Written by syndicated radio host and no-nonsense, no-debt guru Dave Ramsey, The Total Money Makeover book purports to offer a tried-and-true formula (the Baby Steps) for getting out of debt and building wealth. It’s not so much a ‘get-rich’ formula as it is a ‘stop-making-yourself poor’ formula.
Two points should be highlighted from the book: first, this is not a plan for optimizers. Ramsey’s focus is on the behavioral aspects of personal finance, not the math. For instance, he does not have you pay off your highest interest rate credit cards first, he has you pay off the smallest balance first. His premise is: personal finance is 80% behavior and 20% math. His goal is to teach you simple behaviors that you can apply that he has found to be successful.
The second point he makes is that this is not easy. “Live like no one else so later you can live like no one else”, is his motto. To get out of debt and begin growing your wealth requires sacrifice – from selling off expensive, debt-laden vehicles, to working extra jobs, to living on his metaphorical (and sometimes literal) ‘beans & rice, rice & beans’ – Ramsey expects short-term pain for long-term gain.
The Baby Steps:
1. Get a $1,000 emergency fund in the bank.
2. While remaining current on all debts, pay off your debts except your mortgage (and in some cases a HELOC or second mortgage), smallest to largest, rolling the payments you were making on the smaller debts into paying off the next debt in line (the Debt Snowball)
3. Build the emergency fund up to 3 – 6 months of expenses
4. Invest 15% of household income into Roth IRAs (if eligible) and pre-tax retirement accounts
5. Save for your children’s college education
6. Pay off your home
7. Build wealth and give
That’s it. If you have the persistence to work this plan, it will work for you. It may not be the best plan for everyone, but it is a good plan for most.
For the full plan see: http://www.daveramsey.com/new/baby-steps/
Two points should be highlighted from the book: first, this is not a plan for optimizers. Ramsey’s focus is on the behavioral aspects of personal finance, not the math. For instance, he does not have you pay off your highest interest rate credit cards first, he has you pay off the smallest balance first. His premise is: personal finance is 80% behavior and 20% math. His goal is to teach you simple behaviors that you can apply that he has found to be successful.
The second point he makes is that this is not easy. “Live like no one else so later you can live like no one else”, is his motto. To get out of debt and begin growing your wealth requires sacrifice – from selling off expensive, debt-laden vehicles, to working extra jobs, to living on his metaphorical (and sometimes literal) ‘beans & rice, rice & beans’ – Ramsey expects short-term pain for long-term gain.
The Baby Steps:
1. Get a $1,000 emergency fund in the bank.
2. While remaining current on all debts, pay off your debts except your mortgage (and in some cases a HELOC or second mortgage), smallest to largest, rolling the payments you were making on the smaller debts into paying off the next debt in line (the Debt Snowball)
3. Build the emergency fund up to 3 – 6 months of expenses
4. Invest 15% of household income into Roth IRAs (if eligible) and pre-tax retirement accounts
5. Save for your children’s college education
6. Pay off your home
7. Build wealth and give
That’s it. If you have the persistence to work this plan, it will work for you. It may not be the best plan for everyone, but it is a good plan for most.
For the full plan see: http://www.daveramsey.com/new/baby-steps/