I never imagined that a book could have such a profound impact on our lives. After reading Total Money Makeover by Dave Ramsey, I realized that I had been living beyond my means and was in debt up to my eyeballs.
The book taught me five important lessons that changed my thoughts about money.
In this article, we will discuss those five lessons in detail.
If you are struggling with your finances, then know these lessons could change your life too!
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Table of Contents
Book Summary (Total Money Make Over – Dave Ramsey)
Ramsey’s book is based on the idea that ‘we must live like no one else now so that later we can live like no one else.’
In other words, we need to make sacrifices now to enjoy a comfortable retirement later.
The book covers various topics, such as how to get out of debt, save for emergencies and retirement, and invest wisely.
Ramsey also stresses the importance of giving back to charity.
What resonated with me were the five key lessons that he discusses in detail:
Lesson #1 – Live on a written budget
The first step to getting your finances in order is to create a budget. This may seem like a no-brainer, but you’d be surprised how few people do this.
A budget forces you to be mindful of your spending and helps you make better financial decisions.
Once the written budget is created, you can better understand where your money is going each month.
You may be surprised that you are spending more than you realized on unnecessary items.
Creating a budget is the first step to taking control of your finances.
It may not be the most exciting task, but it is necessary if you want to achieve financial success. He recommends including insurance for the following items in your written budget:
- Auto and homeowner insurance
- Life insurance
- Long-term disability
- Health insurance (If your nation/state does not provide this)
- Long-term care insurance
Although adding insurance bills to your budget is never fun, they can save you a lot of money in the long run.
Items that can be removed from your budget are:
- Cable TV
- New cars
- Eating out
- Clothes shopping
- Gym memberships
- Latte factors (small, daily expenses that can add up)
These are just a few examples, but the point is that you need to be mindful of your spending.
Once you have a handle on your spending, you can start to make changes that will help you save money.
Lesson #2 – Create a Debt Snowball
I created a Debt Snowball by listing all my debts, regardless of interest rate, from smallest to largest.
Next, I made the minimum payments on all my debts except the one with the smallest balance. I paid as much as I could afford each month on that debt.
I was motivated to stay out of debt because I saw my balances going down each month.
This system also allowed me to pay off my debt faster because I put more money into the smaller debts first.
I made a plan and stuck to it, and it paid off! Using the debt snowball method, I could pay off $56,000 in student loans!
If you’re struggling with debt, I encourage you to try the Debt Snowball method. It works!
Starting with the highest interest rate could save more money in the long run, but psychologically, this method was the best for me, and we had low-interest rates.
3) Save for Retirement Now
Delayed gratification and thinking long-term are two important aspects of personal finance. Dave Ramsey famously said –
“Adults devise a plan and follow it, children do what feels good“.
Dave Ramsey
It’s never too early to start saving for retirement, and the sooner you start, the more time your money has to grow.
Ramsey suggests investing 15% of your household income into tax-advantaged accounts.
I knew retirement was in the cards but I realized I could start preparing better and preparing NOW.
We are maxing out our Roth IRA contributions each year, and I am on track to retire much sooner than I ever thought possible.
4) Pay Cash for Everything: Cash IS King
Spending with credit cards reduces the brain’s ability to feel pain.
When we make a purchase using cash, it feels much different than when we use a credit card. That’s because we physically see the money leaving our hands.
But when we use a credit card, it doesn’t feel like we’re spending real money. This can lead to overspending and accumulating debt.
It’s important to be mindful of your spending and only charge what you can afford to pay off each month.
You can earn slightly more money from credit card cash back, but it’s important to consider psychological factors. Credit card companies are very good at getting us to spend more money than we have.
It’s important to be aware of this and only use the credit card as a tool to build credit, not for shopping sprees.
Although the lessons taught in this book about credit cards are valuable, we’ve found that using a credit card wisely has many benefits.
Just be aware, do not overspend, and pay down credit cards on time – just our thoughts on this topic.
Related Content: Dave Ramsey 7 Baby Steps | Do They Actually Work?
5) Pay Off Your Mortgage
For most people, the mortgage is the biggest expense.
The author advocates for paying off your mortgage as quickly as possible so you can be debt-free and have more financial freedom.
There’s a saying that the grass feels different in your yard once you’ve paid off your mortgage because you fully own that land.
We, the Biesinger’s, personally feel investing at a young age is important, and real estate is generally increasing in value over the years. For these reasons, we have not started paying off our mortgage early yet, but it could be an option in the future.
Dave Ramsey’s lesson here is to take a zero-risk approach, but we want to have a small amount of risk to see more significant returns.
The choice is ultimately yours; paying off the mortgage provides peace of mind, but mathematically speaking, investing that money in the S&P 500 has more significant rewards.
Bonus Lesson: Take Baby Steps
You won’t be able to turn your financial life around overnight.
It took me years of bad spending habits to get into the mess I was in; my Wife and Dave Ramsey were able to help me correct those bad habits.
I could make significant changes in my financial life by taking small steps.
I started by reading this book and then implementing the lessons I learned.
Over time the steps brought me to accomplish my financial goals, even though they were small.
Try these baby steps from Dave Ramsey if you are struggling with finances. Like us, you can emphasize specific steps, such as getting out of debt but also focus on investing.
In Summary
This book is a great place to start if you want to pay off your debt or improve your financial situation.
It gave me a great personal finance perspective, and I’m sure it can do the same for you.
I recommend this book to anyone who wants to get their finances in order.
It’s an easy read and packed with valuable information to help you make better financial decisions.
If you’re looking for a personal finance book that will change your life, look no further than Total Money Make Over.
If finances overwhelm you, don’t worry because many people like me were in your shoes before reading this book.
The lessons I learned from Total Money MakeOver has helped me get my finances in order.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
