Dave Ramsey is a polarizing figure. Some people love him and swear by his advice and others think he’s a hack. Which one is he? Unfortunately that’s a question only you can answer but hopefully I will provide you with enough information about his flagship book to make your own decision.
The problem with personal finance is that there are multiple solutions to any one problem. If you think it’s simply about math, you’re wrong. Someone in credit card debt understands that when you use your credit card and don’t pay your entire bill, you’ll go into debt. They aren’t stupid, they know how interest works, but there is a non-math reason why they’re in debt.
If you had to boil down the book into a single sentence, then I’d say that Dave Ramsey’s Total Money Makeover is a book that gives you a good framework to get yourself out of debt and back on solid financial footing.
Dave Ramsey’s “Baby Steps” to Financial Freedom
At the core of Dave Ramsey’s advice is his “baby steps” towards financial freedom:
- Save $1,000 cash as a starter emergency fund
- Start the debt snowball
- Finish the emergency fund – accumulate 3-6 months of expenses
- Invest 15% of your income in retirement
- Save for college
- Pay off your home mortgage
- Build wealth – Invest, donate, enjoy life (without going into debt)
Debt Snowball Strategy
The debt snowball strategy is one that has received a lot of ink throughout the years. The strategy states that you should list all of your debts and their monthly payments. If you have extra cash to put towards debt, put it towards your smallest amounts first. When that debt has been repaid, take the amount you would’ve sent them and add it to the payment you make to the second smallest debt. This way, as you pay off your debts, your monthly payments to the other debts increases like a snowball.
Why does this strategy work? It comes down to motivation and celebrating successes. It makes more financial sense, mathematically, to put your extra cash into the debt with the highest interest rate. However, by paying off the smaller debts, the number of debts you do have decreases. These successes give you the motivation to continue your payments and put you back on the right path.
The brilliance in this methodology, specifically the much maligned debt snowball strategy, is that it takes into account human psychology. That’s the non-math part of personal finance. Like I wrote earlier, people don’t get themselves into debt because they don’t understand math. No matter what you say about the inefficiencies in his strategy, the reality is that it works. I’d venture to guess that thousands of people have pulled themselves out of debt with the advice he’s given in just this one book.
The book is routinely in the top three in Amazon’s Personal Finance category, so if you’re struggling with debt, I think you might want to give this book a try. The book also contains a lot of motivational stories of people who probably were in more dire straits than you and were still able to pull themselves out.
One final recommendation, if you are in debt, borrow this book from the library and put that cash towards your smallest debt.