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Book Review: The Total Money Makeover
A Proven Plan for Financial Fitness
By Dave Ramsey
BFN Book Reviews
Since I started Borrow From None, I have been reviewing a personal finance book each Thursday. I will provide a brief overview of the book and the author, touch on the good and bad in the book, and finally, give you my personal recommendation for whether you should borrow the book, buy the book, or neither.
What is this book about?
This Dave Ramsey book provides a seven-step plan to get out of debt, start saving, and build wealth. It starts off with some chapters on debt myths, money myths, and other hurdles that must be confronted before you can get embrace the plan. Ramsey then spends the remainder of the book going through his seven steps. In the final chapter, he focuses on what to do with the wealth you have accumulated.
Who is the author?
Dave Ramsey currently hosts a radio talk show where he espouses the same ideals found in this book. He is not a financial planner – his expertise in the area comes from the school of experience. At one point, Ramsey had amassed a real estate fortune worth $4 million. Unfortunately, this was all highly leveraged and over the ensuing three years, he lost all of it. That experience triggered his quest to discover how to properly handle money – and that is what led to his second career and this book.
What are the best parts of the book?
In the introduction, Ramsey stresses that "personal finance is 80 percent behavior and only 20 percent head knowledge." Much of the content in this book is based on that premise. The basis for his financial plan is to get out of debt and use your money to build your own wealth instead of giving your money away to others, like your credit card company.
Reading this book, it is quite obvious that Ramsey is a radio talk show host. And as a good radio guy, he likes to present some catchy phrases for his readers to remember. His main motto for the book is "If you will live like no else else, later you can live like no one else." My favorite oft-repeated quote is "it isn’t complicated, but it is difficult."
The best part of the book, the meat of the book, is Ramsey’s seven "baby steps." He devotes a chapter to each of them and provides some excellent and practical advice for each step. His baby steps are as follows:
- Create a $1000 emergency fund
- Pay off all debt except your mortgage using his famous "debt snowball" you often hear discussed in personal finance circles
- Complete the emergency fund of 3 to 6 months expenses
- Invest 15% of income for retirement
- Save for college
- Pay-off your mortgage early
- Build wealth and give some away
There is some great information in this book. I agree with Ramsey that the basics of building wealth do not require complex formulas.
For instance, his debt snowball technique informs the reader to eliminate the smallest debt first. Sophisticated people will tell you that is not necessarily the best approach – you should start paying off the highest interest rate debt first. This is strictly correct if you do the math but as Ramsey likes to say: if you understood math, you wouldn’t be in debt in the first place. His psychology-based approach relies on the fact that getting some early successes will motivate you to continue the plan to the end.
The simple approach really resonates with me and apparently with numerous others as well. An excellent addition to the book are the numerous personal stories that he includes – I found them to be extremely inspiring and motivating.
What is not-so-good about the book?
Most of Ramsey’s advice is very good. I do disagree with him on some of his investing advice, however. He does suggest that mutual funds are the best way for most people to invest. He also does a fair job discussing diversification through mutual funds. He does not, however, mention the importance of choosing low cost mutual funds. Many sources I have read on the topic claim cost is the most important factor when choosing a fund. Furthermore, he seems to not agree with the mantra "past performance does not guarantee future results" as his plan for choosing funds is to simply find the ones that have produced good past results. This makes complete sense, unfortunately it doesn’t play out that way in practice. I will go into much more detail on this in a later post on investing.
I already mentioned that this book is obviously written by a radio talk show host – that can be a good thing or a bad thing depending on your perspective. I read this book immediately after reading The Millionaire Next Door. While that book had a very academic tone, the tone of this book was much less serious. I can see that some would not grant as much weight to the information contained in this book as a result of the writing style.
So what is my recommendation?
The good of this book greatly outweighs the small amount of not-so-good. I love that the approach espoused in this book is simple and straightforward. That is why this book is on my virtual bookshelf .
This is a book that I would recommend purchasing. It is a good reference to check periodically as you move through the baby steps. Getting out of debt and building wealth is a arduous process. Undoubtedly you will get discouraged along the way. When that happens, pick up the book and read a few of the anecdotes and you will get motivated all over again.
Check out the other books I’ve chosen for my virtual bookshelf
Want to borrow this book? Search your local library
Want your own copy? Buy this book now at amazon.com
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4 Responses to “Book Review: The Total Money Makeover”
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I have read and lived Dave Ramsey. This book and the teachings within are biblical perspectives enhanced by common sense. READ THIS BOOK!! If you follow Dave’s plan you WILL get out of debt! Honestly, this site is great as a think tank for ideas on how to make extra cash happen, but Dave is all you need to do to score debt freedom. His website is http://www.DaveRamsey.com join up and see for yourself, or stay here and do it the hard way. He already figured out the formula for successful personal finance, and I highly recommend his book and sight. Warning however, it will take WORK.
cindi – thanks for your comments. I visit Dave’s site often as well. I find it very encouraging to read the anecdotes of people who have made it to debt-free status. And I also agree that if you can’t control your spending, earning a little extra money isn’t going to fix your problems. I’ve used some of his principles myself and have recently gotten to the point of being out of debt except for the mortgage.
One thing I’d ask is that you check out the site a bit more – read some other articles like this one about the importance of giving or this one that discusses whether striving for wealth is a valid pursuit. I hope you’ll find that this site is about more than just making some extra money. Have a great day!
Hi,
It is funny though that I just finished reading Dave’s book, and just happened to stumble upon your blog. Also, I have planned to reading “The Millionaire Next Door” next.
I like the book very much that I finished it in 2 nights. After reading the book, I begin to have this great desire of getting rid of my debts (mostly in mortgage) burning inside me. But then I am not ready to get rid of all my credit cards, which I pay off every month.
Edwin,
Go with that burning desire! Even if you continue to use credit cards, create a plan and get out of debt. We just recently finished getting rid of all our debt except for the mortgage and it feels great!