Schweet Life

The Total Money Makeover by Dave Ramsey offers readers a straightforward step-by-step guide for developing a responsible relationship with money and finances. The book is useful for both people who are already on the right track and people who might be rebuilding after a financial / credit stumble. The book offers prudent advice about achieving financial independence by living debt free and within your means. Ramsey backs up claims with facts and statistics but makes the subject relatable by telling his own story of financial redemption while also sharing the stories of people that have found success with his methods.

I like facts and tidbits and really liked the sidebars (Myths vs Truth, Dave Rants, Shocking Stats, and Dumb Math & Stupid Tax). The Myth vs. Truth and Dumb Math & Stupid Tax facts were especially eye-opening because they showed the math and logic of why some often repeated financial beliefs don’t actually make sense.

One of the most important points of the book is overcoming the erroneous idea that debt is a tool. There is no such thing as free money so it should be understood that borrowing money comes with strings attached, in most cases in the form of interest. The risk of having to pay interest or overextending yourself is often not worth the advantages offered by using debt. It’s far better to use cash as it generally limits your spending to what you actually have on hand. This decreases the likelihood that you’ll overspend, buy things that you can’t afford, or be stuck repaying for things past their period of usefulness. The flip-side of this is that you also shouldn’t loan money (directly or by cosigning) if you can’t afford to deal with the money not being repaid. Across various books that I’ve read and common sense passed on by older family members, I’m convinced that these are the basic tenants of financial responsibility.

I like reading business books and have found (auto)biographies of successful business people to be especially insightful about building successful companies and wealth. One of the key points that I’ve learned and now live by is, “fortunes are made of pennies”. Most wealthy people and businesses got to be that way through prudent saving and smart spending / investments rather than via a sudden windfall. Success requires effort and often the sacrifice of immediate gratification for long-term gain. The pursuit of quick easy money will often require a lot of time to recover from going broke. Get rich schemes sometimes work but most often for the seller rather than the buyer. Success lies in taking advantage of opportunities and rarely in shortcuts.

I also disagreed with the idea of saving just $1000, paying off debts, and then building an emergency fund. If you only have $1k in savings and all of your money is going towards debt, what happens if you have to deal with and emergency that costs more than $1k? Ramsey’s steps are fine but I think the order of these two steps should be modified as saving / paying yourself should come before paying off debts for financial security. Save $1k, then 3 months of emergency funds, pay off debts, and then save another 3 months of emergency funds for a total of six months.

I thought the advice about waiting until the right time to buy a home was good advice. I’ve heard people (family members and also the media) recommend buying a home to build wealth. I agree with the advice in principle but with the caveat that one should be financially secure / stable before buying a home because it’s risky to do otherwise. I’ve also had the feeling that a lot of homebuyer programs designed to help people purchase homes without down payments or with low incomes in relation to the mortgage were somewhat shady because it was obvious that those people couldn’t really afford the home.

Ramsey’s perspective on retirement fit my goal of planning for retirement in a manner where continuing to work past the age of retirement is an option rather than a requirement. I liked that he actually provided a guideline of the amount of your income that should be invested for retirement. Everyone’s situation is different so the precise numbers would vary but a baseline is a useful starting point. The breakdown of the types of retirement accounts was also valuable. However, I didn’t understand the rationale for splitting your retirement savings between an employer’s 401k match and Roth IRA. I didn’t agree or disagree but just wished a more detailed explanation had been provided.

I don’t have kids and don’t plan on having any in the near future so I admittedly just skimmed the section on saving for your kids’ college education. However, if you have kids the advice would probably be very useful for helping you figure out the best options for your family. I did find it pretty interesting that according to research, the majority of parents don’t save for their kids’ college education but that probably ties into the reality that a lot of people don’t save at all.

My one problem with the book was the testimonials. I thought there were just way too many. They were pretty much the same thing over and over again with nothing new. It made the book seem longer that it really was and kept interrupting the information I really wanted to read. I tend to read on the bus or the train and would have preferred to not have all of these testimonials so the book could have been a small easy to carry paperback.

Overall I liked the book’s balanced approach to finances. I view being a spendthrift or miser as two sides of the same coin because both are forms of issues with maintaining responsible control of finances. A spendthrift has too little control while a miser is overly controlling but as with most things, the best course is somewhere in the middle. I thought it was pretty cool that Rasmey dedicated most of the end of the book to explaining the importance of having healthy relationship with money. I liked the balanced approach of delaying immediate gratification in the short-term to achieve financial independence in the long-term.