“The Total Money Makeover” by Dave Ramsey is a personal finance book that offers a step-by-step plan for people to get out of debt, build wealth, and secure their financial future. The book is divided into seven “baby steps” that readers should follow to achieve financial peace.
The first step is to save $1,000 as an emergency fund to cover unexpected expenses. Ramsey emphasizes the importance of having this emergency fund to prevent people from relying on credit cards when an emergency arises.
The second step is to pay off all debt using the debt snowball method. The debt snowball method involves listing debts from smallest to largest, then paying off the smallest debt first while making minimum payments on all other debts. Once the smallest debt is paid off, the money used to pay it off is rolled into the next smallest debt, creating a “snowball” effect.
The third step is to save three to six months of expenses in an emergency fund. This larger emergency fund is meant to cover longer-term financial setbacks, such as job loss.
The fourth step is to invest 15% of your income into retirement accounts, such as 401(k)s and IRAs. Ramsey recommends investing in mutual funds with a long-term perspective.
The fifth step is to save for your children’s education using tax-advantaged accounts such as 529 plans.
The sixth step is to pay off your mortgage early by making extra payments or refinancing into a shorter-term loan.
The seventh step is to build wealth and give generously. Ramsey encourages readers to continue investing and building wealth and to give generously to charitable causes.
Throughout the book, Ramsey emphasizes the importance of living below one’s means, avoiding debt, and having a plan for one’s money. He also provides advice on budgeting, saving money on expenses, and negotiating with creditors.
Overall, “The Total Money Makeover” is a practical and actionable guide for people looking to take control of their finances and build long-term wealth. Ramsey’s advice is straightforward and easy to follow, and the book provides readers with a clear roadmap for achieving financial peace.