Thursday, December 22, 2011

Book Review: Total Money Makeover by Dave Ramsey

I don't know if you saw this post, but I thought it might be nice to post a review of each of my favorite finance books, little by little! I know this book has been around for a long time, but I think it's still a relevant, good read!

I recently read Dave Ramsey's book, The Total Money Makeover. Overall, I thought this book was excellent if you have a lot of debt, or even if you want a very basic, easy to follow plan for ensuring you will be set for the rest of your life! He breaks the money makeover into baby steps:
  1. Save $1000 for your emergency fund
  2. Pay off all debt (non-mortgage) using the debt snowball
  3. Save 3 to 6 months of expenses
  4. Save 15% of your income into retirement (Roth IRAs, etc)
  5. Save for your children's education
  6. Pay off your mortgage early
  7. Build wealth through investing and give to others
The baby steps are very simple to follow, and go in a pretty good order. However, my husband didn't quite agree with the order of the steps, and neither did Frugal Dad. My husband didn't think we should finish our emergency before we started saving for retirement, especially since he has a goal or retiring at 50, and I agree with him, completely. So, we are concurrently saving for retirement and our emergency fund, combining step 3 and 4 into one. Combined, we are saving a little over 15% of our income, so we feel like we're doing a pretty good job, even though it isn't exactly the same as Ramsey's steps. Also...we keep using our credit card for the cash rewards, (but we never carry a balance!) It sounds like Frugal Dad adjusted the steps to fit his situation, as well, but it looks like it was a little more complicated than for our individual situation.

Another critical concept he talks about in this book is the gazelle intensity: the idea that you will do everything in your power to cut back your expenses and save or get rid of your debt. This includes working extra jobs or hours, selling things you already have, and cutting down your budget to just the basics. He says, "If you will live like no one else now you can live like no one else later." It's a great  quote to post somewhere you will see it often!

The book is full of anecdotes of people who have had a great money makeover, which sometimes interrupts the concept he is talking about. But, it is motivating to read the success stories of others, some who are in a lot more debt than we can even imagine!

After reading this book, I felt both encouraged and discouraged: I feel like it gave me a great end goal, and the steps necessary to get there: but, since we've been doing a pretty good job with our finances, there is no possible way we could accomplish the steps in the few years time that he says is average. I wondered if maybe we weren't being 'intense' enough, so I started thinking of any ways we could either decrease our expenses or increase our income.

My husband and I talked about ways to increase our net income. We first looked at our budget to see if there was any way we could cut back to increase the amount of money we were saving towards our Emergency fund. We couldn't really find much to cut out, which was good, and bad. It's good we aren't spending more money on things we need, but there's no easy way for us to put lots more money into our emergency fund! So, we looked at what we had around the house to sell, and had a similar experience: there was only one thing I thought of selling, my Kitchenaid, but we decided that it would be wise to keep that. We got a great deal on it, and I use it frequently to cook. Lastly, we looked at ways we could increase our income by working, and the only possible way of doing that would be for me to work more than I do, or for my husband to get another job in the evenings. I currently work as an online tutor about 5-7 hours a week, during my sons nap time, and while it is a very flexible job, we've both decided that we didn't want to sacrifice our family time in the evenings for a few extra dollars. We feel like we're doing a pretty good job, but since we don't have debt, we don't feel like we need to be as intense as he recommends.

In summary, the take home message of this book is GREAT, but don't get discouraged if your own Total Money Makeover takes longer than he recommends. Just make sure you keep saving, and following his steps, adapted to your situation, little by little!

Have you read this book? If so, what did you think about it? I'd love to hear your comments/link ups!

If you haven't read this book, I would challenge you to try to read it before the year ends. As you make your New Years resolutions and goals, incorporate his principles into your list and make some awesome financial goals. For example, we decided we want to finish our emergency fund by the end of the year. And feel free to post your goals and link up!


  1. I'm a fan of Ramsey's technique. My main criticism is that I prefer to work on paying down higher interest debt first. He recommends paying down your smallest balance first to help you gain momentum, but, personally, knocking down the interest is what motivates me.

    My other criticism is that he assumes a middle class income. Right now, due to prolonged unemployment, my husband and I have a lot of debt. But, in our financial situation, using Ramsey's plan is impractical. Using gazelle-like intensity, we're lucky to make it through the month in the black--and that's with our debts in default.

    Realistically, it would take us at least five years to save up $1000, meaning that starting with our emergency fund is not a realistic goal. Instead, I'm paying $10/mo toward a small medical debt--it's serviced the only collections agency willing to take such a small payment. When we do our taxes, we will be getting some money back, and we will use it to settle another debt and fix up our car (it has transmission problems).

    If I were to sit down with Ramsey and show him our financial situation, he (along with most financial planners and attorneys) would probably recommend bankruptcy. We can't afford that. It also isn't a good choice for us, anyway. Because we rent, we will need our credit to be able to recover when our finances improve--something that is possible with debt settlement, but not bankruptcy. It's also a bad option, because over half of our debt is student debt, which would remain after a bankruptcy.

    If we had regular income that exceeded the cost of rent, electricity, water, gas, food, and transportation, Dave Ramsey's system would be excellent for us. We don't, so it isn't.

    Please understand that I am not trying to start a fight. I don't even disagree with your post (I actually, really like your post). It's just important to me that people understand who Ramsey's audience is, and that there are situations where his plan simply isn't practical or practicable.

  2. We are sorry to hear about your financial struggles. We hope things get better for you. Sometimes just hanging in there is the best we can do for a while. Have you tried to contact the student loan place and see if they can postpone payment on your loans until you are employed again? Do you have family that you could live with temporarily to reduce monthly bills so you can pay debt off sooner? Is there an older persona in town who would be willing to trade having you shovel snow or mowing the grass in trade for living in their home? We hope that you can find employment soon and not have to deal with the difficult financial challenges any more. If you were in town, we would drop by some food or something to let you know that you are not alone. We watched "Homeless for the Holidays" a few weeks back. Even though it wasn't a well made movie, it had a great message. We wish you the best and will keep you in our prayers.

  3. Thank you for your concern and suggestions. Our student loans are deferred until further notice. Both my husband and I are employed, so that is not the issue. Living with family is not an option for us, and we have two children so living with someone else is not a very likely possibility. Right now, we are waiting for responses to job applications on additional work that would start in June. We are also holding tight until a temp job starts in February. Realistically, this is the best financial shape we've been in for two or three years, so things are looking up!

  4. Hang in there. It looks like things are improving. I hope they keep going that way and you can have this behind you as soon as possible. This experience you are having may help you to be there for someone else in the future who needs your help to get through a hard time handling the same type of situation. We will you a very Merry Christmas!