Review: The Total Money Makeover by Dave Ramsey

Recently I wrote a quick introduction to Dave Ramsey. Now, I thought it would be appropriate for me to review his most popular book, The Total Money Makeover. This isn’t a book on how to invest your money, or how to get a great rate on a home loan. This book is more about Dave’s overall approach to personal finance. Dave’s Total Money Makeover really isn’t that detailed. There aren’t tons of facts to memorize or anything. Actually, about half the book is motivational stories from people who have used his system. If you’re currently in debt, though, it’s probably one of the best books out there.

If you live like no one else, later you can live like no one else.

Dave Ramsey Total Money MakeoverThat’s Dave’s motto, and he really sticks to it. Dave’s system is all about making short term sacrifices, getting out of debt, and paying for everything with cash. Before addressing the how-to, Dave first digs into the hurdles that keep people from achieving personal financial success. All of Dave’s principles are rooted in the fact that personal finance is 80% psychology, 20% knowledge. Nearly everybody knows what they should do, but doing it is a completely different thing. I think that becoming financially fit is similar to becoming psychologically fit. We all know that we should eat healthy and exercise often, but doing it is entirely different.

The first hurdle that Dave Ramsey addresses in denial. Having debt and living paycheck to paycheck has become “normal”. I think that denial is the #1 hurdle that is keeping people from achieving financial freedom. It’s easy to trick yourself into thinking that not paying off the credit card this month really isn’t a bad thing, because you’ll pay it next month. Or that you should get the latest iPod, because you work hard, and you deserve it. I know I’ve done both of these things.

Dave next addresses debt myths. You can’t deny the fact that history shows us that twisted logic, if repeated often enough and loud enough, can become the accepted norm. Debt is sold to us so often, that some debt has become known as “good debt”. We all know what “good debt” is, right? Mortgage loans and student loans are the two that immediately come to mind. Dave believes strongly that there is no such thing as good debt. He won’t yell at you for having a mortgage, but all other debt is strictly off-limits.

Thirdly, Dave Ramsey brings up what he refers to as money myths. Dave subtitles this section, “the (non)secrets of the rich” because that’s what they are. There are no secrets to becoming rich, just like there are no secrets to losing weight. People are constantly looking for the magic pill that will help them lose weight, or the DVD set that will help them generate a six-figure income while they work four hours per day. Many Americans continue to buy lottery tickets, since “somebody’s gotta win.”

The last two hurdles are ignorance and keeping up with the Joneses. High schools teach almost nothing about money, yet many of those students will go directly to work. They won’t pass go, they won’t collect $200. The fact that you’re even reading this ensures that you’re not ignorant when it comes to money. The ignorance factor plays right in with keeping up with the Joneses. The Joneses might have a cool car and take awesome vacations, but they’ll have that car payment their entire life and they are paying for their vacation with a credit card.

The Baby Steps

After going through what Dave considers to be the main hurdles to achieving financial independence and completing your total money makeover, he introduces his popular Baby Steps. Dave Ramsey has compiled a list of seven goals, which he calls his Baby Steps. Your can do anything you want in life as long as you have defined, manageable steps (goals) to get there. If you follow and complete each of Dave Ramsey’s Baby Steps, you’ll be debt-free and financial independent. As you complete the Baby Steps, the idea is that you’ll focus on that one goal with all of your efforts. If you’re saving for an emergency fund, you should be doing only that. Most people fail at their finances because they try to do too many things at once. If you’re working to save money for an emergency fund while paying down debt you’re going to feel like you’re not making any progress because your efforts (and money) will be divided. Click on this link to check out the Total Money Makeover Baby Steps in detail.


Dave Ramsey’s Total Money Makeover delivers big in the motivational department. There are testimonials littered throughout the book from people who have had success after implementing Dave’s Baby Steps. If this book doesn’t get you motivated to achieve financial independence, I don’t think anything will. The Total Money Makeover also delivers on explaining the “why” for many of the things Dave proposes, whether in his other books or on his radio show. However, some people may want a more practical, how-to book. The Total Money Makeover is Dave’s “why” book, and Financial Peace University is his “how to” book/course. This book is absolutely worth buying if you’re unfamiliar with Dave Ramsey. I think it’s still worth buying if you are familiar with him too and these types of books interest you. However, if you want more of a how-to book and you were only going to buy one Dave Ramsey book, I think that Financial Peace University is the way to go.

Dave Ramsey’s Baby Steps

Dave Ramsey’s most popular creation are his Baby Steps. These seven Baby Steps are feature in Financial Peace University and The Total Money Makeover. The premise is that, by breaking down a large goal (financial freedom), into manageable steps, you are more likely to succeed in achieving your large goal.

Baby Step 1: Save $1,000

The first step to take is to save $1,000 in an emergency fund. You must keep this money for true emergencies. It must be in an account that’s liquid and easy to get too, but don’t make it too easy to take money out. As an add-on to this step, you need to create a budget and make sure you don’t take on any additional debt. Taking on new debt while you’re working on paying down your current debt doesn’t make much sense. This should by far be the easiest and quickest baby step. Later on, you’ll add more to make this a complete emergency fund. For now, $1,000 is sufficient to keep most “emergencies” from derailing your financial plans.

Baby Step 2: Debt Snowball

This step is probably the hardest for most people. And I think that’s interesting, because it comes so early in the process. Once you pass this step though, the rest becomes easy. In this Baby Step you’re going to get rid of all of your debt except your home mortgage. Because the rest of the steps most deal with saving money, they’re much easier to accomplish when you aren’t making payments on your debt. Dave Ramsey is famous for what he calls the Debt Snowball. I’ve covered Dave Ramsey’s Debt Snowball before. In its simplest form, you create a list of all of your debts. Then, order them from lowest balance to highest balance. Pay the minimums on all of your balances, and put any extra income you have toward extra payments on the debt with the smallest debt. Once that one is knocked out, you’re going to have more money to pay on the next debt because you have one less monthly payment. Just keep working your way down the list until you’ve paid them all off.

Baby Step 3: Fully-Funded Emergency Fund

Now that you’re debt-free, it’s time to complete your emergency fund. Dave recommends having three to six months of expenses. If you lose your job, this is going to hold you over so that you can focus on finding a new job rather than being worried about how you’re feeding the family tonight. If you think the risk of losing your job is high, or you’re the single income earner in the household, you should have six months of expenses saved. If you are a dual-income household and your job is relatively safe, three months is probably fine for now.

Baby Step 4: Investing for Retirement

Dave Ramsey recommends saving 15% of your before-tax gross income for retirement. Dave’s strength is in getting out of debt, not investing. So, I wouldn’t put too much weight behind his particular investing advice. Just keep saving the money and invest it in a diversified portfolio of index funds. Make sure to utilize any accounts that can help save you taxes. Roth IRAs and 401(k)s with match are the best. Also, you have Simple IRAs, SEP IRAs, traditional IRAs, and other accounts. If you maximize these accounts and still have money in your 15% to invest, you’ll need to just invest in a taxable investment account. Just try to stay away from short-term gains.

Baby Step 5: Funding College

In this step you save for your children’s college. College costs continue to raise about 2x the inflation rate. A great way to give your kids a head start is to help them get through college with no debt. I think that saving enough for a public education is reasonable, and if your children choose to pursue private education, they can get loans. It’s important they understand the choice they’re making and weigh the costs and benefits of different schools. You should start by saving in a Educational Savings Account (ESA) and then moving on to the 529.

Baby Step 6: Paying off the Mortgage

Very few people ever end up paying off their mortgage, but I think it’s one of the best ways to reduce your personal finance risk. Some will argue that paying off your mortgage doesn’t make sense because then you lose the tax deduction. However, if you’re getting tax deduction, that means you’re paying mortgage interest. I’d rather keep $10k in interest in my pocket than pay that just to get a $3k deduction. Paying $10k to save $3k is a terrible financial plan.

Baby Step 7: Building Wealth

The last Baby Step is to build obscene amounts of wealth. Imagine having absolutely no debt payments each month. If you saved all of the money you currently are paying on your debt, you’d probably be saving a few thousand dollars every month. Imagine how fast that would add up.

If you want to look at the Baby Steps in greater detail, and from the man himself, you should check out Dave Ramsey’s The Total Money Makeover.