on. Ramsey recommends that if you get to Step 2 and an emergency comes up that requires taking from ER fund, stop step 2 and return to step 1 until the $1000 is replenished. He warns that this requires total focused intensity.
My debt consists of an auto loan, my mortgage, and my student loans. I previously have been paying $0 towards my student loans because I was enrolled in the student loan forgiveness program which allows you to pay as you earn.
Related: Government and Public Education
After reading this book, I called the company that services my loan and told them I want to start making payments regardless of my eligibility for the program. I found out that my loan has been accruing another $3000 in interest every year I wasn’t making payments. I picked up another monthly payment, but it feels good to take the steps towards financial freedom. As far as my auto loan, my goal is to have it paid off in the next year or two by paying more than the monthly minimum.
Baby Step Three
Finish your emergency fund. You cannot achieve financial peace without an ER fund in place. Ramsey and other financial experts recommend saving up 3-6 months of expenses. For most Americans, around $10,000 is a good nest egg.
Baby Step Four
Invest 12-15% of your gross income in retirement. Most of us know we shouldn’t rely on social security benefits to be there once we retire. According to Dave Ramsey, your tool is mutual funds and he suggests that you should spread your investment evenly across four types of funds: growth and income gets 25%, growth gets 25%, international gets 25%, and Aggressive growth gets 25%.
Ramsey also advises to always start where you have a match. So if your employer matches your 401k contribution, take advantage of the free money. He mentions Roth IRA as well, which is something I plan to explore in greater detail (once I cross that bridge in the near future).
Baby Step Five
Baby step five is save up for your kid’s college funding. Ramsey alarms:
“⅔ college students take out loans, student loans are normal, and normal is broke”.
He teaches us a little about Educational Savings Accounts (ESAs) and 529s. An ESA grows tax free when used to college and allows you to invest $2000 per year, per child if you meet certain income criteria. Save your kids from starting off their adult lives in the hole by investing in their futures, now!
Baby Step Six
Pay off the your home mortgage. Ramsey’s position is “Don’t settle for good enough” because even with a fully funded ER fund, no debt, 15% in retirement savings, and a college fund, there is still wealth building action to take. He advises against taking out a home equity loan (HEL); it is NOT an emergency fund.
Baby Step Seven
Build wealth! Ramsey believes that money is good for FUN, INVESTING, and GIVING. He encourages simple investing like mutual funds and debt free real estate. Once your money is invested in mutual funds, compound interest begins to work its magic over the years. Ramsey warns not to cash out all at once in fear of market fluctuations; throughout history the market always recovers so leave your money invested. Once you retire, you should be able to live off 8% of your nest egg and have reached a pinnacle point in life, where your money works harder than you do and your money makes more money than you do! How amazing does that sound?!
I loved this book because not only was it educational, but it was also a spiritual read. Ramsey references different bible scriptures throughout the book to support his wealth building theory. When you manage God’s money properly, it starts to flow to you effortlessly.
Did you just learn anything new about money?