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What I learned from Dave Ramsey

A Few Take Away Points from Reading The Total Money Makeover

I recently read The Total Money Makeover by Dave Ramsey. I had heard of him before and it seems like whenever someone has questions about getting out of debt people often refer to his books. I had been reluctant to read his books as I thought it was going to be too basic, but for people who are struggling with multiple sources of debt and don’t know where to start it has some great tips.

I’ve been fortunate enough to have an aversion to debt. After reading the book I realized that this might not be the case for everyone, some by choice and some by circumstance. I’ve never had a car payment, I don’t have credit card debt, I don’t borrow for other purchases, but I do have a ton of student loans.

Warren Buffet has said “investing in yourself is the most important investment you’ll ever make in your life.” I have always considered education an investment in myself. Dave Ramsey recommends never borrowing money. I think the one time to ignore this rule is for education. For PA education it is very difficult to avoid debt due to the cost of PA school, however there are still ways to lower the cost; weather that be through PA school scholarships or signing up to have someone else pay for your education.

Although some of the principles in The Total Money Makeover seem basic here are five take away points from the book.


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Debt is Bad

This seems like a basic principle to me. I’m not sure where I learned this, but I have never been eager to borrow money. As I read the book I realized this might not be as basic as I thought.

A lot of people borrow money to purchase cars and when you finish school or get a new job you might be tempted to borrow for a new car, as you know you’re going to be making more money soon. Don’t fall into this temptation. Your focus should not be on paying for a new car, instead focus on paying off your debt. Once you have your debt paid off you’ll have plenty of money to purchase a new car without having to borrow.

Know Your Goals

What exactly are your financial goals? Why do you want to pay off your debt? Do you want to retire early? Do you want to work forever?

Looking at your finances and deciding why it’s beneficial to get out of debt is helpful in getting your debt paid off. In the book he gives examples of why you should pay off your debt and repeatedly says “live like no one else so that you can live like no one else”.

He is saying that if you make sacrifices now and get your debt under control you can later have the flexibility to have money to spend on things that you want. You will no longer be bound to a contract to pay your loans. If you want to work forever then you can continue to borrow, if your goal is to retire early (or ever) make sacrifices now, get you debt paid off and start saving.

Have a Plan

In order to reach your goals you need to have a plan. The book gives steps to reach financial freedom and part of that is the debt snowball. The way the debt snowball works is that you pay off your smallest loan first. Once you pay off one loan you add the payment amount to the payment of the next smallest loan. You keep doing that until you have all your debt payed.

Instead of paying off the smallest loan first you can attack your debt by paying off the highest interest loan first and work your way down. Either way have a plan on how you’re going to attack your debt and stick to that plan until you have everything paid off.

Be Gazelle Intense

He uses an illustration of a gazelle being chased down by a cheetah and the gazelle does anything it can to get out of harm’s way. When you’re approaching debt you must be gazelle intense. Do whatever must do to get out of debts way.

This might mean you have to make drastic moves to help get out of debt. You might have to be willing to change your lifestyle. You might need to sell a car so you can get a more affordable car. You must be focused on the main goal and stick with the plan to get out of debt.

Don’t Over Complicate Investing

Once you have your debt paid off, the next step is to start investing that money. He gives easy advice on how to invest your retirement in mutual funds. Investing does not have to be difficult, but if you don’t invest you’re missing out on money that you could be earning.

He recommends splitting your investment into quarters; 25% in growth and income funds, 25% to growth funds, 25% to international funds and 25% to aggressive growth funds. Also, know investing is a long term plan. Don’t use investing as a get quick rich plan. It takes time for your money to grow, but if you start early you’ll have a large nest egg in no time.

When I first started reading I didn’t think I’d learn much, as many of the principles discussed in the book I have heard in the past; however it was a good reminder of simple steps you can take to get rid of your debt. If you have multiple sources of debt and don’t know where to start The Total Money Makeover is a great resource to get you on the right path to financial freedom.

Where are you in your journey of getting rid of debt? What’s been your experience in getting rid of you debt? Let us know how it worked out for you. Please comment below the original post, sign up to receive future posts by email and share with your friends!

 

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