The Total Money Makeover - by Dave Ramsey

My Notes

Debt is the best-selling product in our culture. Most Americans are up to their ears in debt. We spend too much foolishly on debt.

Millionaires people don’t do this. They don’t get in over their head with mortgages, car payments and credit card debt beyond their means.

Debt is not a tool. It doesn’t help you build anything.

Debt is slavery. It weighs you down, closes doors.

Most Americans will not be able to “retire with dignity” because they have too much debt and too little saved/invested.

If your household makes $50,000 a year that’s millions of dollars over a 30-year career. Where does all this money go? Most of it is wasted on debt for things we don’t need.

Most of us are not taught the art of handling money.

Don’t buy a new car unless you are rich with lots of money invested and saved. New cars depreciate too quickly. A slightly used car, a few years old, is a better investment.

People with big salaries often buy big homes and cars and have nothing when they’re old.

Other folks with modest salaries can invest and retire well just by budgeting. Have a plan and be disciplined with your money.

Changing your habits? It’s not head-knowledge so much as it is behavior modification.

Married Couples: Budget each month together. Put every dollar down on paper. Sign off together. If a mid-month emergency arises, call a meeting and revise the budget together.

##7 Steps The following steps should be completed in order to make you debt-free, invested and prepared to retire with dignity.

These steps are designed to give you a sense of momentum as you change your behavior.

This will not be easy. If it were, we’d all be debt-free.

Step 1: Put $1000 in savings, somewhere we can’t get to it too easily. (Don’t let over-draft get to this money. Emergencies only).

Step 2: Pay off all debt besides the house. Anything beyond your $1,000 savings goes to debt payments. Don’t worry about retirement yet. Get the fat off. Sell some stuff - vinyl, comics, instruments. Start with the lowest debt bill and focus on it until it’s gone. Use that extra money to attack the next one and so on. This is the debt snowball.

If you have to use some of your emergency fund from Step 1, stop the debt snowball and replenish the fund before continuing.

Step 3: Grow your emergency fund to 3-6 months of income. You are out of debt! Don’t slide back into it because you weren’t prepared. This emergency fund is probably $10,000 or more for most families. Put it somewhere safe, like a CD, where you can take it out to cover unexpected expenses.

If job and health of family are stable, 3-month fund may be ok. If not, you probably want 6 months of cash saved. Home/car/health/layoff emergencies will definitely happen.

Step 4: Invest and become wealthy so you can retire with dignity. Put 15 percent of your gross household income away (tax-free) into mutual funds, 401k. Go with any match from company you can get first.

Roth IRAs are recommended if your company doesn’t match. Roth IRA’s are allowed up to $5000 per person. Start there and work up to 15% of total gross income as necessary.

Step 5: Save for your children’s college fund. Your kid does not need to go to a fancy private school. They don’t need debt before they hit the workforce either. There are tax-advantaged vehicles, such as 529 College Savings Funds and ESAs (Education Savings Accounts).

Step 6: Pay off your mortgage early. Put all extra money towards paying off your home. You’ll save thousands that you would’ve paid in interest. Do not wait 30 years.

Step 7: Build wealth and give. Imagine having no debt, not even a mortgage?! All that extra dough. Now is the time to live and give in style. You can leave inheritance or be an anonymous helper. The possibilities are endless.