The Total Money Makeover

Description

Back in 2006 I had been married a year and was in my first year of law school. Kate had just finished a master’s degree. I vividly remember experiencing a moment of hopelessness about our money situation when I looked at all the student debt we had thus far accumulated, and realized the hole would only grow bigger as I made my way through law school and we lived on the meager income from my part-time job, and Kate’s adjunct teaching gig at a community college.

Enter Dave Ramsey and his famous book, The Total Money Makeover.

I had seen people rave about it on personal finance blogs, so I bought a copy. After finishing it, I felt some hope that I could actually get ahead with my finances.

Ramsey’s Total Money Makeover plan is pretty simple. It involves just 7 “baby steps”:

Baby Step 1: $1,000 cash in a beginner emergency fund
Baby Step 2: Use the debt snowball to pay off all your debt but the house
Baby Step 3: A fully funded emergency fund of 3 to 6 months of expenses
Baby Step 4: Invest 15% of your household income into retirement
Baby Step 5: Start saving for college
Baby Step 6: Pay off your home early
Baby Step 7: Build wealth and give generously

The steps are actually pretty substantial, but they somehow seem more doable with the “baby” appellation!

The steps I found the most helpful were saving $1,000 cash for a beginner emergency fund, paying off all debt with the snowball method (in which you pay off the debt with the lowest balance first, and then apply what you had been paying towards it, to the next lowest debt), and then fully funding an emergency fund of 3 to 6 months of expenses.

The debt snowball is probably the most powerful takeaway from the book. Some financial experts argue that paying off debt the way Ramsey recommends isn’t the best approach practically (prioritizing the payment of debts with the highest interest rate makes more sense), but psychologically, it works. At least it worked for me. After a few years of living very frugally, generating additional income from summer internships and the Art of Manliness (which was then a small side hustle), and snowballing right along, Kate and I were able to pay off all of our student loans and a car loan and start our lives debt free.