Monday, October 5, 2009

Book Review: The Total Money Makeover

I know I have absolutely no authority when it comes what my beloved blog readers do, but if I did I would make this book required reading.

Now, I'm no economic expert. Most of my knowledge comes from my 12th grade economics class, the few finance books I've read since then (and the ones I thumbed through when I worked at Barnes & Noble), and life experience (peppered with a few mistakes). That said, I feel like I've got a good, basic handle on finance on a family level. We've got a plan and we're on our way to being completely out of debt. And I honestly don't think we would have been nearly so motivated if I hadn't read Dave Ramsey's The Total Money Makeover.

A couple years ago, my mom introduced me to Dave Ramsey. She had listened to his radio show and thought he made a lot of sense. She bought his book, read it herself, and then wanted all of her kids to read it. Since, like I said, I'd read a few books about personal finance, I thought, "What is this guy going to say that I don't already know?". But, since Mom knows best, I read it anyway.

While I felt the material in the book was nothing new (it seemed like common sense to me), there were a couple things that really got my attention. One was his stance on debt. In his opinion, debt is avoidable. To him, credit scores don't really matter (he says he's had a credit score of zero for twenty years) and there is nothing that you need to go into debt for (with the exception of a house, but even then he lays out a debt-free plan). Not even a car. After reading this book, I wanted to get rid of our debt as fast as possible.
The other thing that caught my attention was the simplicity of his plan.
Even if the material wasn't completely new to me, having it all laid out the way it is in the book got me thinking clearly and getting a plan together for our family finances. He outlines the whole program as following a number of "baby steps" (which as I read it, it kept reminding me of What About Bob?). The baby steps are basically:
1. Get a $1000 emergency fund. (Side note: this saved us a couple weeks ago when my husband's commuter car needed major repairs. Even though it was hard to see our emergency fund dwindle, it was better than putting it on a credit card like we would have before.)
2. Pay down debt using the 'debt snowball'.
3. Finish the emergency fund by saving 3-6 months of expenses.
4. Invest 15% in a retirement plan.
5. Save for children's college education.
6. Pay off the house early.
7. Build wealth and give.
You simply do one baby step at a time, which makes getting your financial house in order not so overwhelming. This book has no quick fixes, no tricks, no complicated math, and you don't need to be a financial expert to follow the baby steps. I mean, if my husband and I (an artist and a former English major, respectively) can follow it, anyone can.

One thing that has really made a difference in our finances was inspired by this book: making and following a budget. I'd made attempts at making a general budget, but we never really followed it. This resulted in forgotten payments, late payments, fees, and stress. Now, we follow Dave's advice and plan out every paycheck. I have a notebook and I write where every dollar of each check will go. This has made my life so much less stressful. As I mentioned, we had some major car issues a couple weeks ago, but since I'd planned out our month's paychecks down to the dollar, I knew at a glance how we'd pay for the repairs. I honestly can't recommend budgeting enough.

My husband always makes fun of Dave Ramsey because the advice he gives on his radio show is often the same. He'll do an impression of Dave's southern accent and say, "Okay, what ya gotta do is make a budget and pay off your debt...". The way he lays it all out is so simple, so doable. Plus, reading the book is kind of a pep-talk - it gets you motivated to change, mad that you're wasting so much money, and gives you the courage to, as he says throughout the book (it's on the bottom of every page, over and over), "live like no one else so you can live like no one else". My husband and I are following the plan and even though we are just on the first couple steps, I already feel so much more control over our money, instead of the opposite and having it control us. And that makes even these scary economical times a little less so.

1 comment:

Shauna said...

Heather! A new blog...I had no idea! Anyway, I love it, good job!

Speaking of budgeting, have you tried Mint.com? I'm way too lazy to write everything down (way lazier than you), but Mint made it so I have my first actual budget of my entire life (embarassing, I know). Sticking with it might be a different story, but it is definitely nice to know where everything is going, for once.

Anyway, yay for your blog!

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