The Total Money Makeover - Dave Ramsey's guide to financial freedom

I admit it--I was skeptical about this book. Before I picked it up, I thought, "this is just another radio show guy with a bunch of cookie cutter answers to complex financial questions."

I was totally wrong.

Dave Ramsey is a guy with a straightforward philosophy about money which I summarize in three points: 

  • Wealth is good;

  • Debt is bad;

  • Financial freedom requires hard work and sacrifice.

Dave should know. He earned his street-cred in the early 1980's when his $4 million real estate empire collapsed under the weight of his own debt. He lost everything in the bankruptcy and decided it would never happen again.  The result is a philosophy he calls Financial Peace and a process he calls The Total Money Makeover.

The Total Money Makeover is not a miracle cure for the financially ill, but it is a blueprint for healing. Dave Ramsey promises:

If you will follow the guidelines of this proven system of sacrifice and discipline, you can be debt-free, begin saving, and give as you've never given before. You will build wealth.... The Total Money Makeover isn't a magic formula to wealth. This system will not work unless you do, and then only to the degree of your intensity in implementing it. (p. 8)

How refreshing! Here is someone who advocates success through hard work, sacrifice, and what he calls "gazelle intensity."

There is nothing in this book that breaks new turf. Most of the principles he teaches would have likely been common sense to your grandparents, but that have somehow gone missing in society's "modern" thinking about money. It is nice to have Dave bring them back to our awareness.

Dave's program involves six "baby-steps."  (Baby steps comes from the Bill Murray comedy What About Bob?)

  • Baby step 1: Build up a $1,000 emergency reserve.

  • Baby step 2: Pay off all your conusmer debt using the debt snowball strategy.

  • Baby step 3: Build up your emergency reserve equal to 3 to 6 months of living expenses.

  • Baby step 4: Maximize your retirement savings.

  • Baby step 5: Save for college.

  • Baby step 6: Pay off your mortgage.

  • Once you get through baby step 6, keep saving and "build wealth like crazy."

Like I said, nothing new here...but a lot of common sense.

Now and then some technical aspects of the book made me cringe. Dave's discussion of investments was one of those. For example, in describing his investment mix among mutual funds, he says:

Growth and Income funds get 25 percent of my investment. (They are sometimes called Large Cap or Blue Chip funds.) Growth funds get 25 percent of my investment. (They are sometimes called Mid Cap or Equity funds; an S&P Index fund would also qualify.) International Funds get 25 percent of my investment. (They are sometimes called Foreign or Overseas funds.) Aggressive growth funds get the last 25 percent of my investment. (They are sometimes called Small Cap or Emerging Market funds.) (p. 157)

I'm sure Dave knows better, but despite what he implies, there is a big distinction between the different stock classifications he lumps together. Also, it would be better if he clarified that while his mix may be appropriate for him, it may be completely inappropriate for others. Asset allocation is a very personal aspect of an individual's investment strategy.

However, taken in context of Dave's overall message, I found these problems to be very minor. I heartily endorse his systematic approach. On a personal note, though Jeanne and I have been very prudent about our finances over the years and are debt-free except for our mortgage, we have decided to use The Total Money Makeover as our template to becoming TOTALLY debt-free. We will keep you posted on our progress.