The Total Money Makeover Book was one of the first financial books that I got my hands on, and I am very glad that it happened because it surely changed my life and my thoughts about managing my own money and debt. I believe from my personal experience with this book that it can change your life too!
When I just got out of graduate school I had a highly negative Net Worth as a result of severe student loan debt. This book was recommended to me from someone that had recently struggled with getting out of debt themselves and assured me that this book helped them immensely. So I figured what the heck, I will give it a read and see if I can get anything from it.
You CAN Get Out of Debt:
This book quickly helped me realize even though I was standing at the bottom of a mountain of debt looking up, that it was not impossible to make the climb out. The feeling of being so deep in debt is indescribable and only those that have unfortunately experienced this know the true gravity of the situation. Dave Ramsey helps you see that many people have gotten themselves into holes financially. He then shows you actual peoples real life experiences on how they worked their way out of these holes.
This can be very powerful, as you see real life examples of individuals that are in the same spot as you or maybe a little better/worse debt situations than you. Maybe like me, they got into student loan debt by going to college, or they may have bought to many fancy items at the mall over the year and credit card debt is crushing them. Either way, it is eye opening to see how people have overcome the severe debt that we find ourselves in when opening this book to learn and find a way out.
The Baby Steps:
The Total Money Makeover Book teaches you a 7 step plan to follow for helping guide you out of debt, these are referred to as the “Baby Steps”. This is a fun effective way to monitor your progress throughout your debt pay off journey. Also it is a very simplistic way to break things down to give you a place to start. Large mountains of debt can seem insurmountable, so having steps to put you in an optimal situation to pay off is a wonderful system.
These baby steps have helped many people that have had trouble knowing where to start, and others seeking a framework to follow to find their way out of debt. The big benefit about this is that it implements an emergency fund right of the bat, which is a very important aspect to anyone’s personal finance journey.
The power of baby step 1 here is that it allows you to have a cushion for when something can and will go wrong. Too many people are in debt and then try to start paying off debt, to only have some emergency (medical, car trouble, house repairs, etc.) come up and force them to go into more debt by paying for these unplanned expenses with a credit card, setting them back.
With the Emergency fund this allows them to have a reserve pile of cash to draw from so that they don’t get set back by more debt in these situations.
Snowball Debt Payoff Method:
The snowball approach is characterized by taking the debts that you currently have and arranging them in order from smallest to largest balance. You then would pay the minimums on all of the other debts and focus all of your other available money on that smallest balance debt first to pay if off as soon as possible.
This method is focusing on small psychological victories which can give you a push to continue to work hard to pay off the debts. When there is such a large mountain of debt to overcome this can be a very effective technique to keep you motivated, especially at the start.
Baby Step Constructive Criticism:
The “Baby Steps” mentioned above from Dave Ramsey are a great framework and have helped countless numbers of people find their way out of massive amounts of debt. But that does not mean that they are the only answer for everyone in every situation.
Dave Ramsey’s target audience is no doubt people drowning in debt. Many of these people are in debt for various reasons be it mortgage, divorce, medical reasons, student loans (me), credit card misuse, you name it. The baby steps can definitely help each one of these situations.
There is criticism to every theory. For me I have never agreed for my own money management with the “Debt Snowball”. I know people personally that have used this with success and I urge you to try it if it works well for your own debt pay off. I personally have used a different approach called the “Debt Avalanche”. This is paying off debts with the largest interest rates first no matter of balance size.
This method just makes more sense to me personally, also because as an individual I am committed to this, and don’t require a mini victory to continue with my debt payoff efforts. I would rather save money in the long run by paying less in interest.
For example by paying off a debt first such credit card interest (which could easily be over 20% interest rate) over a student loan (which would average closer to 6-7% interest). Just by the numbers alone I feel more comfortable with this approach. That being said both of these methods are wonderful because you are paying off debt, and that’s what matters.
The other criticism I have is that baby step 4 is too far back in the step progression for me. This again falls into the category of interest rates and balancing between the math and the psychological impact of paying off debt. Waiting until you have every debt payed off and then saving 3 to 6 months for an emergency fund could take years to decades for some individuals based on debt size, income, and other life situations. Therefore, in such a situation they would be severely behind in saving for retirement.
This won’t fit for everyone, but I have saved fore retirement from the start directly following baby step 1 of having a 1,000$ emergency fund built up. I believe that saving for retirement early with the time value of money in the market will be more powerful in the long run than getting out of debt a little faster. I am still working very hard to pay off debt and it is a priority with my income each month, but first I have at least 15% of my income put into retirement before I even get my paycheck.
I get that If I didn’t do this I would get out of debt faster, but I also may end up making more money in the long run this way (based on market performance) by entering the market earlier and letting compound interest work its magic. Over a long period of time the stock market has out earned the average student loan interest rate, so in my situation that is the direction I chose to go. I would not have came to this conclusion without the thought provoked by this fantastic book.
I Highly Recommend This Book:
The Total Money Makeover Book by Dave Ramsey was an eye opening read for me and It was a grass roots framework that I followed, and have already seen growth and results from in my debt payoff journey.
I would recommend this to any individual that is in debt and wants to find real world examples on how others got out as well as situation specific methods and techniques to become debt free and financially independent yourselves. I have seen how this book has helped me, my family, and my friends. I have passed my copy along to friends as well to urge them to take a step in the right direction as well.
I hope that you end up reading this book and learning something that can help you TAKE ACTION and get out of debt! It was a life changing read for me and the earlier you start the earlier you can get out of debt and advance your financial life!
If you choose to buy and read this book via my links I will receive a small amount in return for the work of creating this article. I greatly appreciate you reading this and if you choose to use my link thank you! His other great books are available through the link as well.
Thank you, and most importantly read and take action on what you learn. Go destroy debt!