Dear daughter, today I want to show you a summary of the book “The total money makeover” by Dave Ramsey. I’m following his advice to be financially free. In his book, Dave Ramsey recommends following 7 baby steps.
The steps were created by him, using the knowledge he gained from his personal life, interviewing real reach people in the United States, and studying what they did to become rich.
I mentioned “real reach people” because his book is not the common thing you will find on the internet about “get rich quick schemes”. Sometimes you see someone write something like “give me your money and I’ll show you how to become reach quickly”, and the person might not even have the money he/she is promising you.
Apart from his book, he has a show called “The Dave Ramsey Show” where he answers questions from the audience, gives advice on the best way to follow his baby steps, and also interviews people who achieve great financial success by following his guide.
Table of Contents
- Chapter 1: the money makeover.
- Chapter 2: Denial.
- Chapter 3: Debt Myths.
- Chapter 4: Money myths
- Chapter 5: Two more Hurdles
- The Dave Ramsey 7 baby steps
Chapter 1: the money makeover.
“90% of people in our culture buy things they can’t afford.” Sounds familiar? This is one of the reasons why most people are in debt. And usually is bad debt.
He also gives some statistics that show that a lot of people are not in the way to have financial freedom.
Chapter 2: Denial.
This chapter is about how people are in denial.
They deny they are in bad financial shape. They don’t want to see the obvious, they are full of debt, therefore, they are slaves of the lender.
One feature that I like about the book is that shows some myths related to finances and money. I don’t want to show you all of them here, so you read them by yourself. The way the author shows them is perfect and you will get them right away.
Here is another shocking statistic Ramsey shows in his book: “88% of graduating college seniors have credit card debt—before they even have a job!”
Yes, many people have credit card debt, remember when I wrote to you “Do I need a credit card?” Well, this seems to be a usual debt people have. And this debt is stopping people to achieve a better financial state.
Chapter 3: Debt Myths.
I also mentioned to you some myths about debt.
In this chapter, the author shows you, with his interesting way of stating facts, some myths about debt that are holding down people, that don’t let some people move on and have financial success.
This is a chapter to pay special attention to.
One of the highlights from this chapter is: “The borrower is slave to the lender.”
Another great thing about this book is how the author gives you advice on what not to do. Sometimes, we believe in good faith that we are helping someone when the truth is we are not. And on top of that, we can be hurting ourselves.
One example is a famous saying, if you give someone a fish, the person won’t be hungry for a day. If you teach someone how to catch a fish, the person will never be hungry.
Here, when you give someone a fish you will think you are helping, but the fact is that you are not helping. If you really want to help the person, teach him/her how to catch the fish.
Ramsey gives an interesting example, when you cosign a loan, “to help a friend” get a loan that he/she cannot afford, you think you are helping your friend. Ramsey says when you do that, “be ready to pay the loan”.
Can you see it?
You are “helping” someone to get a loan that he/she cannot afford. Are you really helping? Wouldn’t be better to explain to your friend why he/she shouldn’t try to get things that cannot pay for?
Great teaching! Isn’t it?
Chapter 4: Money myths
Next, the author talks about money myths. I also showed you one myth about money before.
When you read this chapter, you will understand better what I explained to you.
Chapter 5: Two more Hurdles
After this, Ramsey explains what the two big money hurdles are:
- Ignorance
- Keeping up with the Joneses
The first one is quite clear. We need to study my daughter, so we can learn how to do new things. We are not born with knowledge; we learn as we grow. Every skill is learnable. We just need to be willing to learn and pay the price of learning. The price is not always money, sometimes is time. So, as always tell you, be a lifelong learner and you will be successful. Learn from others who have done what you want to do.
Read books, attend seminars, go to classes, talk to people, and keep yourself out of ignorance as much as you can. It will pay off in the long run.
The second one is about trying to imitate what other apparently successful are doing. If the neighbor bought a new awesome dress/car/house/etc. you go and do the same because you should have that.
The fact is that you don’t need to do that. A wrote a letter to you a while ago related to this topic, the title is what is herd mentality? It is not exactly what the author explains, but if you add the two together you will be more aware of some things you might be doing that are holding you back.
From here, the author shows the baby steps. I’ll show them with a small description because it is important that you also read them from the author. The one who created them is the best person to explain them.
The Dave Ramsey 7 baby steps
Dear daughter, let me show you the baby steps he describes in his book.
- Create an emergency fund.
- Pay off all your debt, except the mortgage.
- Create a fully fledge emergency fund (3 to 6 times your monthly expenses).
- Invest 15% of your income in retirement.
- Create a college fund for your kids.
- Pay off the mortgage.
- Build wealth and give.
Before even starting to think about the baby steps, the author recommends the same thing I recommended to you some time ago: create a budget.
Your budget is the main tool that will allow you to go through the 7 baby steps. Notice these steps are not a magic formula that will work overnight, you need to follow them always. If you don’t, then you won’t get the results.
So, it is your budget that will keep you on track. When you see the Joneses with their new toy, you will first look at your budget and then you will decide not to buy the same toy for you because is not in your budget. By doing that, you will guarantee that you follow a plan, and with time, you will achieve your goals.
See, goals? Yes, you need to have goals, they will guide you at every moment.
A great principle that Ramsey mention in his book is to live like no one else, so later, you can live and give like no one else.
This means that you should delay gratification as much as you can, get out of debt, and invest as much as you can.
After a certain time, then you will have enough money for you to live your life like no one else, and also to give like no one else.
The key is to delay gratification. Nowadays, we live in a culture of consumerism, most people prefer to get (material) stuff and be “happy” for a few minutes, instead of focusing on what really matters and getting the gratification that lasts.
This concept is of utmost importance.
Dear daughter, I hope you like what you learned from this summary. However, I strongly encourage you to read the whole book, you will learn a lot more. Dave Ramsey gives a lot of statistics in the book that will help you to understand better the underlying knowledge he has and why those are the steps for a Total Money Makeover.
Love you, Dad.
I share the letters I write to my daughter so more people can benefit from them. If you want to buy this book, you can check it out on Amazon using this link.